FRA loosens strings on $3.5 billion in cheap loans - Brief Article

Railway Age, August, 2000

Regulations will become effective Sept. 5 for the dispensation of $3.5 billion in low-interest federal loans and loan guarantees for a broad spectrum of railroad improvement projects. At least $1 billion is earmarked for improving non-Class I railroads. One small-road priority will be strengthening track to handle 286,000-pound loads.

The Railroad Rehabilitation and Improvement Financing (RRIF) Program was authorized in the Transportation Equity Act for the 21st Century, passed by Congress in 1998. The government dragged its feet on implementing the program, which never had the full support of the White House. A notice of preliminary rulemaking was published in the Federal Register on May 20, 1999. It won unfavorable notices from needy railroads because it identified the federal government as a "lender of last resort," suggesting that eligible applicants would need to take a pauper's oath. That has been taken care of in the final rule, which was published in the Federal Register of July 6. Applicants now need only establish that they cannot privately obtain a loan at requested rates.

The interest rates in the RRIF program will cover the government's cost of borrowing but will be lower than commercial rates. Eligible projects are identified as "(1) acquisition, improvement, or rehabilitation of intermodal or rail equipment or facilities (including tracks, components of tracks, bridges, yards, buildings, and shops), (2) refinancing outstanding debt incurred for these purposes, or (3) development or establishment of new intermodal or railroad facilities."

The loans and loan guarantees may go directly to railroads or to state and local governments and government sponsored authorities for railroad projects.

How do railroads go about applying for a loan?

The American Short Line and Regional Railroad Association pointed out to its members that the FRA encourages the use of third-party consultants in preparing loan applications. ASLRRA also said it would provide "some assistance and support" for members in the application process. The association reminded its members that it is sponsoring the development by Zeta-Tech Associates of a computer-based model for the determination of the overall economics of heavy axle loads (HAL). "This may be useful in development of RRIF loan applications for projects involving upgrade of small railroad infrastructure to handle HAL," said the association.