Sunday, October 09, 2011


Nothing I have read so far has indicated it is required all infrastructure projects in the USA be funded though the AIFA.  The usual sources from the private sector can be obtained for these projects, it is just that the private sector is not necessarily lending to those that are asking for it.  

The aspect of the AIFA is that it will provide competition to maintain standards.  It will bring affordable loan rates to the federal, state and local governments for these projects.  It is an alternative, not a requirement.  I imagine if the State or Local Legislators want to require all their projects be funded through AIFA, it is an option, but, there is no standard yet that brings that dynamic to project funding across the nation.


(a) In General- Any project whose use or purpose is private and for which no public benefit is created shall not be eligible for financial assistance from AIFA under this Act. Financial assistance under this Act shall only be made available if the applicant for such assistance has demonstrated to the satisfaction of the Board of Directors that the infrastructure project for which such assistance is being sought--

(1) is not for the refinancing of an existing infrastructure project; and

(b) Considerations- The criteria established by the Board of Directors pursuant to this Act shall provide adequate consideration of--

(1) the economic, financial, technical, environmental, and public benefits and costs of each infrastructure project under consideration for financial assistance under this Act, prioritizing infrastructure projects that--

(A) contribute to regional or national economic growth;

(B) offer value for money to taxpayers;

(C) demonstrate a clear and significant public benefit;

(D) lead to job creation; and

(E) mitigate environmental concerns;

I still want to see a standard for Air Quality Infrastructure.  In regard to letter B.  It means the project has to be THRIFTY.  It has to have meaning to the community and has to be conducted in the 'best values' of the day.  A bid for a community swimming pool can't be exorbitant.  It has to be reasonable in cost in order to qualify for funding.

(2) the means by which development of the infrastructure project under consideration is being financed, including--

(A) the terms, conditions, and structure of the proposed financing;

(B) the credit worthiness and standing of the project sponsors, providers of equity, and cofinanciers;

(C) the financial assumptions and projections on which the infrastructure project is based; and

(D) whether there is sufficient State or municipal political support for the successful completion of the infrastructure project;

Credit worthiness is important to realize the successful completion of the project, but, also the successful payment of the loan.  The project has to have bipartisan interest so it is not scraped with a change in political parties.  The one context I can think of was a display of the Ten Commandments in the Alabama State House like the fiasco with Ray Moore.  Imagine a more abstract example whereby there would be a temple build with taxpayer monies on the grounds of the State House in Alabama.  Then with such utter hubris being so brash the political majority changes before the temple is complete and simply stops the project.  A project such as that would not qualify for the funding from the bank because it would be too controversial and may not complete.  

Washington (CNN) - Former (click here) Alabama Supreme Court Chief Justice Roy Moore, who garnered attention and lost his job after building a Ten Commandments monument outside Alabama's judicial building, is considering seeking the Republican presidential nomination, his top aide confirmed to CNN.
Moore plans to announce in mid-April that he is setting up a presidential exploratory committee, the aide, Zachery Michael told CNN....
I am quite sure Roy would like to be President and make all kinds of changes in the USA's content, including, standardization of religious ceremonies and meeting times.  That would be interesting, all the folks in the nation would have to be in church at 11AM every Sunday and National Holiday with reporting of attendance on an annual tax return for proper deductions for tithing of 10%, no less.
(4) the extent to which the provision of assistance by AIFA maximizes the level of private investment in the infrastructure project or supports a public-private partnership, while providing a significant public benefit;
Private investment to any project is encouraged, but, the project has to provide a significant public benefit.  I wonder if there is a DEFINITION of benefit in this bill?

(5) the extent to which the provision of assistance by AIFA can mobilize the participation of other financing partners in the infrastructure project;

AIFA can be the initial loan source that would help qualify government projects for private funding as well.  Nice.  Matching funds, sort of.  Here again this provision to any loan is to over come any barrier to access.  The loan itself does not have to provide 100% funding, but, it can act as a method to stir interest by private funding that seeks to be only partial in their commitment to a project.  AIFA can easily clinch the deal, especially if the other funds are grants.

(7) the proportion of financial assistance from AIFA;

If there is a variety of funding sources, the project is then even more viable for an AIFA loan.  The reason this is so attractive to AIFA is because if the project is 50% funded by private grants, the depreciation of the project over time will still match the loan and then some.  Equity.  Funding from other sources, especially those that don't have to be paid back actually adds equity to the loan allowed by AIFA.

(8) the geographic location of the project in an effort to have geographic diversity of projects funded by AIFA;

NO MONOPOLIES on AIFA funding.  In other words, if the country is going to have a new highway infrastructure that includes solar collectors to run highway lights and the like, the roads being built can't be limited to one area of the country.  The entire country has to have a balance of interest in AIFA to keep it observant of the needs of all the USA and its territories.

(9) the size of the project and its impact on the resources of AIFA;

NO MONOPOLIES on AIFA resources.

(10) the infrastructure sector of the project, in an effort to have projects from more than one sector funded by AIFA; and

NO MONOPOLIES by anyone sector of the country, such as, transportation, energy or agriculture.  The selections of loans by the bank cannot be specialized in preference to one sector of the economy.  All sectors have to be represented.  I would think the President's Cabinet could give the AIFA Board of Directors an accounting of the type of projects they would expect to find in any sector of the USA economy.  They would have some of that knowledge by the grants they provide as well.  

I certainly hope Louisiana won't consider 'creative' funding of the petroleum industry.  They don't need it.  Actually, the subsidies should be ended and I would not expect any funding from AIFA to be made to such projects if Louisiana tries to fund oil platforms the State would then own.  

(2) REVIEW OF APPLICATIONS- AIFA shall review applications for assistance under this Act on an ongoing basis. The chief executive officer, working with the senior management, shall prepare eligible infrastructure projects for review and approval by the Board of Directors.

First come, first served with the exception of States declared a Disaster Area needing emergency assistance for its citizens to return infrastructure to function and a return of jobs.

(3) DEDICATED REVENUE SOURCES- The Federal credit instrument shall be repayable, in whole or in part, from tolls, user fees, or other dedicated revenue sources that also secure the infrastructure project obligations.

Pay the bill.  

(d) Eligible Infrastructure Project Costs-

(1) IN GENERAL- Except as provided in paragraph (2), to be eligible for assistance under this Act, an infrastructure project shall have project costs that are reasonably anticipated to equal or exceed $100,000,000.

(2) RURAL INFRASTRUCTURE PROJECTS- To be eligible for assistance under this Act a rural infrastructure project shall have project costs that are reasonably anticipated to equal or exceed $25,000,000.

The project cost is the entire cost and not the loan amount.  These are medium to large projects.  I imagine cities and states could build their own wind farms as utilities if they wanted to.  

(e) Loan Eligibility and Maximum Amounts-

(1) IN GENERAL- The amount of a direct loan or loan guarantee under this Act shall not exceed the lesser of 50 percent of the reasonably anticipated eligible infrastructure project costs or, if the direct loan or loan guarantee does not receive an investment grade rating, the amount of the senior project obligations.

There has to be other funding then just AIFA.  The maximum amount of the loan can be no more than 49.9999999......percent of the project costs.  That's doable.  For cities and towns that receive funding from the government for projects they usually have to meet a matching standard on the average of 35%.  While this provision insures the appropriate nature of the project as it will receive funding from other sources, it also allows governments to achieve their contribution to the project.

I would think there should be a provison, and perhaps there is, that allows the AIFA to impose revenues if the loan falls into a 'guarantee' status.  Some of these projects could conceivably hold interest by private industry and be bought out, such as a government owned utility.  But.  If the loan comes into a guaranteed status the AIFA should have a mechanism to insist on revenue fixing through taxes or fees to citizens to pay for the loan.  I don't see AIFA completely absorbing the loss and moving on, it needs to generate its own capital in order to continue to loan.  So, if the loan becomes a matter of 'guarantee' there has to be a mechanism whereby the government propagating the loan also levies revenues to pay the loan over time.

Maybe that is a provision the Board of Directors will have to come up with.

(2) MAXIMUM ANNUAL LOAN AND LOAN GUARANTEE VOLUME- The aggregate amount of direct loans and loan guarantees made by AIFA in any single fiscal year may not exceed--

(A) during the first 2 fiscal years of the operations of AIFA, $10,000,000,000;

(B) during fiscal years 3 through 9 of the operations of AIFA, $20,000,000,000; or

(C) during any fiscal year thereafter, $50,000,000,000.

That is fairly self explanatory.  AIFA will have to build up its capacity within ten years of its beginning.

The text goes on to say all the required State and Local Permits are to be included as part of the project.  There is no relief from obtaining the proper permits for any project.  Lots of reason for that.  Income to the governments issuing the permits, State's Rights to impose fees, safety and inspection requirements, professional standards by law, etc.


It's here.  There are revenue requirements..

(b) Terms- A direct loan or loan guarantee under this Act--

(1) shall--

(A) be payable, in whole or in part, from tolls, user fees, or other dedicated revenue sources that also secure the senior project obligations (such as availability payments and dedicated State or local revenues); and

(B) include a rate covenant, coverage requirement, or similar security feature supporting the project obligations; and

(2) may have a lien on revenues described in paragraph (1), subject to any lien securing project obligations.

It doesn't mean any government has to build revenue infrastructure to obtain a loan, but, it has to show there are revenue sources available to tap for the payment of the loan.  

BUDGET.  The payments for the loan are budgeted. 

(c) Base Interest Rate- The base interest rate on a direct loan under this Act shall be not less than the yield on United States Treasury obligations of a similar maturity to the maturity of the direct loan.

The base interest rate is the same as that of US Treasury bonds.  The reason should be obvious.  Why would any bank make an investment in a project loan if it didn't compete with other investment instruments?

Here again is another reason why the USA credit rating is important.  This is why the legislators in DC have to know what they are doing.  If the credit rating of the USA drops and the interest rate of USA Treasury instruments change, that reverberates all along the way.  The loan interest rate is probably fixed at the time it is transacted, but, that interest rate could be a disadvantage to the bank if there is trouble within the financial infrastructure that controls the USA Treasury buoyancy.  


(d) Risk Assessment- Before entering into an agreement for assistance under this Act, the chief executive officer, in consultation with the Director of the Office of Management and Budget and considering rating agency preliminary or final rating opinion letters of the project under this section, shall estimate an appropriate Federal credit subsidy amount for each direct loan and loan guarantee, taking into account such letter, as well as any comparable market rates available for such a loan or loan guarantee, should any exist. The final credit subsidy cost for each loan and loan guarantee shall be determined consistent with the Federal Credit Reform Act, 2 U.S.C. 661a, et seq.

Okay.  The 'consultation' with OMB is due to the fact the bank will not carry its own rating agency entirely.  My only concern will be how much time will be allocated by OMB for this purpose and what does that do to their work load and current staffing.  

That said, the AIFA Chief Executive in consultation with OMB, to protect from fraud or poor accreditation of the loan, will produce a "Letter of Credit."  For the purpose of this blog there is a fairly good definition below.

A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase,  the bank will be required to cover the full or remaining amount of the purchase.
Cited Law:  

(1) The term “direct loan” (click here) means a disbursement of funds by the Government to a non-Federal borrower under a contract that requires the repayment of such funds with or without interest. The term includes the purchase of, or participation in, a loan made by another lender and financing arrangements that defer payment for more than 90 days, including the sale of a government [1] asset on credit terms. The term does not include the acquisition of a federally guaranteed loan in satisfaction of default claims or the price support loans of the Commodity Credit Corporation.

The Risk Assessment is in regard to the project, which is unique.  It isn't the same as purchasing good such as an automobile.  Each project will be evaluated for its 'worthiness' and the loans outside the AIFA for the need of the loan and how much the loan will be subsidized, if at all, for the sake of carrying out the project.  This element of the bank is not about forgiving the loan amount, but, how much interest should an can be applied.  The project and its value has to be accounted for and while the bill calls these "Rating Opinion Letters," for all purposes it is a letter of credit.  

In addition to interest there can be a Credit Fee attached to the loan in addition to the amount of the loan.  The Credit Fee will not diminish the monies being requested.  I believe the Credit Fee will balance out the interest rate, depending on the letter of opinion.  I would suspect if the interest rate is to be 1.5% but the letter of opinion states it should be 1.55555 percent, then the 0.05555 percent will be converted to a fee and paid as a lump sum within the cost of the loan.  It might be explained better later in the bill.

(f) Maturity Date- The final maturity date of a direct loan or loan guaranteed by AIFA under this Act shall be not later than 35 years after the date of substantial completion of the infrastructure project, as determined by the chief executive officer.

The Rural requests do not have to submit a Rating Opinion Letter, such is derived internally at the AIFA.  The other projects require a letter from one credit source.

(2) RATING OF AIFA OVERALL PORTFOLIO- The average rating of the overall portfolio of AIFA shall be not less than investment grade after 5 years of operation.

AIFA will have its own portfolio.  Not an investment portfolio as one might have for personal 
finances, but, a portfolio of loans and their value to the bank.  The Credit Opinion Letters will act to support the value of the AIFA portfolio of loans.  The loans are the investments.  

(i) Terms and Repayment of Direct Loans-

(1) SCHEDULE- The chief executive officer shall establish a repayment schedule for each direct loan under this Act, based on the projected cash flow from infrastructure project revenues and other repayment sources.

(2) COMMENCEMENT- Scheduled loan repayments of principal or interest on a direct loan under this Act shall commence not later than 5 years after the date of substantial completion of the infrastructure project, as determined by the chief executive officer of AIFA.

Each loan will be customized to the payment schedule.  These loans will receive subsidies during the time the loan payments are suspended to complete the project.  But, revenues has to start flowing from some place to begin to pay the loan no later than 5 years after SUBSTANTIAL completion of the project.  The reason the delay exists is because the project is important, not the loan.  This is government.  Public interest and public benefit projects.  The CASH FLOW to build the project should not be effected by loan payments until the project is well on its way to completion.  The loan payment delay is the subsidy.

At the heart of this bank is also the 'interest of the taxpayer.'  Loans and interest are not to overburden the taxpayer while still maintaining the portfolio of the bank in good standing.  All that is balanced in the provisions of the bill in this section, otherwise, the loan does not go through.  The taxpayer cannot be over burdened by these loans.

...the chief executive officer may allow the obligor to add unpaid principal and interest to the outstanding balance of the direct loan, if the result would benefit the taxpayer.

The loans are customized to fit the circumstances of need and the taxpayer.  Amortization of the loan is customized.  It is government understanding government.  It is not commercial banks seeking profit before practicality.  The bank makes infrastructure possible to the best interest of the citizen.

(B) USE OF PROCEEDS OF REFINANCING- A direct loan under this Act may be prepaid at any time, without penalty, from the proceeds of refinancing from non-Federal funding sources.

The above which also includes excess revenues.  If a toll bridge has more traffic than anticipated and generates more income than expected, it can be applied to the loan and reduce the 'interest liability' in the long view of the loan.  Advance payment matters.  It reduces the cost of the project.


(A) IN GENERAL- As soon as is practicable after substantial completion of an infrastructure project assisted under this Act, and after notifying the obligor, the chief executive officer may sell to another entity, or reoffer into the capital markets, a direct loan for the infrastructure project, if the chief executive officer determines that the sale or reoffering can be made on favorable terms for the taxpayer.

I don't know about this.  It would have to be a very favorable relationship of a private funding source actually purchasing the loans for service.  If there was an advantage to have the private sector service the loan then it makes sense, but, I would think any private sector firm that wants to purchase loans from AIFA should have to quality with their own letter of credit to validate their liquidity and standing to insure no adverse actions against the project or the government entity that transacted the loan.  I don't see interest rates going up or any special provisions that allowed the loan to exist in the first place changing if a private sector entity purchased the loan.  I sincerely don't like this provision, but, it can be benevolent for the right parties.

(B) CONSENT OF OBLIGOR- In making a sale or reoffering under subparagraph (A), the chief executive officer may not change the original terms and conditions of the direct loan, without the written consent of the obligor.

I don't believe that concept is workable.  These are government projects with loans suitable to the taxpayer and to allow a change in the ownership of the loan brings inherent risks.  The 'obligor' is the public.  There would have to be a vote on the sale of the loan to a private sector entity.  That means the obligor would have to spend monies on education of the public and a special ballot in order to achieve the consent of the taxpayer.  I don't really this as workable, but, it could be on a rare occasion.  I sincerely a change in financial agency will add costs to the loan.  I think it also lends itself to corruption.  These loans are conceived under special arrangements.  Those arrangements should be maintained if they can't be improved and a loan changing hands is added risk.  

(2) GUARANTEED LENDER- A guaranteed lender shall be limited to those lenders meeting the definition of that term in section 601(a) of title 23, United States Code.

(k) Compliance With FCRA- IN GENERAL-Direct loans and loan guarantees authorized by this Act shall be subject to the provisions of the Federal Credit Reform Act of 1990 (2 U.S.C. 661 et seq.), as amended.

An obligor has to maintain 'good standing' with AIFA.  If the loan is out of control there will be consequences.  I am sure the consequences will receive extensive mediation and won't be as harsh a result as the private sector handling the loan.

(b) AIFA Authority on Noncompliance- In any case in which a recipient of assistance under this Act is materially out of compliance with the loan agreement, or any applicable policy or procedure of AIFA, the Board of Directors may take action to cancel unutilized loan amounts, or to accelerate the repayment terms of any outstanding obligation.

Any applicable laws stand.  The unique circumstance and relationship between the parties are not so unique that it breaks laws or is unconstitutional.  

The next half dozen paragraphs or so are redundant to what I already discussed.

(2) GAO (Government Accounting Office) - Not later than 5 years after the date of enactment of this Act, the Comptroller General of the United States shall conduct an evaluation of, and shall submit to Congress a report on, activities of AIFA for the fiscal years covered by the report that includes an assessment of the impact and benefits of each funded infrastructure project, including a review of how effectively each such infrastructure project accomplished the goals prioritized by the infrastructure project criteria of AIFA.

No Pork Barrel Spending will be making the cut to loans from AIFA.  There is an impact and benefit to the citizen that is suppose to reflect RESPONSIBLE lending.

Part II concludes with statements that books and records have to be kept and made available to the Secretary of the Treasury, the Special Inspector General, and the Comptroller General of the United States.

This is page 56 and the next section will be taken up tomorrow.


The funding is important and anything that seems cloudy at this point should be more clear with Section III.