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3.0 Innovative Finance Performance Review

Based on the quantitative methodology described in Chapter 2.0, a review of the perform-ance of U.S. DOT's innovative finance initiatives was conducted to measure leveraging, project acceleration, and economic benefits associated with 243 projects supported by innovative finance tools. This section describes those quantitative results, which are summarized in Table 3.1 below.

The dollar value of Federally-assisted innovative finance projects undertaken as of spring 2001 totals over $29 billion, of which $8.6 billion has been funded with Federal-aid grant funding. The remainder has come from other sources, the most significant of which has been bond proceeds. The level of co-investment reveals the extent to which the pur-chasing power of limited Federal grant funds has been extended by virtue of: (a) new mechanisms to attract other sources of funds to transportation investment, and (b) the Federal government's increased openness towards participation in projects that demand a high level of coordination with other funding partners - and not only the states, FHWA's traditional financial partner. At the same time, innovative finance has played a more sub-tle role by bringing brand new resources to the table, not only expanding the purchasing power of the Federal dollar but that of all public funds devoted to highway infrastructure investment.

Table 3.1 Summary of Quantifiable Results: Evaluation of Innovative Finance

Federal transportation innovative finance tools were developed both to increase the aggregate level of investment in surface transportation projects and to accelerate the con-struction of projects that employ these financing techniques. To determine whether these tools have met these objectives, this portion of the report examines the tools' impact on investment levels, commonly characterized as the tools' "leveraging effect."

The term "leverage" has multiple meanings, but FHWA has typically viewed leverage as a measure of the ratio of the federal funds to the total project cost. The sections below first consider the ratio between Federal funds contributed and total investment levels, and then assess any ancillary leveraging benefits produced. These ancillary benefits include attraction of new private investment in surface transportation projects, encouragement of new revenue streams, and generation of cost savings.

Co-Investment in Innovative Finance Projects

As noted above, the concept of "leverage" can be viewed in several ways. The most tradi-tional perspective on leverage focuses on the extent to which Federal funds have been supplemented by other sources of non-Federal capital for a given universe of projects. Under this approach, leverage is defined as the ratio that compares total investment levels (i.e., total project costs) to the amount of Federal grant funding consumed by the project.

By this approach, the standard leveraging (or co-investment) ratio for Federal-aid high-way projects is 1.25, reflecting a standard matching requirement under which states may receive Federal reimbursement for 80 cents of every dollar of expenditure. [1] (Note that some states are eligible to receive higher reimbursements due to a large presence of Federal lands within their borders. Also, certain funding categories within the Federal-aid Highway Program permit a higher Federal matching share. These allowances obviously lower the standard leveraging ratio for these states and funding categories to something below 1.25.)

The leveraging ratios discussed below are presented by category of tool - TE-045 (multiple tools), GARVEE bonds, SIBs, and direct Federal credit (TIFIA and predecessor projects). Arranging the discussion of co-investment levels by category of tool helps indicate which tools are most effective at achieving high degrees of leveraging, and which tools are most effective at achieving project acceleration.

As shown in Table 3.2, the overall leveraging ratio for all projects appearing in the inven-tory of innovative finance projects is 3.40 - nearly three times the standard ratio of 1.25. Not surprisingly, the bulk of the co-investment derives from projects supported by indi-rect or direct Federal credit offered either through the SIB program or the TIFIA program, respectively. These programs aim specifically to extend the purchasing power of limited Federal grant funds, whereas tools like GARVEE bonds seek principally to accelerate con-struction of projects financed using traditional ratios of Federal and non-Federal funding sources.

Table 3.2 Non-Federal Co-Investment (Leveraging) Results
(Dollars in Thousands)

TE-045

The leveraging ratio shown in Table 3.1 for TE-045 projects was derived by summing project costs and then dividing this figure by Federal grant contributions. This calculation was performed for 62 of the 101 TE-045 projects approved since 1994. As described previously in Section 1.1, the 39 excluded projects fall in the following categories:

• Were not approved by FHWA (three projects);
  
  
• Were cancelled subsequent to their approval (three projects);
  
  
• Are inactive or ultimately did not employ the innovation proposed under TE-045 (16 projects);
  
  
• Used a different Federally-sponsored financing tool such as a TIFIA loan (three projects);
  
  
• Used STP Simplification (three projects); or
  
  
• Used phased funding, which was subsequently disallowed by FHWA (11 projects).

For the non-Federally-funded portion of these 62 projects, bond proceeds served as the most significant funding source (almost $933.0 million, most of which is attributable to one project - Texas' George Bush Turnpike, which received a Section 129 loan). Other funding sources include over $500.0 million in state funds, $48.0 million in local funds, and $105.0 million in private funds.

GARVEE Bonds

Table 3.3 displays the figures used to calculate co-investment levels for the five projects financed with GARVEE bonds as of spring 2001. The key inputs to the leverage calcula-tion are shown in bold print. The leveraging ratio is calculated by dividing total project costs ($3.313 billion) by the sum of the Federal contributions toward these projects ($2.238 billion). The Federal contributions comprise any grant funding made available through the standard Federal-aid Highway Program as well as the Federal share of GARVEE bond proceeds. This Federal share reflects the projected share of total debt service that the issuer will pay using future Federal-aid apportionments. The across-the-board leveraging ratio for these projects is 1.48 to 1, slightly over the standard Federal lev-eraging ratio of 1.25 to 1.

Table 3.3 Funding Profile for GARVEE Projects
(Dollars in Millions)

^* This is part of a larger program of planned issues. A certain amount is being allocated to the Southeast Corridor.

The above figures reflect the plans of finance for the specified projects, meaning that they do not necessarily equal the amounts actually committed to date. (For example, as of summer 2001, Arkansas had issued only $175 million of its total planned GARVEE issu-ance of $575 million.) Showing the full planned (rather than actual) amount of GARVEE financing is necessary to ensure that the comparison between full project cost and the portion that will ultimately be Federally-funded yields the correct leveraging ratio.

As noted above, the Federal contribution to these projects comprises two potential components:

1. The Federal share of GARVEE proceeds, which reflects the expected share of debt service to be paid from Federal funds; and
   
   
2. Any additional Federal transportation grant funds.

Non-Federal funds comprise:

• The non-Federal share of GARVEE proceeds, reflecting the expected share of debt service to be paid from non-Federal sources;
  
  
• Proceeds of other bond issues for which debt service is paid from non-Federal funds;
  
  
• State funds;
  
  
• Local funds; and
  
  
• Other non-Federal sources, such as interest earnings.

The fact that debt service for some GARVEE bond issues is repaid from both Federal and non-Federal sources demonstrates states' alternative strategies for satisfying non-Federal matching requirements. Two states (Arkansas and Colorado) have elected to match Federal funds devoted to debt service on a payment-by-payment basis. The remaining three states (Arizona, New Mexico, and Ohio) are instead repaying obligations to GARVEE bondholders with nothing but Federal funds and satisfying matching require-ments through up-front capital contributions from non-Federal sources.

As shown in Table 3.3, the overall leveraging ratio for the five GARVEE projects is 1.48 to 1, which is a bit over the standard Federal matching ratio of 1.25 to 1. However, only one of the five states - Colorado - accounts for this overmatch. The fact that this case of over-match is an aberration in the universe of GARVEE projects affirms that the GARVEE strat-egy aims primarily to accelerate the construction of projects rather than encourage states to devote new or additional sources of capital to Federal-aid projects.

The remaining four states, in fact, show a combined leveraging ratio of 1.15 to 1 (with a range from 1.08 through 1.21). This "undermatch" occurs for three main reasons. First, one state (Ohio) is using toll credits partially to satisfy its matching requirement. [2] Second, one state (Arkansas) is using Federal apportionments from the Interstate Maintenance program to pay debt service; this program carries a non-Federal statutory matching requirement of 10 percent rather than the more typical 20 percent. Third, the projects in New Mexico and Arizona carry lesser non-Federal matching requirements due to the large amount of Federal lands within the states. [3] In Arizona, for example, Federal funds are reimbursed approximately 93 percent of eligible highway expenditures.

State Infrastructure Banks

The leveraging ratio of 8.9 shown for SIBs compares the total cost of the 164 SIB-assisted projects for which cost information is available ($4.063 billion) to the Federal contribution to the banks supporting these projects (approximately $457 million). This figure repre-sents the sum of all Federal outlays to the banks. Outlays in turn represent the actual Federal cash payments that are ultimately deposited in the banks in order to fund loans to individual projects.

While the 8.9 leveraging ratio shown for SIBs is the highest ratio shown for any of the categories of innovative finance tools, it may be somewhat overstated because of incom-plete information on the Federal contribution. The $457 million figure noted above does not capture any Federal grant funding directed to the individual SIB-assisted projects; if significant amounts of Federal-aid grant funding are also helping to round out the SIB-assisted projects' sources of funds, the leveraging ratio associated with the SIBs could be substantially lower.

Federal Credit

The 5.13 leveraging ratio shown for Federal credit compares total project costs of $17.784 billion to Federal funding of $3.468 billion for 13 projects. Ten of these projects have been approved for TIFIA loans, loan guarantees, and/or lines of credit since the inception of the program in fiscal year 1999; the remaining three projects received special legislative approval for Federal credit support prior to enactment of the TIFIA legislation. The Federal contribution of $3.468 billion represents the sum of the subsidy cost of these credit instruments ($289 million) plus the sum of all other Federal grant support directed toward these projects ($3.179 billion), as shown in Table 3.4. [4]

Another View of Leverage: Expanding the Pie

While measuring the level of non-Federal co-investment in Federal-aid projects helps to illustrate the extent to which certain tools position Federal transportation funds to serve as a "helping hand" within larger and more diverse plans of finance, this leveraging ratio itself does not reveal the extent to which specific financing tools have induced greater overall investment in the surface transportation sector. The following discussion of expanded resources provides an assessment of the ways in which innovative finance can attract or otherwise free up new resources for investment in the nation's transportation infrastructure.

Table 3.4 Federal Funding Sources for Direct Federal Credit Projects
(Dollars in Thousands)

When considering the leverage ratio attributable to Federal credit instruments, it is also possible to compare the budgetary cost of the credit instruments themselves (i.e., the cumulative subsidy cost for all loans, lines of credit, and loan guarantees awarded to date) to the total cost of the projects they support. By this analysis, the leveraging ratio achieved by the TIFIA Federal credit program and its three predecessor projects is 62:1, reflecting the comparison of a total investment of $17.784 billion to the combined Federal budgetary cost of $289 million that has been charged to the Federal credit instruments assisting those projects. The comparison of total Federal investment (rather than simply the subsidy cost of the credit instrument) to total project cost gives the most accurate view of the ultimate leveraging effect of the credit instrument.

To take an extreme example, if the Federal credit instrument assisted a project for which all supplementary funding derived from Federal sources, calculating leverage by comparing the cost of the credit instrument to the total Federal investment would show a high leveraging of Federal funds, even if no non-Federal funds were involved in the project. In this example, it would be difficult to argue that the availability of Federal credit played any meaningful role in reducing project sponsors' reliance on Federal funds, or effectively "leveraged" the Federal contribution.

In contrast, considering all Federal funds (grants and the Federally-funded share of credit instruments combined) when calculating leverage helps to isolate the effect of all Federal sources on total investment levels, and create a clearer picture of how the Federal funds are being leveraged in practice.

Experience since 1994 shows that innovative finance strategies can expand investment in at least three ways:

1. Attract new private contributions and equity investment in transportation infrastructure;
   
   
2. Encourage creation of new user- or project-based revenue streams, with proceeds used to repay debt obligations incurred for construction of the project; and
   
   
3. Produce cost savings, in some cases freeing up resources for investment in other projects.

New Infusions of Contributed Capital

Cash from the private sector can add to the funding mix for a given project in several ways. First, it can serve as an outright contribution in cases where a private entity pro-vides funds to a project with no expectation of repayment. This happens most often in cases where the private donor expects that the project will create a direct benefit by, for example, improving employees' or customers' access to the donor's facilities. Second, private capital can take the form of an investment in cases where the private investor anticipates receiving a return over time. In these cases, private investment behaves like any form of debt financing, with some form of revenue expected to ultimately be available to provide the return on investment.

Contributions - Looking first at the former case, the main innovative finance tool designed to facilitate private donations is flexible match, which allows states to apply such funds directly to the non-Federal matching requirement. Among the universe of TE-045 projects, 16 flexible match projects attracted private contributions of approximately $48 million. (Additional private contributions of over $55 million have been directed to projects employing other tools, notably advance construction, but these funds' availability for these projects cannot be attributed to the use of the innovative finance technique.)

State officials interviewed for the original TE-045 evaluation in 1996 reported that the availability of the flexible match opportunity clearly influenced the states' ability to undertake these projects. While it is doubtful that any state would turn down an offer of private funding simply for lack of the opportunity to substitute that contribution for the state match, the opportunity to use private contributions as a substitute for public matching funds creates an extra incentive to actively pursue these partnerships. This is especially true in cases where a state faces an extreme shortage of matching funds and would be obliged to defer or forgo the entire project - and the private contribution - in the absence of the flexible match opportunity.

The 16 flexible match projects receiving the $48 million in private contributions represent only those projects that advanced under the TE-045 research project. Flexible match gained approval as a standard Federal-aid practice with enactment of the NHS Act in 1995, it can reasonably be assumed that these 16 projects represent but a fraction of the total number of projects ultimately using private contributions to satisfy non-Federal matching requirements.

Investment - Private investment occurs when a private firm makes an at-risk contribution to a project with expectation of repayment from project revenues - and a return on investment - over time. The primary Federal innovative finance tool aimed at increasing private equity investment is Federal credit assistance; by strengthening a project's overall risk profile, Federal credit is positioned to mitigate the financial uncertainties that can inhibit private investment.

Federal credit assistance, as implemented through the TIFIA program, has yet to demon-strate conclusively its ability to lower barriers to private investment in this fashion, although the proposed financing plan for one TIFIA project (State Route 125 in California) includes an expected equity component of $63 million. With only a few years of experience to date, it is too early to tell whether Federal credit assistance can produce measurable effects on the level of private equity investment in the United States transportation system.

The predecessor projects to the TIFIA program, however, included additional developer financing and/or other equity funding. Plans of finance for the San Joaquin and Foothill/
Eastern toll roads included $69 million and $24 million in developer financing, respec-tively, and the financial plan for the Alameda Corridor included $411 million provided by the railroads that will use this new grade-separated corridor.

Revenue-Backed Financing

Innovative finance can also expand the level of investment in transportation projects by lowering barriers to debt financing in cases where the principal revenue pledged to repay the borrowed funds derives from new user-based charges and/or is generated from the project itself. Table 3.5 summarizes those innovative finance projects that are anticipated to be financed at least partially from project-based revenues. The table is arranged by category of tool. The dollar amounts shown represent the amount of anticipated debt financing that borrowers expect to repay from project-based fees or other new user charges. These figures are subdivided into two components: bond financing (generally representing revenue bonds to be sold by the project sponsor) and public lending (repre-senting SIB loans, Section 129 loans, or Federal loans provided under the TIFIA program or through predecessor stand-alone legislation).

Cost Savings

While innovative finance tools seek principally to accelerate projects or attract new resources to transportation investment, their ability to expand investment by reducing project costs is often not addressed. Innovative finance can generate cost savings in a number of ways, as shown in Table 3.6.

Starting at the top of Table 3.6, any tool designed to accelerate a project's ability to get underway - and reach completion - sooner than otherwise possible helps that project's sponsor avoid costs associated with inflation. However, in cases where a project that would otherwise be funded on a pay-as-you-go basis is accelerated by virtue of a debt financing, the present value of financing costs, including interest expense, must be deducted from the present value of any savings associated with avoided inflation.

Table 3.5 User- or Project-Based Revenue Pledges

¹ The volume of loans represented in the SIB project inventory totals $761 million, with actual dis-bursements as of early 2001 totaling $460 million. The repayment sources identified by the states indicate that approximately 20 percent of SIB loan repayments are expected to derive from new and/or specially dedicated revenue streams such as tolls, tax increment financing, special fees, and private payments. The remaining 80 percent would be paid from existing general taxes (such as sales or property taxes) or from existing transportation funding sources (such as existing fuel or motor vehicle registration taxes). While it is expected that the entire $761 million in committed loans will eventually be recycled back into the banks once they are repaid, 20 percent of this total - or $160 million - is expected to derive from new user fees or other project-based revenue streams.

Table 3.6 Alternative Sources of Cost Savings

Moving down to the second entry on Table 3.6, the interest cost of debt-financed projects can also be reduced through lower interest innovative financing tools, or through credit enhancement from innovative finance tools.

For example, the Bi-State Development Agency in Missouri received a low-interest loan from the Missouri SIB (the Missouri Transportation Finance Corporation) for a fleet of new buses. The interest rate reduction will save the agency approximately $300,000 over the life of the loan, which will be applied to operating costs for the public transit system (see Missouri SIB case study, page 4-24).

The Puerto Rico Highway and Transportation Authority (PRHTA) also estimated that use of an innovative finance tool reduced their overall financing costs. Without the TIFIA loan provided to the project, PRHTA would have been forced to issue additional revenue bonds, with less favorable overall terms and at higher overall cost (see TIFIA case study, page 4-32).

The tools most closely associated with credit enhancement are Federal credit assistance and Section 129 loans. (SIBs were originally expected to provide credit enhancement as well, but to date few SIB loans have been made in conjunction with larger financings, and thus generally do not serve to improve the issuers' credit standing in the eyes of other co-investors.) One example of such savings is the Section 129 loan made to the President George Bush Turnpike in Texas. The loan enhanced the creditworthiness of the project's $446 million revenue bond issue, saving an estimated $180 million in debt service costs, and allowing the recipient of the loan, the North Texas Turnpike Authority, to free up $20 million that would otherwise have been required for debt reserves (see President George Bush Turnpike case study, page 4-28).

With TIFIA still in its early years, it is too soon to say whether the secondary and subordinate capital provided via TIFIA loans and lines of credit have improved ultimate credit ratings on senior debt obligations and thus yielded the project sponsors lower interest rates on those obligations. Due to its junior lien status and flexible repayment terms, investors may perceive TIFIA assistance as effectively a form of credit enhancement, shielding the senior investors from some types of default. Project sponsors and rating analysts do conjecture that the presence of a standby facility (such as a line of credit) or a junior-lien loan does help alleviate perceived risk and improves both the ratings and the marketability of the senior debt. While it is doubtful that the "light touch" of Federal credit assistance has yet been significant enough to tip the balance in a project's financial feasibility, improved coverage ratios on senior debt as well as the confidence-building presence of the Federal government as a fellow junior investor has likely saved sponsors millions of dollars in interest expense.

Finally, SIB loans and TIFIA credit instruments generally offer a lower-cost borrowing alternative when compared to commercial loans or market-rate taxable bond issues. Of 164 SIB loans contained in the project inventory, 56 are interest-free, 18 carry interest rates of at least 0.5 percent but less than 4.0 percent, 52 carry rates of at least 4.0 percent but less than 5.0 percent, and 13 carry rates of 5.0 percent or more (rates for the remaining projects are either unknown or variable). While these rates are generally lower than commercial rates, it is unlikely that any of these projects would have sought market-rate financing in the absence of the SIB borrowing option. In most cases, the alternative for these projects would have been construction on a pay-as-you-go basis, in many cases necessitating a delay.

As for Federal credit assistance, statute requires that interest rates for TIFIA loans cannot be less than the yield on marketable U.S. Treasury securities of a similar maturity. This language provides a floor, not a ceiling, for the interest rate, but all TIFIA credit agreements executed to date have set the interest rate at this "floor" level. Since the program began, this floor level has been above the interest rate that would be required for a similarly-sized municipal bond issuance.

This does not necessarily mean that TIFIA loans are higher cost than other options available to borrowers. Some TIFIA projects that consider applying for TIFIA either would not be able to obtain this lower-cost municipal interest rate, due to debt limits or ineligibility for tax-exempt financing. Other projects might accept a higher interest rate on the TIFIA component of the financing, because the other terms (such as lower issuance costs) were more attractive, or because the subordination with the Federal government as a reliable junior lien holder made the senior financing available at a lower rate than would otherwise be possible.

The associated savings cannot be determined, due to the difficulty of knowing how individual transactions would have been structured had project sponsors not sought a TIFIA loan, but as long as there exists a differential in interest rates and transaction costs, the TIFIA borrowing option will prove comparatively attractive in a cost comparison. At the same time, however, the extent to which TIFIA borrowers are obtaining interest rate savings by meeting a share of their capital needs through the TIFIA program also represents the extent to which TIFIA loans are merely substituting for other borrowing options, rather than filling financing gaps that actively inhibit access to the capital markets.

3.2 Project Acceleration Effects

Information on the project acceleration effects of innovative finance tools has been difficult to obtain. This is in large part due to the fact that detailed analyses of how projects might be built - and when they might be built - under a traditional scenario versus an innova-tive approach have not generally been prepared by project sponsors. This kind of "what if" analysis would be speculative in any case. Results presented in this section, therefore, reflect available data contained in the project inventory, but should not be viewed as a complete discussion of the acceleration benefits of innovative finance tools. In fact, it is surmised that such benefits exceed what is quantifiable, given available data. Supporting information of project acceleration effects of innovative finance tools is also highlighted in case studies presented in Chapter 4.0.

TE-045

Of the universe of 62 TE-045 projects, 50 reported acceleration effects (81 percent). A frequency distribution of the range of acceleration effects is shown in the Figure 3.1. The average project that reported a specific duration of acceleration was advanced by 2.7 years. There were also projects that reported acceleration effects, but did not indicate a specific amount of time of acceleration:

• Nine projects reportedly would not have occurred without the TE-045 finance technique (these are labeled "saved" in Figure 3.1);
• Six projects had acceleration benefits that were not defined; and
• Three projects avoided delay.

A scatter plot of project acceleration in years compared to project cost is shown in Figure 3.2. Only projects that reported a specific number of years of acceleration are included on this chart. There are no discernible patterns that relate project size to acceleration benefits.

Acceleration benefits were also examined by each finance method tested under TE-045. A summary of characteristics is provided in Table 3.7.

Table 3.7 Summary of TE-045 Innovative Finance Methods and Acceleration Benefits

The Miami Intermodal Center (MIC) case study (page 4-21) indicates that the MIC Core Initial Phase was accelerated by two years through a loan from the Florida SIB, resulting in an estimated cost savings of $178 million. Other SIBs have reported similar results. For example, the $30 million Ohio SIB loan provided to the Butler County Transportation Improvement District for the $150 million improvement to State Route 129 enabled pur-chase of right-of-way and other preconstruction activities to occur before the bond sale for the project. As a result, the loan accelerated the $150 million project by at least three years. In addition, South Carolina's SIB, among other tools, is assisting its "27 in 7" program, which will complete 27 years of projects in just seven years. By leveraging its SIB through bonding, South Carolina has been able to advance a significant amount of construction work in a rela-tively short period of time. More than $2.4 billion worth of projects have begun development and construction as part of the 27 in 7 program, all of which are financed in part by funds from the SIB.

GARVEEs

Of the five GARVEE projects, all but one indicated project acceleration. These projects were accelerated by:

• Two years (Arizona I-10 Access Ramps);
  
  
• Six to nine years (Arkansas Interstate Reconstruction and Rehabilitation);
  
  
• 24 years (New Mexico Corridor 44); and
  
  
• 25 years (Ohio Spring-Sandusky Interchange).

Federal Credit

Eight of the 13 Federal credit projects indicated acceleration benefits (62 percent). The benefits ranged from two to 26 years, and averaged 12.0 years. However, four out of the eight that indicated acceleration benefits did not estimate the extent of those benefits. With such a small sample, it was not possible to discern any patterns related to the corre-lation between the amount of acceleration and the project size.

3.3 Economic Effects

Estimation of the economic effects related to transportation projects funded with the sup-port of innovative finance tools is based on total project costs, regardless of the source of funding (Federal, state, local, private, etc.) or the amount of leverage provided by those tools. Project costs are used as the basis for representing the economic impacts of con-struction spending for all dollars accounted for in the project inventory. It should be rec-ognized that these impacts do not take into account the opportunity cost of the spending. In other words, most of the direct spending for these projects would have been spent elsewhere in the economy if not for the innovative financing tools. This analysis thus captures the economic contribution of total innovative finance project costs and the related economic activity on the aggregate United States economy. In addition, this analysis pro-vides a breakdown of the economic effects associated with the four primary categories of innovative finance projects: TE-045, SIBs, GARVEEs, and Federal credit projects.

To estimate these economic effects, project costs were first separated by highway, rail/transit, and water ferry spending based on the transportation improvement type; this separation by mode is needed to identify the most appropriate multipliers for the specific type of project. Most of the spending is clearly for highway-oriented projects, but some spending is for transit, and a few projects involve intermodal centers or water ferries. For intermodal centers, construction spending was split into highway and rail/transit. Again, this is an important step because economic impacts vary depending on the type of project (highway, rail, ferry, etc.) due to industry differences in purchasing patterns and wages.

The next step was to take the direct spending impacts by innovative finance category and run the spending impacts through the IMPLAN economic model. [5] IMPLAN is a widely used input-output model used for analyzing the multiplier effects of economic events. The multiplier effects are composed of two primary impacts: indirect and induced effects. Indirect effects are generated as the result of direct spending on construction, which requires supplier inputs such as cement, wood, engineering services, etc. Induced effects refer to the re-spending of income created by direct and indirect job creation.

Economic impact results from the analysis are presented in two tables. Table 3.8 presents economic impacts for each of the four categories. Table 3.9 examines impacts by mode. Key findings include:

• Total innovative finance project costs are over $29 billion. Total direct spending for Federal credit projects is projected to be $17.8 billion, largest of the four categories. Direct spending for TE-045 is $4.85 billion, $3.3 billion for GARVEEs, and $4.1 billion for SIB projects. [6] The economic impacts by innovative finance category are roughly proportional to the direct project cost distribution.
  
  
• The impacts presented in each table are for the entire life of projects and are not annual impacts. For example, spending on TE-045 projects may occur over the next 10 years. Consequently, employment impacts are interpreted as job-years. A job-year translates into one job for one year. TE-045 projects generate a total of 133,700 job-years. If it is assumed that TE-045 projects will result in construction spending over the next 10 years, then the average annual impact will be 13,400 jobs.
  
  
• The output multiplier for highway construction spending is over 3.0, which means that every dollar spent on highway construction generates an additional two dollars of economic activity. Total output impacts as contributions to the United States economy are estimated to be roughly $90 billion. More than half of this is generated by Federal credit projects and the remainder is split somewhat evenly by the other categories of innovative finance tools.

Table 3.8 Economic Effects by Innovative Finance Category

Source: IMPLAN input-output model; Cambridge Systematics, Inc.

• The employment multiplier is 3.3, so every job created by direct innovative finance projects creates an additional 2.3 jobs. The direct employment impact of 250,000 job-years creates 271,000 job-years due to indirect purchasing effects, over 300,000 job-years due to induced spending effects, for a total employment impact of 827,000 job-years.
  
  
• Direct labor income impacts are smaller than output figures because almost 70 percent of construction spending goes toward indirect purchases or internal profits rather than direct wages. Total direct labor income impacts are almost $10 billion and aggregate labor income is increased by over $30 billion due to innovative finance projects cur-rently underway and scheduled for future years.

Table 3.9 Economic Effects by Mode

Source: IMPLAN input-output model; Cambridge Systematics, Inc.

• Based on the improvement types, roughly 75 percent of innovative project costs are devoted to highway-related spending. Almost 20 percent is estimated to be rail/transit and less than 3.0 percent is for several ferry projects. Economic multiplier impacts are larger for highway and rail/transit projects (3.2 to 3.3) than for ferry projects (2.5 to 2.6). One possible reason is that ferry projects largely involve capital purchases, rather than significant construction.
  
  
• Total employment impacts for highway spending is over 650,000 job-years, over 150,000 for rail/transit, and almost 16,000 for ferry projects. Impacts on output and labor income are proportional to these employment effects.
  
  
• Finally, it is important to keep in mind that these results imply that increased project costs represent larger economic impacts on the United States economy. Meanwhile, one of the goals of innovative finance tools is to accelerate projects and help contain costs. Increased project costs are a negative factor in most benefit-cost analyses because they measure long-term economic benefits relative to costs. The impacts pre-sented here do not represent the long-term efficiency, logistics, and accessibility benefits that are the true measure of economic productivity gains due to improved transportation. Rather, they measure the economic activity related to innovative finance project construction spending. [7] Long-run efficiency, logistics, and accessibility impacts are expected from innovative finance projects, but are not measured in this analysis (typically they are measured on a project-specific basis).