- Briefing Room
USDOT has developed a number of financial tools to help project sponsors access credit to expedite the implementation of needed transportation improvements. Federal credit assistance can take one of two forms: loans, where project sponsors borrow Federal highway funds directly from a State DOT or the Federal government; and credit enhancements, where a State DOT or the Federal government makes Federal funds available on a contingent (or standby) basis. Credit enhancement helps reduce risk to investors and thus allow project sponsors to borrow at lower interest rates. Loans can provide the capital necessary to proceed with a project, reduce the amount of capital borrowed from other sources and may also serve a credit enhancement function by reducing the risk borne by other investors.
Transportation Infrastructure Finance and Innovation Act (TIFIA)
The Transportation Infrastructure Finance and Innovation Act (TIFIA) program provides Federal credit assistance in the form of direct loans, loan guarantees, and standby lines of credit to finance surface transportation projects of national and regional significance. TIFIA credit assistance provides improved access to capital markets, flexible repayment terms, and potentially more favorable interest rates than can be found in private capital markets for similar instruments. TIFIA can help advance qualified, large-scale projects that otherwise might be delayed or deferred because of size, complexity, or uncertainty over the timing of revenues. Many surface transportation projects - highway, transit, railroad, intermodal freight, and port access - are eligible for assistance. Each dollar of Federal funds can provide up to $10 in TIFIA credit assistance - and leverage $30 in transportation infrastructure investment.
State Infrastructure Banks (SIBs)
SIBs are state-run revolving funds that make loans, provide credit enhancements, and other forms of non-grant assistance to surface transportation projects. The SIB Program allows states to capitalize revolving loan funds with regularly apportioned Federal-aid (Title 23) highway funds. Separate transit and rail accounts may also be capitalized with Title 49 Federal-aid funds.
Section 129 Loans
Section 129 (a)(7) of Title 23 commonly referred to as Section 129 loans allow states to lend apportioned Federal-aid highway funds to toll and non-toll projects generating dedicated revenue streams. Revenue sources can include, but not be limited to, tolls, excise taxes, sales taxes, real property taxes, incremental property taxes, and motor vehicle taxes.
Railroad Rehabilitation & Improvement Financing (RRIF)
The RRIF program was established by the Transportation Equity Act for the 21st Century (TEA-21) and amended by the Safe Accountable, Flexible and Efficient Transportation Equity Act: a Legacy for Users (SAFETEA-LU). Under this program the FRA Administrator is authorized to provide direct loans and loan guarantees up to $35.0 billion to finance development of railroad infrastructure. Up to $7.0 billion is reserved for projects benefiting freight railroads other than Class I carriers.
The funding may be used to:
Direct loans can fund up to 100% of a railroad project with repayment periods of up to 35 years and interest rates equal to the cost of borrowing to the government.
Eligible borrowers include railroads, state and local governments, government-sponsored authorities and corporations, joint ventures that include at least one railroad, and limited option freight shippers who intend to construct a new rail connection.
Some transportation projects or programs of projects are so large that their costs exceed available current grant funding and tax receipts, or would consume so much of these current funding sources as to delay many other planned projects. For this reason, when states and local agencies consider ways to pay for these large projects, they often look to financing the projects through borrowing. The most common method of borrowing is to issue municipal bonds.
The bond issuance yields an immediate influx of cash in the form of bond proceeds. The state or local agency then retires its obligation by making principal and interest payments to the investors over time. Although bond financing imposes interest and other debt related costs, bringing a project to construction more quickly than otherwise possible can sometimes offset these costs. Delaying projects can impose costs that derive from a variety of sources: inflation, lost travel time, freight delays, wasted fuel, and forgone or deferred economic development.
More recently, two innovative debt instrument tools - Grant Anticipation Revenue Vehicles (GARVEEs) and Private Activity Bonds (PABs) - provide further opportunities to issue debt. GARVEEs are backed by money sources not previously used to secure debt and PABs permit private involvement in tax-exempt municipal bonds. USDOT and FHWA approve projects for GARVEE financing and administer the allocation of PABs.
Grant Anticipation Revenue Vehicles (GARVEEs)
A GARVEE is a term for a debt financing instrument - such as a bond, note, certificate, mortgage, lease, or other debt financing technique - that has a pledge of future Title 23 Federal-aid funding.
Private Activity Bonds (PABs)
Private Activity Bonds (PABs) are debt instruments authorized by the Secretary of Transportation and issued by a conduit issuer on behalf of a private entity for highway and freight transfer projects, allowing a private project sponsor to benefit from the lower financing costs of tax-exempt municipal bonds.
Build America Bonds (BABs)
USDOT and FHWA participate in several other types of bonding and debt instrument tools administered at the state and local level. In addition, Build America Bonds (BABs), new tax credit bonds available to surface transportation, are administered by the Treasury Department. The Build America Bond program is designed to provide a federal subsidy for a larger portion of the borrowing costs of state and local governments than traditional tax-exempt bonds to stimulate the economy and encourage investments in capital projects in 2009 and 2010.
Other Bonding and Debt Instruments
USDOT and FHWA participate in the application of many other bonding and debt instrument tools used to finance surface transportation projects.