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Publication Number:  FHWA-HRT-21-002    Date:  Winter 2021
Publication Number: FHWA-HRT-21-002
Issue No: Vol. 84 No. 4
Date: Winter 2021

 

Hot Topic

Facilitating U.S. Transportation Infrastructure Investment and Innovation

by Patrick DeCorla-Souza

Across the United States, transportation agencies at all levels face challenges in funding transportation infrastructure projects. The U.S. Department of Transportation's Build America Bureau can help.

Logo for the Build America Bureau.

The Build America Bureau is responsible for providing long-term financing for transportation infrastructure projects. Project financing is provided to State or local governments, or to their private partners, for projects delivered under public-private partnership (P3) arrangements. The bureau facilitates investment in projects using innovative financing techniques and alternative project delivery models and can lend to both private and public entities.

Borrowing funds for construction can help combine different phases of a project that would otherwise be stretched out over several years or even decades while awaiting funding. This creates economies of scale and saves on soft costs such as multiple mobilizations and demobilizations, bonding, insurance, and management fees. By shortening construction schedules, borrowing also helps save on inflation costs and minimizes adverse effects of construction-related delays on road users and residents living near the construction site.

Overhead view of a large freeway interchange with many cars traveling in multiple lanes. © Ryan Herron / iStock.com.
Freeway intersection in Los Angeles, California.

Finance methods include funding through the Transportation Infrastructure Finance and Innovation Act (TIFIA) and private activity bonds (PABs).

TIFIA Financing

Numerous P3 and non-P3 projects rely on TIFIA to obtain loans and other forms of credit assistance. Congress enacted TIFIA in 1998 as part of the Transportation Equity Act for the 21st Century (TEA-21). The direct loans provide credit assistance at U.S. Treasury interest rates (or half the U.S. Treasury rate for certain rural projects) with maturities up to 35 years after substantial completion of construction, for up to 33 percent of anticipated project costs. Certain rural projects or those that provide a strong rationale for requiring a higher level of assistance may be eligible to receive TIFIA loans up to 49 percent of anticipated project costs.

PAB Financing

Interest on debt issued by public agencies (municipal debt) is tax-exempt to bond holders. Therefore, public agencies can borrow at a lower cost than private entities. Prior to 2005, one major obstacle to the use of P3s was the inability of the private sector to tap into tax-exempt sources of financing for long-term construction loans, resulting in a higher cost of funds for private sector partners than for a public agency borrowing money for the same project. To compete with conventional public delivery of projects, P3s needed to have access to less expensive credit.

Private activity bonds can address this need. If authorized, a private entity can take advantage of interest rates that are lower because investors are not required to pay taxes on their interest income. This saves on financing costs and reduces project costs for the public sponsor. The Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) first authorized PABs in 2005. Administered by the Build America Bureau, the program authorizes USDOT to allocate up to $15 billion in tax-exempt PABs for qualified highway and rail-highway freight transfer facilities.

Future Directions

Moving forward under the leadership of its executive director, Dr. Morteza Farajian, the Build America Bureau seeks to target its outreach to borrowers who have not used its programs and to diversify asset classes to include ports, airports, and technology-related projects. The bureau also aims to lend wholesale to State infrastructure banks so that smaller rural projects can benefit from TIFIA, and to provide technical assistance and training to State and local officials on best practices for innovative financing and delivery methods.

For more information, visit www.transportation.gov/buildamerica.


Patrick DeCorla-Souza is the program manager for P3 arrangements at USDOT's Build America Bureau and at FHWA's Office of Innovative Program Delivery.

 

 

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