Posted on the Internet: February 1997
Prepared for the U.S. Federal Highway Administration - Final Report
This report was prepared by Infrastructure Management Group, Inc., of Bethesda, Maryland and Government Finance Group, Inc., of Arlington, Virginia. The principal authors were Miriam Roskin of Infrastructure Management Group and Ann Sowder and JoAnne Carter of Government Finance Group. The authors are responsible for the accuracy of the facts and data presented herein, which derive from written materials and oral comments provided by officials of the Federal Highway Administration and relevant State departments of transportation. The contents of this report do not necessarily reflect the official policy of the Department of Transportation. This report does not constitute a standard, specification, or regulation.
This report assesses the accomplishments of the TE-045 Innovative Finance Research Initiative, a test and evaluation project of the United States Federal Highway Administration (FHWA). The financing strategies tested under TE-045 were identified through an ongoing solicitation process that was launched in April 1994; this report addresses the initiative's achievements realized as of July 1996. In addition to serving as official evaluation of TE-045's progress toward meeting its basic objectives, this report provides perspectives on the structure and performance of the individual financing tools tested under the initiative. The report closes with commentary on opportunities for continued research and observations on various financial concepts that may be considered in connection with the 1997 reauthorization of the Federal-aid highway program.
The findings presented herein were developed through a written survey that covered the full universe of active TE-045 projects. The survey was performed during June and July 1996 in conjunction with the regular quarterly process through which FHWA updates information regarding the status of each active project. Survey responses were further clarified through independent telephone interviews with project managers, officials from FHWA headquarters and State division offices, and representatives from State departments of transportation. Additional interviews with transportation experts from the financial industry and the project development community provided further perspectives on the long-term implications of the TE-045 initiative.
Since 1994, the U.S. Federal Highway Administration (FHWA) has been spearheading an initiative to introduce new flexibility into the financial characteristics of the Federal-aid highway program. Using a test and evaluation research initiative known as TE-045, the agency has solicited State proposals for alternatives to conventional pay-as-you-go, grant-based funding strategies.
Throughout this process, FHWA has emphasized four overriding objectives: to increase investment, to accelerate projects, to improve the utility of existing financing opportunities, and to lay the groundwork for long-term programmatic changes. Two hallmark characteristics of the initiative have been to accomplish these ends through a State-driven process, and to accomplish them without the commitment of new Federal funds.
The eight major types of financing tools that States have proposed and tested under TE-045 can be generally characterized as investment tools or cash flow tools. These categories respectively reflect the first two stated goals of attracting new sources of funds to the overall pool of funds devoted to transportation investment and of accelerating the construction and completion of projects. The goals are not mutually exclusive, as a number of financing tools can meet both investment and acceleration objectives. Moreover, State transportation officials have also realized powerful synergies in instances where they have combined two or more financing mechanisms to improve an individual project's viability and benefits.
The following table displays the major categories of financing concepts identified and tested under TE-045. A recap of how the financing tools work, and how they represent a departure from characteristics of the conventional Federal-aid program, is included in the body of this report.
|Investment Tools||Cash Flow Tools|
|Flexible Match*||Post-ISTEA Advance Construction*|
|Title 23, Section 129 Project Loans (expanded interpretation)*||Partial Conversion of Advance Construction*|
|ISTEA Section 1044 Toll Credits (expanded interpretation)*||Phased Funding|
|Reimbursement of Bond Financing Costs*||Tapered Match|
*Asterisked techniques have now been approved as standard features of the Federal-aid program, either by law (National Highway System Designation Act of 1995) or by administrative action.
Since its inception, the TE-045 initiative has proven popular with most States and has generated a substantial response. Between April 1994 and July 1996, FHWA approved 88 proposals. As new financing concepts and new applications of existing tools emerge, it is likely that additional projects will be proposed and approved under TE-045. At the same time, however, some projects have dropped out of the initiative due to identification of alternative funding sources or the presence of insurmountable obstacles to the projects' financial or political feasibility. As a result, the total number of projects remaining in the program, as of July 1996, was 74. The number of projects analyzed in this report is 71, which excludes the three "projects" that actually represent groups of projects being administered under a related financing strategy known as Surface Transportation Program (STP) Simplification.
|Project Category||Number of Projects|
|Completed, ongoing, and active projects||64|
|On hold, pending resolution of political or legislative issues||7|
|Subtotal ("active projects")||71|
|STP Simplification Projects||3|
|On hold, pending identification of funding source||5|
|Discontinued or dropped from Federal-aid program||9|
|Total projects, April 1994 - July 1996||88|
For the projects currently being pursued under TE-045, the most popular financing concepts - - advance construction and flexible match - - are those that address immediate cash flow needs or that obviate the need for States to use their own funds to match Federal funds. In contrast, other than flexible match, States have generally exhibited less interest in and use of investment tools designed to leverage public funds. Prime examples of these under-utilized financing tools include Section 129 loans and bond reimbursement.
Although TE-045, by design, provided no new Federal funds to participating States, the initiative has nonetheless supported significant increases in investment levels. Across the 71 active projects advancing under TE-045, Federal funds are expected to cover just over half of the total construction cost of $4.26 billion. Of the remaining existing and anticipated non-Federal contributions, $1.15 billion in additional investment can be directly attributed to the impact of financing concepts pioneered under TE-045. (The $4.26 billion figure excludes funding devoted to the three STP Simplification pilots. Their inclusion would bring the total investment level to $4.51 billion. Previous FHWA testimony has reported rounded figures of $4.5 billion and $1.2 billion, respectively representing total investment for TE-045 projects and additional investment directly attributable to TE-045.)
These increases, sometimes referred to as leveraging effects, have occurred when the purchasing power of existing Federal and State resources is multiplied (or leveraged) through newfound opportunities to attract additional funds to infrastructure projects. In addition, the leverage of existing public funds can occur when non-traditional uses of Federal funds serve to enhance the viability of financing projects partially with debt.
While the additional investment levels enabled through TE-045 are impressive, it is important to note that the vast majority of the extra anticipated $1.15 billion in local, private, and other funds to be deployed on these projects is distributed across two large projects located in Texas and California. The Texas project combines a Section 129 loan with other innovative financing tools to improve the affordability of a major bond issue. The California project will also combine multiple financing tools to expedite and facilitate a bond issue. In this case, the cornerstone of the combination is anticipated to be Federal reimbursement of bond financing costs, including principal and interest. The remainder of the additional investment ($135 million) is distributed among 19 additional projects, and derives principally from States' use of new matching opportunities.
On the basis of the standard ratios used by FHWA to estimate the employment effects of investment in highway construction, the 71 active TE-045 projects are expected to generate direct, indirect, and induced employment of over 175,000 jobs. Considering only the employment effects associated with the $1.15 billion net increase in investment attributable to TE-045, it is estimated that anticipated direct employment effects of about 10,000 additional highway construction jobs can be attributed to use of the financing tools tested under TE-045.
Sixty of the 71 active TE-045 projects have been or will be accelerated through use of one or more of the financing tools. Across the 43 projects for which the number of years of acceleration can be estimated, the average amount of expected project acceleration is 2.2 years. In some cases, cash flow tools such as partial conversion of advance construction have offered States the opportunity to pursue multiple projects concurrently; in the absence of these tools, States would have been required to pursue a sequenced development of these projects over a number of years. In other cases, use of investment tools such as flexible match and Section 129 loans has resulted in additional funding being available to accelerate high priority projects that would otherwise have been deferred, or used to advance projects that likely would never have been constructed in the absence of TE-045.
Expediting project construction generates real economic returns to highway users and other project beneficiaries by bringing direct and social benefits on line sooner. Typical highway construction projects provide direct benefits in three dimensions: (i) travel time savings, (ii) safety improvements, and (iii) reduced vehicle operating costs. In addition, certain projects also offer environmental and other social benefits that accrue not only to road users, but also to communities more generally. Assuming that a project's discounted benefit-to-cost ratio is positive, the opportunity to pursue projects sooner rather than later permits States to realize higher net benefits than would be the case had they been required to defer that project for several years.
The two final objectives of the TE-045 initiative centered on (i) facilitating use of financing tools introduced under ISTEA, and (ii) building a base of experience from which to develop future legislation to improve the financial characteristics of the Federal-aid highway program. TE-045 has facilitated the States' use of ISTEA financing tools to varying degrees, with certain features of the program made significantly more attractive and others still encountering substantial barriers to implementation. TE-045's final objective of establishing a framework for future legislative action has been partially realized through Congressional enactment of financial provisions contained in the National Highway System (NHS) Designation Act of 1995, as well as through recent administrative actions. While TE-045's programmatic effects often receive less attention than its quantitative impacts on investment levels and project acceleration, the initiative's support for fundamental changes to the Federal-aid program is noteworthy given that these policy impacts were largely influenced by an initiative that offered no new Federal funding.
States' experience under TE-045 to date indicates that the innovative finance tools designed to foster interactions between Federal assistance and major debt financings tend to offer the greatest potential to leverage Federal funds by attracting other forms of investment. Ironically, however, under TE-045, States have demonstrated relatively less interest in the very strategies best-suited to facilitating debt financings. Explanations for States' more muted response to leveraging tools such as reimbursable project loans are varied, but a few of the more likely reasons include the facts that: (i) using Federal aid to reimburse State-initiated loans draws from a fixed sum of obligational authority that may already have been programmed several years in advance; (ii) loans can only be deployed on projects that can support a dedicated revenue stream; and (iii) loans tend to be most applicable to complex project financings that require favorable State legislative conditions, depend on cooperative institutional relationships, and entail lengthy preconstruction phases. Similar considerations have also tended to minimize States' use of the bond reimbursement opportunities pioneered under TE-045 and subsequently authorized under the NHS Designation Act.
While no single strategy is likely to respond to all of the barriers that impede States' use of Section 129 loans and bond reimbursement, continued and expanded outreach efforts by FHWA will be an important catalyst to further use of these tools. In addition, continued research and potential legislative consideration of additional TE-045 project proposals can broaden the appeal of these and other leveraging strategies. Expansion of the State infrastructure bank pilot program established under the NHS Designation Act, changes to certain matching requirements, creation of opportunities for States to access direct Federal loans and credit enhancement, development of new opportunities for States to identify and tap new revenue streams, and identification of potential linkages between innovative financing and procurement strategies, all represent important areas for continued research and possible consideration under the 1997 reauthorization of the Federal-aid highway program.
Since 1994, the Federal Highway Administration (FHWA) has been spearheading an initiative designed to cultivate new financial flexibilities within the Federal-aid highway program. Using a test and evaluation research initiative known as TE-045, the agency has solicited State proposals for alternatives to conventional pay-as-you-go, grant-based funding strategies. FHWA's overriding objectives throughout this process have been to increase investment, accelerate projects, improve the utility of existing financing mechanisms, and lay the groundwork for long-term programmatic and legislative changes.
This chapter reviews the history of TE-045 and outlines the objectives of the initiative. The chapter describes the eight principal financing concepts that have been tested over the past two years, and illustrates how TE-045 permitted more flexible use of key features of the conventional Federal-aid program. This comparison of conventional versus innovative interpretations of rules governing the Federal-aid highway program provides essential background to the remainder of this report.
Since its inception in 1916, the Federal-aid highway program's financial cornerstone has been a funding strategy known as grant reimbursement. Under this approach, FHWA reimburses State capital expenditures on highway infrastructure at a prescribed rate (historically, 80 or 90 percent), with the remainder of project costs being covered by the State. While the conventional Federal-aid program has enabled construction of an extensive Federal-aid highway system, including the nation's 40,000 mile Interstate system, the program's financial limitations are becoming evident in the face of the dual challenge of growing investment needs and shrinking availability of public funding to meet those needs. Within this context, strict adherence to the reimbursable grant strategy may no longer be the most productive approach; as noted by the Deputy Federal Highway Administrator, this single strategy is limited in range, slow to change, and not sufficiently productive to meet growing investment needs.
In recognition of the limitations embedded in the standard Federal-aid program, for the past three years FHWA has systematically revisited the on-going rationale for some of the more restrictive funding rules. Under this effort, FHWA has also sought to develop mechanisms to permit more flexible treatment of grant funds, expand the use of debt financing, and increase reliance on private sector investment. An important catalyst to this effort was President Clinton's Executive Order 12893, issued in January 1994, which established infrastructure investment as a priority for the Administration. The Executive Order also directed Federal agencies to establish programs for more effective investment from current Federal funds.
In response to Executive Order 12893 and in recognition of the need to explore new financing strategies, FHWA announced the Innovative Finance Program - Test and Evaluation Project (TE-045) in a Federal Register notice dated April 8, 1994. The program was established using statutory authority granted under Section 307(a) of Title 23 of the U.S. Code. Section 307(a) permits FHWA to engage in a wide range of research projects, including those related to highway finance. As part of this research effort, FHWA was able to waive selected policies and procedures so that specific transportation projects could be advanced through the use of non-traditional financing concepts.
TE-045 was initially designed and subsequently operated to give States a forum in which to propose and test those concepts that best met their needs. Projects advanced under TE-045 were thus identified by State-level decision makers facing real world barriers to financing needed transportation improvements. Since TE-045 did not make new money available, its primary focus and ultimate measure of success has been its ability to foster the identification and implementation of new, flexible strategies to overcome fiscal, institutional, and administrative obstacles faced in funding transportation projects.
Although TE-045 has been essentially a State-driven initiative, the April 1994 Federal Register notice identified several areas for States to consider when developing their project proposals, including:
On the basis of these guidelines and their own observations, the States proposed a range of new approaches to everything from matching strategies to the eligible uses of Federal-aid funds. In a few cases, the proposals extended too far beyond Title 23 requirements to permit FHWA approval of the projects. In most cases, however, FHWA staff were able to work with their State counterparts to refine concepts to a point where they were able to be tested.
All proposals were submitted by State departments of transportation (DOTs). The proposals tended to stop short of full-fledged privatization strategies, although a number of proposals involved some measure of private participation in funding the projects. For these projects, States concentrated on strategies that blended private contributions into the broader mix of funds directed to an individual project. In a few cases, States also proposed financing strategies that sought greater private involvement in issuing debt.
In recent years, the drawbacks of some of the Federal-aid highway program's more restrictive funding rules have manifested themselves in a variety of ways. First, States were required to set aside obligational authority equal to the entire Federal share of the cost of a project in the first year of project construction - - even if the project were actually to be constructed over several years. (An obligation is a prospective commitment of the Federal government to reimburse the Federal share of States' expenditures on eligible project costs. Obligational authority refers to the maximum amount of Federal funding that may be obligated in a given time period (usually a year). Levels of obligation authority are determined by Congressionally-established obligation limitations. Each State receives its share of total obligational authority on the basis of its relative share of total authorized funding distributed to all States for the given fiscal year.) This requirement had the unintended effect of forcing States to pursue multiple projects sequentially, rather than simultaneously. Second, strict adherence to the policy of reimbursable grants tended to encourage pay-as-you-go grant funding methods over leveraging techniques such as debt financing, even in cases where a pay-as-you-use strategy made good economic and financial sense. Third, the program generally acknowledged only Federal and State governments as financial participants in highway investment; public-private ventures remained a largely foreign concept.
The combined effect of these funding rules resulted in some projects being unnecessarily delayed and in Federal funds remaining almost wholly unleveraged on the capital markets. The broad objectives of TE-045, as shown in Table 1.1, responded directly to these concerns. In addition, TE-045 supported strategies to make existing opportunities more useful and to pave the way for long-range adjustments to the fundamental structure of the Federal-aid program. Together these objectives address many of the limitations and obstacles inherent in traditional highway financing methods.
|Objective||Obstacle faced||TE-045 goals|
|Increase investment||Federal, State and local budgets are constrained; needs far outweigh resources.||Assist States in their efforts to leverage their current spending to attract additional capital, both non-Federal public and private.|
|Accelerate projects||States' commitment of funds for individual projects is governed by rules that can compel projects to be deferred for a number of years; certain matching restrictions can also delay project delivery.||Move projects into construction more quickly than under traditional financing procedures.|
|Promote use of ISTEA financial provisions||New and complex financing issues have challenged States' abilities to use existing flexibilities allowed under ISTEA, specifically under Sections 1012 and 1044.||Create incentives for States to take full advantage of ISTEA financing opportunities by allowing more flexible interpretations of these Sections.|
|Establish basis for future legislation||A knowledge gap exists regarding which financing strategies are practical, useful, and reproducible.||Accumulate a record of experience with new financial strategies. Use the experience to assist in framing new legislation and administrative rules.|
Based on the initial concepts outlined in the April 1994 Federal Register notice and the financing techniques suggested by the States in their project proposals, a consensus set of eight innovative financing tools has emerged. These tools fall into two main categories: investment tools (also referred to as leveraging tools) and cash flow tools. Previous FHWA publications offer inventories and overviews of the financing mechanisms tested under TE-045. (For example, see Rebuilding America: Partnership for Investment, December 1994, Publication No. FHWA-PL-95-023.) A brief synopsis of these two groups of tools follows. An additional funding strategy known as Surface Transportation Program (STP) Simplification is also being tested under TE-045 and is described in the following section.
Investment tools generally seek to increase the total amount of resources available for transportation projects, given budgetary limitations on Federal investment. As noted above, investment tools are often referred to as leveraging tools because by attracting additional sources of funds (both public and private), they seek to expand (leverage) the purchasing power of existing State and Federal funds dedicated to transportation improvements. The four principal investment tools are:
Cash flow tools seek to move projects to construction sooner, often by permitting States to take on more projects simultaneously. These techniques typically provide flexibility in the rules that govern States' obligation of Federal-aid funds and the subsequent reimbursement of State expenditures. In doing so, they can help States manage their annual highway construction and maintenance programs more efficiently. In addition, these tools generate real economic returns by bringing the benefits associated with individual projects on line sooner. The four principal cash flow tools tested under TE-045 are:
It should be noted that of these four cash flow tools, phased funding is no longer being tested. Tapered match continues to be tested, but only on an experimental basis.
STP Simplification is a recent addition to the set of tools being tested under TE-045. It refers to a pilot program under which a State may bundle together numerous STP-eligible projects and subsequently commit Federal funds to those projects in a single obligation. In addition, States are permitted to maintain Federal-State matching ratios across the full program, rather than on a project-by-project basis. The idea behind streamlining the program in this fashion is to help States manage their Federal-aid highway money more efficiently and to move projects to construction more rapidly. While the anticipated three pilots being tested depart, strictly speaking, from the project-specific approach followed within the rest of the TE-045 program, STP Simplification nonetheless targets similar objectives.
To ground the discussion of the results of the TE-045 initiative, Table 1.2, displayed on the two following pages, summarizes the principal financing tools tested under the initiative. The table indicates the impact of TE-045 financing concepts on funding practices that typified the Federal-aid program prior to creation of TE-045.
It should be noted that certain approaches tested under TE-045 have evolved to a point where they have gained statutory approval under the National Highway System (NHS) Designation Act of 1995 or through administrative action. Accordingly, Table 1.2 also indicates, as appropriate, instances where the experimental approach tested under TE-045 can now be considered "conventional," given recent statutory and administrative changes.
|Conventional Federal-Aid Program||TE-045 Financing Innovation|
|Flexible Match*||Private and certain local contributions to highway projects come off the top of total project cost, with the standard Federal-State matching ratio (usually 80%-20%) being maintained on the balance of project costs. This means that the State must still provide matching funds no matter how large the contribution by the private entity.||The value of private and certain local contributions directly offsets the State share. As a result, it is possible for a private contribution to entirely satisfy the non-Federal matching requirement. Because the benefits of private contributions accrue wholly to the State, flexible match can increase a State's incentive to actively seek private partners.|
|Section 129 Loans*||Section 1012(a) of ISTEA amended Section 129 of Title 23 of the U.S. Code to permit States to obtain Federal reimbursement for loans they make to toll projects. ISTEA Section 1012 placed restrictions on the terms of the loans and eligible uses of loan repayments.||States may initiate reimbursable loans to any project with a dedicated revenue stream (i.e., not necessarily tolls). Other flexibilities related to loan terms and institutional arrangements also expand the utility of Section 129 loans.|
|ISTEA Section 1044 Toll Credits*||Section 1044 of ISTEA permits States to apply the value of certain highway expenditures funded with toll revenues toward the required State match on current Federal-aid projects. States may only substitute toll credits for State match if they demonstrate a "maintenance of effort" (MOE). The MOE test requires that a State's prior-year highway spending equaled or exceeded the average of the previous three years' expenditures.||The MOE requirement is relaxed such that States may offset State match with Section 1044 toll credits so long as they meet the test prospectively - - e.g., anticipated current-year expenditures meet an average of the three previous years' expenditure levels. States may elect to have the MOE test extend as much as one year into the future. In addition, credits earned in prior years no longer lapse.|
|Reimbursement of Bond Financing Costs*||Federal-aid funds may be used to reimburse the cost of retiring the principal component of project debt for certain projects. Interest, issuance, and administrative costs are not eligible for Federal reimbursement, except for interest costs on Interstate construction projects.||Interest, issuance, and administrative costs are now eligible for reimbursement, in additional to principal payments.|
|Post-ISTEA Advance Construction*||Under advance construction States may use State and local funds to construct projects while still preserving those projects' eligibility for future Federal-aid reimbursement. However, all conversions to Federal-aid must be made by the end of the ISTEA authorization period.||Reimbursement of advance construction expenditures may extend into the next authorization period, assuming that Federal-aid apportionments continue beyond the end of the ISTEA authorization period. States must limit their use of advance construction to their unobligated balance of apportioned funding and three years of anticipated funding.|
|Partial Conversion of Advance Construction*||When projects are converted from advance construction, a State DOT must obligate the entire cost of the project at once, regardless of the expected pattern of actual expenditures and resulting Federal reimbursement.||States may obligate funds for advance construction projects in a phased fashion, such that amounts obligated approximate the amounts actually expended. No Federal funds are committed until their obligation.|
|Phased Funding||States must obligate the entire cost of a project all at once, regardless of how many years it will take for the project to the project to be constructed and thus translate into expenditures.||States may obligate funds over time, such that amounts obligated approximate the amounts actually expended. Federal funds are committed to the project, subject to availability of contract authority.|
|Tapered Match||A standard matching ratio must be maintained throughout the life of a project's construction. Every voucher a State submits for Federal reimbursement must be limited to a set percentage (usually 80 percent) of the actual expenses incurred by the State.||The matching ratio is permitted to vary over time. Federal reimbursement of State expenditures can be as high as 100% in the early phases of a project, so long as by the time the project is complete, the overall Federal contribution does not exceed the Federal-aid limit.|
|STP Simplification||All individual Federal-aid projects must be approved, administered, and tracked separately.||States may bundle together individual projects to be funded through the Surface Transportation Program. In this way, numerous projects may be treated as a single project for the purposes of approval and administration.|
*As further discussed in Chapter 5 of this report, asterisked financing techniques have now been approved as standard features of the Federal-aid program, either by law (NHS Designation Act of 1995) or by administrative action. In some cases, statutory treatment of the tools differed slightly from the concept tested under TE-045. For example, for flexible match, certain public donations of funds, materials, or assets must still be deducted from the entire project cost rather than applied to the State share of project costs. Chapter 5 also details the status of the three strategies that have not been approved.
The principal financing concepts pioneered under TE-045 have produced significant quantitative and qualitative benefits that align closely with the initiative's four principal objectives. The initiative's quantitative benefits have been realized in two primary categories: first, in increasing investment levels, and second, in accelerating project delivery. In general, investment tools such as flexible match and Section 129 loans have played the greatest role in attracting new sources of capital to transportation projects, although certain tools (e.g., ISTEA section 1044 toll credits) have ultimately proven at least as effective in helping States administer their programs as in increasing investment levels. Cash flow tools, such as partial conversion of advance construction, have offered the primary benefit of accelerating projects by permitting States to alter the timing and/or administration of Federal funds to better match project timetables. At the same time, the benefits associated with investment and cash flow tools are not mutually exclusive, as powerful synergies have resulted in several instances where States have combined investment and cash flow tools on a single project.
TE-045's qualitative benefits are also apparent in two dimensions: first, in improving the utility of certain financial provisions of the Federal-aid program that pre-dated the TE-045 initiative, and second, in laying the groundwork for ongoing statutory and regulatory improvements to the Federal-aid highway program. The initiative's accomplishments to date in improving the utility of existing financial provisions primarily derive from efforts to broaden the terms of certain financial provisions introduced by ISTEA. TE-045's role to date in supporting additional long-term changes to the Federal-aid highway program is principally evident in the financial provisions of the NHS Designation Act of 1995 and two recent administrative changes.
Looking ahead, TE-045 continues to be an incubator for new approaches to financing Federal-aid highways. FHWA is continuing to accept proposals for newly identified financing concepts on a rolling basis. This process, coupled with continued consideration of the lessons inherent in the TE-045 experience to date, will build on the benefits already realized under TE-045. The process will also help set the agenda for future research and potential future legislative and administrative action.
Since its inception, the TE-045 initiative has proven popular with most States and has generated a substantial response, with FHWA approving 88 proposals between April 1994 and July 1996. As new financing concepts and new applications of existing tools emerge, it is likely that additional projects will be proposed and approved under TE-045. At the same time, however, some projects have dropped out of the initiative due to identification of alternative funding sources or the presence of insurmountable obstacles to the projects' financial or political feasibility. As a result, 74 projects remain active in the program, as of July 1996. The number of projects analyzed in this report is 71, which excludes the three "projects" that actually represent groups of projects being administered under STP Simplification.
For the projects currently being pursued under TE-045, the most popular financing concepts are those that address immediate cash flow needs or that obviate the need for States to use their own funds to match Federal funds. In contrast, outside of flexible match, to date States have generally exhibited less interest in and use of leveraging tools such as Section 129 loans and bond reimbursement, despite these tools' large leveraging potential. This chapter describes the status of the projects accepted into TE-045 as of July 1996 and provides initial observations on the States' relative interest in the eight principal financing concepts tested to date.
Between the summer of 1994 and the initial December 1995 deadline for TE-045 project proposals, 35 States submitted over 70 innovative financing proposals to FHWA. On the basis of this strong response, FHWA extended the initiative and continues to accept proposals. As of July 1996, the total number of approved proposals had grown to 88 projects in 37 States. The combined cost of these projects exceeds $6 billion.
Because TE-045 is an ongoing initiative, any overview of its component projects necessarily represents a snapshot of those projects' status at a given point in time. The complete universe of 88 projects can be subdivided into categories that represent the status of individual projects. The full universe of the 88 projects accepted into TE-045, along with the projects' status as of July 1996, is summarized in Table 2.1, and detailed in Appendix 1.
|Project category||Number of projects|
|Completed, ongoing, and anticipated projects||64|
|Presently on hold, pending resolution of political, legislative, or related issues||7|
|Subtotal ("active projects")||71|
|Anticipated STP Simplification projects||3|
|On hold indefinitely, pending identification of additional funding||5|
|Discontinued or pursued without Federal-aid||9|
|Total projects, April 1994 - July 1996||88|
|Source: FHWA quarterly TE-045 project updates and supplementary independent telephone interviews.|
As shown in the table, 64 individual projects are completed or in progress. Seven additional projects stand a reasonable chance of moving forward, pending resolution of political or legislative issues through, for example, enactment of required State enabling legislation. STP Simplification pilots are also planned in three States. Taken together, these 74 projects represent the large subset of projects that remain active in the program, and testify to the States' ongoing commitment to innovative finance.
Although TE-045 offered States mechanisms to address some of the financial and institutional obstacles that can hinder project development, in about 15 cases, certain real world complexities of public finance have nonetheless proven potent barriers to project development. As a result, States have withdrawn nine projects from the TE-045 initiative and another five are on hold indefinitely. In general, these outcomes have arisen from voter rejection of bond referenda, a lack of funding, State identification of alternative funding arrangements, State legislative conditions, or other external circumstances. The need to discontinue projects that encounter such impediments is not uncommon in the Federal-aid program. The presence of these impediments is even more understandable for the subset of Federal-aid projects advanced under TE-045, for those projects tended to offer special challenges that made them strong candidates for innovative approaches in the first place. Appendix 2 details the status of the discontinued TE-045 projects.
For the purposes of this evaluation and for the remainder of this report, the first two categories of projects displayed in the preceding table comprise the subset of projects for which a quantitative assessment of benefits has been prepared. This subset captures 71 projects, representing a total of $4.26 billion in construction and related costs. Throughout the remainder of this report this subset of projects is referred to as "active projects." It includes completed projects, ongoing projects, imminent projects, and the seven projects that are currently on hold but appear to have a reasonable chance of moving forward in the foreseeable future. (Although active, the three anticipated STP Simplification projects are excluded from the analysis because of their fundamentally different structure from the remainder of the TE-045 project universe. Their inclusion would bring the total investment level to $4.51 billion, as reported in previous FHWA testimony.)
As anticipated, States proposed a wide range of innovative financing techniques under TE-045, creating a financial toolbox suited to diverse needs. FHWA's dissemination of information on concepts approved during the early stages of the initiative helped create momentum for even broader experimentation with the various financing concepts. However, even given these efforts to disseminate information on the various tools, there has been wide variation in States' level of interest in the tools.
As displayed in Table 2.2, flexible match and certain cash flow tools have proven most popular under TE-045. For a variety of reasons explored later in this report, most investment tools (other than flexible match) have been of lesser immediate appeal. Table 2.2 illustrates each instance in which each of the eight financing concepts has been employed on an active TE-045 project.
|Tool||Number of Projects|
|Post-ISTEA Advance Construction||15|
|Partial Conversion of Advance Construction||14|
|Section 129 Loan||5|
|ISTEA Section 1044 toll credits||3|
|Other (e.g., studies of alternative innovative financing strategies)||2|
Source: FHWA quarterly TE-045 project updates and supplementary independent telephone interviews.
As previously noted, phased funding is no longer being tested. Tapered match continues to be tested, but only on an experimental basis.
The number of projects displayed in Table 2.2 sums to more than 71 because two or more financing tools were used in combination on 12 projects. Partial conversion of advance construction was the tool most commonly used in conjunction with other tools (11 instances). Post-ISTEA advance construction and flexible match were also commonly teamed with other financing concepts.
A number of factors contributes to States' varying degrees of interest in the individual financing techniques that comprise TE-045's financial toolbox. One important influence on the use of a particular tool is the extent of its applicability to a wide range of situations. Some tools hold nearly universal appeal, while other tools instead offer targeted remedies to unique funding dilemmas. For example, transportation investment needs outstrip available resources in most States; flexible match is one tool that can help offset these common shortfalls by allowing States to offset their required matching share on transportation projects with other sources of funds. Some of the less commonly used tools, such as Section 1044 toll investment credits, have a narrower scope of applicability, and therefore a lower incidence of use.
Another factor affecting the use of individual financing concepts is the level of effort associated with the use of a particular tool. Some tools, such as post-ISTEA advance construction, can be employed quite readily. This is in part because advance construction is not a new concept to transportation planners nor one that requires any special action to enable its use. As a result, extending its applicability beyond the end of the ISTEA authorization period is not likely to entail any special administrative complexities. In contrast, tools such as Section 129 loans and bond reimbursement represent new concepts that often require States to overcome complex legal and institutional impediments such as the lack of required State enabling legislation; State-imposed limitations on State agencies' authority to issue debt; and the lack of well-developed models for sharing the risks and rewards of project development among diverse project partners, such as State DOTs, toll authorities, and private developers.
Another critical factor that constrains States' interest in loans and bond reimbursement is the fact that there is no new Federal funding available to support the use of these tools. When States use Federal aid to reimburse project loans or bond financing costs, the action consumes part of their annual obligational authority. (As later discussed in chapter 5, certain combinations of tools, such as Section 129 loans and partial conversion of advance construction, can mitigate the impact of loan reimbursement on annual obligational authority.) Given the fact that deficit reduction efforts may prevent any growth in annual Federal funding levels made available for obligation, many State officials are reluctant to part with any obligational authority that they originally intended to distribute on a grant basis. Even though State planning horizons shift forward each year, most States maintain a full pipeline of projects that are ready to consume future obligational authority for years to come.
While the individual financing concepts' applicability to a wide range of situations, their ease of use, and their impact on State budgets are three of the leading factors that determine their relative popularity, experience gained under the TE-045 initiative also points toward other factors that may limit States' use of Section 129 loans and bond reimbursement. These additional limiting factors - - and a series of strategies to help overcome them - - are explored in the fifth and sixth chapters of this report.
While the eight financing concepts described above represent the bulk of the financing concepts tested under TE-045, States also proposed several strategies that FHWA considered, but ultimately rejected. Some of these strategies focused on using unobligated balances to provide credit enhancement on State-issued debt. (The term "unobligated balance" refers to contract authority that has been distributed to the States but not made available for obligation, principally due to annual Congressionally-established limitations on obligations.) A few other proposals centered on a strategy generically known as income generation, in which States could generate revenues by leasing certain commercial rights alongside Federal-aid highways. FHWA's rejection of these concepts arose from the fact that both concepts reached far beyond the statutory authority currently available under Title 23. However, as discussed in Chapter 6 of this report, States' strong interest in these strategies suggest that they are good candidates for continued research efforts and/or consideration during reauthorization.
Although TE-045, by design, provided no new Federal funds to participating States, the financing initiative has nonetheless supported significant increases in investment levels. Across the 71 active projects advanced under TE-045, Federal funds are expected to cover just over half of the total construction cost of $4.26 billion. Of the remaining existing and anticipated non-Federal contributions, $1.15 billion can be attributed to the impact of financing concepts pioneered under TE-045.
While the additional investment levels enabled through TE-045 are impressive, it is important to note that the vast majority of the extra $1.15 billion in local, private, and other funds to be deployed on these projects are distributed across two large projects in Texas and California. The Texas project combines a Section 129 loan with other innovative financing tools to improve the affordability of a major bond issue. The California project will similarly combine multiple financing tools to expedite and facilitate a bond issue. In this case, the cornerstone of the combination is anticipated to be Federal reimbursement of privately-issued bonds.
The large impact generated by less widely utilized financing tools such as loans and bond reimbursement should not obscure the fact that more modest - - yet more widespread - - returns have been achieved through States' use of flexible matching opportunities first made available under TE-045. Flexible match has helped States meet immediate funding needs by providing an incentive for them to attract over $100 million in additional capital investment, thus freeing up State funds for other uses.
This chapter provides information on funding levels anticipated for the active TE-045 projects and singles out the investment effects wholly attributable to the application of individual financing concepts tested under TE-045. A discussion of how individual investment tools produce increases in investment levels follows. The chapter closes with a discussion of the employment effects associated with the increased investment levels expected to be realized for the active projects.
The combined cost of the active projects currently being pursued under TE-045 is $4.26 billion. Table 3.1 on the following page displays the distribution of funding, by source, that has been committed or stands a reasonable chance of being committed to these projects. Appendix 3 provides a breakdown of multijurisdictional funding levels on a project-by-project basis.
|Funding source||Amount $ and (%)||Form of funding||Remarks|
|Cash and in-kind contributions||Par Amount of Bonds $ and (# of issues)|
|Federal||$2,272,480 (53%)||$2,272,480||$0 (0)||Approximately $12 million in Federal grants derive from special funds and other Federal agencies (e.g., US Forest Service).|
|State||386,134 (9%)||374,434||11,700 (1)||Debt service on the bonds in this category will be repaid from State tax revenues.|
|Local||83,174 (2%)||78,874||4,300 (1)||Debt service on the bonds in this category is expected to be repaid from fees levied by a new port authority.|
|Private||684,455 (16%)||284,455||400,000 (1)||Approximately $320 million of the bonds issued in this category will be repaid from toll revenues. The remaining $80 million is expected to repaid with Federal-aid and local tax receipts. Debt levels are estimated as financing plans have not yet been finalized.|
|Toll Authorities||829,500 (19%)||87,100||742,400 (4)||Debt service on the bonds in this category will be repaid from toll revenues. The cash and in-kind contribution includes $67 million in anticipated construction fund earnings.|
|Total||4,255,743 (99%)||3,097,343||1,158,400 (7)|
Note: The sources of bond proceeds are categorized on the basis of the issuing entity. However, it should be noted that the initial influx of capital (i.e., bond proceeds) derives from the private investors who initially purchase the bonds. Thus, even when bonds are issued by a State or toll authority, the up-front cash used to pay for construction may be viewed as private investment. Alternatively, debt financed projects may be categorized according to the source of funds ultimately used to retire debt service. Toll receipts and lift fees might be considered private sources, for example, with general tax revenues considered a public source.
Percentages do not add due to rounding.
|Source: FHWA quarterly TE-045 project updates and supplementary independent telephone interviews.|
Table 3.1 indicates that for the active TE-045 projects, funds contributed from non-Federal sources of funds (including bond proceeds) account for almost $2 billion (or 47 percent) of current and expected investment. This is more than double the standard non-Federal matching share of 20 percent that is required for projects within most Federal-aid program categories. (Selection of a 20-percent match as the standard minimum non-Federal share is recognized as a potentially arbitrary cut-off point for indicating circumstances of non-Federal "overmatch" of the Federal contribution. In one sense, assuming a 20 percent non-Federal matching share might set a high standard for conditions of overmatch, given that (i) for some States with large quantities of Federally-owned lands, required Statewide matching ratios are somewhat lower than 20 percent, and (ii) certain Federal programs (e.g., Interstate Maintenance) require only a 10 percent non-Federal match. On the other hand, States tend regularly to overmatch Federal funds for certain projects within their programs. Viewed in this light, the 47-percent average non-Federal share on TE-045 projects may represent a less noteworthy case of overmatch than it would at first appear. Even so, on the basis of average Federal and State capital expenditures across all programs, a 47 percent non-Federal share likely represents a stronger situation of overmatch than is the case in the Federal-aid program generally.)
A consideration of aggregate levels of investment across the active TE-045 projects provides but one perspective on investment levels realized under the initiative. A more rigorous analysis of TE-045's impacts singles out the financing tools' incremental, or net, effect on patterns of investment for the participating projects. The rationale for focusing on net effects stems from the fact that, arguably, some level of local or private investment in these projects would have occurred even in the absence of TE-045.
Even under this more restrictive interpretation of TE-045's effects on investment levels, the initiative still registers impressive results. On the basis of reports prepared by officials closest to these projects, and assuming that the active projects move forward as anticipated, the net increase in current and expected investment that is wholly attributable to TE-045 totals $1.15 billion. This represents over two-thirds of the combined local, private, and other contributions ($1.61 billion) invested in TE-045 projects. It also represents 27 percent of the combined cost of the active projects included in this analysis.
Of the $1.15 billion in increased investment, about $593 million is attributable to private investment. The majority of this total ($482 million) is attributable to bond proceeds and equity contributions anticipated to support a large highway project in California. The remaining $111 million in increased private investment is distributed among 14 other projects. An additional $557 million of the $1.15 billion derives from funds provided or obtained by non-Federal public entities. The majority of this total is attributable to a single toll authority, but funds committed by local governments also contribute to the total amount of additional public investment. The following table summarizes the mix of funds that comprise the net investment effects realized under TE-045.
|Amount of investment||$24||$111||$482 a||$533.5 b||$1,150|
|Number of projects||8||14||1||1||21 c|
|Financing tools||primarily FM||primarily FM||Bond reimb. w/PCAC||Section 129 loan w/PCAC|
a This $482 million contribution is comprised of private equity and proceeds from privately-issued debt that will ultimately be retired with a combination of toll receipts, Federal aid, and local sales tax receipts. The TE-045 financing techniques used on this project apply only to an $82 million component of two linked projects. However, completion of that $82 million project is responsible for the financial feasibility of private financing and construction of the related $400 million facility in San Diego County, California.
b The $533.5 million contribution is comprised of $446.4 million in proceeds from bonds issued by the Texas Turnpike Authority for the George Bush Turnpike (SH 190) as well as $67.1 million in interest earnings and a $20 million cash contribution from the Texas Turnpike Authority.
c The number of projects experiencing net gains in investment is non-additive because for three projects, local and private contributions were simultaneously directed to same project.
|Source: FHWA quarterly TE-045 project updates and supplementary independent telephone interviews.|
A striking characteristic of the additional investment stimulated by TE-045 is that the vast majority - - $1 billion - - is distributed between just two projects: the Bush Turnpike in Dallas, Texas, and the San Miguel Connector and linked State Route 125 in San Diego County, California. Both projects involve large debt financings that were supported or otherwise facilitated through simultaneous use of several TE-045 financing techniques. In the case of the Bush Turnpike, a Section 129 loan was combined with post-ISTEA advance construction, partial conversion of advance construction, and flexible match to support this $696 million tollway. The majority of the total project costs, $533.5 million, derives from non-Federal, non-State public sources, with their provision being wholly attributable to the flexibilities permitted under TE-045. In the case of the San Miguel Connector, Federal reimbursement of bond financing costs will be combined with post-ISTEA advance construction and partial conversion of advance construction, all within the context of a public-private partnership. This financing strategy is expected to facilitate private provision not only of the $82 million Connector, but also of a $400 million toll road (State Route 125).
Although these two projects account for the bulk of additional investment being realized under TE-045, increased investment levels have also been realized in the case of 19 additional projects. In addition to serving as the most widely-used investment tool tested under TE-045, flexible match is responsible for most of this remaining $135 million in additional investment attributable to TE-045. While the $135 million pales in comparison to the approximately $1.0 billion in extra investment attracted through the debt financings in Texas and California, it is evident that at the margin, flexible match can offer a noteworthy infusion of additional funds to States that are struggling to bridge severe funding shortfalls within their transportation programs.
Flexible match, Section 1044 toll credits, Section 129 loans, and bond reimbursement achieve leveraging effects in different fashions, and under different circumstances. Moreover, as seen in both the Texas and California projects, combining these financing strategies with cash flow tools can yield especially strong leveraging effects. The following paragraphs explain how these tools function and what they have achieved in the context of specific TE-045 projects.
From an analytic standpoint, the need to single out TE-045's incremental effect on investment levels, as distinct from investment that would likely have occurred in any event, is particularly pronounced in the case of flexible match. In some cases, private contributions to transportation projects derive directly from the flexible matching opportunities pioneered under TE-045. In these cases, the result is an absolute increase in the amount of resources directed toward transportation investment.
The investment effects attributed to flexible match in this report exclude any private or local contributions that likely would have been donated to the individual projects in the absence of TE-045. The determination as to whether funds would have been donated to projects even without the flexible match provision is based on reports from Federal and State officials most familiar with the individual flexible match projects advanced under TE-045.
In contrast, there are also instances where a private partner would likely have contributed funds to a project even in the absence of flexible match. In this case, flexible match does not increase the amount of investment in transportation infrastructure over what would have been the case in the absence of TE-045. (About $91 million in additional private investment contributed to the 71 active TE-045 projects would likely have been contributed to these projects even in the absence of flexible match.) It should be noted, however, that even in cases of no net increase in investment levels, flexible match still has bearing on the Federal and State shares of the remaining project costs. This is because under flexible match, the entire value of a private (or local) contribution directly offsets the State's share of project costs.
States earn ISTEA Section 1044 toll credits when the State, a toll authority, or a private entity funds capital highway investment with toll revenues earned on existing toll facilities. (The toll revenues eligible for treatment as Section 1044 credits must be net of existing draws for debt service, return to investors, or the operation and maintenance of toll facilities.) The earned credits may be used as a soft match to substitute for the required State share on a new Federal-aid project. As a result, the Federal share effectively rises to 100 percent on the recipient project when the State match is offset with toll credits.
A State may only use toll credits in this fashion if it demonstrates a "maintenance of effort," or MOE, in its aggregate highway investment. (If States wish, they may also consider transit expenditures in the MOE calculation.) Under TE-045, FHWA granted States access to a more flexible MOE test. Previously, the test required that capital expenditures in the preceding year equal or exceed the average annual investment level for the three prior years. The flexible MOE test permits States to consider projected expenditures that extend as far as one year into the future. To date, only two States, Maryland and Michigan, have proposed TE-045 projects involving this prospective MOE test.
Similar to flexible match, use of ISTEA Section 1044 toll credits can result in a net increase in investment levels only if use of the concept attracts new capital to transportation investment, most likely by prompting greater use of tolling. To date, however, there is no evidence to suggest that ISTEA Section 1044 has generated a greater emphasis on tolling and toll financing. Even so, use of toll credits has still offered benefits by helping States overcome immediate shortages in the availability of matching funds and assisting certain States in streamlining the management of their Federal-aid funding. Thus, while Section 1044 toll credits, coupled with increased flexibility in the MOE test, have apparently not met the primary goal of increasing investment levels, this form of flexible match has offered distinct advantages when treated as a cash flow tool, as further discussed in Chapter 5.
As the only TE-045 mechanism that permits States to obtain Federal-aid reimbursement for State-initiated loans to public or private entities, Section 129 loans offer two primary means of increasing overall levels of investment. First, use of loan repayments to help other projects move forward allows a fixed sum of capital to be re-used on other projects. Under a basic Section 129 loan, a State initiates a loan to public, quasi-public, or private project sponsors. The project in question must have a means of generating revenues with which to repay the loan for up to 80 percent of the project cost. The State then obtains Federal-aid reimbursement for the loaned funds. Ultimately, the State also receives loan repayments from the project sponsor. As the loan is repaid, the State can recycle the repaid loan principal for other Title 23-eligible transportation projects, thus providing a mechanism to increase overall investment levels. In addition, interest accruing and payable while the loan is outstanding also adds to the capital available for future transportation investment. When loan repayments are used to capitalize a fund designed to make new project loans, the repayment from the first loan and the resulting initial capitalization of a revolving loan fund can be allocated among several new projects and the leveraging effects can extend well into several generations of projects.
The second method by which a Section 129 loan generates leveraging effects relates to its capacity to support a debt issue. Loans can play a critical role in improving projects' financial feasibility by, for example, reducing the amount of debt that must be issued in the capital markets. In addition, if repayment of the loan is made subordinate to payment of the debt service on revenue bonds, the bonds may be able to secure a higher rating and better investor acceptance. Improved ratings and investor acceptance are important because they can reduce the cost of financing by lowering the interest rate payable on the bonds. The following example helps explain the process by which loans can improve the affordability of a debt issue.
George Bush Turnpike, Dallas, Texas. The President George Bush Turnpike in Texas provides an excellent example of how a Section 129 loan was integrated into a debt financing plan that included, among other sources of funds, publicly sold toll revenue bonds. In order to obtain investment grade ratings and investor acceptance, issuers of toll revenue bonds are generally expected to demonstrate that toll revenues are sufficient to provide a minimum debt service coverage ratio on outstanding bonds. (Debt service coverage is typically calculated by dividing net toll revenues (gross operating revenues net of operating and maintenance expenditures) by annual debt service. Typically, bond covenants associated with a toll revenue bond issue require that a minimum, the prescribed level of coverage can be maintained while debt is outstanding. Additionally, municipal credit analysts and bond investors evaluate coverage in determining the credit quality and perceived risks of a debt issue; strong coverage levels, together with other factors, will support investment grade credit ratings which translate into lower interest rates for the borrower.)
In this case, toll revenues were not expected to be sufficient to provide the 1.20x level of debt service coverage required by the Texas Turnpike Authority's bond resolution on a $700 million bond issue (the total cost of the project). However, by using a Section 129 loan equal to $135 million, together with other sources of funds, the bond issue size could be reduced to $443 million, a more affordable level that would generate required coverage levels while maintaining toll rates at an acceptable level. In addition, the loan also had a subordinate claim on toll revenues, allowing toll revenues to be available first and foremost to provide coverage of debt service on the revenue bonds. As a result, the Section 129 loan and its repayment features played a critical role in assuring the feasibility of the project financing plan and enabling the larger bond issue at practical, affordable levels.
The ability to use Federal funds to reimburse not just the principal component of debt service payments, but also interest payments, issuance costs, and insurance premiums, is a technique that has been proposed but not fully tested under TE-045. Two TE-045 projects have proposed to use bond reimbursement coupled with advance construction and partial conversion to support public-private development of costly projects. In addition, bond reimbursement is being considered as part of the financing plan for two additional projects. None of these projects, however, has progressed to the point where final results are available and can be used to quantify the capacity of this tool to increase investment.
Federal reimbursement of bond financing costs has potential to produce the same kind of high impact results that Section 129 loans have demonstrated. Chapter 6 explores this potential and the latest thinking in the transportation financing industry regarding the future applicability of bond reimbursement. The following example illustrates how bond reimbursement is anticipated to function in support of a private entity's capacity to finance over $400 million worth of new highway infrastructure in California.
San Miguel Connector, San Diego County, California. For this project, bond reimbursement is being combined with partial conversion of advance construction to facilitate construction of a 1.5-mile free road known as the San Miguel Connector. The Connector is a critical link to a planned 10-mile segment of State Route 125, which is to be financed and constructed as a toll facility by a private consortium. In the near term, the region's metropolitan planning organization (San Diego Association of Governments, or SANDAG) lacks the funds needed to construct the $82 million Connector in time to allow the linked toll road to be constructed on schedule. Absent construction of the Connector, the private consortium would likely decline the opportunity to finance and construct the $400 million State Route 125 project.
The anticipated solution to this impasse will involve a recently approved TE-045 project, under which the private consortium plans to issue debt to construct the Connector as a free road, and will subsequently obtain reimbursement for the costs of servicing the debt from SANDAG over a period of 10 years. SANDAG, in turn, will obtain Federal reimbursement, on a partial conversion basis, at the standard Federal matching rate. SANDAG will likely be required to secure the debt with its own dedicated sales tax revenues, meaning that if future Federal-aid apportionments and obligational authority are for some reason not forthcoming, the private consortium (and, ultimately, investors in the project) will still be assured of payments from SANDAG. The details of the financing arrangement remained uncertain, and the role that Federal participation will eventually play in enhancing the credit worthiness of the bond issue remained similarly undefined. However, as of July 1996, indirect Federal support for private provision of the $82 million Connector, obtained through a blend of TE-045 concepts, were expected to serve as the dealmaker for private development of the $400 million State Route 125 tollway.
A corollary benefit to the increases in transportation investment being generated through TE-045 is the creation of new construction and related jobs. FHWA typically captures job creation stemming from highway investment in three dimensions:
The standard ratio used by FHWA to estimate the employment effects of investment in highway construction is that every $1 billion of investment generates 42,100 jobs, including direct, indirect, and induced employment. (The job creation ratios employed for this analysis derive from FHWA's latest research on employment impacts attributable to highway construction, and may differ from previously reported estimates.) Application of the relevant multipliers to the combined $4.26 billion in highway and related projects indicates that jobs created as a result of these projects will ultimately number 176,400, subdivided as follows:
A finer estimation of TE-045's net effect on job creation finds that direct employment effects of about 9,950 jobs are being generated from the $1.15 billion in incremental investment resulting from TE-045. To accomplish this closer look, information on the net increase in highway funding directly attributable to TE-045, stratified by Federal region and project type, was entered into a newly created FHWA job creation model. The model is designed to estimate the direct employment effects of Federal-aid highway projects. (FHWA has developed a PC model (HIGHWAY1) that analyzes direct employment impacts of highway construction at the regional level. The model uses a price deflator to reflect current dollar figures. For this analysis the price deflator was set to reflect 1996 dollars for all projects. The HIGHWAY1 model does not reflect the temporal or time-sensitive relationship between project expenditures and direct employment generation.) It should be noted that in the absence of TE-045, the additional public and private funds being applied to TE-045 projects would likely have been directed to alternative investments. These alternative investments may also have resulted in direct employment effects. However, highway construction tends to be a comparatively labor-intensive activity, meaning that from the perspective of job creation, highway construction tends to yield a greater positive impact on employment than do many alternative uses for these funds.
While TE-045's net effects on investment levels have been spread among just 16 projects, with the vast majority of the extra investment concentrated in just two projects, the financing tools' impact on accelerating projects has been significantly more widespread. Sixty of the 71 active TE-045 projects have been or will be accelerated through use of one or more of the financing tools. In some cases, cash flow tools such as partial conversion of advance construction have offered States the opportunity to pursue multiple projects concurrently; in the absence of these tools, the States would have been required to have sequenced development of these projects over a number of years. In other cases, use of investment tools such as flexible match and Section 129 loans has resulted in additional funding being used to accelerate high priority projects that would otherwise have been deferred in favor of lower priority projects, or used to advance projects that likely would never have been constructed in the absence of TE-045. Expediting project construction generates real economic returns to highway users and other project beneficiaries by bringing direct and social benefits on line sooner. Assuming that a project's benefit-to-cost ratio is positive, the present value of its net benefits is much higher if the project is built now rather than deferred for multiple years.
This chapter details the span of time by which certain of the 88 projects were accelerated through use of the various financing concepts and describes how the strategies expedite projects in differing fashions. The chapter closes with a discussion of the economic returns associated with bringing projects to completion sooner.
States' use of the financing concepts developed under TE-045 has expedited or will expedite construction of 60 of the 71 active projects approved under the initiative. The nature of project acceleration differs across these projects. In 43 cases, State officials were able to estimate the extent to which projects were accelerated or enabled the acceleration of other projects; for these projects, completion occurred an average of 2.2 years earlier than would have otherwise been the case. For five projects, application of a TE-045 financing concept clearly accelerated development of a project, but by an undefined amount. In 10 cases, the projects never would have been pursued in the absence of TE-045. An additional two projects were able to avoid delay by using TE-045 techniques. The following table summarizes the amount of acceleration experienced by the 60 TE-045 projects that have realized or will realize acceleration benefits. (Taking all 71 projects into account, the average number of years of acceleration is 1.7 years.) Table 4.1 summarizes the project acceleration effects realized under TE-045 and Appendix 4 provides a greater level of detail on project-by-project acceleration effects.
|Number of projects accelerated||Average acceleration||Range of acceleration|
|Projects with specified acceleration||43||2.2 years||6 months to 10 years|
|Projects with undefined acceleration||5||--||--|
|Projects that would not have been pursued without TE-045 tool||10||--||--|
|Projects that avoided delay||2||--||--|
|Total accelerated projects||60|
|(Total number of completed or active projects equals 71.)|
|Source: FHWA quarterly TE-045 project updates and supplementary independent telephone interviews.|
Use of cash flow tools typically expedites projects by permitting concurrent, rather than sequential, project development. Before States gained access to these cash flow techniques through TE-045, the slow-spending nature of most Federal-aid highway projects created a situation in which years would pass before obligated Federal funds translated into actual expenditures. This situation occurred because traditional rules governing States' obligation of Federal-aid highway funds demanded that the entire amount of Federal funding needed to complete a given project be set aside in the first year of project development, irrespective of the number of years over which actual expenditures for construction would be incurred, as illustrated in the examples provided later in this section.
In contrast, certain cash flow techniques permit States to obligate only the amount of funding that is expected to be spent in a given year. Some State observers have expressed concern that these techniques can put States in a position of prospectively placing claims on future obligational authority, in that they will be incurring commitments today that will tie up future obligational authority for years to come. However, careful State planning and judicious application of cash flow techniques to suitable project candidates can help forestall situations in which future State flexibility could be inhibited by future demands on Federal obligational authority. State officials emphasize that large projects with well-defined cost schedules are particularly strong candidates for cash flow techniques. Bridge rehabilitations, for example, often provide an especially compelling case for use of techniques such as partial conversion of advance construction, not only because of their generally high cost, but also because the life-cycle cost efficiencies of timely rehabilitation of complex structures are so great.
A few current examples of TE-045 projects serve to illustrate cash flow tools' capacity to expedite projects.
In Florida, use of post-ISTEA advance construction is permitting the State to start construction now on four congestion relief and safety projects with a combined cost of approximately $200 million. (Since enactment of the NHS Designation Act, States may seek FHWA approval to advance construct projects that will be converted to Federal-aid after the end of the ISTEA authorization period. The legislation limits the use of post-ISTEA funds to a State's unobligated balance of apportioned funds plus the amount of Federal funding assumed in the State's three-year State Transportation Improvement Program (STIP). For Florida, this limitation does not prove unduly restrictive, as it represents a level of funding far greater than what the State would envision consuming through advance construction. Current indications are that similar circumstances prevail in most states.) Under the traditional advance construction program, Florida would have had to wait until after reauthorization to assure itself of the opportunity to convert these State-funded projects to Federal-aid at a later date. Under TE-045, Florida DOT can start these projects now and still preserve their eligibility for conversion to Federal-aid after 1997. Each of the projects pursued under Florida's post-ISTEA advance construction program is shown in Table 4.2. The table also displays the respective project acceleration that resulted from use of post-ISTEA advance construction.
|Add lanes to Interstate 75||1 to 3 years|
|Add lanes to Interstate 4||1 year|
|Add lanes to Interstate 95||Protected existing schedule; without TE-045, project would have been delayed.|
|Reconstruction of existing and construction of new weigh stations||TE-045 enabled these projects; without TE-045 the State would have been unable to do these projects.|
In Connecticut, the State DOT has elected to partially convert the advance construction of a $35.7 million component of a major bridge project with a total construction cost of $55.4 million. (As previously noted, under advance construction States may construct projects with State funds while still preserving the projects' eligibility for future Federal-aid reimbursement. States transfer projects to Federal-aid status through a process known as conversion, which traditionally required States to obligate the entire cost of the project at once, regardless of the expected timeline for actual expenditures. Partial conversion, in contrast, permits obligations to be staged over time such that they reflect the multi-year pattern of actual expenditures.) Through use of partial conversion, the State will accelerate the replacement of a mainline bridge on Interstate 95, as well as the replacement of two ramp structures, and the reconstruction of an adjacent avenue. Without partial conversion, Connecticut would have had to obligate the entire $35.7 million for the I-95 bridge project in fiscal year 1996. Consuming that much obligational authority for the single project would have required the State to defer other important projects. On the other hand, opting to pursue these other needed projects instead would have required the State to defer the I-95 bridge replacement. Under TE-045, however, the State found a third path. Through use of partial conversion, Connecticut will spread its Federal-aid obligations for the I-95 bridge project over two years: $20 million in fiscal year 1996, and $15.7 million in fiscal year 1997. As a result, not only is the State able to proceed with the I-95 bridge project in fiscal year 1996, but it can also redirect the extra $15.7 million in obligational authority, that would otherwise have been set aside for the I-95 bridge project, to other projects. State documents indicate that this $15.7 million can be expected to support simultaneous obligation of funds for about six smaller bridge projects.
As discussed later in Chapter 5, phased funding is a cash flow technique that was tested under TE-045 but not subsequently approved for regular use. The technique has now been largely eclipsed by partial conversion of advance construction, as the two strategies achieve similar ends. Like partial conversion of advance construction, phased funding permits States to tailor their schedule of project obligations to anticipated expenditures. However, phased funding differs from partial conversion in that, subject to congressional authorization, the Federal government makes an up-front commitment to the Federal share of the project costs. Under advance construction, the Federal government makes no such commitment of funds until the time of conversion.
Phased funding of Watkins Drive, an urban freeway in Kansas City, Missouri, provides a good example of how phased funding functions. Construction of the $33.7 million project resulted in Federal outlays of $5.1 million in fiscal year 1995, and will result in Federal outlays of $9.1 million in each of fiscal years 1996 and 1997, for a total of $23.3 million. The remaining project costs will be covered by State and local funds. Under phased funding, Missouri is able to obligate Federal-aid funds in roughly the same pattern that they are expended, meaning that the State avoided the need to tie up the $23.3 million in Federal obligational authority in fiscal year 1995. State officials estimate that using phased funding for this project is accelerating its construction by about two years. In addition, other State projects will be able to advance simultaneously.
While used in only a few instances, tapered match has allowed several States to overcome near-term shortages in State matching funds. In Washington State, limits on State expenditures threatened to delay by a year or more a $35.9 million project to construct high-occupancy vehicle lanes and make related road improvements. By using tapered match, Washington will be able to obtain Federal reimbursement of 100 percent of its expenditures on the project until the maximum Federal contribution has been consumed. By that time, a new State budget cycle will have begun, providing the State DOT with a fresh influx of spending authority that will permit completion of the project with 100 percent State funds. Officials from Washington State DOT indicate that as a result, use of tapered match is accelerating construction and completion of the project by a full year.
Use of cash flow tools typically permits States to pursue multiple projects concurrently rather than having to choose among competing priorities. Cash flow tools thus result in a "net" acceleration of a State's overall annual construction program. In contrast, investment tools tend not to result in net acceleration. This occurs because even when investment tools are used, State DOTs must still commit a share of their annual obligational authority to the selected project, and thus cannot use that same authority to concurrently advance other projects. Nonetheless, financing tools that are principally geared to investment effects can result in programmatic shifts that permit selected Federal-aid projects to move to construction sooner. In addition, flexible match and Section 129 loans have helped to advance projects that may never have been constructed if treated as conventional pay-as-you-go Federal-aid projects.
The following sections present two examples of projects that moved to construction sooner than expected due to use of flexible match and a Section 129 loan. The following examples also explain the process by which each financing tool induced the acceleration.
Flexible match can help accelerate individual projects by offering States increased latitude in choosing which projects to expedite among the array of projects vying for limited Federal-aid funds. In Pennsylvania, for example, the use of flexible match accelerated construction of a $3.2 million TE-045 project that comprises seven individual transportation enhancement projects. The projects include four pedestrian/bicycle paths on abandoned railroad rights-of-way, an overlook, a historic preservation study, and a scenic beautification project. Of the total $3.2 million cost for these seven projects, $1.023 million is being funded from private sources. A series of other projects with a similar construction value were also vying for the same Federal funds, and although these projects were of lower priority, they had readier access to public matching funds. In the absence of flexible match, PennDOT may have had to pursue these lower priority projects at the expense of the privately-assisted projects, since private contributions could not have offset the State match. Under flexible match, however, the opportunity to substitute private funds for public matching funds offered PennDOT a means to expedite construction of the higher-priority projects for which public matching funds were not available.
The capacity of Section 129 loans to attract new capital to a project may result in the financing of projects that otherwise would not have been constructed or would have been substantially delayed. For example, in the case of the Stark County Intermodal Facility, Ohio DOT used a Section 129 loan to contribute to the funding of the facility. The loan will be repaid with trailer lift fees, and the State will use those revenues to capitalize a Congestion Mitigation Revolving Loan Fund. It is true that Ohio DOT had to commit a share of its obligational authority to this project in order to obtain reimbursement for the loan amount, meaning that other projects that could have received that same share of obligational authority had to be deferred to accommodate pursuit of the Stark County Intermodal Facility. However, given the high priority of the Stark County Intermodal Facility, as well as its capacity to help seed a revolving fund, State planners considered acceleration of this project important enough to justify a decision to forego other uses of the State's limited obligational authority. TE-045 was of direct benefit in moving this project to construction, for without the ability to repay the Section 129 loan using lift fees, the project would likely not have been built at all.
Project acceleration often helps State DOTs better manage their annual and multi-year capital programs by bringing individual or multiple projects on line sooner. At the same time, moving projects to construction sooner not only produces scheduling benefits to program managers, but can also generate real economic returns to highway users and other project beneficiaries. Typical highway construction projects provide direct benefits in three dimensions:
In addition, certain projects also offer environmental benefits, economic development opportunities, and other associated advantages that accrue not only to road users, but also to communities more generally.
When projects are accelerated, the stream of net project benefits (i.e., benefits net of costs) are realized by road users and other project beneficiaries that much sooner. In order to compare the costs and benefits that occur over time, those costs and benefits must be placed on a comparable basis by discounting them back to present-day values, taking into consideration the time value of money. The net present value of a project completed today is greater than that of a project completed several years from now, due to the fact that benefits earned later are reduced (i.e., discounted) in proportion to the length of the delay. Consequently, a project that is delayed five years has a lower net present value than one that is delayed by only three years, assuming that its discounted benefits exceed its discounted costs.
To illustrate the value of project acceleration, let us assume that a certain project will generate four times as much benefit as it costs, for a benefit:cost ratio of 4:1. Next, assume that this hypothetical project costs $100 million, and assume a discount rate of 6 percent. Under these conditions, accelerating the project by 2 years can be viewed as yielding a $43 million increase in marginal benefits. The calculation is performed using the following formula:
where P = project cost
B = multiplier associated with discounted marginal benefits
r = discount rate
n = number of years of project delay
Quantifying the discounted marginal benefits of constructing a project now versus two years from now yields the following comparison:
Discounted marginal benefits, assuming project completion in 1996:
Discounted marginal benefits, assuming project completion in 1998
Thus, the discounted stream of benefits realized from a project completed in 1996 exceeds that of a project completed in 1998 by $43 million.
To apply this methodology to the entire universe of TE-045 projects would require a separate benefit-cost analysis for every project, as project characteristics, benefits, costs, timelines, and possibly even appropriate discount rates are different for each project. Nonetheless, the basic principle of the net present value of a project being greater when benefits are realized sooner holds true no matter the project, so long as the benefit:cost ratio of the project is positive.
A further financial advantage of completing projects sooner rather than later is the avoidance of inflation costs. Inflation savings can be particularly significant in the case of highway projects, for some types of expenditures can escalate far in excess of the standard rate of inflation. The most dramatic example is in acquisition of right-of-way to support new construction. In areas of rapid commercial and residential growth, the costs of land can double or even triple over as little as a 5-year span of time, such that acquisition of right-of-way to provide new alignments would escalate by similar amounts.
Acceleration of projects can also be of particular benefit in the case of rehabilitation projects. Although preventive and corrective maintenance projects are generally not eligible for Federal assistance, major maintenance, such as pavement rehabilitation, does receive Federal support. Life-cycle cost analyses show that under most circumstances, the present-value benefits of performing early rehabilitation far exceed those of performing a later reconstruction, such that an early investment pays off over time. It thus appears that use of cash flow tools may be especially warranted when used to accelerate rehabilitation projects.
As seen in the two preceding chapters, by increasing transportation investment levels and accelerating projects, TE-045 has produced immediate measurable benefits to State participants in accordance with the first two objectives set forth for the initiative. The third and fourth objectives for the initiative centered on:
TE-045 has facilitated the States' use of ISTEA financing tools to varying degrees, as certain features of the Federal-aid program have been made significantly more attractive through flexibilities offered under TE-045, while States' interest in other program features has remained muted. TE-045's final objective has been partially realized through recent administrative actions and, more notably, congressional enactment of the NHS Designation Act of 1995. While TE-045's programmatic effects often receive less attention than its quantitative outcomes in supporting increased investment and project acceleration, the initiative's support for fundamental changes to the Federal-aid program merits special attention given that these policy impacts were largely influenced by an initiative that offered no new Federal funding.
This chapter considers TE-045's role in addressing these final objectives of the TE-045 initiative. The chapter also recaps the initiative's influence on the financial provisions incorporated in the NHS Designation Act of 1995 and recent administrative actions.
Among its financial provisions, ISTEA included two innovations - - Section 1012(a) and Section 1044 - - that introduced two new financing concepts into the Federal-aid program. As noted in Chapter 1, ISTEA Section 1012 amended Section 129 of Title 23 of the U.S. Code to permit States to use Federal-aid funds to reimburse State-initiated loans, rather than grants, to eligible projects. ISTEA Section 1044 permitted certain expenditures funded with toll receipts to substitute for the State matching share on future Federal-aid projects. Restrictions written into the relevant legislative sections tended to limit the utility of these provisions to the States. By offering opportunities to broaden the terms of Section 129 loans and ISTEA Section 1044 toll credits, TE-045 has supported somewhat greater utilization of these and other financial provisions of the Federal-aid program.
Although States' use of Section 129 loans still falls short of the expectations that accompanied enactment of Section 1012 of ISTEA, TE-045 has nonetheless played a significant role in improving the utility of this financing concept. Prior to the introduction of TE-045, no State had implemented a Section 129 loan, although several States were working to identify ways to develop viable loan agreements. TE-045 offered the necessary means to make Section 129 loans a reality, and currently, five projects that are using or contemplating Section 129 loans are advancing under the auspices of TE-045.
Under TE-045, several States sought greater latitude in the conditions under which they could offer Section 129 loans to project sponsors, including private entities. For example, under TE-045, States gained the opportunity to make loans to projects with revenue streams comprised of diverse income sources, such as lift fees at intermodal facilities. Previously, under ISTEA alone, States could only offer loans to toll projects. In addition, Section 1012 of ISTEA was prescriptive with respect to the terms of loan provisions, and limited the eligible uses of loan repayments. Finally, Section 1012 required that a State DOT originate the first flow of cash by initiating a loan, and only thereafter obtain Federal-aid reimbursement.
TE-045 offered States opportunities to step beyond certain of these restrictions in a controlled and supervised fashion, with the result being two executed loans and three pending loans that are consistent with the legislation's original intent. In Ohio, for example, the opportunity to provide a Section 129 loan to a non-toll project enabled a $13 million loan to an intermodal facility. The function of the facility does not lend itself to traditional tolls, but trailer lift fees will provide an alternate income stream. In New York, a consortium of local governments is exploring the possibility of directly lending Federal-aid funds to a series of projects rather than using Federal-aid funds as a reimbursement for State-initiated loans. As with other Section 129 loans, loan repayments could ultimately capitalize a revolving loan fund. Implementation of this State program is pending action by New York's State Assembly on necessary enabling legislation.
Even though TE-045 has prompted greater use of loans (an increase from zero to five), most States still appear reluctant to use limited obligational authority to fund loans rather than grants. States' continued hesitancy with respect to Section 129 loans warrants some special consideration, particularly given the fact that these loans can be viewed as an important bellwether for the anticipated operations of State infrastructure banks, which represent an important new transportation financing initiative currently being tested by ten States on a pilot basis. Also, loans merit special attention because of their significant untapped potential for stretching public funds.
On the basis of observations offered by State officials throughout the country and a variety of other transportation experts, it appears that at least five factors have limited the potential appeal of Federally-reimbursable project loans.
Section 1044 of ISTEA permitted States to substitute certain previous toll-financed investments for State matching funds on current Federal-aid projects. To a very limited extent, flexibilities pioneered under TE-045 facilitated States' use of Section 1044 toll credits. Since the passage of ISTEA, a total of thirteen States (which includes Puerto Rico) have earned over $3.0 billion in 1044 investment credits as of August 1996. Of these thirteen States, ten States had applied a total of $853 million worth of credits as of September 30, 1995 to actual projects. (FHWA surveys states regarding the use of already accrued investment credits every other year. The most recent FHWA survey data available regarding the use of toll credits are as of the end of fiscal year 1995 (September 30, 1995).)
Of these thirteen States, only two States - - Maryland and Michigan - - have explored more flexible interpretations of Section 1044 under TE-045 by proposing relaxation of the MOE requirements spelled out in ISTEA. In Maryland's case, credits that were earned in fiscal year 1992, but remained un-used could now be accessed since the State was able to meet the more relaxed MOE requirements. Michigan was a newcomer to the 1044 program, earning an initial $13.7 million in 1044 investment credits in FY 1994. Michigan was able to utilize the more flexible MOE provisions allowed under TE-045 and apply a portion of these credits as soft match for various capital improvement projects.
Although 1044 has not met its primary goal of effecting a net increase in transportation investment, officials from States that have used the credits still regard Section 1044 as advantageous. State officials in Maryland indicate that use of toll credits has helped the State better manage its cash flows. For example, Section 1044 credits may be used when current cash is not available to meet the non-Federal match requirements. In Florida, use of 1044 credits is viewed as a useful planning and management tool and has helped the State gain expanded access to Federal funds in certain categories. Although Florida has not employed one of the new, prospective MOE determination methods, one State transportation planner indicated that the increased flexibility now afforded under recent FHWA guidance will improve the value of Section 1044 credits as a planning tool. Under the retrospective MOE test, if a State failed the test, the State could not use Section 1044 toll investment credits and would have to reformulate its future plans to use the credits before they lapsed. (Under the retrospective MOE test, a State has four fiscal years to use its earned credits. Those four years include the fiscal year for which the credit was established plus the following three fiscal years. Under the new prospective MOE test, earned credits do not lapse.) The new alternate methods of determining compliance with the MOE reduce this uncertainty when developing future transportation financing plans using 1044 credits.
Although TE-045 directly aimed to promote use of financing concepts incorporated in ISTEA, tools tested under the initiative have also sought to promote use of two pre-existing elements of the Federal-aid highway program: advance construction and reimbursement of certain bond financing costs. Among these two programmatic elements, TE-045 has generated a more prominent impact on States' use of advance construction. Advance construction has been part of the Federal-aid highway program since 1956, and permits States to construct projects with their own funds while still preserving those expenditures' eligibility for Federal-aid reimbursement at a later date. Prior to TE-045, the utility of advance construction was dwindling, as States could not convert projects to Federal-aid after the final year of ISTEA (i.e., the end of Federal fiscal year 1997). TE-045 created an opportunity for States to access advance construction after the end of the ISTEA authorization period. This innovation proved of substantial benefit to the eight States that are committing State funds to advance construction projects that will not be converted to Federal-aid until after the start of the next authorization period. Partial conversion of advance construction also improved the utility of advance construction, with 17 States using this tool between April 1994 and July 1996.
Repayment of bond principal has been eligible for Federal reimbursement since 1956. Several proposals under TE-045 sought to improve the utility of Federal reimbursement of bond financing costs by expanding the range of costs eligible for reimbursement. These new flexibilities pioneered under TE-045 and subsequently authorized under the NHS Designation Act have had only a moderate impact on States' use of this eligible use of Federal-aid funds. To date, States have proposed to use the bond reimbursement technique on only two of the seven TE-045 projects that include bond issues.
In general, States' minimal use of Federal-aid to cover the costs of debt issues (or more typically, to reimburse some of the costs of another public entity or private entity issuing debt) stems from many of the same impediments that limit States' interest in using loans to facilitate debt financings. First, the fact that reimbursing bond financing costs consumes an equivalent portion of obligational authority presents a significant impediment to use of this tool; many State officials are reluctant to use limited obligational authority for this purpose when pay-as-you-go grant strategies are so much more familiar. Second, the complexity of debt financing generally, and of Federal reimbursement of bond financing costs specifically, suggest that State DOTs still need time to identify reasonable project candidates and to find strategies to maximize the efficacy of this newly eligible use for Federal-aid funds. Third, some States have a philosophical aversion to issuing debt, which in some cases is manifested by legal constraints on State DOTs' ability to issue debt or to reimburse another entity for its cost of bond financing. A final impediment to broad use of Federal reimbursement of bond financing costs is the fact that this financing strategy is still largely untested, and market reaction to bond issues to be repaid with Federal-aid is still untested.
Even so, the potential applications of this tool, now broadly available under Section 311 of the NHS Designation Act and codified under Section 122 of Title 23, are currently being explored by practitioners in the field of public finance. The Act specifies that Section 122 does not offer a Federal guarantee of the bond issue that will employ this technique, and under current law, the presence of such a guarantee could jeopardize the tax-exempt status of the affected bond issue.
Even without a Federal guarantee, Section 122 creates opportunities for States to incorporate this strategy in their financial plans. The two applications that may emerge include: (i) use of Section 122 in conjunction with the issuance of short term debt obligations called grant anticipation notes (GANS) and (ii) use of Section 122 to provide an alternate source of repayment for long term debt obligations. Neither of these methods has been tested, but State DOTs and their advisors are working to identify and balance the concerns of investors and rating agencies in order to employ these techniques.
One issue that must be faced in combining the provisions of Section 122 and a bond issue is the willingness of issuers, investors, and rating agencies to view future Federal-aid apportionments as a reasonably reliable source of repayment, capable of receiving investment grade ratings and market acceptance. Since this approach is new, attention will have to be given to explaining the Federal aid process to these parties and building their confidence in the future availability of funds in spite of the political influence on federal policy. Bonds which pledge dual sources of repayment may be more feasible initially as these techniques are tested. Offering a familiar, commonly creditworthy revenue stream such as gas tax, sales tax, or toll revenues as the primary source of repayment with the Federal revenue stream acting as the secondary source of repayment may help introduce and open the bond market to further integration of the bond reimbursement technique and debt financings.
In keeping with the original objectives of TE-045, States' experiences under the test and evaluation initiative have formed a foundation for subsequent legislative and regulatory actions. TE-045's lessons have primarily been embodied in the financial provisions of the NHS Designation Act of 1995. The Act amended Title 23 of the U.S. Code to institutionalize four distinct approaches tested under TE-045. In addition, administrative changes, one of which was announced through the Federal Register and another through policy guidance, have institutionalized further adjustments to the Federal-aid highway program. As a result, six new financing approaches, yielding six new forms of financial flexibility, are now available for States' general use outside of TE-045. Table 5.1 illustrates the evolving status of the individual tools tested to date under TE-045.
|Innovative finance tools tested under TE-045||Included in NHS Designation Act
|Still experimental||No longer being tested|
|Bond Reimbursement (principal, interest, issuance, and insurance costs)||X||.||.||.|
|Section 129 loans||X||.||.||.|
|ISTEA Section 1044 Toll Investment Credits||.||X||.||.|
|Post-ISTEA Advance Construction||X||.||.||.|
|Partial Conversion of Advance Construction||.||X||.||.|
As indicated in the preceding table, two cash flow tools tested under TE-045 - - phased funding and tapered match - - were not authorized under the NHS Designation Act. Congressional concerns regarding phased funding centered on two primary issues. First was the concern that by prospectively committing future obligational authority through use of phased funding, States could potentially fall short of funding in later years. There is no evidence to date that phased funding is causing States to overextend themselves in this fashion; State officials contacted for this report indicated that they are fully aware of the potential consequences of staged obligation of project costs and recognize that it is their responsibility not to overprogram future years' obligational authority. Continued experimentation with partial conversion of advance construction will illustrate States' capacity to monitor the implications of their programming decisions.
A secondary concern related to phased funding centered on the fact that when obligations are spread out over time to mirror the trajectory of actual expenditures, every dollar obligated translates into a dollar expended in the same year. While this spending pattern makes sense from a State perspective, it is out of step with Federal expectations that something considerably less than a dollar is actually expended in the year of obligation. (The Office of Management and Budget and the Congressional Budget Office assume for budgetary purposes that across the Federal-aid program, every dollar obligated in a given year on average translates into expenditures of about 15 cents during the first year (i.e., the year of obligation), 53 cents during the second year, and 16 cents during the third year, with the remaining 16 cents spread over the next six years.) Since Congressional appropriators set annual obligation limitations on the basis of anticipated expenditures (or outlays) during the coming fiscal year, an acceleration in the so-called outlay rate could cause actual expenditures to outstrip expected levels, marginally worsening the Federal budget deficit for the year in question. While a similar argument can be made with regard to partial conversion of advance construction, certain practical and legal limitations on how much of a given State's capital program may be advance constructed will place some checks on the extent to which partial conversion of advance construction is used. These checks would in turn restrict the financing concept's ultimate impact on the national outlay rate. Over time, continued use of partial conversion will help build a track record that illustrates the extent to which staged obligations will effect noticeable shifts in the aggregate pattern of expenditures.
Congressional concerns with tapered match revolved around the concern that relieving States of the responsibility for covering a share of project costs during the early years of construction would have the unintended effect of removing States' incentive to aggressively control project costs. Some State officials also voice concerns about tapered match, noting that this strategy can impose an administrative burden by requiring administrators and accountants to track multi-year, project-specific matching ratios to ensure that over the life of a project, the ultimate Federal share does not exceed the Federal-aid limit.
Program-level match is one strategy that could enforce States' accountability for completion of individual projects while also responding to States' concerns as to the administrative burden of tapering. Under program-level match, States would be required to maintain a standard matching ratio across all annual spending under a given funding category (e.g., the Surface Transportation Program or the National Highway System). In this way, matching ratios would apply to groups of projects rather than to each and every project. The concept of program-level match, as well as other financing concepts that may merit continued research, are more fully explored in the following chapter.
The majority of strategies tested under TE-045 have now been incorporated into standard practice, either through inclusion in the NHS Designation Act or through adjustments to administrative rules. Even so, lessons learned through the development and implementation of a series of TE-045 projects continue to suggest additional refinements to the financial characteristics of the Federal-aid program. In other cases, the lessons derive from financing concepts that were not successfully implemented or for some reason were not considered feasible during the two-year history of TE-045. Some of the lessons learned indicate a need for further research. Reauthorization of ISTEA offers the next major opportunity for transforming on-going lessons into statute.
Throughout the two-year course of the TE-045 initiative, the financing concepts that have shown the greatest potential to generate substantial leveraging effects are those that foster interactions between Federal assistance and major debt financings. The central irony of the TE-045 initiative is that those tools with the greatest leveraging capacity - - Section 129 loans and bond reimbursement - - are the same ones that have been least frequently used. While no single strategy is apt to respond to all of the barriers that impede States' use of these techniques, continued outreach efforts by FHWA will be an important catalyst to further use of these tools. In addition, continued research and potential legislative consideration of additional proposals promises to broaden the appeal of leveraging strategies.
This chapter introduces these issues by considering, in sequence: the potential to expand use of Section 129 loans and bond reimbursement to support debt financings; strategies for extending the Federal role in project loans and credit enhancement through capitalization of State infrastructure banks, State access to unobligated balances of contract authority and various forms of direct Federal credit enhancement; options for restructuring existing matching requirements; new methods for States to generate non-traditional revenues to augment traditional forms of taxes and fees; and new potential linkages between innovative financing and procurement strategies.
Continued training and outreach can play an important role in expanding the use of Section 129 loans and bond reimbursement. FHWA's accomplishments to date in publicizing TE-045 are evidenced by the large State response to the program. State DOT officials have indicated that FHWA's training courses have helped them understand the structure of the financing tools tested under TE-045. Equally important, they note that FHWA's efforts to refine the content of courses and publications have been quite responsive to States' changing needs and circumstances. As States gain stronger familiarity with the full range of tools currently available to them, FHWA may wish to hone the content of further training efforts so that these courses place comparatively stronger emphasis on strategies that promote the use of Federal aid to facilitate debt financings. In particular, case studies of projects such as the George Bush Turnpike in Texas can demonstrate how multiple tools, such as loans and partial conversion of advance construction, can be effectively combined.
If training courses are steered in this direction, the audience for these courses should be broadened to include State and local financial managers as well as transportation officials. Development of a larger audience for the innovative financing training courses could enrich the content of roundtable discussions by providing a variety of perspectives on the applicability of various transportation financing tools to State-specific conditions. As access to capital markets and an understanding of project finance become more critical to the structure of State highway (and transit) programs, forging a stronger alliance between transportation officials and financial managers will be essential to States' capacity to capitalize on the leveraging opportunities made available to them.
Another possibility for stimulating the use of Section 129 loans and bond reimbursement is the reconsideration of certain matching requirements. Currently, States must match Federal-aid funds on projects that employ reimbursable loans or bond expenditures, in the same way that they must match Federal funds provided to grant-assisted projects. While existing matching requirements do not appear to be an especially significant barrier to use of loans and debt when compared to all the other impediments to their use, there is little argument for upholding additional barriers to States' capacity to advance these complex transactions. At the margin, waiving, deferring, or otherwise simplifying the matching requirement for projects that use loans or Federal reimbursement of bond financing costs may simplify financing arrangements that already face numerous hurdles.
The appeal of Section 129 loans might also be enhanced by broadening the types of projects States may fund with loan repayments. Under Section 129, as revised by the NHS Designation Act, States may use repayments of loan principal and associated interest payments for three main purposes: (i) grants to new projects; (ii) loans to new projects; and (iii) provision of various forms of credit enhancement, including bond insurance. Regardless of the form of assistance, the recipient projects must be eligible for funding under Title 23 of the U.S. Code. Some States have suggested that greater flexibility in the permissible uses of loan repayments could increase the practical benefits of making Section 129 loans. For example, eligible uses of loan repayments might be extended to include capital expenditures on a wider variety of transportation-related projects, such as port, airport, and railroad improvements.
Greater use of loans and bond reimbursement may also result from continued efforts to identify promising new combinations of Federally-reimbursed loans and bonds with other financing techniques. As previously noted, use of a Section 129 loan in conjunction with partial conversion of advance construction offers a good way to distribute resulting draws on obligational authority over a span of several years. As another example, one State is currently considering the possibility of blending a Section 129 loan with advance construction to create a contingent source of repayment for short-term construction financing. Under this as yet untested approach, the State could initially finance the advance construction project with short-term notes. When the notes mature, a Section 129 loan could be used to repay the notes if other options for converting the short term obligations to permanent financing are unavailable. Continued research through the TE-045 initiative is likely to identify other promising combinations as well; one recent proposal contemplates use of the experimental tapered match strategy in conjunction with bond reimbursement to accelerate the feasibility of a debt financing by several years.
Recent enactment of the State infrastructure bank pilot under the NHS Designation Act represents a major shift in Federal policy toward expanding States' access to a broad array of financial innovations. The pilot, under which Federally-capitalized, State-operated banks will be established in ten States, offers an unusual opportunity to test a range of financing strategies, including conventional loans, subordinated loans, low- or no-interest loans, interest rate subsidies, letters of credit, capital reserves for debt financing, and lease/purchase financings. If State demand is sufficient, authorization of additional slots for pilot banks should be considered - - either as part of ISTEA reauthorization, or sooner. The risks associated with offering additional States the flexibility to establish banks if they so choose are minimal, and the potential gains in terms of additional lessons learned are large. To ensure the widest range of implementation lessons, preference could be given to State proposals that will test strategies not represented in the ten existing pilots. For example, multi-State compacts, wherein two or more states would establish a regional bank, could be given special consideration. (The fiscal year 1997 appropriations act for the U.S. Department of Transportation included language expanding eligibility to establish infrastructure banks to all States, subject to Departmental approval.)
The use of tapered match under TE-045 has raised fundamental questions about the rationale for existing matching requirements. Most observers agree that matching requirements are probably useful, in that they extend the purchasing power of every Federal dollar by a bare minimum of (usually) 20 percent. In addition, some observers argue that matching requirements help assure States' own commitment to individual projects that they choose to fund with Federal assistance. This latter argument for matching contributions for individual projects implies that States approach Federal funds with less discipline than they do State funds. From a practical perspective, as long as resources are constrained, no State willingly squanders its limited transportation funds, regardless of those funds' initial source.
As long as budgets are constrained and States' commitment to individual projects is assured through a rigorous planning process, the presumed need to enforce matching ratios for individual projects may warrant a closer look. As noted in Chapter 5, program-level match, in which matching ratios are enforced across entire funding categories rather than on a project-by-project basis, offers one mechanism by which matching requirements could still be retained, but in a more streamlined fashion.
Ongoing monitoring of the results of the STP Simplification pilot offers a key opportunity for researching the potential benefits and risks of program-level match. Currently three States - - Minnesota, Tennessee, and Washington - - are planning to experiment with STP Simplification, in which numerous projects being funded through the Surface Transportation Program are bundled together for the sake of streamlining the approval and administration of individual projects. STP Simplification approximates program-level match in that the standard matching ratio applies to the full collection of projects included in the pilot, rather than to each individual project. Some State officials argue that bundling projects together in this fashion has the potential to produce sizable administrative and construction efficiencies by permitting States to concentrate Federal funding on a smaller number of projects. As the participating States develop a track record with STP Simplification, the results of their experiences can indicate whether these advantages in fact materialize. The results of these pilots will also help indicate whether program-level match presents any risks to accountability that could potentially accompany a program structure in which States regularly pay for selected projects with 100 percent Federal funding.
A number of projects advanced under TE-045 are using tolls or other forms of dedicated revenues (e.g., lift fees at intermodal facilities) to generate a stream of revenue that can repay project debt. The NHS Designation Act of 1995 broadened the terms under which States may levy tolls on Federal-aid highways by raising the Federal matching share for toll roads from 50 percent to 80 percent. While controversial, some transportation experts propose that under reauthorization, continued restrictions on tolls on the Interstate be lifted, such that States have complete discretion as to which highways to toll.
Looking beyond tolls, TE-045 has also prompted State consideration of ways to use existing assets to generate income that could pay for the operation and maintenance of the existing asset, or the capital development of a related facility. Several States proposed TE-045 projects that would have permitted private concessions at rest areas, but FHWA limited its approvals to projects still in the study phase, since rest area commercialization represents so dramatic a departure from existing statute. (The prohibition on concessions at rest areas is codified under Section 111 of Title 23) Principal concerns with the concept center on potential safety impacts and, more notably, perceived conflicts with existing commercial enterprises, such as convenience stores, gas and diesel stations, and truck stops, that currently do business some distance off the Interstate. As a result, the advantages and disadvantages of commercialization of rest areas and other forms of income generation have yet to be tested through TE-045 or any other mechanism.
Within the context of reauthorization, income generation will likely remain an important area for further research, particularly as States seek ways to augment constrained public budgets with new revenues. As part of TE-045, or under a separate initiative, FHWA may wish to take a closer look at income generation, and particularly at those strategies most likely to permit private partners to derive a commercial benefit from rights-of-way without impeding access or jeopardizing safety. While one TE-045 participant, the Missouri Highway and Transportation Department, has entered into a public-private partnership under which fiber optic cable is being installed along Interstate right-of-way, additional opportunities to generate revenue streams through commercial leases or other beneficiary fees merit continued consideration.
With budgetary constraints likely to persist throughout the coming authorization period, a number of States are seeking ways to leverage their unobligated balances. A number of proposals are currently under consideration, some of which focus on how States' unobligated balances could be transformed into credit enhancements. (All other things equal, using unobligated balances to provide credit enhancement would increase Federal spending, but its impact on spending levels and ultimately the Federal deficit would be fractional compared to the cost of States' accessing unobligated balances as standard obligational authority.) Alternatively, the Federal government could offer direct project loans and direct support to issuers' credit from existing budget accounts. The latter concept has been pioneered by two California Transportation Corridor Agencies, which secured special legislation providing standby Federal lines of credit for three toll projects in Orange County. A third proposed approach would create a new Federally-capitalized financial institution to offer direct loans and credit support to individual projects throughout the nation.
If States are given legal authority to access their unobligated balances for the purposes of credit enhancement, or if the Federal government offers direct loans and credit support either through existing accounts or through a new national financial institution, the effectiveness of the selected strategy will ultimately hinge on its ultimate capacity to make debt financing more attractive and more affordable. An especially critical consideration will be the development of a budgetary approach that can gain investor acceptance while also retaining sufficient discipline within the Federal budget process.
For most highway projects, responsibilities for design, funding and finance, construction, maintenance, and operations are divided among many public and private sector participants. Some States have begun to explore the potential risks and rewards of turnkey contracts, under which a single private entity assumes multiple responsibilities. Some procurement experts believe that powerful efficiencies can be realized when multiple responsibilities are lodged in one firm through, for example, a design/build contract. Other observers fear that consolidation of responsibilities can prove a threat to open competition between firms. To explore the debate, FHWA has been conducting an innovative contracting pilot project known as Special Experimental Project (SEP) 14 for almost three years.
Early, piecemeal evidence offered by the TE-045 and SEP 14 research efforts suggests that innovative contracting strategies can prove especially helpful when teamed with certain innovative financing approaches (and especially those that involve some form of debt issuance). Other experiments with turnkey contracts and developer participation in up-front financing and subsequent facility operations also suggest that for at least certain projects, private participation in selected components of the project development process can improve the feasibility and affordability of debt financings. Managers of the aforementioned Transportation Corridor Agency toll projects in Orange County have indicated that the use of a design/build procurement for those projects helped assure investors that the project would be completed in a timely fashion. They have also noted that in general, limiting the number of parties to a contract reduced the chances for disruptive and time-consuming contract disputes.
At this point, evidence demonstrating the extent to which innovative contracting and innovative financing strategies can mutually reinforce each other remains anecdotal. Closer coordination between FHWA's ongoing SEP 14 and TE-045 research efforts could offer an opportunity to develop a better understanding of the potential synergies between these two forms of innovation and shed light on the circumstances best suited to their linked use.
* * * * *
The preceding examples offer just a flavor of the types of further innovations that merit continued research and possible consideration during the reauthorization of ISTEA. TE-045 has established a strong, rational, and responsible foundation for the development of innovative financing strategies within the Federal-aid program. Looking ahead, the ongoing challenge is twofold: (i) to move proven financing tools into mainstream practice, and (ii) to continue the search for new strategies that promote better program management and higher levels of investment.
Innovative financing tools and related concepts are abbreviated as follows:
|1044...........||ISTEA Section 1044 toll investment credits, expanded interpretation|
|129.............||Title 23, U.S.C. Section 129 loan|
|129/RLF....||Title 23, U.S.C. Section 129 capitalization of revolving loan or related fund|
|AC.............||Post-ISTEA advance construction|
|Bond..........||Reimbursement of bond financing costs|
|Inc gen.......||Income generation|
|PCAC........||Partial conversion of advance construction|
|RLF...........||Revolving loan fund|
Headings in Appendix 3 indicate the following funding sources:
|Local 1.......||Local government contributions that would have been available without participation in TE-045.|
|Local 2.......||Local government contributions that are wholly attributable to participation in TE-045.|
|Private 1....||Private sector contributions that would have been available without participation in TE-045.|
|Private 2....||Private sector contributions that are wholly attributable to participation in TE-045.|
|Toll 1.........||Toll authority and related agency contributions that would have been available without participation in TE-045.|
|Toll 2.........||Toll authority and related agency contributions that are wholly attributable to participation in TE-045.|
|Region||State||Name of Project||Project Cost
|Financing Tool||Improvement Type|
|1||1||CT||I-95 Bridges||55,400||PCAC||Bridge replacement; street reconstruction|
|2||1||ME||Fairfield Intermodal Facility||3,470||FM||Construction of truck-to-rail facility|
|3||1||ME||Auburn Truck to Rail Transfer Facility||2,700||FM w/PPP||Construction of truck-to-rail facility|
|4||1||ME||8 Innov. Fin. Projects||11,875||PCAC||4R, safety, and bridge projects|
|5||1||NH||Gorham Railroad Bridge||200||FM||RR bridge clearance improvements|
|6||1||NJ||Rt. 1 & 9 Waverly Yard Viaduct & Bridge Deck Replacement||75,300||PF||Viaduct construction and bridge rehabilitation|
|7||1||NY||Kingston-Rhinecliff Bridge||40,000||Undefined||Bridge redecking|
|8||1||NY||NITTEC||25,000||129/RLF||RLF to support local bridge projects|
|9||1||NY||1000 Islands and Massena Brdg||263||Undefined||Undefined|
|10||1||RI||Civic Center Interchange Ramps||45,000||AC||Construction of interchange ramps|
|11||1||RI||Quonset Point Rail-Highway Bridge Project||105,000||AC||New rail line and adjustment to grade crossing|
|12||1||VT||Chittenden County Circumferential Highway||30,000||AC||Construction of beltway segment|
|13||3||DE||Churchman's Crossing, formerly Metroform Partnership||30,000||FM||Construction of commuter rail station|
|14||3||MD||I-695 Baltimore Beltway||47,900||1044 & PCAC||Construction of HOV and other lanes|
|15||3||MD||Interstate 70 Frederick||88,500||1044 & PCAC||Construction of interchanges w/other improvements|
|16||3||MD||MD 355 Montgomery County||38,000||FM||1-mi. reconstruction with additional lanes|
|17||3||PA||Interstate Route Improvements||47,200||PCAC||3 Interstate reconstruction projects|
|18||3||PA||Lehigh Airport Access Improvements||21,500||FM||4 widening and reconstruction projects|
|19||3||PA||7 Enhancement Projects||3,207||FM||7 bike/pedestrian projects|
|20||3||PA||I-95 Intermodal Mobility Project||176,000||AC & PCAC||Reconstruction of intermodal connections near I-95|
|21||3||PA||U.S. 15 Relocation, Lycoming & Tioga Counties||310,000||AC & PCAC||Construction of limited access highway|
|22||3||WV||Chelyan Bridge||52,000||PF||Construction of replacement bridge|
|23||3||WV||Shadle Bridge||34,000||PF||Construction of replacement bridge|
|24||3||WV||Williamstown Rail Depot||318||FM||Conversion of RR station to tourist site|
|25||4||AL||U.S. 280 Birmingham||400,000||Bond||Construction of toll road|
|26||4||FL||I-75 Lane additions||60,000||AC||Six laning of I-75 to I-10 to Georgia border|
|27||4||FL||I-4 Tampa Lane additions||115,000||AC||Lane additions|
|28||4||FL||I-95 Palm Beach County||12,000||AC||Lane additions|
|29||4||FL||Weigh Stations & Rest Areas||10,000||AC||Improvements to weigh stations|
|30||4||FL||I-4 Tampa / Crosstown Connector||224,000||FM||Construction of limited access toll road|
|31||4||FL||Mid-Point/Lee County Bridge||194,900||129 (RLF)||Construction of toll bridge|
|32||4||GA||Jesters Creek, Clayton County||1,734||FM||Construction of bike/pedestrian path|
|34||4||KY||Jefferson County Fleet Fuel Conversion Project||1,500||FM||Public outreach on fuel conversion|
|35||4||NC||Neuse River Bridge||137,400||PF||Bridge construction|
|36||4||NC||US 19-23 Project A-10C||90,000||AC & PCAC||Highway grading and structures|
|37||4||NC||US 19-23 Project A-10D||53,500||AC & PCAC||Highway grading and structures|
|38||4||SC||Conway Bypass||430,000||Bond & 129 w/ PPP||Highway construction|
|39||4||TN||STP Simplification||75,000||STP||STP simplification|
|40||5||IN||North-South Corridor, Hendricks County||17,100||FM||Construction of connecting corridor|
|41||5||IN||Widening of County Road 7, City of Nappanee||1,300||FM||Road widening|
|42||5||IN||Stafford Road||5,280||FM||Construction of interchange|
|43||5||MI||I-94 Romulus||17,500||FM||Construction of interchange|
|44||5||MI||I-96 Brighton||2,380||FM||Ramp construction|
|45||5||MI||Capital Improvements Projects||1,003||1044||Improvements for 3 bridges|
|46||5||MI||I-75 / Holly Road Interchange||5,160||FM & Tap||Reconstruction of interchange|
|47||5||MI||Morton Taylor Road||1,900||FM||Construction of street extension|
|48||5||MI||Two I-94 Projects; I-275 Project||29,180||PF||Highway reconstruction|
|49||5||MI||19 Mile Road, Macomb County||4,500||FM||Highway widening|
|50||5||MI||I-94 and 9th Street, Kalamazoo||8,000||Tap||Reconstruction of interchange|
|51||5||MI||Haggerty Connector, Oakland||33,000||Tap||Construction of new connector|
|52||5||MI||M37, Kent||15,000||Tap||Highway reconstruction|
|53||5||MI||Davison Freeway, Wayne||79,800||Tap||Highway reconstruction|
|54||5||MN||STP Simplification||109,000||STP||STP simplification|
|55||5||OH||Butler County Highway||120,000||AC||Construction of additional lanes|
|56||5||OH||Cincinnati Rail Project||15,000||AC||Construction of additional track at 4 sites|
|57||5||OH||Stark County Intermodal Facility||35,200||129 w/ PPP||Construction of truck-to-rail facility|
|58||5||OH||Vickers Rail Separation||20,000||FM||Grade separation|
|59||5||WI||Main Street Bridge, Green Bay||23,300||AC & PCAC & FM||Bridge reconstruction|
|60||6||LA||Economic Feasibility Study||350||FM||Economic feasibility study|
|61||6||LA||Ruston Frontage Road||2,000||129||Access improvements|
|62||6||NM||Camino Real (formerly Santa Teresa) Intermodal Facility||70,000||FM w/ PPP||New border crossing facility|
|63||6||TX||Laredo Bridge #4||52,500||129 & FM||Bridge construction|
|64||6||TX||SH 190 (George Bush Turnpike)||696,300||129 & AC & PCAC||Construction of beltway segment|
|65||7||AR||US 71||210,000||129||Highway construction|
|66||7||MO||Watkins Drive Kansas City||33,700||PF||Construction of arterial|
|67||7||MO||Statewide Intelligent Transportation System||150,000||FM||ITS installation and related projects|
|68||7||MO||Chouteau Bridge||37,000||PF||Bridge expansion|
|69||7||NE||U. S. 34 Lincoln||10,050||FM||Highway reconstruction; intersection improvements|
|70||8||CO||Powers Boulevard, Colorado Springs||353,000||FM||Construction of grade-separated freeway|
|71||8||MT||US 93/Reserve Street||21,500||Tap||Highway widening|
|72||8||SD||Enhancement Projects||13,000||FM||59 bike/pedestrian and other enhancement projects|
|73||8||WY||Shoshone National Park||49||FM||Informational signs|
|74||9||AZ||Freeway Management System||9,500||Inc Gen||Installation of freeway management system|
|75||9||AZ||Rest Area Studies||150||Inc Gen||Study|
|76||9||CA||Calexico East Comm Vehicle Inspection||19,600||PCAC||Construction of border crossing facility|
|77||9||CA||Otay Mesa Comm Vehicle Inspection||13,000||PCAC||Construction of border crossing facility|
|78||9||CA||Non-Interstate Rest Area (Tulare County)||0||Inc Gen||Privatization of selected rest areas|
|79||9||CA||San Miguel Connector & SR 125 1||482,000||PCAC & Bond w/ PPP||Construction of connector to toll road|
|80||10||AK||New Ferry Construction||84,000||PF||Ferry purchase|
|81||10||AK||Marine Highway System Replacement Ferry||29,120||Bond w/ PPP||Ferry purchase and terminal improvements|
|82||10||CNMI||Saipan Highway Projects||23,000||AC & PPP||Reconstruction of 2 highways|
|83||10||HI||Mililani Interchange||5,315||FM||Variety of developer-financed highway projects|
|84||10||HI||Kunia Road||5,387||FM||Variety of developer-financed highway projects|
|86||10||ID||State Hwy 75 Corridor Scenic Byways & Enhancement Program||158||FM||Construction of access road and historic sites|
|87||10||WA||State Route 520||35,900||Tap||Construction of bike/pedestrian and HOV lanes|
|88||10||WA||STP Simplification||66,400||STP||STP simplification|
Notes: 1 SR 125 is not a TE-045 project, but its construction is enabled through completion of the Connector.
Source: FHWA survey data and independent telephone interviews (May - June 1996).
|Region||State||Project||Project Cost||Financing Tool (as planned)||Improvement Type||Status|
|1||1||VT||Chittenden County Circumferential Highway||30,000||AC||Construction of beltway segment||Project is on hold, pending prioritization by the State.|
|2||3||DE||Churchman's Crossing, formerly Metroform Partnership||30,000||FM||Construction of commuter rail station||Project only in planning stages; scope of improvements is under consideration. State legislation will be required for PPP aspect of project.|
|3||4||AL||U.S. 280 Birmingham||400,000||Bond||Construction of toll road||Project is in EIS/MIS stage. Project specifications remain uncertain.|
|4||4||SC||Conway Bypass||430,000||Bond & 129 w/ PPP||Highway construction||Project is on hold pending determination of a new financing plan. Bond referendum for sales tax to back local county bonds was rejected.|
|5||8||CO||Powers Boulevard, Colorado Springs||353,000||FM||Construction of grade-separated freeway||Project is on hold due to shortage of obligational authority. State is also seeking additional private contributions.|
|6||4||GA||I-575 Landscaping||12||None||Landscaping||Due to its low cost, project is being pursued without Federal funds.|
|7||1||NY||Kingston-Rhinecliff Bridge||40,000||Undefined||Bridge redecking||Project is no longer being pursued due to a lack of funding.|
|8||1||NY||1000 Islands and Massena Brdg||263||Undefined||Undefined||No funds identified for this project.|
|9||5||MI||I-75 / Holly Road Interchange||5,160||FM & Tap||Reconstruction of interchange||Project is being pursued without Federal funds.|
|10||6||LA||Economic Feasibility Study||350||FM||Economic feasibility study||Project is on hold pending identification of funding source.|
|11||6||LA||Ruston Frontage Road||2,000||129||Access improvements||Discontinued early in TE-045 process; alternative funding arrangements pursued.|
|12||7||AR||US 71||210,000||129||Highway construction||Discontinued.|
|13||8||MT||US 93/Reserve Street||21,500||Tap||Highway widening||Discontinued early in TE-045 process.|
|14||9||AZ||Rest Area Studies||150||Inc Gen||Study||Project is on indefinite hold.|
Source: FHWA survey data and independent telephone interviews (May - June 1996).
|Region||State||Name of Project||Financing Tool||Project Cost
|2||1||ME||Auburn Truck to Rail Transfer Facility||FM w/PPP||2,700||*|
|3||1||ME||8 Innov. Fin. Projects||PCAC||11,875||0.75|
|4||1||NH||Gorham Railroad Bridge||FM||200||1|
|5||1||NJ||Rt. 1 & 9 Waverly Yard Viaduct & Bridge Deck Replacement||PF||75,300||1|
|6||1||RI||Civic Center Interchange Ramps||AC||45,000||2|
|7||1||RI||Quonset Point Rail-Highway Bridge Project||AC||105,000||10|
|8||3||MD||I-695 Baltimore Beltway||1044 & PCAC||47,900||2|
|9||3||MD||Interstate 70 Frederick||1044 & PCAC||88,500||4|
|10||3||MD||MD 355 Montgomery County||FM||38,000||2|
|11||3||PA||Interstate Route Improvements||PCAC||47,200||1|
|12||3||PA||Lehigh Airport Access Improvements||FM||21,500||**|
|13||3||PA||7 Enhancement Projects||FM||3,207||*|
|14||3||PA||I-95 Intermodal Mobility Project||AC & PCAC||176,000||2|
|15||3||PA||U.S. 15 Relocation, Lycoming & Tioga Counties||AC & PCAC||310,000||5|
|18||3||WV||Williamstown Rail Depot||FM||318||*|
|19||4||FL||I-75 Lane additions||AC||60,000||2|
|20||4||FL||I-4 Tampa Lane Additions||AC||115,000||1|
|21||4||FL||I-95 Palm Beach County||AC||12,000||***|
|22||4||FL||Weigh Stations & Rest Areas||AC||10,000||*|
|23||4||FL||I-4 Tampa/Crosstown Connector||FM||224,000||0|
|24||4||FL||Midpoint/Lee County Bridge||129(RLF)||194,900||0|
|25||4||GA||Jesters Creek, Clayton County||FM||1,734||0|
|29||4||KY||Jefferson County Fleet Fuel Conversion Project||FM||1,500||0.5|
|30||4||NC||Neuse River Bridge||PF||137,400||3|
|31||4||NC||US 19-23 Project A-10C||AC & PCAC||90,000||1|
|32||4||NC||US 19-23 Project A-10D||AC & PCAC||53,500||1|
|26||5||IN||North-South Corridor, Hendricks County||FM||17,100||2|
|27||5||IN||Widening of County Road 7, City of Nappanee||FM||1,300||2|
|35||5||MI||Capital Improvement Projects||1044||1,003||**|
|36||5||MI||Morton Taylor Road||FM||1,900||0|
|37||5||MI||Two I-94 Projects; I-275 Project||PF||29,180||1|
|38||5||MI||19 Mile Road, Macomb County||FM||4,500||0|
|39||5||MI||I-94 and 9th Street, Kalamazoo||Tap||8,000||0.5|
|40||5||MI||Haggerty Connector, Oakland||Tap||33,000||0.5|
|42||5||MI||Davison Freeway, Wayne||Tap||79,800||0.5|
|43||5||OH||Butler County Highway||AC||120,000||*|
|44||5||OH||Cincinnati Rail Project||AC||15,000||0|
|45||5||OH||Stark County Intermodal Facility||129 w/PPP||35,200||*|
|46||5||WI||Main Street Bridge, Green Bay||AC & PCAC & FM||23,300||3|
|47||6||NM||Camino Real (formerly Santa Teresa) Intermodal Facility||FM w/ PPP||70,000||*|
|48||6||TX||SH 190 (George Bush Turnpike)||129 & AC & PCAC||696,300||6|
|49||7||MO||Watkins Drive Kansas City||PF||33,700||2|
|50||7||MO||Statewide Intelligent Transportation System||FM||150,000||1|
|52||7||NE||U. S. 34 Lincoln||FM||10,050||1|
|54||8||WY||Shoshone Natl Park||FM||49||0|
|55||9||AZ||Freeway Management System||Inc Gen||9,500||*|
|56||9||CA||Calexico East Comm Vehicle Inspection||PCAC||19,600||**|
|57||9||CA||Otay Mesa Comm Vehicle Inspection||PCAC||13,000||**|
|58||9||CA||San Miguel Connector & SR 125 1||PCAC & Bond w/ PPP||482,000||7|
|59||10||AK||New Ferry Construction||PF||84,000||1|
|60||10||AK||Marine Highway System Replacement Ferry||Bond w/ PPP||29,120||2|
|61||10||CNMI||Saipan Highway Projects||AC & PPP||23,000||2|
|63||10||ID||State Hwy 75 Corridor Scenic Byways & Enhancement Program||FM||158||*|
|64||10||WA||State Route 520||Tap||35,900||1|
|Category 1 - Average Acceleration||1.7398|
* indicates projects that would never have been constructed in
the absence of TE-045.
**indicates projects that have been accelerated by an undefined number of years.
*** indicates project schedule was preserved by using TE-045, i.e. a delay was avoided.
|Region||State||Name of Project||Financing Tool||Project Cost
|65||1||ME||Fairfield Intermodal Facility||FM||3,470||*|
|67||5||OH||Vickers Rail Separation||FM||20,000||0|
|68||6||TX||Laredo Bridge #4||129 & FM||52,500||0|
|69||9||CA||Non-Interstate Rest Area (Tulare County)||Inc Gen||0||0|
|Category 2 - Average Acceleration||1.6|
|Average Acceleration all Active Projects||1.7269|
* indicates projects that would never have been constructed in
the absence of TE-045.
**indicates projects that have been accelerated by an undefined number of years.
|Region||State||Name of Project||Financing Tool||Project Cost
|72||1||VT||Chittenden County Circumferential Highway||AC||30,000||0|
|73||3||DE||Churchman's Crossing, formerly Metroform Partnership||FM||30,000||0|
|74||4||AL||U.S. 280 Birmingham||Bond||400,000||0|
|75||4||SC||Conway Bypass||Bond & 129 w/ PPP||430,000||20|
|76||8||CO||Powers Boulevard, Colorado Springs||FM||353,000||0|
|Category 3 - Average Acceleration||4|
|Region||State||Name of Project||Financing Tool||Project Cost
|78||1||NY||1000 Islands and Massena Brdg||Undefined||263||0|
|80||5||MI||I-75 / Holly Road Interchange||FM & Tap||5,160||0|
|81||6||LA||Economic Feasibility Study||FM||350||0|
|82||6||LA||Ruston Frontage Road||129 (RLF)||2,000||0|
|84||8||MT||US 93/Reserve Street||Tap||21,500||0|
|85||9||AZ||Rest Area Studies||Inc Gen||150||0|
|Category 4- Average Acceleration||0|
|Region||State||Name of Project||Financing Tool||Project Cost
|Category 5 - Average Acceleration||0|
* indicates projects that would never have been constructed in
the absence of TE-045.
**indicates projects that have been accelerated by an undefined number of years.
Source: FHWA survey data and independent telephone interviews (May - June 1996).