Since the creation of the Federal Aid Highway Program (FAHP) with its predictable flow of funding, state departments of transportation (DOTs) have relied on a combination of state and Federal revenue sources to fund highway construction. During the period which ultimately led to significant increases in funding to support the Interstate and a growing set of companion programs, revenue mechanisms such as tolling and bonding were debated intensely. The "pay as you go" model was considered the "gold standard," intended to promote accountability and fiscal integrity among grantees. This meant that public investments decisions essentially did not take into account the time value of money and the cost of deferred investment to communities and the Nation until complete funding for a project was effectively in hand. Using Federal aid grants on a "pay as you go" basis requires grantees to accumulate sufficient federal and state sources to fund project construction and development. While that is taking place, however, project costs can increase due to inflation thereby eroding the buying power of funds already accumulated.
As states and agencies grew more sophisticated and aware of the cost of such delays, they began to consider diverting from strict "pay as you go." Along with using new mechanisms to borrow from future revenue sources, including a greater use of toll revenue, they began to partner with the private sector in the delivery of projects via various P3 models to optimize their portfolios. Traditional Federal funding continues to play a role and continues to evolve with respect to the blend of traditional formula programs, features that address tolling, and programs that provide technical and loan guarantee support. Various Federal policy initiatives have been advanced to facilitate and encourage private sector participation in infrastructure delivery. Starting with the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA), and with each major transportation program authorization since, USDOT and FHWA have introduced financial and programmatic innovations that have been incorporated as part of the financial and project development and delivery approaches for the 28 projects reviewed in this report. The following sections provide an overview of some of Federal tools and programs contributing to the successful financing and delivery of many of today's groundbreaking P3 projects.