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Innovative Finance Quarterly

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FHWA's Innovative Finance Quarterly


VOL. 1, NO. 3

In This Issue:

Innovative Finance Tools Help States Meet Federal-aid Matching Requirements

Through the innovative finance provisions contained in the Intermodal Surface Transportation Efficiency Act (ISTEA), the Test and Evaluation (TE) 045 program, and the National Highway System (NHS) Designation Act, the Federal Highway Administration (FHWA) has been reshaping the Federal-aid program's matching share requirements. Traditional grant-based pay-as-you-go financing has given way to more innovative techniques aimed at enhancing transportation investment and accelerating project implementation.

Some of these innovative finance tools are now available to states as part of the regular Federal-aid program. Some are still experimental. Four of the available matching share tools are flexible match, soft match, tapered match, and shared resources.

Flexible Match

The NHS Designation Act amended 23 U.S.C. 323 to allow states to apply the value of third party donated funds, material, or services toward their share of project costs. This flexible match provision increases a state's ability to fund its transportation programs by: 1) accelerating certain projects that receive donated resources; 2) allowing states to reallocate funds that otherwise would have been used to meet Federal-aid matching requirements; and 3) promoting public-private partnerships by providing incentives to seek private donations. Third parties as defined by the NHS Designation Act include private companies, organizations, and individuals; Federal, state, and local government agencies are excluded by this definition.

The Maryland Department of Transportation (DOT) is one agency currently using flexible match to help finance the reconstruction and widening of a one-mile segment of MD 355. The route serves a rapidly expanding area of Montgomery County in the Washington, DC metropolitan area. The project involves expansion of MD 355 by one lane in each direction. Maryland DOT is crediting $8 million in private funds toward its matching share of project costs.

Soft Match

Section 1044 of ISTEA permits states to earn credits on toll revenue expenditures. These toll credits can then be applied toward the non-Federal matching share of current Federal-aid projects. The soft match provision of ISTEA increases the flexibility of state transportation finance programs by allowing states to use toll revenues when other state highway funds are not available to meet non-Federal share matching requirements.

The soft match provision of ISTEA requires states receiving toll credits to pass a "maintenance of effort" (MOE) test. The MOE test established under ISTEA requires a state to demonstrate "a continuing commitment to non-Federal transportation investment" by showing that its previous year's expenditures on transportation improvements are equal to or exceed the average of its previous three years' expenditures. Under TE-045, the MOE test is relaxed to allow for a more prospective view.

The New Jersey DOT, for example, is using a soft match to help finance the construction of a southbound viaduct over the Waverly Yards in Newark. The recent reconstruction of the northbound viaduct has left the southbound viaduct demolished and the highway operating at 50 percent capacity. New Jersey DOT is expediting construction by applying $15 million in toll credits toward its share of the project costs.

Tapered Match

Tapered match allows states to vary the required matching ratio over the life of a project. With this tool, states can delay the use of their own funds while using Federal funds to bring projects through the critical early phases of construction. Although tapered match has been tested under the TE-045 experimental program, it is not available through the regular Federal-aid program.

The Washington State DOT is using a tapered match to help finance the construction of high occupancy vehicle lanes on SR 520 located northeast of Seattle. The project is necessary to accommodate the region's rapidly expanding traffic volumes and to enhance safety on the Evergreen Point Bridge. Tapering the Federal share will allow Washington State DOT to begin construction on the project a year earlier, while achieving better cash flow management.

Shared Resources

Shared resources are private donations of communications technology (principally fiber optic communications) granted in exchange for access to public rights-of-way. The use of shared resources is an invaluable tool for states seeking to build a technological backbone for Intelligent Transportation Systems (ITS). In addition to obtaining increased access to telecommunications technology, states can credit the value of the private donations toward their matching share of project costs associated with the deployment of ITS projects utilizing the donated technologies.

The shared resources concept has been limited to selected experimental projects, and has not been recognized as part of the regular Federal-aid program. In some states, shared resource arrangements may be prohibited by state law.

As reported in the October 1996 issue of IF, the Missouri DOT has entered into an agreement with Digital Teleport, Inc., which will provide the DOT with access to a 210-mile, $23 million fiber optic network to be located near St. Louis. In return, Digital Teleport has been granted exclusive access to the public rights-of-way necessary for completing the project. In addition, FHWA has recognized the value of the donation and is allowing Missouri DOT to receive credit toward its matching share on ITS deployment projects in the St. Louis area.

telephone Contact: Max Inman, FHWA, 202/366-2853 or Patrick Balducci, Cambridge Systematics, Inc., 202/366-6011

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New Legislation to Increase Participation in Sib Program

Congress passed legislation in September 1996 that enables the U.S. DOT to designate additional qualified states to participate in the State Infrastructure Bank (SIB) pilot program. Previously, the program was limited to ten states (see August and October 1996 issues of IF). Congress also approved an additional $150 million to be distributed to the initial ten states and to any additional states designated for participation under the new legislation. This money will be used to capitalize the states' SIBs; however, the funds cannot be distributed for six months from the date the legislation was enacted, until additional states have been approved for participation. The funds will be available to both highway and transit accounts of a designated state's SIB.

A SIB can provide many types of financial assistance, ranging from loans to credit enhancements. Forms of assistance may include interest subsidies, letters of credit, capital reserves for bond financing, construction loans, and purchase and lease agreements for highway and transit projects. Missouri, for example, plans to hold funds in its SIB to cover debt service reserve requirements as part of a future bond issuance for Highway 179. These funds will only be used on an as needed basis.

Unlike traditional transportation funding, a SIB can provide financial assistance throughout all stages of transportation project development and to a multitude of project sponsors. Furthermore, SIB assistance can be set at any amount or percentage of the total project costs, rather than at the traditional fixed percent contributions. The initial use of Federal funds must come from separate accounts for eligible Title 23 and transit capital projects. As the funds are repaid, the SIB can provide financial assistance to a broader range of Title 23 transportation projects in accordance with state procedures.

Under the Pilot Program, SIBs are expected to evolve considerably as the states develop their cooperative agreements with the U.S. DOT, broaden the types of assistance that they can provide, establish SIB administration, and identify projects that will receive SIB assistance. The types of financial assistance that can be provided as well as the projects that will receive the assistance are determined by the enabling legislation each state has or expects to have in the near future. The lessons learned from applying diverse forms of assistance to a wide variety of projects will be invaluable as the SIB Pilot Program progresses and ISTEA reauthorization moves forward.

telephone Contact: Lucinda Eagle, FHWA, 202/366-5057.

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Innovative Finance Course Dates

Upcoming sessions of the FHWA's Innovative Finance and Statewide Financial Planning Course offered to states and metropolitan planning organizations include the following:

  • December 4, Washington, DC
  • December 5-6, Harrisburg, Pennsylvania
  • December 10-11, Montgomery, Alabama
  • December 12-13, Raleigh, North Carolina
  • December 17-18, Seattle, Washington
  • December 19-20, January 21-22, Florida
  • January 27-28, Jefferson City, Missouri
  • January 29-30, Boise, Idaho

telephone Contact: For more information on this course or session dates and locations, contact Esther Strawder, FHWA, 202/366-6949.

[Top of Article, In This Issue...]

FHWA Establishes Innovative Finance Home Page

The FHWA's Federal-Aid Financial Management Division has established a home page for innovative finance. The new Innovative Finance home page contains information on various topics, such as SIB Updates and Information, SIB Questions and Answers, Innovative Finance NHS Guidance, and back issues of the IF newsletter. There is a hotlink to the Legislation and Regulation's home page on Innovative Finance NHS Guidance.

For access to the new FHWA Innovative Finance home page, follow the procedures below:

Netscape and Firefox Users

Enter the URL "" to access the FHWA web site. A graphic of a road meeting the horizon will appear over the menu of options on the FHWA home page. Choose Program Areas from the menu of options. Next click on Innovative Finance. The new home page is also available under What's New on the FHWA web site.

telephone Contact: Esther Strawder, FHWA, 202/366-6949.

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Revenue Reserve Fund Enhances Financing for Midpoint Toll Bridge

The Lee County (Florida) DOT is in the process of building a second bridge over the Caloosahatchee River between Cape Coral and Fort Myers as part of a public-private partnership involving private investors and local, state, and Federal levels of government. Estimated at a total cost of $195.2 million, the Midpoint Bridge Corridor project has two key components: 1) the construction of a new toll bridge and 2) the implementation of congestion pricing utilizing Federal funds reserved for the implementation of state-level congestion pricing programs.

The four-lane Midpoint Bridge will facilitate the movement of traffic between Cape Coral and Fort Myers in rapidly growing Lee County, Florida. It will connect to I-75 to the east and the Burnt Store Road Extension to the west. The project also includes traffic improvements at two major intersections, the U.S. 41/Colonial Boulevard intersection in Fort Myers and the Del Prado/Everest Parkway intersection in Cape Coral. By connecting U.S. 41 and Interstate 75, the two critical north-south roadways in southwest Florida, the project will improve access to surrounding counties, will reduce congestion on the existing Cape Coral Bridge, and will respond to substantial anticipated growth in population, tourism, and traffic in Lee County.

Revenue Reserve Fund

Funding for the new bridge and associated traffic improvements ($175.2 million) will be almost entirely financed by Lee Country through a bond issuance. The county issued bonds through Smith Barney Shearson with a Federal commitment to implement a revenue reserve fund to supplement the toll revenue stream. The revenue reserve fund would be accessed if off-peak toll discounts lead to a loss of revenue. Lee County was able to raise funds through the capital markets while using only limited Federal funds as a credit enhancement. In addition to the bond issuance, Lee County will utilize local revenues in the form of county-wide gasoline taxes.

Congestion Pricing

FHWA provided a grant to Lee County for the implementation of congestion pricing on the Midpoint Bridge. The total cost of the congestion pricing implementation project is $20 million, with $16 million provided by Federal funds and $4 million in matching state and local funds.

Phase I of the congestion pricing project involves a series of studies, including environmental reviews, examination of alternative pricing strategies, traffic and revenue studies, and preliminary design. In Phase II, off-peak discount toll rates will be implemented in combination with pre-existing county-wide toll increases on existing bridges.

The objective of the congestion pricing strategy is to use variable pricing to encourage: 1) highway users to shift their driving patterns from peak-hour periods to non-peak hours; 2) the use of alternative modes; and 3) the use of alternative routes

This variable pricing toll policy will be based on a 33 percent all-day toll increase established for the Cape Coral and Midpoint Bridges in late 1994. Discount pricing will be offered during the hours before and after the morning and afternoon weekday peaks. The discount hours are specifically selected to maximize diversion from peak hours while minimizing revenue losses.

The innovative financing element of the Midpoint Bridge Corridor project is the use of Congestion Pricing Pilot Program funds to support the establishment of a revenue reserve fund of $6.4 million. This reserve fund will be available to cover a potential revenue shortfall that may occur in the early stages of the congestion pricing program.

The project was accepted under the Innovative Finance program, TE-045, to include a broader definition of ISTEA Section 1012(b). This allowed the project to use Federal funds for the revenue reserve fund. The availability of the fund will help provide assurance to toll authorities and their bondholders that the revenue stream associated with the toll facility will not be jeopardized by the adoption of a congestion pricing toll program. As a further inducement for the adoption of variable toll strategies, any revenue reserve funds remaining after completion of the congestion pricing pilot test may be used for other congestion relief projects.

Construction of the Midpoint Bridge, which began in July 1995, is underway. The Phase I congestion pricing implementation study was recently completed. Following review and approval of the study by FHWA and Lee County, the project will proceed to Phase II.

Partnerships between the private sector and the county, state, and Federal levels of government are key to the ongoing success of the Midpoint Bridge Corridor project. Through these public-private partnerships, a state-of-the-art facility will increase mobility while efficiently and economically assigning user fees to reduce traffic congestion.

telephone Contact: Esther Strawder, FHWA, 202/366-6949.

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William A. Hyman, Editor
Laurie L. Hussey, CS Managing Editor
Cambridge Systematics, Inc.
FAX: 617/354-1542

Esther Strawder, FHWA Managing Editor
FAX: 202/366-3297

Reproduction (in whole or in part) and broad distribution of IF is strongly encouraged. Permission from FHWA, the editor, or any other party is not necessary.




  • National Association of Regional Council's (NARC's) Association of MPOs (AMPO)
  • ITS America
  • American Public Transit Association (APTA)
  • Surface Transportation Policy Project (STPP)
  • State & Territorial Air Pollution Program Administrators/Association of Local Air Pollution Control Officials (STAPPA/ALAPCO)
  • Association for Commuter Transportation (ACT)

[In This Issue...]

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