Transportation Sector Outlook (CPE)

Transcription:

Asha Mathew (00:07):

Good Afternoon everyone. Thank you all for being here. For those of you who don't know me, my name is Asha Mathew, a director in the Public Finance Revenue Group At Director Assured Guaranty, I'm happy to be moderating the transportation sector panel. Our panelists are well versed in the industry and familiar to most of us. Of course, the Bond Buyer does put us right before cocktails and our panel determines how quickly we can all head over to cocktails. So I'm pretty sure that our panelists are pretty ready to provide quick responses so we can all head over there. I'll keep the introductions brief and short so that we all have more time to hear from our steamed panelists.

(00:53):

Thank you. To my left, we have Elizabeth Reich. She's an Executive Vice President and Chief Financial Officer for the Dallas Area of Rapid Transit, also known as DART, where she oversees the departments of finance, technology and innovation. To her left is Moses Kopmar, Vice President as Senior Analyst on the Moody's Global Project and Infrastructure Finance team. Moses covers a portfolio of transportation and project finance issuers. To his left we have Brad Guilmino, a Director in the transportation group at PFM. Brad provides financial planning and advisory services and has over 20 years of project management, policy funding and finance expertise. And then we have Keith Richard, who is a Senior Managing Director and Head of Texas Region for our Siebert Williams Shank & Co. Keith has over 25 years experience in structuring, managing and executing tax exempt and taxable transactions for municipal issuers. And lastly, we have Cindy Demers.

(02:02):

Cindy is a DFWs Vice President of Treasury. Cindy provides strategic financial management and leadership for the airport with respect to debt financing, cash and investment management, federal grants and more. Just to provide a brief description of our panel. Given the explosive growth within the state of Texas, the state's transportation infrastructure, which includes roads, rail lines, airports, marine ports and waterways, will need to be significantly expanded and improved. Our panel will discuss the outlook of the transportation sector and how federal funding may help the state achieve its transportation infrastructure goals. And so without further ado, we will get right to it. Our first question, we'll start with Moses, who will provide us with Moody's general overview of the transportation sector. How are transportation sectors in Texas performing compared to national trends and are there any key factors that may be causing differences in performance?

Moses Kopmar (03:05):

Yes, sounds good. So our transportation sectors at a national level have stable outlooks for 2024. Generally what we've seen in Texas is growth that is much stronger than the national trend. As a result of that, credit quality is very good. The growth differs obviously among the sectors. Airports is probably where you have kind of the most dispersion of performance generally at a national level. Traffic is about back to the pre COVID level. It's I think Q4 23 traffic was about 2% above Q4 2019. If you take Austin Airport for example, there are 30% above 2019. So you've had real material growth there. If you look at San Antonio, Dallas Love Field, those are much closer to kind of the national trend. Love field is capacity constraints, so there are some kind of artificial constraints on growth potential there. Houston much more kind of aligned with the national trend.

(04:18):

DFW performing better in part because of some kind of connecting activity with American. But generally speaking, airports came through COVID. Their finance is very much intact, supported in part by traffic levels, but also federal COVID relief grants. So we had really across our portfolio, no real degradation of quality. And on a last 10 years basis, we've had an upgrade to downgrade ratio of something like 13 to one across our portfolio. And I think generally that's probably the direction of travel for many airports. What is tempering That is very large capital programs. And so if you look across Texas, you see the same thing. You see Austin needs gates, San Antonio needs gates, DFW will need gates and potentially another terminal. At some point, Lovefield is constrained, but Houston has a very large capital program which is oriented equally toward modernization.

(05:27):

And so there are kind of dual themes working their ways through the airport space expansion modernization. On the toll road side, what we're seeing in Texas is even stronger growth than where airports have been, and that is driven much more by population. Growth is a critical input to demand for vehicle travel. Credit quality in the toll road space in Texas is very, very strong. We have upgraded three of the four managed lanes in the last year and a half. We have upgraded Grand Parkway, NTTA. We have three other ratings on positive outlooks in the last year and a half. So volume growth combined with generally inflation linked toll policies is driving very strong revenue growth exceeding expectations. Probably the main thing we're looking at is to what extent is there additional capital investment required?

(06:34):

The population growth projections are going to challenge that. And I think when we think about Texas toll roads relative to where the national profile is, you have pockets like the Northeast or even the west coast where the demographics are really not dictating the need for expansion. They are really enabling capital plans to be much more focused on rehabilitation or maintenance. So you may not have that CapEx pressure that is certainly come to the fore in Texas. Then I'll just touch very briefly on ports. Same thing. Houston, fastest growing container port in the US. Some of that is local market demand. You also have some coastal market share shift from the west coast post the Panama Canal expansion. Houston has been a big beneficiary of that. They are undertaking a very large capital program to expand. Galveston cruise is now 50% above the 2019 level. They're looking at a third terminal.

(07:42):

And then one thing that is distinct about the port space in Texas compared to the nation is energy, right? So I think when we think of transport, we're thinking generally passengers freight. In Texas, you have Corpus Christi for example, which is a massive exporter of crude oil. They have LNG exports. Freeport has LNG exports. Brownsville has private LNG facility under development. And so the main CapEx theme we're seeing is the work on the harbors and deepening and widening projects. So I guess I would summarize as credit quality being very good supported by really the demographic economic growth outperformance that we've all heard about especially today.

Asha Mathew (08:39):

And so we'll move to more of a nationwide. And then focusing on DART nationwide transit ridership has been very slow to recover after COVID hovering between 70 to 80% of pre pandemic levels and some agencies still much slower. Can you tell us about DART's recovery and where it stands now?

Elizabeth Reich (08:58):

Thank you. Yes. Hi everybody. Elizabeth Reich system-wide. Our average weekday ridership in February was at 81% of pre pandemic levels and it continues to recover. So DART is on the upper end of the nationwide trends. And in fact since last year, so year over year, our average daily ridership is up 24% from just last year. Same time both bus and rail continue to show significant increases bus at 38% and 21% for rail over last year. On the weekends, we actually see an even better story. Rail ridership now exceeds pre pandemic levels by more than 5%, and Sunday bus ridership exceeds pre pandemic levels by 3%. And then we have a ride share program. GoLink is growing exponentially and in large part that's because we've expanded our operating zones and our hours for providing that service. So we're seeing a really good recovery at this point at DART. And with the population increasing, which we'll talk more about, I anticipate that there's probably not enough concrete to build enough roads for all those folks. And so we're going to continue to see that ridership growth and it's going to be really necessary to keep people moving in the region.

Asha Mathew (10:22):

And just to piggyback off that, Cindy, maybe you can explain to us DFW having a full recovery and exceeding 2019 levels. Could you tell us more about what that looks like and the expectations for the future?

Cindy Demers (10:34):

Sure. Thanks for having me. I guess you guys are used to seeing Chris points set up here talking about DFW, so you're just going to have to put up with me this afternoon, so I apologize. But anyway, yeah, we've seen a complete recovery from 2019 levels. We were just looking at our fiscal 23 results and our passengers are up 9% over 2019. Our DFW revenues are up 25% over 2019, and our cargo is also up over 2019 as well. A little bit slower, but it is, all of those key areas are up. We did have over 80 million passengers come through the airport last fiscal year, and we actually had on June 30th our record day with 281,000 people going through our terminals. And so as we're looking into this year, we're already up 11% over last year's levels. And with as mentioned, American making some announcements about 850 flights a day this summer, we're anticipating that we're going to continue to see that level of activity going on at the airport.

(11:39):

And then as we look into the next five years, that's where our big challenges are because we're looking at perhaps being at a hundred million passengers within the next five years, but not only that we're going to be building new terminal F, we're going to be completely rehabilitating terminal C. And so those are going to be big challenges for us as we continue to see that volume come through and be under so much construction and to provide the level of service that the passengers expect and the safety and security that is expected. So we've got a lot of challenges coming up in the next few years, but we're looking forward to getting those done.

Asha Mathew (12:15):

I mean, we see a lot of transportation needing financing in the near term. Keith, what are some of the financing approaches and structures that transportation issuers can utilize to take advantage of the current interest rate?

Keith Richard (12:27):

Thanks for having me, Asha. I think from a national perspective, and we've seen here in Texas, obviously there's opportunities for issuers out there. Over the last 18 months, we've seen tenders obviously be very useful and important across the landscape. We participated in a very successful tender for Houston airport system last year. That went very well. I know Text DOT has also utilized a tender transaction on one of their most recent deals. The flatness of the yield curve has allowed issuers to kind of move out and issue debt longer at very incrementally, not as much of a cost. So we send that as well, especially in the 35 to 40 year range. I know in Texas you can't go past 40 years, but that is another opportunity that issuers have been able to take advantage of. And also we still continue to see very tight credit spreads. So the ability to issue both senior and also supporting debt as I think something issuers will take advantage of as long as that persist.

Asha Mathew (13:25):

Can you also explain how Texas's population increases have impacted

Keith Richard (13:30):

The company? Yeah, I mean, as anybody knows, you get in your car, it feels like it takes forever to get anywhere in Texas these days. So mobility continues to be a major issue and we're seeing massive projects, whether it's I 45 expansion in the Houston area, obviously I 35 here is a hot button item or I 35, the southern eastern connector in the DFW area. So there are significant major projects obviously across the state aimed at trying to improve transportation. I would say drilling down a little more to the local level. At the county level, we've seen over the last three years about 4 billion of authorized debt for counties, for streets, road bridges and mobility projects. And that's just taken account, I would say six or seven of the largest counties. So transportation is the most critical, probably need in the state and we're seeing a lot of effort put towards that.

Asha Mathew (14:29):

And then how is the current funding environment impacting finance programs and delivery of major products, Brad?

Brad Guilmino (14:36):

Yeah, we've seen a big focus on funding, especially funding policy, getting involved earlier and understanding what those impacts are. Obviously everyone has major capital projects and programs. Interstates need to be rebuilt kind of across the country. Bridges need to be looked at the fiscal cliff that's facing some transit agencies. And then we're kind of at a crossroads, right? We're looking at, hey, the motor fuel tax doesn't really work. What's the alternative? Is it stop gap vehicle registration fees on electric vehicles? What is the right balance between user fees and taxes? What about road user charge? Is that something that's coming? Is it still 10 years away? Is it too monumental for policymakers and elected officials ever to get behind? So when you're having these major programs and funding is becoming a major issue, right? It's starting to challenge a little bit what we're looking at.

(15:28):

So in some sense, we have to get a little more creative with our financing approaches to lower that gap. And that might be extra credit support on subordinate liens. It might be utilizing TIA more broadly in different ways for different entities that we've kind of seen it in the past. I think tolling is really taking on a big leg, right? Because there's not a lot of ways to bridge what we're going to do to get the funding and get these big projects financed. So express lanes are thinking continuing to proliferate, especially in the urban areas. We're seeing cross Texas, there's continued expansion because it is a known commodity, you can expand with it if you are doing express lanes, it is kind of future-proofing capacity a little bit. So we're seeing a lot of movement in those areas as well.

Asha Mathew (16:15):

And how do we see capital investment plans varying across these sectors? Moses, maybe you can explain how this impacts the credit quality going forward.

Moses Kopmar (16:24):

Yes, so the airport space is where the CapEx is really the most intense. I would kind of distinguish expansion CapEx like what you have at Austin for example, but also kind of modernization. So as aircraft have gotten larger in size, terminal facilities become obsolete and have to be modernized accordingly, even if you're not outright adding gates, right? So when we look at the spending profile, it's really uniform across the country. There is not a pocket of the country that is immune from it. There's really one airport, Las Vegas, which has basically no CapEx planned and kind of a declining debt profile. So they kind of stand out. But generally in the airport space, that's where the focus is. A lot of need to manage construction programs, manage cost escalation, toll roadside. I think to Brad's point, it can be more expansion focused depending on where you are.

(17:32):

In Texas, for example, Georgia has some of the same expansion related challenges. Again, if you look at the Northeast or you look at the west coast, you're not seeing the same kind of volume pressures on the systems. Again, the capital plans take on a bit of a different composition on the port space, it is driven in kind of similar to airports by up gauging of ships. So ships have gotten a lot larger. You need deeper harbors, wider harbors, you need new terminals, you need taller cranes, you need expanded terminal infrastructure. And so that's driving a lot of investment needs in the Gulf Coast in the southeast. And yeah, I would say that's really kind of where the focus is.

Asha Mathew (18:23):

And I know that we have some projects, big projects coming up, whether it's DART or DFW. So with DART making progress on its last major capital expansion project, the silver line, what is the project status and what is next for DART considering that North Texas is undergoing a population? Boom.

Elizabeth Reich (18:41):

Thank you. Yes, the silver line, we took delivery of our last shipment of trains on February 1st. So we now have, we're the proud owner of eight Stadler flirt vehicles ready to begin segmented testing this summer through early next year. We have eight of the 10 stations on the silver line or more than 50% complete, and we're still on track to begin service in late 2025, early 2026. And then what's next? So at DART we have a robust 20 year financial plan, and that includes our long range capital plans and we use economist derived sales tax forecasts and estimates as well as CPI projections to put together that 20 year plan. The silver line, as Usher mentioned, is our last major capital expansion project. We are pivoting at DART into much more of an operations agency and focused on providing clean, safe, reliable service to our region, but not necessarily more capital expansion, including the silver line in that 20 year financial plan.

(19:48):

I was talking about 81% of our spend for capital over that 20 years is for state of good repair. So that's where you see that pivot. And in the near term is where most of that happens because it's the silver line. So you get into the outer years of our 20 year plan, a hundred percent state of good repair projects. So that's purchase of new light rail vehicles and buses. It's positive train control. It is signalization systems and extensive infrastructure upgrades rather than building new rail lines. We're really just trying to leverage system upgrades to improve our service levels and delivery. And we believe that we can do that. We have the second longest largest light rail system in the country, but there's a lot of opportunity to improve that system with new technology and it's going to get us better service, faster service and more reliable service.

Asha Mathew (20:41):

And going off of that, I know there's much more funding going on or financing going on with DFW. So before we get to Cindy, maybe Keith, you can explain to us your assessment of market demand for airport debt and what do you think are the top two or three risks that could disrupt the demand picture?

Keith Richard (21:01):

Sure, thanks Asha. I guess I'll answer this question from an AMT perspective that there still continues to be very strong demand for AMT paper. Some of this is buoyed obviously by the fact there's just been as limited AMT supply, so that's kept demand up very strong. I think in terms of risk, I would say bond funds also bond funds are in the primarily, primarily buyer of AMT paper and we don't see virtually any participation from SMAs. But I would say that in terms of risk to limit demand could be obviously an increase in supply could put some pressure on demand. Also tightening spreads between non AMT and AMT paper may make AMT paper on a relative basis less attractive. And yeah,

Asha Mathew (21:48):

I think that's all right. So switching gears a little bit, discuss Cindy, if you can discuss the impact of the new 10 year use and lease agreement with the airlines that went into effect just recently in October.

Cindy Demers (22:02):

Yes. Get ready Keith.

Asha Mathew (22:05):

We're

Cindy Demers (22:05):

Going to be spending a lot of money. So this time last year we were just finishing up the final negotiations for a new tenure use and lease agreement with the airlines. The previous one had expired right before COVID, and so they were just basically going on a essentially month to month basis just because of the unknown during the pandemic years. But the two main things that the lease agreement provides is we did do some update of our revenue sharing, but the biggest thing is the pre-approved capital plan. In that use of lease agreement, it's $4.9 billion. That's already pre-approved. 2.7 is going to be for our central terminal expansions. As I mentioned, we're going to be completely rehabbing terminal C. We're also going to be adding peers to both terminals A and C for an additional nine gates. And then we're also going to be actually building a new terminal F, and that's going to add 15 new gates and seven hard stands to our capacity.

(23:06):

So again, those two projects will be starting and we've actually started on terminal C just this past week, so we're moving on that and we're spending money. The other piece of that pre-approved component is 500 million for infrastructure, including our, if you're familiar with the DFW airport, there's a main international parkway that goes through the middle that's going to be rehabbed and we're also going to change. Usually when you go in, you go to the left and you circle around to get to your terminal, we're going to change that and you're going to start going to the right. So that's going to be another major project in the coming years. But overall, this use agreement does increase both our domestic and our international capacity. But overall, we do have a $9 billion capital plan planned through 2029. About 1.7 billion of that is going to be cash or grant funded. But the rest of it with what existing debt has already been issued, we're probably going to be issuing about 6 billion in the next few years to handle all of the projects that we have on the plate.

Asha Mathew (24:14):

Which answered my next question regarding the short term and long-term funding. So I appreciate that. Brad, if you can explain to us what the national outlook for express lanes and toll projects are.

Brad Guilmino (24:26):

Yeah, I think the outlook for toll projects are pretty good. You heard the recent upgrades here, express lanes, especially in the urban areas, it was always a little more scary, right? What's going to happen? And we've gone through a real recession, how resilient are the revenues? How willing are travelers to pay it? What should the off price kind of tolling policies be? But now we've really seen the strength of express lanes, and if you have to expand your new capacity, why would you not look at express lanes in a bigger way? And we've seen a lot of dots now taking the leadership role inside of tolling and saying, Hey, we have to expand downtown congestion, right? So what are we going to do? Should we keep adding general purpose lanes? Should we add express lanes? We're seeing brand new systems kind of being looked at.

(25:10):

Obviously George is in the middle of their big P three program. Tennessee just announced that. They're also looking to do expanded press express lane systems around Nashville. Some of the balance offsets with that is you can redirect funding in other places that aren't going to allow a toll. So if you are able to have a user fee, should you be looking at it? Could you be looking at it? The other thing inside of tolling, I think that the big shoe that needs to fall is tolling the existing capacity. That's free. We're looking at dots have major bridge reconstruction needs major interstate reconstruction programs, and the dots simply don't have enough money for it. If you look at Louisiana about to close the P three on the lake, Charles I 10 bridge had to be done with tolls. Look at Alabama on I 10 mobile. Same thing.

(25:54):

We're developing that financing with tolls and there's also, if the DOT puts money in, you can also start to subsidize some of those toll rates. You also have local discounts, local transponders to be able to purchase the equity programs that are being embedded into these programs. The funding for these multi-billion dollar projects has to come from somewhere. So the interstate tolling aspect looks attractive, but it's scary for folks to kind of take on that. But if the alternative is raise motor fuel tax, which seems like a losing battle or one-time fees, is that really where we want to go inside of the transportation world? So I think tolling in the interim is going to continue to be a main driver for how we can get these major projects and programs going.

Asha Mathew (26:39):

So overall with transportation, what do we see in regards to alternative delivery or P three approaches to transportation issuers?

Moses Kopmar (26:51):

Yeah, so we've seen it in the airport space really in the New York market where Port Authority kind of first did the LaGuardia redevelopment and now they have some of the JFK terminals coming through. Port Authority is a little bit uniquely suited to go that route just in terms of how their facilities are configured and where airlines are situated across their facilities. It can be a little bit challenging. I think for some airports there's a question of control. So Denver kind of went down this route with the Great Hall Project. They terminated that for convenience very early on because I think they could see there were going to be issues in terms of retaining control over an essential facility for themselves. Second to the issue of control is kind of rate structures where you have a private equity rate of return embedded in rate in part of the terminal, and you have a different rate structure at a different part of the same facility. That can be a bit of a challenge to implement. Los Angeles is another airport that has really gone this route less for in terminal projects and more for their landside access program. They've done a rental car facility and a people mover procured this way. They are fighting with the contractor currently on one of those, but they have a cargo modernization coming too. So I don't think they've given up on that. And the toll road space, I think it's what Brad said, the express lane model.

(28:41):

Georgia for example, design, build, finance, operate, maintain I 10 Louisiana is you still get some of that same risk transfer to the private sector through kind of a fixed price state certain contract. Again, there was maybe the need for a little bit more state involvement. At the end of the day, the port sector, we don't see it so much. A big part of the capital needs for ports are in water works, which are managed by the Army Corps. Those don't lend themselves that well to private finance and procurement. A lot of the other works are civil works that are not overly complex or consist of equipment. And so generally I think ports have not really needed to go that route. We've seen it more with things like cruise terminals. So that's really what we're seeing.

Brad Guilmino (29:45):

I comment on the control and policy, especially as it relates to P three and tolling especially as their purposes, right, is to move folks, relieve congestion. The opportunity if you have an urban system to rebalance pricing to be able to accomplish goals. If certain growth is starting to happen inside of the public domain, you can do a lot more things that aren't going to cause a compensation event inside of a P three if you want to change some policies. When we start to see general purpose lanes really clogged in 10 years, in 20 years, what is that pricing power that's being assigned through some of these 50 year toll concessions? What are those rates going to start to look like? Is there going to be at some point where that's going to affect the competitiveness of a city affect how it's going to be able to grow, affect the overall congestion levels inside of there?

(30:39):

You're going to have to rethink how you're going to do some of that transportation. So I think that that's an interesting point when you're looking for, hey, can the equity piece deliver that last piece of the funding that we simply don't have? Right? Is that the main driver for it or is it something more broader to facilitate that transportation? Is it worth having those discussions, having those negotiations every time you want to touch something along your corridor in it? So I think that going in with it with eyes open and really being understanding what type of asset you have, what are those long-term implications for those? What are your abilities to adjust your policies inside of that, whether it's policies, it's operations, what happens with some of the competing facilities? I think it's a really interesting dynamic that's starting to occur and we've seen it evolve a little differently in other places where you have an established toll road authority inside of a regional area that has kind of regional interests underlying at heart. And especially when you look at places like Hector with equity involved inside of that and also helping fuel what you're kind of doing on the socioeconomic side as well. It's an important dynamic I think, that we need to pay more attention to.

Asha Mathew (31:52):

Great. So Brad, if we can continue with you, there have been a lot of interest in transit oriented development. Can you explain what role TIA and RRIF funding has played here?

Brad Guilmino (32:03):

Yeah, so everybody's running to talk about this. So a lot of our transit clients that are out there saying, Hey, what's going on? We're starting to get approached. Obviously TIA now can do transit oriented development. So that's a big deal as long as you have a half mile nexus to some kind of a transit slash rail system. So a lot of the interest is coming from private developers that are looking at their rates and the high teens to develop some of these financings. They're looking over and saying, wow, tia's sitting there at the 30 year treasury. That's pretty impressive. The issue that we're seeing in a lot of places is to get tia, you have to get an investment grade credit rating. So what does that credit actually look like? Are the rating agencies going to get to that comfortable level of looking at private leases, private investments, the leases that are coming in, the revenues off of it, a little more of a challenge.

(32:56):

RRIF, obviously you don't have to worry about the investment grade rating, so it's going to be a powerful tool as well, but then you're going to get hit with the credit premium on the federal side. So will that credit premium that you're going to have to reserve outside of your account start to really eat into the savings that you're having. But the public sector to sponsor that, if your RRIF, you have to have a public sponsor. So that's another role that the public side has is when they're looking over these, are they going to be looking for TIFF revenues to potentially support some of these? Is it sales taxes? Is that other kind of property taxes that can be started to support the development and really unlock it? But I think the one good news about it is that developers seem to be cooperating a lot more at a lot higher levels with folks and public entities because now there is definitely a shared use, but the subsidies that are required for all of this development is still out there for sure.

Asha Mathew (33:52):

Thank you. And I know that we've just talked about Todd, but DART has started to use the term fantastic spaces. So I guess can you explain the distinction and what does this mean practically?

Elizabeth Reich (34:06):

Yes. So Fantastic Spaces is one of the six goals in our new strategic plan, which the board is currently considering. And what it really does is expand DART's transit oriented development program to capture more diverse opportunities and emphasize community building and collaboration. So for example, traditional TOD might have focused on locating dense housing or schools or employment centers near transit, but fantastic spaces includes that, but it also emphasizes integration with DART and the use of DART assets. So for example, a fantastic space can range from a large mixed use development to leveraged transit access to little pockets of brilliance in unexpected places like a park along the right of way, a linear park along the right of way or a bike trail that goes through a station. And so that's what we're focused on is really making sure that we're integrated with the community, that we're meeting the community's needs and we're contributing to the quality of life of the communities that we're in.

Asha Mathew (35:12):

Just as a follow up, can you explain how you coordinate and execute something like that?

Elizabeth Reich (35:17):

Absolutely. DART, if you don't know, is a regional entity with 13 cities in our service area. What we're doing is collaborating with those cities because a lot of this is directly linked to land use. We've got to coordinate that planning with the cities. We are compiling area plans with each of our cities so that we understand what it is they're seeking to accomplish, what goals they may have, and so that we're coordinated in terms of how we might provide assets or different things that we can do. And then beyond the city, we may move on to other stakeholders as well, and we'll do detailed interviews, we'll do site visits just to make sure that we really understand their development goals and we want to be an asset to the community. And so that really requires working hand in hand. We also want to influence transit inspired policies, and so we want to be an agent of change within our communities. We can reimagine ways to use our property to support economic development, increase ridership and just make the quality of life more enjoyable for folks. And so we're looking to spur development throughout the region and believe that we have been a big part of that in the past with 18 billion of development around our rail stations. But now how are we going to do that going into the future?

Asha Mathew (36:46):

So are you going to be financing it through rif or tif funding?

Elizabeth Reich (36:50):

So as you mentioned, we are certainly getting a lot of visits and calls from developers saying, Hey, we've heard about this and how can we get you to sponsor us? And so I think there's a lot of confusion maybe around the logistics of TIA and RRIF for developers and for private entities, but we're certainly seeing awareness grow and interest and our economic development department believes that it could be a really valuable tool, but we have not really begun to pursue that yet. It's really starting to ramp up right now.

Asha Mathew (37:23):

So DART is still drawing down, I guess on the RRIF loan for the Silver line, but you have a big plan for system modernization coming up, so maybe you can explain to us what DART's next moves are.

Elizabeth Reich (37:36):

Yes, definitely continuing to draw down on our RRIF loan. We intend to finish that by in FY 2025. So we have about $700 million left to draw down in our RRIF loan. And just to make you all jealous, our rate is 2.26%, so we're just going to stick with the RRIF loan for a bit here, but we do have of course capital in our 20 year plan, we assume 3.6 billion over the next 20 years in new long-term debt. So that's over the life of that 20 year plan. 2.25 billion is for system modernization, so think replacing the light rail cars signalization system, et cetera. We do have a portion of debt to issue for the silver line, so that'll come in more in the near term after we finish the RRIF loan and then replacing vehicles on the TRE, et cetera. So a total of 3.6 billion over 20 years. And then we do plan to issue 50 million this year in commercial paper for new buses and I'm sorry, I think it's cost related to the silver line and then 400 million through FY 29 for new buses.

Asha Mathew (38:47):

Can we also talk about the future plans for DFW when DFW will be in the market next?

Cindy Demers (38:55):

So we're looking at as far as on the short term basis, we just established a extendable commercial paper program. We issued our first series a couple of weeks ago. It's a $600 million program. We issued 150 million on it. Like I said a couple of weeks ago. We probably by the end of this fiscal year, we will issue about 500 million on that until we do end up taking that long probably toward the end of this year. We're really dependent on the cash flows, like I've mentioned, all the projects that we have going on, it's really incredible to see the amount of money that's starting to go out the door for payment up to the contractors on these projects. So we're anticipating we'll be coming to the market pretty quickly with several big issuances.

Asha Mathew (39:42):

Thank you. The next question that we have is for Keith. How do ports in Texas coordinate in the event of disruptions that may arise from closures due to capital projects, accidents or external events such as the pandemic?

Keith Richard (39:59):

Thanks, Asha. We've been fortunate, I guess not to have a tragedy that had recently in Baltimore and there is a Texas Port Association that does try to coordinate amongst each other that has been primarily related to storms. The pandemic did show us though that further coordination is needed while Texas didn't experience the log jams we saw out in California, like in Long Beach where they had a hundred plus ships waiting to come in and dock. There was delays and I think Port Houston for example, had 30 to 35 ships that they couldn't get in and that was due to a myriad of factors, whether it be warehouses being full or not having enough dock workers or just people to come unload obviously. So coordination is taking place. I think those are kind of on the early end of some of those discussions, but they are trying to, I think, tackle that going forward. As Moses alluded to earlier, we have larger ships coming through these ports now and it's inevitable an accident is possible to happen.

Asha Mathew (41:04):

Thank you. And before we open it up to any questions I have one more for Moses. How resilient are transportation issuers to extraordinary shocks, a bridge collapse, a hurricane, a pandemic, and what are some key considerations in assessing resiliency?

Moses Kopmar (41:23):

Yeah, so we've certainly had our share of those recently. I think there are a few considerations. So one is kind of how are they positioned financially entering into that shock or this disruption, right? Obviously you can't really model when exactly that's going to happen. What you can look at are some factors. How much cash do they have on hand, how much margin do they have in their debt service coverage, things like that give you kind of a sense of flexibility to manage initially through that shock. A lot of these public entities are affiliated with state DOTs and then above the state DOT, there's the federal government and obviously federal programs to provide support including FEMA, things like that, if not private insurance for some of these things. But the kind of business model revenue model is important.

(42:22):

I think if you contrast US airports with Canadian airports, it's kind of interesting. So Canadian airports, step back, US airports, US airports generally have most of their airfield terminal revenue does not really have volume risk associated with it. Their non aeronautical revenue can have volume risk and that actually can be mitigated to an extent depending on how the agreement is put together. Airports also had very strong cash on hand. It's been basically building to a record level and then there's a federal government, so the federal government support for airports during COVID can't really anticipate fully Canadian airports get most of their revenue from volumetric passenger throughput. They had very little cash on hand. They had mostly external liquidity, so a lot of those were put right into default. As soon as COVID happened, they had to go raise debt, their leverage increased and they got almost no federal support.

(43:35):

So kind of contrasting the experience with that market, with this market, I think reveals kind of how the revenue models can be important. Hawaii has a fire on Maui, which is an important airport for that. That is a multiport system there, and so Hawaii DOT is able to raise rates in Honolulu and other airports to mitigate the impact that might have occurred at Maui. Getting back to where we are with Baltimore, that bridge is about, I think 7% of revenues overall. MDTA has the ability to raise tolls on its other assets to compensate for that. You have talk of federal government support. One of the ones we saw in Florida in Lee County, the Sanibel Causeway was damaged. That is a multi-system facility and there's FDOT support and a lot of liquidity around. I'll just conclude very briefly with Harvey. Houston ship channel was closed for about 45 days. They get most of their revenue from volume based throughput. That is a situation where having liquidity and having a flexible cost structure is important, and so that is something to assess in that situation. They came through that very strong. They resumed growing almost right away, but how they're positioned is equally important.

Asha Mathew (45:15):

Thank you, and I know we've pretty much covered a whole range of topics here, so I'd like to open it up for any questions.

Curtis Harris  (45:33):

Good afternoon. This is Curtis Harris from Rice Financial Products Company. This question is directed more towards Brad and Moses and its concerns a new, I guess, congestion pricing model that is being experimented right now with New York City, but it can be applied to any large urban area that's trying to control traffic patterns. The question is what do you think the long-term viability is for this type of a credit in terms of using it to support long-term debt?

Brad Guilmino (46:16):

I'll go first on that. I love doing these. I think it's high. You have a known traffic pattern going into these urban cities so you know exactly how many vehicles are coming in. So if you have to rebuild, reconstruct, if you need to fund transit, if you need to fund broader mobility, this is a mechanism that is very available. So I think it does make sense if you can get it done politically. I mean that's the harder problem is how are you going to tell people you used to be able to get into here for free and now you're going to be paying, but some of these urban cities are going to have this decision to make right. If you look at what's going on, even in Portland with their IBR project I 5 2 0 5 coming in, how are you going to rebalance it? Are you going to be able to total everything coming in?

(47:11):

You have major bridges, major interstates that are coming in that have to be reconstructed, the price tag, 8 billion, 10 billion. What are you going to do with that? How are you going to find New York City subways? I think that you might see tolling, all lanes going into these urban cores is going to be something that might have to be done. You can take that money and then you can spread it out to support the transit that also needs to come in. You can offer other opportunities for it, but taxes are only going to go so far. Some of this urban interstates just have to do so much work the right of way, opportunity to try to expand some of these systems just simply isn't available to do so. I think that we're going to have a major reckoning I think in five or so years when it's going to say, Hey, we're going to get to some kind of broader pricing, and that might be the most equitable way to do it.

(48:03):

I think it also is going to raise questions on what is the equitable way to do it? Is it a combination of taxes, end user fees? Is it going to be all or one all or nothing? I don't think that works, right? Because anytime you do something like that, you're going to create winners and losers just depending on where you're at and what your position is inside of how you're going to use the transportation assets where a city has. So I think credit-wise a strength, right? If you're going to toll something that's existing traffic, you're going to lose some diversion, but you're not going to lose all that much of it. I think you could get pretty skinny on those coverage ratios, but then again, I like selling debt.

Moses Kopmar (48:41):

Yeah, no, I think Brad said it. I think London has had pretty positive experience with this as well, and I think to Brad's point, they have redeployed some of those proceeds into transport for London to build out the bus fleet and things like that.

Elizabeth Reich (48:57):

Where's Horatio from NTTA? I want to make sure you're listening.

Asha Mathew (49:09):

Do we have any more questions? If mikes on all three aisles, and if not, then please join me in thanking our panelists for an awesome discussion.