AASHTO has tasked Mercator Advisors with a series of special research projects related to federal funding and financing issues. One such project involves developing and operating a sophisticated financial model of the federal Highway Trust Fund (HTF). This model estimates the impact on future-year Highway Account and Mass Transit Account balances resulting from various assumptions concerning revenue and spending patterns. Drawing upon our knowledge of federal budgetary practices, Mercator has designed the model to quickly assess the impact of the latest revenue forecasts of the Treasury and the Congressional Budget Office, and differing federal program funding and spending levels. Mercator also assists AASHTO in developing its own forecast of receipts and modeling HTF scenarios implied by different legislative proposals.
Tax code incentives are an important federal policy tool for stimulating investment in targeted sectors. Unlike direct grants, which are fully scored upfront, or federal credit, where the present value of the interest and/or default risk premium is scored when the loan or guarantee is obligated, the tax expenditures (foregone Treasury revenues) associated with tax code measures are scored annually. This spreading of the fiscal impact produces a better alignment of costs and benefits associated with long-lived infrastructure investments, and it effectively enables quasi capital budgeting at the federal level.
Over the last decade, Mercator has worked with several public agencies and trade organizations in advancing tax code incentives to help finance critical infrastructure. One of the most promising proposals—especially in an era of constrained grant resources—is qualified tax credit bonds.
Since 2007, Mercator has assisted the Metropolitan Washington Airports Authority with developing the overall plan of finance and establishing the master indenture of trust for leveraging Dulles Toll Road revenues to help finance the Dulles Corridor Metrorail (Silver Line) Project. This comprehensive financial advisory assignment has entailed coordination with local and state funding partners, navigation of federal programs and processes in obtaining federal grant ($900 million) and TIFIA loan ($1.3 billion) assistance, and work with other advisors, underwriters, potential investors, rating analysts and traffic and revenue consultants in accessing the capital markets for long-term debt financing ($1.7 billion) and short-term interim financing (up to $700 million).
Since 2010, Mercator has advised the City of Los Angeles and LA Metro on alternative strategies for obtaining federal assistance to help finance LA Metro’s 30/10 surface transportation capital program. The 30/10 program is designed to accelerate an $18 billion program of surface transportation improvements by 20 years. Mercator has assessed various federal grant, credit, tax and regulatory incentives and worked closely with LA Metro in designing and presenting to the USDOT and congressional committee staff the America Fast Forward (AFF) policy proposal. Central to the AFF initiative is a suite of federal financing tools, including enhancements to the TIFIA program and a new tax credit bond program to facilitate major projects.