Grant Anticipation Revenue Vehicles (GARVEEs)

GARVEEs enable states to pay debt service and other bond-related expenses with future Federal-aid highway apportionments.

How does it work?

A Grant Anticipation Revenue Vehicle or GARVEE is a debt financing instrument authorized to receive Federal reimbursement of debt service and related financing costs under Section 122 of Title 23, United States Code. GARVEEs can be issued by a state, a political subdivision of a state, or a public authority. States can receive Federal-aid reimbursements for a wide array of debt-related costs incurred in connection with an eligible debt financing instrument, such as a bond, note, certificate, mortgage, or lease. Reimbursable debt-related costs include interest payments, retirement of principal, and any other cost incidental to the sale of an eligible debt instrument.

This photograph shows a highway section of the Southeast Corridor in the metropolitan Denver, Colorado area. Four lanes of traffic in each direction are shown, with a light rail system operating in the highway median superimposed on the photo. A photo inset in the upper left-hand corner shows the existing section of the highway corridor without light rail in the median.

Colorado GARVEE
Colorado sold $1 billion of GARVEEs as part of a planned
$1.7 billion bond offering to help finance corridor
improvements throughout the state, including Denver's I-25
Southeast Corridor project, known as T-REX.
Photo Credit: Colorado Department of Transportation

In general, projects funded with the proceeds of a GARVEE debt instrument are subject to the same requirements as other Federal-aid projects with the exception of the reimbursement process. Instead of reimbursing construction costs as they are incurred, the reimbursement of GARVEE project costs occurs when debt service is due. For a GARVEE, a state may request partial conversion of AC project(s) to coincide with debt service payments, allowing for effective use of obligation authority.

It is important to note that, in order to issue GARVEE bonds, states or the issuing entity must have the appropriate state authorizations related to debt issuance. States have the flexibility to tailor GARVEE financings to accommodate state fiscal and legal conditions.

What are the benefits?

The GARVEE financing mechanism generates up-front capital for major highway projects at tax-exempt rates and enables a state to construct a project earlier than using traditional pay-as-you-go grant resources. With projects in place sooner, costs are lower due to inflation savings and the public realizes safety and economic benefits. By paying via future Federal highway reimbursements, the cost of the facility is spread over its useful life, rather than just the construction period. GARVEEs can expand access to capital markets, as a supplement to general obligation or revenue bonds.

How is it used?

Candidates for GARVEE financing are typically large projects (or a program of projects) that have the following characteristics:

The costs of delay outweigh the costs of financing;
Other borrowing approaches may not be feasible or are limited in capacity;
They do not have access to a revenue stream and other forms of repayment are not feasible; and
The sponsors are willing to reserve a portion of future year Federal-aid highway funds to satisfy debt service requirements.

States are finding GARVEEs to be an attractive financing mechanism to bridge funding gaps and accelerate construction of major corridor projects. Ohio, the first state to leverage Federal dollars through GARVEEs, sold three GARVEE issues in the FY 1998-2001 period, totaling $190 million. The proceeds of these issues are helping to finance Spring-Sandusky corridor improvements, the new Maumee River Bridge, and the Southeast Ohio Plan.

Colorado is advancing a multi-billion dollar program of strategic statewide projects, including the multimodal Southeast Corridor project, through planned GARVEE financings expected to total $1.7 billion. In Arkansas, GARVEE bonds, expected to total $575 million, are helping to accelerate the financing of 380 miles of Interstate improvements.