A Grant Anticipation Revenue Vehicle or GARVEE is a debt financing instrument where debt service and related financing costs can be reimbursed by Federal-aid highway funds. GARVEEs can be issued by a State, a political subdivision of a State, or a public authority. States can receive Federal-aid reimbursements for a wide array of debt-related costs incurred in connection with an eligible debt financing instrument, such as a bond, note, certificate, mortgage, or lease. Reimbursable debt-related costs include interest payments, retirement of principal, and any other cost incidental to the sale of an eligible debt instrument.
Candidates for GARVEE financing are typically projects, or a program of projects, that are large enough to merit borrowing rather than pay-as- you- go grant funding, with the costs of delay outweighing the costs of financing. GARVEE candidates do not have access to another revenue stream, such as local taxes or tolls, and other forms of repayment are not feasible. The sponsors must be willing to reserve a portion of future Federal-aid highway funds to satisfy debt service requirements. States are finding GARVEEs to be an attractive financing mechanism to bridge funding gaps and accelerate construction of major corridor projects. | New Mexico sold its first GARVEE bond in September 1998, to finance 118 miles of improvements on Corridor 44. Arizona is using GARVEEs, in combination with SIBs, to finance acceleration of the Maricopa Country freeway system. See Innovative Finance Primer, Chapter 4, and U.S. DOT Report To Congress, Appendix E, for more information. |
=> What are the benefits of GARVEE Bonds?
Although GARVEEs cannot be issued by private entities, they can facilitate the creation of Public-Private Partnerships by making financing available for transportation projects in a way that could attract greater private sector involvements. For example:
• They can provide an immediate and reliable source of funds that would make a project more attractive to the private sector.
• They can expand access to capital markets, as a supplement to general obligation or revenue bonds.
• They can make very large projects possible. 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. GARVEEs yield an immediate influx of cash in the form of bond proceeds.
• They can enable construction to begin faster. GARVEE financing generates up-front capital for major highway projects at tax-exempt rates and enables a State to construct a project earlier than using traditional pay-as-you-go grant resources.
=> What projects and costs are eligible for GARVEE bonds?
Projects are eligible for GARVEE financing if they fall into one or more of the following program funding categories:
• National Highway System (NHS)
• Interstate Construction (IC)
• Interstate Maintenance (IM)
• Surface Transportation Program (STP)
• Congestion Mitigation and Air Quality (CMAQ) Improvement Program
• Bridge Replacement and Rehabilitation (BRR)
• State Planning and Research
• Metropolitan Planning
In metropolitan areas, the project must be reflected in the financial plan that accompanies the MPO's long-range transportation plan and TIP. In addition, the projects must be included in the approved STIP and applicable Metropolitan Transportation Improvement Program. States or the issuing entity must have the appropriate State authorizations related to debt issuance.
Costs eligible for reimbursement include the following:
• Interest payments and retirement of principal (including any capitalized interest) under an eligible debt financing instrument;
• Issuance costs (including but not limited to underwriters' discounts, rating agency fees, fees paid to financial advisors and bond counsel, and printing costs) and credit enhancement fees (such as bond insurance premiums); and
• Any other related incidental costs as determined by the Secretary (including ongoing trustee fee and audit costs).
Under certain conditions, capitalization from bond proceeds of a required reserve account or contingency fund may also be eligible for Federal-aid reimbursement.
For more information on GARVEE financing, see GARVEE Bond Guidance, http://www.fhwa.dot.gov/innovativefinance/garguid1.htm; Innovative Finance Primer, Chapter 3, at http://www.fhwa.dot.gov/innovativefinance/ifp/debtfin.htm, and U.S. DOT Report to Congress, Chapter 2 at http://www.fhwa.dot.gov/reports/pppdec2004/index.htm#2civ.