Welcome to the inaugural issue of Innovative Finance

Quarterly – an expanded version of the innovative finance

newsletter you’ve received in the past, either on-line or in

print. As always, our goal is to keep you current on cuttingedge strategies for financing highway and transit projects

both large and small. With this issue, however, we extend

the publication to six pages, introduce some new features,

and provide a greater diversity of general interest and technical articles. 

Each issue of the new, expanded IFQ will typically include

the following features: 

• Legislative Spotlight: update on relevant actions and proposals on Capitol Hill.

• State Infrastructure Bank Status Report: overview of SIB

capitalization, project loans, and credit enhancements

offered to date. 

• Case Studies: a different project, financing mechanism,

or “best practice” each quarter.

• Technical Corner: an in-depth review of a selected financial topic.

• Resource Referrals: suggested places to turn for answers

to your toughest innovative finance questions.

In addition, look for special one-time features in each issue.

This edition of IFQ, for example, provides a SIB Special that

explores the recent expansion of the SIB pilot program. 

We hope you enjoy Innovative Finance Quarterly. 

Quarterly

FHWA's

MIRIAM ROSKIN, EDITOR VOL. 3, NO. 1

MAX INMAN, FHWA MANAGING EDITOR SUMMER 1997

INNOVATIVE FINANCE QUARTERLY INNOVATIVE FINANCE QUARTERLY

In this issue. . .

Legislative Spotlight

Transportation Infrastructure

Finance and Innovation 

Act of 1997 . . . . . . . . . . . .2

SIB Special

· SIB Pilot Expands: New

States, New Money . . . . .3

· SIB Financial Activity: 

August Update . . . . . . . .4

Technical Corner

Advance Capitalization . . .4

Resource Referral

FHWA’s Regional Finance

Centers . . . . . . . . . . . . . . .6

We want to know what you think. Please write to us with any comments

about the types of information that are most useful to you. We are also

soliciting questions for potential inclusion in a question-and-answer column to be included in future issues (we’ll respond to your question

regardless of its publication in IFQ). You may direct your comments and

questions to:

Miriam Roskin Laurie Hussey

Porter & Associates, Inc. Cambridge Systematics, Inc.

Seattle, WA Cambridge, MA 

Phone: 206/441-9808 Phone: 617/354-0167 

E-mail: Miriam.A.Roskin@fhwa.dot.gov E-mail: llh@camsys.com

Welcome

to
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Quarterly

FHWA's

On June 25, Senator John Chafee,

Chairman of the Senate Environment

and Public Works Committee, introduced the Transportation Infrastructure

Finance and Innovation Act of 1997

(TIFIA, S.963). The goal of the bill,

co-sponsored by Senators Graham,

Boxer, Bennett, Hatch, Moynihan, and

Lieberman, is to address the funding

shortfall for large new transportation

investments by providing new tools –

secured federal loans, loan guarantees,

and standby lines of credit – to project

sponsors. While doing so, the bill seeks

to make the most of limited federal

resources by inducing private and nonfederal capital to stimulate new investment in transportation infrastructure. 

Program Description and Scope

The federal credit program would complement the State Infrastructure Bank

program and other innovative financing

techniques by directing resources to

transportation investments of critical

national importance – intermodal facilities, highways, intercity rail projects,

and other investments with national

benefits – that otherwise might be

delayed or not constructed at all because

of their size, complexity, and uncertainty

over timing of revenues.

The program would use $800 million

in federal budget authority over six

years to support as much as $16 billion

in federal credit assistance for public

and private project sponsors. With the

federal role being capped at 33 percent

of total project costs, the program could

stimulate nearly $50 billion in new

transportation investment. The program could be an important step in

closing the current funding gap and

supporting the national economy in an

era of constrained public resources. 

Eligibility Requirements

The U.S. Department of Transportation

(USDOT) would be responsible for

administering the program and selecting projects. To qualify for assistance

under TIFIA, a project would have to:

• Be an eligible surface transportation

project under Title 23 or chapter

53 of Title 49 of the U.S. Code; 

• Be included in a state transportation plan and the approved State

Transportation Improvement

Program; 

• Cost at least $100 million (the

threshold for intelligent transportation systems – ITS – projects is

$30 million) or 50 percent of the

state’s most recent apportionment

of federal-aid highway funds,

whichever is less; and 

• Be supported in whole or in part

by user charges or other nonfederal dedicated revenue sources. 

In addition, the project sponsor would

have to provide a preliminary rating

opinion letter from a nationally recognized bond rating agency. Projects

meeting the initial threshold criteria

would then be selected based on their

ability to generate economic benefits,

support international commerce, or

otherwise enhance the national transportation system.

Financial Products

Under TIFIA, USDOT could offer

secured loans, loan guarantees, and

standby lines of credit. Secured loans

would be structured with flexible

repayment terms (allowing sponsors to

defer principal and interest payments

for up to 10 years) to match project

revenues, and would improve the caliber of the senior debt by offering

financing on a junior-lien basis. The

loans could be in an amount up to 33

percent of the cost of a project and

have a final maturity date as long as

35 years after construction. Interest

rates on loans would be established at

the time loan agreements were executed and would be set at the prevailing

yields on U.S. Treasury bonds issued

for comparable terms. After substantial completion of a project, the

Secretary of Transportation would

have the chance to sell or reoffer the

loan into the capital markets, provided

that the reoffer could be made on

favorable terms.

In lieu of a direct loan, USDOT could

provide a federal loan guarantee to

encourage capital market investments

in transportation infrastructure.

Similar to the secured loans, the loan

guarantees would secure debt with

flexible repayments terms, improve the

rating on the senior debt, and attract

non-federal financing by limiting the

federal role to 33 percent of the total

cost of a project. The interest rates on

the private debt, however, would be

determined by the borrower and

lender, subject to the approval of the

Secretary of Transportation.

USDOT could also provide a standby

line of credit to assist projects in attaining an investment-grade bond rating

and securing bond insurance by providing a secondary source of capital during

the first 10 years following project

completion. The standby line of credit

would take the form of a future government commitment to make one or

more direct loans. If drawn upon, the

proceeds could be used to support debt

service payments, operating and maintenance costs, extraordinary repair and

rehabilitation costs, and costs of unexpected environmental requirements.

The total line could not exceed 33 percent of project costs. Up to 20 percent

of the line could be loaned in any given

year, and any draws would need to be

repaid from project-related revenues

within 30 years of project completion.

continued page 6

LEGISLATIVE SPOTLIGHT Transportation Infrastructure

Finance and Innovation Act of 1997
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Quarterly

FHWA's

At a White House briefing held on June 19, 1997, Vice

President Gore announced USDOT’s approval of 29 new participants in the State Infrastructure Bank (SIB) pilot program.

This brings total participation in the pilot program to

38 states plus Puerto Rico, as shown in the map below. The

group of 39 includes two regional infrastructure banks. In

these cases, two or more states have banded together to form a

SIB that will serve multi-state transportation needs.

New Allocations Announced

When Vice President Gore announced the new SIB participants, he also announced the distribution of an extra $150 million made available for SIB capitalization. These allocations are

highly flexible, as the funds may be used to capitalize highway

accounts, transit accounts, or both, at each state’s discretion.

The $150 million will be distributed among the states in

accordance with each state’s plans to use other eligible federal

transportation funds and non-federal funds to capitalize their

banks. This method of distribution creates a favorable environment for fast-moving projects, as a state that shifts regular

grant funds into its SIB has a strong incentive to advance SIBassisted projects especially quickly. Irrespective of other funding plans, each new participant is guaranteed a minimum

share of $1.5 million, and each of the initial 10 participants is

guaranteed a minimum share of $3.0 million.

The $150 million comes from the U.S. Treasury’s General

Fund rather than the Highway Trust Fund, and was appropriated for the SIB pilot program under the 1997 DOT

Appropriations Act (PL 104-205) It is important to remember that the special General Fund allocations are merely a fraction of total federal funds available for use as seed capital.

Each SIB participant can also transfer up to 10 percent of

most categories of federal surface transportation funding into

its SIB, using highway funds to capitalize SIB highway

accounts, and transit funds to capitalize SIB transit accounts.

Taking both General Fund and Trust Fund sources of funds

into account, nearly $3 billion will ultimately be available for

capitalizing the SIBs throughout the life of the pilot program.

The process by which regular federal highway apportionments

are designated for potential transfer into the SIB is known as

advance capitalization (ACAP). The advance capitalization

process can be tricky, so this issue of IFQ presents a description of ACAP – what it is and how it works – as this quarter’s

Technical Corner (see page 4).

Technical Assistance Available

FHWA has prepared a set of materials designed to demystify

the occasionally obscure mechanics of the SIB pilot. To date,

these materials comprise:

(1) SIB primer – explains what SIBs are and how they may

be used;

(2) SIB report to Congress – an early evaluation of the SIB

pilot’s progress as of March 1, 1997;

(3) State-by-state capitalization tables – display the maximum amount of federal funding that states may use to

capitalize their highway accounts;

(4) A sample cooperative agreement – provides an example of

a compact under which a state, FHWA, and/or FTA

agree to basic implementation rules for the SIB’s highway

and/or transit accounts; and 

(5) Sample state enabling legislation – provides an example of

basic statutory language that some states need to establish

their SIBs and potentially leverage the banks’ holdings.

Additional materials are currently being developed. Copies of

all materials are available from FHWA: contact the financial

manager in your state’s FHWA Division Office or Cynthia

McDuffie at FHWA headquarters (202/366-0673) for copies.

The report to Congress and other selected materials are also

available through the innovative finance home page at

“http://www.fhwa.dot.gov/innovativefinance”.

The Federal Transit Administration (FTA) is also developing

SIB transit related materials. Contact Paul Marx at 202/366-

1675 for more information.

Contacts:

Max Inman, FHWA, 202/366-0673 or

Lucinda Eagle, FHWA, 202/366-5057.

Initial Designee

New Designee

New Multi-State Designee

SIB SPECIAL SIB Pilot Expands

New States, New Money
Pressures to reduce the size of the federal deficit affect all

aspects of the transportation funding. The SIB pilot is no

exception. Subsection 350(g) of the NHS Act, the legislation

that established the SIB pilot program, requires that annual

expenditures of federal funds under the SIB pilot program

mirror the pattern of expenditures assumed for other elements

of the federal-aid program. To ensure that the pattern is

upheld, only a portion of total funds eligible for transfer to

the pilot program may actually be used as seed capital in any

given year. Advance capitalization (ACAP) is the tool that

allows states to capitalize their banks in accordance with the

disbursement constraint imposed by subsection 350(g).

One key to understanding ACAP is to recognize that it is not

a commitment. ACAP is patterned on advance construction

– an existing federal-aid highway funding strategy – in that it

merely preserves a given project’s future eligibility for federal

participation. In the case of the SIB pilot program, the SIB is

considered to be the “project.” Thus, all that an ACAP

amount does is preserve the state’s right to use current federal

highway apportionments for the purposes of SIB capitalization at a later date. 

When (and if) a state decides to convert all or part of an

ACAP amount into actual SIB capitalization funds, the subsequent steps are transfer, obligation, and outlay. ACAP sets the

stage for these steps by establishing the baseline against which

these amounts are calculated. For federal highway funds, the

maximum pattern of expenditure extends over nine years. In

the first year of an ACAP amount’s availability, transfers,

obligations, and outlays may not exceed 15 percent of the

SIB activity is on the rise, with the number of loans made by the pilot SIBs growing to five as of August 1, 1997. The following

exhibit summarizes the key features of the loans and the projects they are assisting. 

SIB Loans as of August 1, 1997

SIB Financial Activity

August Update

StateLoan AmountProjectProject Value (estimated)

Ohio$10,000,000Butler Regional Highway

Ohio$10,000,000Butler Regional Highway$120,000,000

Ohio$15,000,000Butler Regional Highway

Ohio$7,800,000Great Lakes Science Center Parking Facility$7,800,000

Missouri$1,180,000Springfield Transportation Corporation$33,000,000

continued page 5

Capitalization Activity

As of August 1, 1997, latest information available showed that

the 10 initial states participating in the SIB pilot program had

deposited a total of $80.4 million in federal highway funds

into their banks’ highway accounts. With non-federal matching funds, total SIB capitalization is more than $120 million.

The 29 new SIB designees can begin capitalizing their banks

once they have signed cooperative agreements with FHWA

and/or FTA.

Other Developments

• State legislatures in Oklahoma, South Carolina, and Texas

have all signed new legislation to broaden the types of financial assistance that their SIBs may provide. In Texas, for

example, the new legislation gives the SIB, via the Texas

Department of Transportation, the ability to 1) make loans

to entities in addition to the Texas Turnpike Authority, and

2) issue bonds and other debt instruments in order to leverage the SIB’s contributed capital.

• Section 350 of the National Highway System Designation

Act of 1995 (NHS Act, P.L. 104-59) required USDOT to

review the status of the SIB pilot program as of March 1,

1997. USDOT has recently released its report to Congress

for general distribution. The report describes the 10 pilot

states’ actual and anticipated progress towards capitalization

of their banks and provision of assistance to project sponsors. The report also discusses preliminary indications of

the effectiveness of the SIB pilot program in increasing

transportation investment levels, reducing project costs, and

accelerating project completion. Please contact Cynthia

McDuffie (202/366-0673) to obtain a copy of the report, or

connect to the innovative finance home page at

“http://www.fhwa.dot.gov/innovativefinance” and click on

SIB Report to Congress.

TECHNICAL CORNER Advance Capitalization

Quarterly

FHWA's

4
Hypothetical Example: ACAP Process for New Designees, Fiscal Years 1997 and 1998 (Highway Account)

FY96 and FY97FY97 FAH

apportionmentstransfers andFY97

eligible for obligations for General

transfer to the FY97 (“Year 1”)the SIB pilot FundMaximum totalMaximum outlays

SIB pilotACAP baselineprogramdistributionobligations(i.e., bank deposits)

[(.15)(97ACAP)][(.15)(97ACAP)]+[(.15)(97ACAP)]+

$100$100=[(.15)($100)]$5[(1)(97GF Dist.)][(.15)(97GF Dist.)]

=$15=[(.15)($100)]+[(1)($5)]=[(.15)($100)]+[(.15)($5)]

=$20=$15.75

For the sake of illustration, assume that FY97 is the final year of the SIB pilot program. 

That would cause FY98 ACAP, transfers, obligations, and outlays to look like this:

FY98FY98 FAH

apportionmentstransfers and

eligible for obligations for General

transfer to the FY98 (“Year 2”)the SIB pilot FundMaximum totalMaximum outlays

SIB pilotACAP baselineprogramdistributionobligations(i.e., bank deposits)

[(.53)(97ACAP)][(.53)(97ACAP)]+[(.53)(97ACAP)]+

$0$0=[(.53)($100)]$0[(1)(97GF Dist.)][(.53)(97GF Dist.)]

=$53=[(.53)($100)]+[(1)($0)]=[(.53)($100)]+[(.53)($5)]

=$53=$55.65

ACAP amount, and in subsequent years, 53%, 16%, 5%, 3%,

3%, 2%, 2%, and 1%, respectively. This outlay rate pertains

to highway funds only; a different outlay rate is assumed for

transit accounts.

The following example of the ACAP process is greatly simplified for the sake of illustration. It serves as a worksheet to

describe how ACAP, the General Fund (GF) distribution

approved under the 1997 DOT Appropriations Act, and the

subsection 350(g) disbursement limitation interrelate and ultimately determine the level of funding available for obligation

and expenditure each year. 

A few hints:

ACAP Baseline

The amount shown is equal to 10 percent of apportionments and allocations for most federal-aid highway (FAH)

program categories. 

General Fund Distribution

1. The ACAP and transfer steps are not used for the GF allocation. Also, the disbursement limitation multipliers

(15%, 53%, 16%, and so on) only take effect at the point

of outlay. For regular ACAP requests, the disbursement

constraint is applied at the point of transfer. 

2. The example shows the GF allocation being used to capitalize the sample SIB’s highway account. Readers are reminded that the GF allocation is available for capitalizing both

highway and transit accounts.

Obligations

The example shows the state choosing to obligate the maximum

amount possible in each of the two fiscal years shown.

However, it didn’t have to do so, since obligational authority is

cumulative. For example, if the state didn’t obligate its full $20

in 1997, it could obligate the remainder in 1998 – plus the

additional $55.65 that becomes available for obligation in 1998. 

How does this example relate to your state? FHWA has prepared 39 spreadsheets that use actual numbers

to display the maximum amount of federal highway funding that each SIB participant could potentially

obligate and deposit by the end of fiscal year 1997. 

Contacts:

Max Inman, FHWA, 202/366-0673 or Miriam Roskin, Porter & Associates, 206/441-9808.

ACAP, continued from page 4

Quarterly

FHWA's

5
A REMINDER TO READERS

FHWA DOES NOT MAINTAIN A MAILING

LIST AND DOES NOT DISTRIBUTE IFQ

DIRECTLY. IFQ IS AVAILABLE AS AN

INSERT TO THE ITE JOURNAL AND

AASHTO JOURNAL, AND IS AVAILABLE

ELECTRONICALLY THROUGH:

• ITE’s WWW Home Page:

“http://www.ite.org” 

(select “Reference Library”)

• FHWA Federal-Aid Financial

Management Division’s WWW

Home Page:

“http://www.fhwa.dot.gov” 

(select “Major Program Areas” and

then “Innovative Finance”)

IFQ IS ALSO PROVIDED TO THE FOLLOWING ORGANIZATIONS FOR REDISTRIBUTION AND/OR AS INFORMATION FOR

THEIR MEMBERSHIP:

• National Association of Regional 

Council’s (NARC’s) Association of 

MPOs (AMPO)

• ITS America

• American Public Transit 

Association (APTA)

• Surface Transportation Policy 

Project (STPP)

• State & Territorial Air Pollution 

Program Administrators/Association of Local Air Pollution 

Control Officials 

(STAPPA/ALAPCO)

• Association for Commuter 

Transportation (ACT)

MIRIAM A. ROSKIN, EDITOR

PORTER & ASSOCIATES, INC.

206/441-9808

FAX: 206/441-9852

MIRIAM.A.ROSKIN@FHWA.DOT.GOV

LAURIE L. HUSSEY, CS MANAGING EDITOR

CAMBRIDGE SYSTEMATICS, INC.

617/354-0167

FAX: 617/354-1542

LLH@CAMSYS.COM

MAX INMAN, FHWA MANAGING EDITOR

202/366-0673

FAX: 202/366-7493

Reproduction (in whole or in part) and

broad distribution of IFQ is strongly

encouraged. Permission from FHWA, the

editor, or any other party is not necessary.

Expansion of the SIB pilot program.

The TE-045 innovative finance research

initiative. Financial Management

Improvement Projects. Reauthorization

proposals.

With so much afoot in the world of

federal transportation finance, states

and metropolitan planning organizations are developing a healthy appetite

for prompt and reliable technical assistance. As always, USDOT division,

regional, and headquarters offices stand

ready to help, but recently another

excellent resource has emerged:

FHWA’s Regional Finance Centers. In

late 1996 FHWA established two

finance centers – Western and Eastern –

to assist front-line field offices in serving FHWA partners and customers. In

particular, the finance centers focus on

addressing questions concerning the

financial aspects of 1) the traditional

federal-aid program, and 2) new innovative finance initiatives, including SIBs.

The WFC and EFC also coordinate and

conduct training sessions on the

Financial Management Information

System (FMIS), development of State

Transportation Improvement Programs

(STIPs), Financial Management

Improvement Projects (FMIPs), and

various aspects of innovative finance. 

WFC maintains an extensive home page

with links to reauthorization fact sheets,

training schedules, current and back

issues of the regional finance centers’

newsletters, and other helpful reference

materials. You’ll find the home page at

“http://www.wfc.fhwa.dot.gov”. The

home page also provides contact names

and numbers for each of FHWA’s nine

regions. EFC is currently developing a

home page as well – IFQ will publish

the address as soon as it’s available.

Regional Finance Center Contacts:

Eastern Finance Center

Region 1 Mike Fazioli 518/431-4224 x216

Region 3 Audrey Davis 410/962-0077 x3042

Region 4 John Jeffers 404/347-4071

Region 5 Mike Rosenstiehl 708/283-3515

Western Finance Center

Regions 6 and 7 Sue Kiser 916/498-5009

Region 8 Jennifer Mayer 415/744-2634

Region 9 Russ Fosha 415/744-2655

Region 10 Leslie Harris 503/326-5953

TIFIA, continued from page 2

RESOURCE REFERRAL FHWA’s Regional

Finance Centers

Conclusion

The credit program established under TIFIA is a limited, six year pilot program.

The program is designed to overcome current market gaps by familiarizing investors

with the risk and financial profiles associated with large startup transportation infrastructure projects. Ultimately, a successful program could put itself out of business

by demonstrating to private investors the long-term feasibility of this class of transportation investment, thus phasing-out federal credit participation in these large

transportation projects.

Contacts:

David Seltzer, FHWA, 202/366-0397 or

Bryan Grote, FHWA, 202/366-0673.

Quarterly

FHWA's

Quarterly

FHWA's

( ) CT, MA, ME, NH, NJ, 

NY, RI, VT, Puerto Rico

( ) DE, MD, PA,

VA, WV

( ) IL, IN, MI,

MN, OH, WI

( ) AL, FL, GA, KY, 

MS, NC, SC, TN

( ) AR, IA, KS, LA, MO,

NB, NM, OK, TX

( ) CO, MT, ND,

SD, UT, WY

( ) AK, ID,

OR, WA

( ) AZ, CA,

HI, NV

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