While the traditional financing mechanisms discussed in Chapter 6 provide most of the funding that supports surface transportation, innovative financing mechanisms are playing an increasingly important role. This report defines "Innovative Finance" broadly, reflecting a wide array of techniques designed to supplement traditional financing mechanisms, including credit assistance, innovative debt financing and public-private partnerships.
The Transportation Infrastructure and Finance Innovation Act (TIFIA) program is administered by the DOT and offers eligible applicants the opportunity to compete for secured (direct) loans, loan guarantees, and standby lines of credit for up to one-third of the cost of construction for nationally and regionally significant projects, provided that the borrower has an associated revenue stream, such as tolls or local sales taxes, that can be used to repay the debt issued for the project. Since the program's inception in 1999 through July of 2006, TIFIA has provided almost $3.2 billion in credit assistance to projects representing more than $13.2 billion in infrastructure investment.
The State Infrastructure Bank (SIB) Pilot Program provides increased financial flexibility for infrastructure projects by offering direct loans and loan guarantees. SIBs are capitalized with Federal and State funds. Each SIB operates as a revolving fund and can finance a wide variety of surface transportation projects. As loans are repaid, additional funds become available to new loan applicants. As of June 2005, $5.1 billion in loan agreements had been made by 33 States, of which $3.7 billion had been disbursed for 457 loan agreements. SIB loans are being used to fund both highway and transit projects; 21 States have signed SIB cooperative agreements with the FTA and eight have executed at least one public transit loan. SIB transit loans of $94.5 million are assisting $318.7 million in transit projects.
States are increasingly looking to the private sector as another potential source of highway and transit funding, either in addition to or in concert with new credit and financing tools. The private sector often has expertise that may not be readily available in the public sector that can bring innovation and efficiency to many projects.
A variety of institutional models are being used including (1) concessions for the long-term operation and maintenance of individual facilities or entire highway systems; (2) purely private sector highway design, construction, financing, and operation; and (3) Public-Private Partnerships (PPPs) in designing, constructing, and operating major new highway systems.
Options for PPPs stretch across a spectrum of increased private responsibilities and range from transferring tasks normally done in-house to the private sector, to combining typically separate services into a single procurement or having private sector partners assume owner-like roles.
SAFETEA-LU amended the Internal Revenue Code to include highway facilities and surface freight transfer facilities among the types of privately developed and operated projects that can utilize tax-exempt private activity bond financing.
The FHWA has a number of initiatives underway to help remove barriers to greater private sector involvement in highway construction, operation, and maintenance. These include workshops to provide States with resources to overcome barriers to PPP implementation; development of model legislation for States to use in drafting new or more flexible State laws and regulations; the development and launch of the PPP Web site, http://www.fhwa.dot.gov/ppp, which contains links to many PPP resources, both domestic and international; and case studies of how States and local governments have overcome institutional barriers to PPP implementation.