Section 129 loans allow States to use regular Federal-aid highway apportionments to fund loans to projects with dedicated revenue streams.[17] A State may directly lend apportioned Federal-aid highway funds to toll and non-toll dedicated revenue projects. A recipient of a section 129 loan can be a public or private entity and is selected according to each State's specific laws and process. A dedicated repayment source must be identified and a repayment pledge secured. The Federal-aid loan may be for any amount, up to the maximum Federal share of 80 percent of the total eligible project costs. A loan can be made for any phase of a project, including engineering and right-of-way acquisition, but cannot include costs that were incurred prior to loan authorization. A State can obtain immediate reimbursement for the loaned funds up to the Federal share of the project cost. Loans must be repaid to the State, beginning five years after construction is completed and the project is open to traffic. Repayment must be completed within 30 years from the date Federal funds were authorized for the loan. States have the flexibility to negotiate interest rates and other terms of section 129 loans. The State is required to spend the repayment funds for a project eligible under title 23, United States Code. A section 129 loan serves as a project specific "mini-revolving loan fund" that recycles funds that are loaned to project sponsors by the State department of transportation. In all other ways, such repaid or revolving funds lose their character as Federal funds. This is a difference between section 129 funds and most SIBs.
States can use section 129 loans to assist public-private partnerships, by enhancing start-up financing for toll roads and other privately sponsored projects. Because loan repayments can be delayed until five years after the project is open to traffic, this mechanism provides flexibility during the start up period of a new toll facility.
Loans can also play an important role in improving the financial feasibility of a project by reducing the amount of debt that must be issued in the capital markets. In addition, if the section 129 loan repayment is subordinate to debt service payments on revenue bonds, the senior bonds may be able to secure higher ratings and better investor acceptance.
If a project meets the test for eligibility, a loan can be made at any time. Federal-aid funds for loans may be authorized in increments through advance construction procedures, and are obligated in conjunction with each incremental authorization. The State is considered to have incurred a cost at the time the loan, or any portion of it, is made. Federal funds will be made available to the State at the time the loan is made.
The President George Bush Turnpike Project in Texas exemplifies how a section 129 loan can play an essential role in the total financing package. This project links four freeways and the Dallas North Tollway to form the northern half of a circumferential route around the City of Dallas. Primary funding for this $940 million project included a low interest, long-term section 129 loan and revenue bonds. This $135 million loan was critical in ensuring the affordability of the project's senior bonds. Completion of this important beltway extension will be accomplished at least a decade sooner than would have been possible under traditional pay-as-you-go-financing. This project is the only project that has utilized a loan under 23 U.S.C. 129.