DALLAS – Dallas Area Rapid Transit will bring the 26-mile Cotton Belt commuter rail line closer to completion this week with a $908 million federal loan, officials said.
“The loan really made the project possible,” said DART board vice chairman Paul Wageman, who represents Plano, a city north of Dallas to be served by the rail line. “The interest rate looks very favorable to us.”
DART expects to close on its loan agreement with the Federal Railroad Administration’s Railroad Rehabilitation & Improvement Financing program Dec. 20. The RRIF loan — essentially a bond placement with the federal government — is expected to provide a substantially lower interest rate than conventional tax-exempt debt would provide, preserving DART’s debt capacity for future projects.
Eligible borrowers for the RRIF program include railroads, state and local governments, government-sponsored authorities and corporations, joint ventures that include at least one railroad, and limited-option freight shippers who intend to construct a new rail connection.
Direct loans can fund up to 100% of a railroad project with repayment periods of up to 35 years and interest rates equal to the cost of borrowing to the government.
“It’s like a TIFIA loan for rail projects,” said DART Treasurer Dwight Burns, referring to the federal Transportation Infrastructure Finance and Innovation Act grant program often used for public-private toll highway projects. “First, the interest rate is quite favorable, and second, it provides flexibility as to when you can draw the funds down.”
Since 2002, the FRA has committed about $5.4 billion to rail projects across the nation. The most recently announced award was $5.95 million in October for a cargo rail line at the Port of Everett, Washington. The largest loan for 2018 was $220 million for the Massachusetts Bay Transportation Authority. That project also received a $162 million TIFIA loan.
“We have several other projects that are in the pipeline,” said Duane Callender, credit program office director for the U.S. Department of Transportation’s Build America Bureau.
Pending applications include All Aboard Florida’s $3.7 billion Brightline Miami-Orlando passenger rail project.
As with TIFIA loans, applicants for RRIF loans must obtain an investment-grade rating, even though no bonds are actually issued.
Moody's Investors Service conferred its Aa2 rating to the loan on the same footing as DART’s $3.1 billion of outstanding senior lien sales tax bonds. S&P Global Ratings and Kroll Bond Ratings Agency rate the debt AA-plus. Outlooks are stable.
“While an additional $3 billion in new long-term debt is anticipated over the next 20 years, including the present offering, annual debt service coverage is forecast to remain above 2.51x based on DART’s 20-year Financial Plan assumption of a 3.9% sales tax compound annual growth rate,” KBRA managing director Harvey Zachem wrote.
DART plans to issue $27 million in new short-term debt in 2019 to continue developing the Cotton Belt, and $30 million of cash will be used to retire self-liquidity backed commercial paper.
DART provides bus, light rail, commuter rail and other service to 13 municipalities across a 700-square-mile service area with an estimated population of 2.4 million. The system was established by voter referendum in 1983 and is governed by a 15-member board appointed by the municipalities through a population-based formula, with no city able to appoint more than 65% of the board.
Wageman, a former North Texas Tollway Authority chairman who represents the booming Collin County city of Plano, said the federal financing for the Cotton Belt leaves DART in a better position to issue bonds for a major project in downtown Dallas known as the D2 Subway, expected to cost about $1.2 billion. The project’s start date is about two years off, Wageman said.
The Cotton Belt, targeted for opening in 2022, is DART’s first rail project to run primarily east to west. The line follows an existing freight line from its easternmost platform in Plano to its westernmost point at Dallas Fort Worth International Airport. It's named after an old freight railroad that once used the line.
Service was originally programmed to begin in 2035, but the federal funds allowed DART to advance the project by 13 years. At the same time, modifications lowered the cost of the line from $2.9 billion in the FY 2016 plan to $1.1 billion in the FY 2018 plan.
"While this does have the effect of tightening financial resources over the next 15 years, it opens up significantly more financial capacity for projects that may be recommended in the 2040 Transit System Plan and its subsequent updates," DART said in its annual report.
The heavier Cotton Belt commuter rail trains will intersect with DART’s north-south light-rail lines, providing rail service to the office parks of longtime DART member city Addison for the first time.
The cost of the project is considerably lower than comparable projects such as the Colorado Regional Transportation District’s Eagle P3 because DART already owns the right-of-way.
At DFW Airport, the Cotton Belt will link up with a 27-mile TexRail commuter line from Fort Worth that is nearing completion. TexRail is supervised by the Fort Worth Transportation Authority, commonly known as “The T.” The airport is also served by DART’s Orange Line light rail that delivers passengers from downtown Dallas and connecting lines.
At a Dec. 11 board meeting, DART awarded an $815 million contract to the firm Archer Western Herzog 4.0 for the project, contingent on receiving the federal loan.
Archer Western Herzog 4.0 is a joint venture between Atlanta-based Archer Western and Missouri-based rail and highway builder Herzog Contracting Group. The consortium includes Jacobs Engineering Group as designer.
Archer Western Herzog 4.0 was among five organizations that responded when DART in March 2017 posted plans to convert the former freight line.
DART is a key player in the 13-county North Texas regional transportation plan designed to improve efficiency and planning for inter-governmental projects.
The Cotton Belt is part of a 25-year, $136 billion regional transportation plan that last month received U.S. Department of Transportation approval. The plan known as Mobility 2045 includes major freeway projects in the Dallas-Fort Worth area.
The Regional Transportation Council representing governments from 12 counties approved Mobility 2045 in June 2018. The plan allocates $17.5 billion more expenditures than Mobility 2040, which the new plan replaces.
A multiyear list of projects in the Dallas-Fort Worth area for 2019-2022 was also approved for federal, state and local funding. The program identifies roadway and transit projects programmed for construction within the next four years.
DART’s bonds are secured by a 1% voter-authorized sales and use tax that has been levied since early 1984. The Texas Comptroller acts as the collection agent and sends proceeds monthly to support DART operations.
DART is projecting 4.8% sales tax revenue growth in 2019 and no growth in 2020, in line with their practice of incorporating assumption of a mild recession every seven years, according to S&P.
"We view these projections as reasonable and potentially conservative given recent trends," wrote S&P analyst Jenifer Garza. "However, DART's projected growth is still stronger than our retail sales projections for West South Central Region of the U.S."
After falling sharply after the 2008 recession, sales tax revenues have rebounded strongly since 2010, analysts said.
“In KBRA’s opinion, ongoing population and commercial activity growth will likely continue to support pledged revenue growth at a pace well in excess of the inflation rate,” Zachem wrote.
