Decreasing resources and increasing demands require Federal and State transportation agencies to explore innovative financing tools for infrastructure projects. State infrastructure banks (SIBs) are one such tool. Compared to relying entirely on grant-based financing, SIBs can offer accelerated project delivery, provide lower borrowing costs, and facilitate completion of financial plans.

“A federally funded SIB, much like a private bank, can offer a range of loans and credit enhancement products to public and private sponsors of highway, transit, or rail projects,” says Mark Sullivan, director of the Federal Highway Administration's Center for Innovative Finance Support. As transportation agencies repay loans or other forms of credit assistance to the SIB, the bank's initial capital is replenished to support a new cycle of projects.

Initially established by the National Highway System Designation Act of 1995, Federal SIBs are now active in 29 States. They have provided more than 950 loans for a total of more than $3.1 billion to fund transportation projects throughout the country. In addition, several States have established separate SIBs with State funds.

FHWA is looking to expand lending through the SIB program, especially in smaller communities where it can be more difficult to secure the required funding for transportation projects. This has become more important now than in the past, as gas tax revenues have not kept pace with the demands on the transportation system.

The Advantage of Flexibility

By offering low interest rates and negotiable repayment terms, an SIB provides a low-cost option for capital funds to a wide range of project sponsors.

For example, Missouri has sponsored two innovative methods to use its SIB. Through the Missouri Department of Transportation's Cost Share Program, which builds partnerships with local entities to pool efforts and resources to deliver State highway and bridge projects, local governments use SIB loans to fund their share of the project costs. Missouri also uses SIB loans to accelerate payments of the State's share of project costs that may be programmed in future years. In these loan agreements, local entities are responsible only for interest payments, while the State makes the principal payments.

In Texas, the most common SIB loans are local governments borrowing for utility relocations on roadway projects. This type of loan provides valuable assistance, financing the costs that cities and towns are solely responsible for and enabling municipal projects to move forward sooner than they could with traditional funding options.

Looking Ahead

FHWA's Center for Innovative Finance Support recently conducted a series of roundtables and an informal survey with its partners to determine what additional assistance the SIB program could provide. Many participants responded that the program could benefit from marketing assistance, specifically to local and rural borrowers.

As a result of the feedback, the center is developing marketing and training tools for a lending opportunity that rural and smaller communities can benefit from called Local Innovative Match Assistance (LIMA). With this funding initiative, local sponsors of Federal-aid projects can directly finance their non-Federal share through the SIB program where available. LIMA provides them with access to at- or below-market-rate loans and eliminates the burden on rural and small communities of having to secure the funds necessary for a required local match for federally funded projects.

For more information, contact Peter Mancauskas at Peter.Mancauskas@dot.gov.

Peter Mancauskas is the project finance program manager at FHWA's Center for Innovative Finance Support, Office of Innovative Program Delivery.