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Financial Planning

I. Introduction

A figure rests his arm on his knee and has a question mark floating above his head.

What is Financial Planning? Financial planning is a way to estimate how much money your tribe has to pay for needed transportation improvements on tribal lands. Since transportation funding is limited, you must spend strategically. Financial planning involves identifying funding streams available to the tribe, estimating how much money those streams will generate, and matching the available funding to projects. This module will introduce tribal transportation funding sources, financing concepts, and methods for estimating revenues.

This module has six parts:

I. Introduction. Topic description. Practice While You Learn!

II. How Do I Do Asset Management? Step by step instructions.

III. Toolbox. Techniques for performing task. IV. Checklist. Checklist.

IV. Checklist. Checklist.

V. From Indian Country. Tribal example.

Appendices. For Further Reading.
Asset Management Quiz.

Why is this important? Financial planning ensures that your tribe is spending its limited transportation dollars on the most important projects. It also helps you start working with your partners to secure funding for the tribe.

A figure wearing a tie puts together a puzzle with a large dollar sign on it.

Who should participate in this training? This module is intended for use by tribal transportation planners, tribal governing body members.

How will I benefit? This module will teach you how to answer the questions “How much money do I have to work with?” and “How can I spend my available money?” Further, you will understand “How does financial planning fit into the broader planning process?”

How does this module relate to other modules in the training series? This module describes how to identify, estimate, and prioritize funding. The availability and handling of funds impacts many other modules in this series. This module uses information from the Funding Resources module, because that module discusses in depth the sources of funding available to tribes. Financial planning is also closely related to the modules Developing the Tribal Transportation Improvement Program and Developing a Long-Range Transportation Plan.

What can I expect from this module?This module will introduce you to concepts related to paying for transportation facilities, how to estimate available revenue, and develop a section of the tribe's transportation plan related to funding.A helpful example will show you how to practice what you learn.Several text boxes and sidebars explain terminology or answer frequently asked questions.

Practice While You Learn!

The scenario below is referenced throughout the module to help you "Practice While You Learn" financial planning.

While developing the hypothetical tribal long-range transportation plan, five needed projects were identified.The projects are listed below (costs are shown in parentheses):

  1. Build a new 4-lane road to connect a major highway that runs through the reservation to another major highway ($45,000,000).
  2. Pave 20 miles of gravel roads on the reservation, built in 1-mile increments at a cost of $1 million per mile ($20,000,000).
  3. Begin offering bus service on a single route on the reservation ($150,000 per year).
  4. Make safety improvements to three intersections on tribal roads ($400,000 each).
  5. Build sidewalks to allow safer access to the tribal school ($50,000).
  6. Add vehicle parking areas and safety improvements to a scenic roadway ($1,500,000).

As the tribal transportation planner, your task is to identify sources of funding and pay for as many of these improvements as possible.

The purpose of Practice While You Learn! is to apply your learning to a hypothetical problem as you study the contents of this module.  You will find useful information and tools in your reading.  At certain points, you will be asked if the lesson you have just learned will help solve the problem described here.
Blank worksheets to help you follow along are included in Appendix B.


Background on Transportation Funding Sources

This section will discuss funding sources that may be available to your tribe, and how they can be used to pay for needed projects. All funding sources are considered simultaneously. The tribal planner should view transportation funding as a whole, regardless of where the funding originated or who supplied it. Often a single transportation project will be paid for using a blend of transportation funding sources.

Gas Taxes on Tribal Lands

Gasoline sold on tribal lands is taxed by the Federal government and contributes to the Highway Trust Fund. If your tribe has an agreement with a State government, the State gas taxes might be collected too. Tribal governments can also charge their own taxes on gasoline sales on the reservation. Money raised through a tribal government gas tax is under the total control of the tribe. This can be a major source of revenue for transportation projects on tribal lands.

Each year, the Federal government makes hundreds of millions of dollars available to tribes to improve their infrastructure. Hundreds of millions more are made available by States, local governments, and tribal governments. As a tribal transportation planner, your role is to identify funding sources, estimate the value from those streams over time, and match the resulting money to projects important to the tribe. In order to access Federal transportation funds, you must follow a long- and short-range planning process. Your tribe identifies which projects are important during the development of the Long-range Transportation Plan (LRTP) and the shorter range Tribal Transportation Improvement Program (TTIP).

Federal transportation funding is generated from a tax of 18.4 cents on each gallon of gasoline sold in the United States. Gas taxes are deposited into a special account called the Highway Trust Fund. Over 120 programs are funded by the Highway Trust Fund (note, some non-highway programs are also funded by the Trust Fund). Each program is intended to fund different types of projects. For example, the Congestion Mitigation and Air Quality Improvement Program funds projects that improve the quality of our air. The National Scenic Byways Program funds repairs and safety improvements on a specified set of picturesque and historic roads. For more information, please see the Funding Resources module.

Traditionally, Federal funds were administered only through the Bureau of Indian Affairs (BIA). However, rule changes in 2004 allowed tribes to enter directly into an agreement with FHWA to receive transportation funding. Even when tribes enter into a compact with FHWA, BIA remains an important partner for identifying project needs and funding.

Federal funding specifically for tribal nations. Two programs funded by the Highway Trust Fund are specifically intended for use only by tribal nations: the Indian Reservation Roads (IRR) Program and the Tribal Transit Program. Tribes receive funding for these programs directly from the Federal government. IRR funding is awarded through BIA or through FHWA’s Office of Federal Lands Highway (FLH). The Tribal Transit Program is awarded by the Federal Transit Administration (FTA). The amount of money your tribe will receive will be different from the amount given to another tribe.

The Indian Reservation Roads Program is the most significant program for tribal transportation planners. It makes several hundred million dollars per year available to recognized tribes to make roadway improvements that support travel on or near tribal lands. IRR funds can also be used to maintain roads in a state of good repair, or fund improvements along the roadway such as sidewalks, bike lanes, rest areas, and safety features. IRR funds can be spent on any eligible project that the tribe chooses.

The Tribal Transit Programprovides support for public transit on tribal lands. Public transit can include trains, buses that run on a set schedule, or unscheduled service in shared vans or taxis (sometimes called paratransit). Transit is an important part of the transportation system, particularly for people without access to a car. You must apply for Tribal Transit funding through the FTA, and your application will compete against those from other tribes for available funding.

How is FHWA Structured?

FHWA has several thousand employees that work in offices around the country. FHWA maintains a headquarters in Washington, DC with staff that are organized into fourteen subject area Offices. The FHWA Offices oversee the programs and grants of the Federal Aid Highway Program. FHWA also maintains employees in each State capital, which are known as Divisions. Each Division is set up to mirror the fourteen Offices found at the headquarters. The purpose of the Division Office is to provide information, technical assistance, and oversight of transportation programs in that State, including the State DOT, MPOs, local governments, and tribes.

Office of Federal Lands Highway (FLH) is part of FHWA but does not have the same structure. The purpose of FLH is to plan, build, and maintain roads on lands owned by or held in trust by the Federal government. FLH administers the IRR program. Federal Lands Highway is organized into three Divisions located in Sterling, VA (Eastern Division), Lakewood, CO (Central Division), and Vancouver, WA (Western Division).

In general, your main points of contact should be the Federal Lands Highway Division for your area or the FHWA Division in your State capital.

FHWA Federal Lands Highway (FLH) funding. If your tribal lands lie adjacent to or near land owned by the United States Government, you may be able to fund road projects under a special set of programs. FLH has three pools of money reserved for roads to access parks, wildlife refuges, and other federally-owned lands. FLH also administers the IRR Program, so be sure to discuss these possibilities with your contacts at that office.

Other Federal transportation funding. Tribes are eligible to receive funding for most of the other Federal funding streams supported by the Highway Trust Fund. However, the process for obtaining these funds is different from the IRR Program—funds do not flow automatically to the tribe. In order to access these other funding streams, the tribe will need to either enter into partnership with another government agency or apply for a grant:

Regional Transportation Agencies

You might need to work with a regional transportation agency while doing financial planning. Some types of transportation are best planned and administered at the regional level, meaning an area larger than one city or county but smaller than the State.

What is a Metropolitan Planning Organization? In all urban areas with more than 50,000 people, the Federal government requires a metropolitan planning organization (MPO) to plan for transportation on a regional basis. These organizations are governed by a board of elected officials and employ professional staff. The MPO decides which projects will be built in urban areas. Important documents from the MPO are the 20-year Metropolitan Transportation Plan and the 5-year Transportation Improvement Program. MPOs are required to consult with tribes during development of their planning documents and other decision-making. Some MPOs may provide a seat on their governing board to tribal governments. Through a good working relationship, tribes may be able to encourage MPOs to select projects on or near tribal land.

What is a Rural Transportation Planning Organization? Many States have created agencies to plan transportation infrastructure in rural areas. These agencies often adopt similar documents to MPOs, but their planning process is not required by the Federal government.

What is a transit authority? Transit authorities are regional government agencies that own and operate public transit vehicles such as buses and trolley cars. Transit agencies are often governed by an independent board of directors and employ their own staff. The transit authority usually has authority to make decisions on how to spend transit funding through its Transit Development Plan. If your tribe has a nearby transit authority, you may be able to work with them to enhance transit service on tribal lands. Tribes can also create their own transit authority.

Local transportation sources. Locally-raised revenues are an important source of transportation funding. There are a variety of ways to raise revenue ranging from rents collected from businesses using tribal facilities to contributions from private sector developers and to many different types of taxes and fees. Taxes used for transportation frequently include a percentage of retail sales or a per-gallon tax on gasoline sales. Examples of fees include vehicle registration fees, licensing of large trucks entering tribal lands, or parking fees. The tribal governing body can also decide to spend part of its annual budget on transportation. Money from the annual budget is often called general funds.

Innovative funding sources. As government transportation funding becomes scarcer, many transportation agencies have begun experimenting with ways to attract private sector funding to the transportation system. Innovative financing may be very useful for tribal governments to build badly needed infrastructure that cannot be paid for using traditional sources of income.

Private sector money can flow into transportation projects in two distinct ways: tolls and bonds. A toll is a fee paid by a driver to use a roadway. A bond is a financial tool where the government borrows money from private sector investors and repays the debt over time. In some strategies, tolls and bonds can be used together. Borrowing money can have lasting impacts on the tribe’s future finances, so making decisions to use innovative financing requires careful study. To date, the number of tribes who have used innovative financing programs is limited.

The Federal government has set up several programs to assist and regulate the flow of private money into the transportation system. Even though the Federal government is involved in these programs, it is not the lender. Private sector investors loan money (termed ‘buying a bond’) while the Federal government assists with this process or guarantees that the loan will be repaid.

Non-Transportation Federal Funding Sources

Federal funding for transportation projects doesn’t have to come from the Department of Transportation. Other parts of the Federal government have funding streams that can be spent on transportation, and many have a strong history of working with tribal governments. The Department of Housing and Urban Development (HUD), the Environmental Protection Agency (EPA), the Department of Agriculture, and the Department of Health and Human Services all have certain programs that are eligible to support transportation.

One such program is the Partnership for Sustainable Communities, which was formed in 2009 as a joint effort between DOT, HUD, and EPA. The goal of the Partnership is to coordinate Federal efforts that support sustainability and livability.

The Partnership for Sustainable Communities offers grants each year. The emphasis and application methods vary, but tribal governments have been eligible to apply for most of the grants.

Many of the Partnership’s efforts target councils of government and metropolitan planning organizations. Tribes that work closely with MPOs will be in a better position to win grants through the Partnership.

The major innovative finance programs available to tribes are discussed below, and are illustrated with examples from the fictional “Crystal River Tribe.”

Grant Anticipation Revenue Vehicles (GARVEE) bonds are a way for tribes to build large projects right away and use future Federal money to pay off the bond for the project. The main benefit of GARVEE bonds is that large projects can be built with little or no “out of pocket” money. You must apply to the Federal government to receive a GARVEE bond, and you are not guaranteed to receive one.

SUPPOSE the fictional Crystal River Tribe wants to build a $50 million roadway to a new shopping center that could spur new job opportunities on the reservation. The tribe could borrow $50 million through the GARVEE program to be repaid over ten years. The tribe receives all $50 million immediately and the road can be built quickly. However, the bond must be repaid. For the next ten years, most of the tribe’s IRR money will be diverted to repay the bond. It is unlikely that the tribe will be able to build any substantial projects during the repayment period. Even though future finances will be severely limited, the tribe was able to build a major new road that created new jobs and economic opportunity on the reservation. Tribal transportation planners and tribal governing body members must carefully weigh the benefits and costs of using GARVEE bonds.

If a private sector corporation wants to participate, a tribe and the Federal government can support Private Activity Bonds (PABs). In most ways, a PAB is similar to any other type of corporate bond—a private sector developer borrows a lump sum of money and repays it over time. However, unlike corporate bonds, interest paid on PABs is exempt from Federal income taxes. This makes the bond more attractive to investors, who are therefore willing to accept a lower interest rate.

SUPPOSE a real estate developer wants to build a casino on the reservation of the Crystal River Tribe. The tribe might sponsor a PAB to help the developer raise money to build roads to the casino. There is no cost to the tribe, since the developer is making all repayments. However, the developer is able to secure an interest rate of 4% instead of the usual 6% because the interest is not taxed.

Tribes are also eligible to borrow money through the Tax Infrastructure Finance and Innovation Act (TIFIA) program. Through TIFIA, the tribe borrows a portion of the money needed to build a project from the private sector. The tribe is responsible for repaying the loan. However, the Federal government guarantees the loan will be repaid. The Federal government’s guarantee is very attractive to investors (the US government has never failed to make a payment), so they are willing to accept much lower interest rates. Lower interest rates on the bond means the tribe pays less in interest. TIFIA loans are reserved for projects of national and regional significance, and the tribe must submit an application to receive a loan.

SUPPOSE the Crystal River Tribe wants to implement a $150 million program to pave gravel roads on the reservation. Under TIFIA, the tribe would be able to borrow up to $50 million at an interest rate of 3%. Without the Federal government’s guarantee under TIFIA, the tribe would have to pay an interest rate of 7%. By using TIFIA, the tribe saved over $2,000,000 in interest payments. A key difference between TIFIA and GARVEE is that TIFIA bonds can be repaid only using money from non-Federal sources, such as sales taxes paid on the reservation.

Tribes can choose to charge tolls on new roadways; however, tolls are possible only on specific types of high-traffic roads, such as bridges or major highways. Money collected from tolls can be used to repay a bond.

SUPPOSE the Crystal River Tribe wants to build a bridge to improve access to a beach area. The bridge would increase tourism and attract investment but will cost $100 million to build. The tribe can sell a bond, and use the tolls collected by drivers on the bridge to repay the bond. Building a toll bridge requires a fraction of the up-front investment compared to building the road using money on hand. The downside is that if the toll bridge does not collect enough tolls, the tribe will need to make payments on the bond using general fund money. Estimates for the number of vehicles expected to pay the toll must be conservative in order for tolled roads to make financial sense.

Updated: 5/8/2015
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