Federal Credit Concepts and Issues

This Draft Policy Discussion Paper prepared for FHWA in 1997 discusses the potential role that federal credit assistance programs could play in the development of transportation infrastructure in the United States. The paper underscores the fact that in the country's constrained fiscal environment, it has become increasingly difficult to fund major transportation projects. However, in some cases badly needed projects also tend to have the potential to generate their own revenue streams, allowing them to be funded with project-based debt. The paper describes the different forms of credit assistance that could be offered and lays out a framework for administering and funding such a program, as well as the evaluation of candidate projects. The paper concludes that a surface transportation credit program could address the need for supplemental and subordinate capital in a highly budget-effective manner. Further, it finds that effective federal credit programs could enable strategic transportation improvements to gain significant market access with relatively limited federal investment. The paper includes appendixes on risk assessment and tax issues, as well as case studies of early examples where federal credit has been used to support surface transportation projects.

This report dating from the 1990s reviews different forms of credit and assesses their potential to be used by USDOT as part of a comprehensive surface transportation credit program, including:

• Direct, flexible payment loans from the federal government would provide sponsors with permanent financing of construction costs in a manner that enables loan repayments to coincide with the receipt of revenues, rather than according to inflexible repayment schedules.
• Loan guarantees by the federal government would be designed to attract private capital on similar terms to direct, flexible payment loans, but the loans would be funded from private capital sources.
• Standby lines of credit represent secondary sources of funding in the form of contingent federal loans that may be drawn on to supplement project revenues if needed during the ramp-up period.

The purpose of this conference was to explore the implications of using Federal credit (e.g., direct Federal loans, loan guarantees, and lines of credit) to help finance major surface transportation projects. The conference was one in a series of periodic policy discussions the FHWA sponsored called "Searching for Solutions," in which experts were invited to help FHWA examine key transportation policy issues.