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Section 129 Loans

Guidance on Section 313(b) of the NHS ACT Loan Provisions Under Section 129(a)(7) of Title 23

NHS Act Provision

Section 313(b) replaced 23 U.S.C. 129(a)(7), relating to eligibility of State loans for Federal-aid reimbursement. The previous provision established the eligibility of State loans for construction of toll facilities for Federal-aid reimbursement. The NHS Act amendment expanded eligibility of loans to include State loans to non-toll facilities with a dedicated revenue source for Federal-aid reimbursement. Further, the States were given greater flexibility in determining the interest rates for loans and given the authority to use loan repayments for additional credit enhancement activities.


The ISTEA amended Section 129 to allow Federal participation in a State loan to a toll project. This provision was implemented by memoranda from FHWA Headquarters dated March 12, 1992, and May 14, 1993. Section 313 of the NHS Act amended the loan provisions of Section 129(a)(7).

The purpose of this guidance is to consolidate in one document, information on the loan provisions of Section 129(a)(7) contained in the two previous memoranda, modified as appropriate to implement the NHS Act amendments. The following provides implementing guidance on the Section 129(a)(7) loan provisions.


Section 129(a)(7)(A) allows the State to make loans to a public or private entity which is constructing, or proposing to construct, a toll project that is eligible for Federal-aid funding or a non-toll highway project with a revenue source specifically dedicated to support the project. The State may request authorization of a project for the purpose of making a loan to the public or private entity. The amount loaned by the State is considered an eligible Federal-aid project cost.

There are no Federal requirements that apply to how a State selects a public or private entity to be a recipient of a State loan. This selection process, including creation of public/private partnerships, is governed by State law. Further, it is the State's responsibility to ensure that the loan recipient has used the loan for the purposes specified.

Dedicated Revenue Source - Non-toll Projects

A specifically dedicated revenue source is a revenue source which the loan recipient, or other appropriate entity, pledges for repayment of the loan. Revenue sources can include, but are not limited to, excise taxes, sales taxes, real property taxes, motor vehicle taxes, incremental property taxes, or other beneficiary fees. (However, there are criteria that limit use of airport revenues as a dedicated revenue source, and any proposal to use airport revenues must receive Headquarters' concurrence prior to authorization of the loan.)

The pledge for repayment may involve all or only a portion of a revenue source or a combination of various revenue sources. In requesting authorization of Federal-aid funding for a loan to a project with a dedicated revenue source, the State will identify the dedicated revenue source(s) and provide written assurance that a pledge has been secured regarding use of the revenue sources(s) for repayment of the loan.


If a project meets the test for eligibility, a loan can be made at any time. The loan may be for any amount, provided the maximum Federal share of the total eligible project cost is not exceeded. Total eligible project cost is limited to the costs of engineering, right-of-way acquisition, and physical construction remaining to be accomplished at the time the FHWA authorizes the loan to be made. In other words, a loan can be initiated on an active, eligible project, but the amount cannot include the cost of work done prior to the loan authorization. A loan project can be authorized under the advance construction provisions of 23 U.S.C. 115 that apply to the type of Federal-aid funds being used.

Federal-aid funds for loans may be authorized in increments. Federal-aid funds are obligated in conjunction with each incremental authorization. The State is considered to have incurred a cost at the time the loan, or any portion of it, is made. Federal funds will be made available to the State at the time the loan is made.

Federal Share/Non-Federal Share

The Federal share for a loan project under Section 129(a)(7) is established by Section 129(a)(5). Accordingly, the Federal share is 80 percent and may not be adjusted in accordance with a sliding scale under 23 U.S.C. 120. The non-Federal share may be provided by the public or private entity receiving the loan.

Compliance with Federal Laws

The State must ensure that the project is carried out in accordance with Title 23 and other applicable Federal laws, including any environmental and right-of-way provisions included in Federal law. The only exception, discussed under "Other Issues," concerns procurement of consultants or contractors by a private entity or toll authority. The initial toll or non-toll project for which a State has requested Federal payment for a loan is viewed as a Federal-aid project subject to the same basic requirements and FHWA oversight responsibilities which are being followed for comparable non-loan Federal-aid projects.

Subordination of Debt

At a State's option, the amount of any loan eligible for Federal reimbursement under Section 129(a)(7) may be subordinated to any other debt financing for the project.

Repayment/Terms of Loan

Loans must be repaid to the State. The repayment must begin within 5 years after the project is completed and opened to traffic and must be completed within 30 years after the date Federal funds are authorized for the loan or first increment of the loan. Interest on the loan is at or below market rates, as determined by the State, to make the project which is receiving the loan feasible.

Subsequent Use of Repaid Amounts

The State may use repaid amounts for:

  • Any project eligible under Title 23, or
  • The purchase of insurance or for use as a capital reserve for other forms of credit enhancement for project debt in order to improve credit market access or to lower interest rates for projects eligible under Title 23.

No Federal requirements attach to activities advanced with funds repaid to the State.

Other Issues

Loan guarantees are not an eligible activity under the Section 129(a)(7) loan program. However, a reimbursable Section 129(a)(7) loan could well act as credit enhancement where a public or private entity is seeking market financing for a project.

Federal funds can participate in the construction of a toll facility or a non-toll facility with a dedicated revenue source either through a direct commitment of funds to the project (a regular Federal-aid construction project) or through a loan(s) to the public or private entity building the project. A State could also choose to use its Federal-aid funds to finance a portion of a project as a regular Federal-aid project and use a reimbursable loan for another portion of that project.

If Federal funding involves a regular Federal-aid project, the consultants or contractors used on the Federal-aid project must be selected under the Brooks Act or Title 23 competitive bidding procedures, respectively. However, if the Federal-aid funding is only via a Section 129(a)(7) loan project to a private entity or toll authority, that entity is allowed to select the consultant or contractors in whatever manner it sees fit as long as the selection process follows State laws and procedures.

[Questions relating to this guidance should be directed to Jim Overton, Federal-aid and Design Division, at 202-366-4653.]

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