The NHS Act of 1995 amended Section 122 of Title 23 to authorize the use of FAHP grant funds for the reimbursement of debt service and related financing costs of qualifying state debt issuances. The capital markets vehicle that is secured by future FAHP grant funds is commonly referred to as a Grant Anticipation Revenue Vehicle or GARVEE bond. In order for a state to ensure repayment of GARVEE debt utilizing FAHP grant funding, states must obtain authorization through the state FHWA Division Office for payment of the debt service using federal aid. This authorization is also documented in the form of a Memorandum of Agreement between the state DOT and FHWA outlining oversight and administrative responsibilities throughout the term of the GARVEE bond debt.
In general, projects funded with the proceeds of a GARVEE bond are subject to the same requirements as other Federal-aid projects with the exception of the timing of the reimbursement process. Instead of reimbursing eligible construction costs as they are incurred, the reimbursement of a GARVEE project cost occurs at the time of the semiannual debt service payment.
GARVEE bonds have been widely used by state DOTs as a means of accelerating eligible grant funding to complete the plan of finance for highway projects. Like many other funding and financing sources, GARVEEs can be part of an overall financial plan to complete the funding for projects delivered under a P3 model. In 2012, the Virginia DOT issued their first GARVEE bonds, utilizing the proceeds to fund a portion of the state contribution to the Elizabeth River Tunnels DBFOM project.