Government programs that facilitate or directly provide financing for infrastructure investment may be driven by one or more of the following objectives: to increase the overall availability of capital, to improve access to capital for the full range of viable capital investments seeking financing, to reduce the cost of capital, or to provide flexible financing for unique capital investment types. As noted earlier, in the United States there is no general lack of overall investment capital, so the first objective is largely met. There are, however, identified narrow gaps in the market primarily related to the other objectives: access to capital, cost of capital, and flexibility. Federal and state policy makers have addressed and could beneficially continue to address these objectives through government programs that exploit niche opportunities to provide several types of capital, including the following:
• "Patient" Capital-There is an identified shortage of private-sector capital willing to absorb the risk associated with revenue ramp-up for start-up toll roads or other project financings on a cost-effective basis. (Direct federal credit programs were designed in part to address this market gap.)
• Affordable Capital for Small Projects or Equipment Purchases -There is an identified gap in the capital markets for cost-effective sources of financing for relatively small projects, such as those undertaken by local governments, or capital purchases, such as those made by smaller transit agencies. ( Federal support for state-level revolving loan fund programs was initiated to help close this market gap.)
• Flexible Capital-Some government programs are designed to facilitate access to a larger pool of investors as well as to specific categories of investors who have different and potentially more attractive requirements for particular types of projects, including a greater appetite for risk and more flexible payment terms. Gaining access to private equity and bank debt can, for example, in some instances increase the amount of capital that can be raised from a given revenue stream that would otherwise be subject to more limiting debt coverage ratios required for conventional tax-exempt debt. Where needed, government programs also can be applied to fill this gap more directly. (Changes in federal tax policy as it relates to private activity bonds and direct federal credit programs have been used together for this purpose.)
• Capital for Riskier Project Phases-This generally includes the project definition, feasibility assessment, and environmental clearance phases, the outcome of which is typically outside the direct control of potential private investors such that they are generally unwilling to absorb this risk. (To date, this gap remains largely unaddressed, leaving such investment to pay-as-you-go funding out of current tax receipts.)
Real opportunities exist to address these and other identified market gaps or shortcomings. These should be pursued, however, only within a framework that fosters appropriate decisions and oversight aimed not only at effectively allocating scarce government resources but also protecting the long-term public interest in all respects. Further, not all kinds of transportation infrastructure investments nor all areas of the country will be able to benefit from many of the financing tools described in this chapter; they will continue to require direct and conventional government funding support.