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The Innovative Finance Toolbox

Since launching its innovative finance initiative with TE-045, FHWA has advanced many techniques to supplement traditional transportation funding programs. Many of the innovations proposed under the TE-045 initiative were enacted into law under the National Highway System Designation Act (NHS Act) of 1995. The Transportation Equity Act for the 21st Century (TEA-21), enacted in 1998, made further strides in broadening project sponsors' options for financing Federally-assisted highway projects. As states and private sector sponsors look to innovative finance options, it is important to recognize the potential synergy in combining techniques to advance a project.

This figure shows a pyramid divided in thirds, with each third describing various types of projects in terms of whether or not they generate revenue, and the types of innovative finance tools that can support each project type. The peak of the pyramid represents marketable revenue projects, for which no innovative finance tool likely is needed. The middle section represents projects that can generate some revenues but will still require credit assistance to fund construction. Supporting financial tools for these types of projects include SIBs, Section 129 loans, and the TIFIA Federal credit program. The largest portion of the pyramid at the bottom of the pyramid represents traditional non-revenue projects. These projects can be supported by GARVEE bonds or Federal funds management techniques, which include matching strategies such as flexible match, tapered match, toll credits, and STP program match, as well as advance construction or partial conversion of advance construction.

The base of the pyramid represents the majority of highway projects that continue to rely primarily on grant-based funding, but may benefit from measures that enhance flexibility and maximize resources. Various Federal funds management techniques, such as advance construction, tapered match, and grant-supported debt through Grant Anticipation Revenue Vehicles or GARVEE bonds, can help move these projects to construction more quickly.

The mid-section of the pyramid represents those projects that can be partially financed with project-related revenues, but may also require some form of public credit assistance to be financially viable. State Infrastructure Banks can assist state, regional, and local projects through low-interest loans, loan guarantees, and other credit enhancements. State loans of Federal grant funds known as Section 129 loans represent another credit assistance technique. The Transportation Infrastructure Finance and Innovation Act (TIFIA) program provides credit assistance to large-scale projects of regional or national significance that might otherwise be delayed or not constructed at all because of risk, complexity, or cost.

The peak of the pyramid reflects the very small number of projects able to secure private capital financing without any governmental assistance. These self-supporting projects are typically developed on high-volume corridors where revenues from user fees are sufficient to cover capital and operating costs.

This photograph shows a section of the completed New Mexico State Road 44, with two lanes of highway in each direction.

New Mexico State Road 44
A GARVEE bond approach has enabled the expansion
of New Mexico 44 in a significantly reduced time
frame compared to traditional funding approaches.
Photo Credit: Mesa, PDC

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