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Population growth and economic expansion are increasing the demands on Arizona's highway system. A 2001 analysis of Arizona's transportation revenues and needs predicts a $20.3 billion shortfall over the 20-year period from 2001 to 2020. Of this, an estimated $16.6 billion is in the category of roads and highways. While Arizona is not alone in its shortage of transportation funds, the rate of population growth (double the national average) and the accompanying traffic congestion are straining the system and funding is not keeping pace with the demands for new or upgraded facilities and increasing costs to maintain existing facilities. Faced with the challenge of trying to close the funding gap between needs and existing revenues without new or increased taxes, Arizona in the mid-1990s launched a comprehensive transportation investment strategy which included the application of innovative financing mechanisms to help bridge the funding gap and accelerate construction of priority projects in both the urban and rural areas of the state. The establishment of a State Infrastructure Bank (SIB) was a key component of the plan developed by the Arizona Department of Transportation (ADOT) to stretch limited transportation dollars and accomplish these objectives.
Arizona was one of the first states approved by the U.S. Department of Transportation to participate in the SIB pilot program in 1996. The SIB concept in Arizona was initially tested under existing state law to demonstrate the benefits of the tool. However, in order to realize the full benefits of the program, comprehensive legislation (HB 2488) was enacted in 1998. This legislation established the Highway Expansion and Extension Loan Program (HELP), Arizona's SIB. The program is intended to accelerate the funding of highway construction throughout the state by offering loans or credit assistance to eligible projects.
The HELP program was initially funded with FHWA capitalization grants under the provisions of the NHS Act and state matching funds, totaling about $50 million. It was soon recognized that this level of HELP funding was insufficient to accelerate priority projects to complete the freeway system in Maricopa County and build needed projects in Pima County and Greater Arizona. ADOT, working with the Governor and the Legislature, explored options for additional sources of capitalization in order to fund an expanded HELP program to provide loans for project acceleration. In the spring of 1999, the Arizona Legislature passed Senate Bill 1201 that enhanced funding to the HELP program through a combination of direct General Fund Appropriations, additional state highway funds, and the creation of an innovative financing mechanism called a Board Funding Obligation (BFO). The additional capitalization that has been provided for Arizona's HELP Program includes:
Authority for the State Transportation Board to issue up to $340 million in Board Funding Obligations. BFOs are short-term obligations purchased by the State Treasurer and paid back from ADOT program funds. The interest rate on BFOs is tied to U.S. Treasury rates.
An appropriation of $20 million in fiscal year 2000 from the State Highway Fund.
A State General Fund Appropriation of $20 million in fiscal year 2001.
In total, these new HELP capitalization sources, combined with the initial Federal and state capitalization monies and a strategy of making short-term loans, will provide in excess of $600 million in loan capacity over the fiscal year 2000-2004 period. Of this total, 50 percent of the loan funds must be allocated to projects in Maricopa County, 25 percent in Pima County, and 25 percent in the other 13 counties.
ADOT has partnered with local governments in advancing several Maricopa Freeway System projects. Local sponsors are sharing in the interest costs on HELP loans, increasing the pool of funds available for future loans. One freeway system project, located near a major new shopping mall, attracted private capital with the developer paying a portion of the local government's share of interest costs.
A key characteristic of Arizona's HELP program is that it provides mostly short-term loans. The average life of loans in the HELP portfolio is 3.5 years, enabling ADOT to recycle funds more quickly and therefore finance a larger volume of projects.
The increased investment in Arizona's highway infrastructure made possible through the HELP Program is improving mobility and safety on roadways throughout the state contributing to economic development, and avoiding escalating construction costs. As of September 2001, Arizona's HELP program has approved 23 loans totaling $373 million. Projects funded by HELP range from a $100 million right-of-way acquisition for the Maricopa County urban freeway system to a $2 million reconstruction and streetscape improvement of Sixth Avenue in Tucson and a $300,000 intersection improvement in the Town of Chino Valley.
Significant progress has been made in accelerating the completion of the Maricopa Freeway System. Using a combination of SIB loans and Grant Anticipation Notes (i.e., GARVEEs), ADOT anticipates completing the Maricopa Freeway System in 2007, seven years earlier than the scheduled completion date of 2014. Since fiscal year 1999, loans for freeway projects have totaled $223 million and another $150 million is planned through fiscal year 2004. In addition, the proceeds from GANS will finance $250 million in freeway work. Clearly, the benefits of innovative finance are demonstrated in the progress that is being made to complete the freeway system. This accelerated schedule would not have been possible with traditional financing approaches and existing taxes. The following chart demonstrates the synergy provided by the two innovative financing mechanisms.
Maricopa Freeway Program Acceleration Plan
In summary, Arizona's Highway Expansion and Extension Loan Program is enabling the state to better meet its transportation infrastructure needs and in doing so is making an important contribution to Arizona's transportation future.
