In response to Executive Order 12893 ("Principles for Federal Infrastructure Investment"), which establishes cost-effective infrastructure investment as priority for Federal agencies, and in recognition of the need to explore new financing strategies, the FHWA announced the Innovative Finance Program-Test and Evaluation Project (TE-045) in a Federal Register notice dated April 8, 1994. The term "innovative finance" describes techniques that supplement traditional highway financing methods. These techniques can provide mechanisms for the direct investment of private sector funds in a surface transportation project. They also may lay the foundation for a public-private partnership by providing a ready and secure source of funds that make a project more likely to attract private involvement. Alternatively, these financing techniques might precipitate the creation of a public-private partnership by providing funds for such a large project or number of projects that private sector involvement is needed to provide additional management and staff to supplement State resources.
The innovative financing program was established using statutory authority granted under Section 307(a) of title 23 of the U.S. Code (now 23 U.S.C. 502). Section 307(a) permits the FHWA to engage in a wide range of research projects, including those related to highway finance. As part of this research effort, the FHWA tested selected policies and procedures so that specific transportation projects could be advanced through the use of non-traditional financing concepts, many of which were later enacted into law in the National Highway System Designation Act of 1995.[12] These non-traditional funding concepts included applying private funds to the State match or allowing partial obligations on advance construction projects.
TE-045 was initially designed and subsequently implemented to give States a forum in which to propose and test those financial strategies that best met their needs to facilitate infrastructure investment. Projects advanced under TE-045 were identified by State-level decisionmakers as projects needing improvements, but facing real world barriers to financing. Since TE-045 did not make new Federal money available, its primary focus and ultimate measure of success was its ability to foster the identification and implementation of new, flexible strategies to overcome fiscal, institutional, and administrative obstacles faced in funding transportation projects.[13]
Throughout this process, the FHWA emphasized four overriding objectives: to increase investment, to accelerate projects, to improve the utility of existing financing opportunities, and to lay the groundwork for long-term programmatic changes. Two hallmark characteristics of the initiative have been to accomplish these ends through a State-driven process, and to accomplish them without the commitment of new Federal funds.[14]
Several types of financing tools were proposed by States and tested under TE-045. These include tools that provided expanded roles for the private sector in identifying and providing financing for projects, such as flexible matches and Section 129 project loans, which are discussed further in this chapter.
Although TE-045, by design, provided no new Federal funds to participating States, the initiative has nonetheless supported significant increases in investment levels. The use of investment tools such as flexible match and section 129 loans resulted in additional funding being available to accelerate high priority projects that would otherwise have been deferred, or used to advance projects that likely would never have been constructed in the absence of TE-045.[15] As of March 2004, more than 100 projects with a total construction value of $7 billion have been approved.