FTA policy generally requires that "Program Income" such as fares, lease payments, or other revenues be used to reduce program costs, unless an alternative use was authorized by regulations or specifically approved by FTA in the FFGA. This policy was based on FTA's interpretation of the Common Grants Rule. For PPP projects, this policy can pose a substantial obstacle, since the private entities have other financial requirements that they must address in order to stay in business. For example, they must service debt incurred on the project, and they must provide a return to their investors.
On January 11, 2007, FTA published its final policy statement on when high occupancy vehicle (HOV) lanes converted to high-occupancy/toll (HOT) lanes may be classified as fixed guideway miles for FTA's funding formulas.41 With this policy statement, FTA clearly recognized this issue and expressly authorized the use of Program Income from HOT lane tolls to be used to: (a) service debt, (b) provide a reasonable return on private investment, and (c) pay costs of operations and maintenance. In addition, if the operating entity annually certifies that the facility is being properly operated and maintained and that the items identified in (a), (b) and (c) above are being paid, Program Income may be used for any other purpose relating to the project.
The potential for attracting equity investment in transit projects may be highest for bus rapid transit projects that share facilities with tolled express lanes or HOT lanes. It has been suggested that FTA should consider making Express Toll Lane/BRT networks eligible for New Starts funding provided that a specified percentage of the managed lanes capacity would be reserved for bus service and a specified level of service (LOS) was maintained during peak hours. In those conditions, buses could operate in free-flow of traffic as if they were on an exclusive guideway. As recognized in the HOV to HOT Lanes policy described above, toll revenue may be used first for debt service and a reasonable return on investment, with the remainder available for operation and maintenance of the toll lanes on the BRT-related road infrastructure. Private sector participants would therefore be able to earn a return on investment in BRT-shared facilities, without being exposed to transit revenue risk.
It also should be noted that FTA's recently published guidance for the PPP Pilot Program specifically allows for three PPP pilot projects which, among other things, will be allowed to make flexible use of Program Income.42 Similar policies applicable to other transit PPPs would be a major step forward in furthering the PPP program.
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41 Final Policy on When High-Occupancy Vehicle (HOV) Lanes Converted to High-Occupancy/Toll (HOT) Lanes Shall Be Classified as Fixed Guideway Miles for FTA's Funding Formulas and When HOT Lanes Shall Not Be Classified as Fixed Guideway Miles for FTA's Funding Formulas, 72 Fed. Reg. 1366, January 11, 2007.
42 Pilot Program Notice, section 3(i)(i)(H) at p. 2589.