Project Finance Defined

Project finance refers to specially designed techniques and tools that supplement traditional highway financing methods, improving governments' ability to deliver transportation projects.

Project finance typically entails borrowing money, either through bonds, loans or other financing mechanisms. Borrowing money for project implementation helps accelerate implementation of needed infrastructure. But just like borrowing money for a mortgage or college education, project finance tools require a repayment source. In many instances, using project finance tools requires the development and imposition of new revenue streams to pay back bonds or loans issued to support investment.

Project finance is typically used for large capital projects in cases where using "pay-as-you-go" does not make good planning and programming sense; that is, because the project's capital needs would consume most if not all available funding - and still often fall short of being fully funded. Further, given long-term benefits of transportation infrastructure, it can be economically sound to spread the project costs over the asset's life-cycle. However, project finance comes at a cost, because interest is paid over the long-term for the money that is borrowed today. But the additional cost of financing might be justified if it is less than the potential project cost increase due to inflation, or it is outweighed by the benefits of having the project available in the near-term.

Project finance has evolved at the Federal level as a product of dialogue between policy and administrative officials at USDOT and partners at the state and local levels. Most of the programs and tools have been enabled by legislative changes to the U.S. Code, Title 23. As transportation finance needs evolve, new tools and programs are likely to add to the field of project finance.

Accelerate Your Transportation Program

Transportation programs can use innovative financing to start projects more quickly and without delay. The infographic below is an example of how innovative financing could save time and money for your transportation project.
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Text of Accelerate Your Transportation Program infographic

Accelerate Your Transportation Program

  • Use innovative financing to complete your project faster and reduce costs.
  • Access new sources of public and private funding
  • More effectively use existing funds
  • Avoid hidden costs associated with delayed construction
Innovative Financing     Pay-as-You-Go
$5 million Transportation Project
  • Start building immediately
    AND
    Build without delays
  • Incur interest at approximately 3.25%* over 10 years
  • Project complete in 3-5 years
  • Wait 5 years to start building due to budget restrictions
    OR

    Build in phases as funds become available
  • See inflation rise at 4%** annually, raising construction costs
  • Project complete in 8-10 years

Potential Savings using innovative financing
up to $150K.

Over the long term, interest payments may be less expensive than construction-cost inflation.

*interest rate variable | ** Estimated from FHWA data