Taken together, government-supported financing programs have either directly provided or helped to facilitate debt issuance for a select subset of transportation infrastructure investments and promise to continue to do so. These tools coincide with and have been supportive of emerging project delivery trends in the industry, including:
• Increased utilization of user fee and project financing approaches
• New institutions such as regional transportation authorities and financing entities
• The increased role of private-sector financial participation and concession agreements in providing new transportation infrastructure
These leveraging tools can play an important role in assisting state and local project sponsors in generating upfront cash to advance certain capital projects. While important, these tools are not without potential disadvantages and public policy concerns. One such concern is the fact that the tools can be misused, including the potential to over-leverage available and future resources. Another concern is the fact that providing these mechanisms is not without its cost in the form of potential lost federal revenue (i.e., through the extension of tax subsidies) and more direct budgetary costs. While not as significant as providing grants, the costs of these credit programs must be weighed against their benefits. Policy makers must determine whether the level of subsidy being provided is appropriate and necessary to achieve established policy goals. Finally, these mechanisms should not be seen as universally applicable to all projects or presented as a "silver bullet" solution to the underlying real investment gap.
The Commission has identified potential refinements to these federal programs and policies to enhance their capabilities and expand their reach, as described in this section. (See Chapter 8 for specific recommendations.)
BOX 7-5: GRANT ANTICIPATION BORROWING |
Highway Program GARVEE Borrowing The NHS Act of 1995 provided the administrative mechanisms to effectively use grant anticipation borrowing (referred to as Grant Anticipation Revenue Vehicles, or GARVEEs) for highway investment. GARVEE bonds are debt obligations issued by a state or local entity, the principal and interest on which is repaid primarily with federal-aid funds. GARVEES technically represent a form of "advance construction" grant reimbursement, with annual principal and interest payments on the financed project (rather than the actual construction cost) treated as an eligible expense. As of December 2008, at least 22 states plus Puerto Rico and the Virgin Islands had issued GARVEE bonds for approved federal-aid projects totaling about $9.3 billion (excluding refunding bonds). Additional states have passed enabling legislation authorizing the issuance of GARVEE bonds. In some cases, the GARVEE bonds are secured exclusively by the stream of pledged federal receivables, while in other cases they may be backed by other state revenues as well. In addition, some states have pledged future federal-aid reimbursements from other pay-as-you-go projects to secure debt issued for capital improvements that may or may not be federally eligible. These obligations are backed by an indirect grant reimbursement and are differentiated from direct-aid GARVEEs (and not explicitly tracked by the Federal Highway Administration). Transit Grant Anticipation Borrowing Transit agencies have used similar debt financing techniques- Grant Anticipation Notes (GANs) and capital leasing-to borrow against future Federal Transit Administration (FTA) grants. Debt obligations have been backed both by formula grant allocations (Section 5307) and by project-specific contracts (New Starts/Extensions under Section 5309). According to the FTA, over $3 billion worth of GANs have been issued over the last 10 years by transit agencies in eight states. Because the federal transit grant program is neither as large nor as predictable as the federal-aid highway program, transit agencies have found it more difficult to issue long-term GANs or capital lease obligations without pledging additional resources to secure debt service. |
Source: Federal Highway Administration, Federal Transit Administration