As noted earlier, the term "innovative finance" has been used broadly to describe an array of policy initiatives and government finance programs introduced since the early 1990s and designed to enhance the flexibility of federal-aid pay-as-you-go funding, facilitate access to the capital markets, and encourage increased private-sector participation in project delivery. These programs are generally designed to leverage federal resources to attract non-federal sources and multiply the value of the initial federal investment. They should not be viewed as replacements to conventional capital market finance approaches but rather as viable enhancements in special circumstances.
To illustrate, the aggregate funding commitment for highway projects under relevant federal programs and initiatives during the 1995-2005 period was approximately $13 billion, which supported associated capital investment upwards of $30 billion.2 As significant as these figures are, these programs directly supported less than 5 percent of the overall highway capital investment of $661 billion from federal, state, and local sources. In recent years the percentage has grown slightly, with most estimates in the 10 percent plus range,3 suggesting that programs characterized as "innovative finance" have played an increasing yet still niche role in recent years.
This section reviews the range of current federal policies and programs, which includes both direct financing assistance provided by the federal government, such as direct federal credit, and federal policies and programs designed to facilitate private capital market financing, such as tax policy measures. There also is a range of grant management tools (e.g., advance construction, soft match, toll credits) that have been provided over the years to help states better manage their limited resources, but these are not addressed in this report in that they have more to do with how funds are spent than how they are raised.4