Winding its way from the docks of San

Pedro Bay to the region’s rail hub near

downtown Los Angeles is Alameda Street,

a 20-mile stretch of pavement burdened

by excessive traffic and limited by out-ofdate design standards. As the San Pedro

Bay seaports located in Los Angeles and

Long Beach have grown as centers of international commerce, the current transportation infrastructure, which includes a

single rail line, has become increasingly

unable to accommodate the billions of

dollars in freight passing through the ports

on an annual basis. That is why, after 20

years of discussion and analysis, city leaders and port officials with the help of the

Federal government are beginning construction on a road and rail route that will

vastly improve the connection between the

San Pedro seaports and the region’s rail

hub near downtown Los Angeles.

Once completed, the $2 billion Alameda

Corridor will include the following features:

• A 30-foot deep concrete trench running

along Alameda Street designed for housing two parallel rail lines;

• An additional rail line at ground level

designed for accommodating local traffic;

• A bridge spanning the Los Angeles

River; and

• The expansion of Alameda Street from

four to six lanes.

The Alameda Corridor Project is borne

out of necessity. The San Pedro Bay port

complex is the largest in the nation, handling approximately 25 percent of the

nation’s waterborne trade. The value of

the freight passing through these ports

approaches $120 billion annually. Nearly

50 percent of the freight passing through

the ports terminates outside of California.

The project is necessary for mitigating the

current and projected congestion caused

by growth in Asian trade during the next

25 years. As U.S.-Pacific Rim trade continues to grow at an explosive rate, trade

growth at the San Pedro Bay Ports is projected to increase by more than 61 percent

in the next 25 years, and high-value containerized cargo is expected to triple over

the same period.

The Federal government is using a 

$59 million subsidy appropriation to

leverage a $400 million loan that will be

instrumental in getting the project off the

ground. The $400 million loan will be

disbursed in three annual payments made

during the project’s first three years. These

revenues are expected to fund much of the

project’s initial construction costs. Project

revenues will be used to repay the Federal

loan within 30 years of project completion.

The Federal loan is but one piece of a

complex financial package. The project’s

revenue sources are detailed below. The

Los Angeles and Long Beach port commissions have already paid $400 million in

right-of-way costs for the property located

along the proposed corridor route.

Additionally, the Alameda Corridor

Transportation Authority (ACTA) will

issue $735 million in revenue bonds. The

Metropolitan Transportation Authority is

supplying another $347 million.

Alameda Project Financing Sources

Funds in

Source Millions

ACTA Revenue Bonds 735

Port Revenues 400

Federal Loan 400

Los Angeles Metropolitan 

Transportation Authority 347

State of California 68

Other Revenue Sources 87

Total Revenues 2,037

In addition to the environmental and economic development benefits of the

Alameda Corridor, efficiency improvements will be associated with the reduction of time costs experienced when transporting cargo from the ports to business

locations around the world. A key element

Innovative

Finance

WILLIAM A. HYMAN, EDITOR VOL. 2, NO. 2

ESTHER STRAWDER, FHWA MANAGING EDITOR APRIL 1997

Alameda Corridor Links United States to the

Global Economy

Also in this Issue . . .

FY 1998 Budget Supports

Innovative Finance

Value of Transportation

Improvements Captured

Answers to FrequentlyAsked Questions

Internet Update

Definitions for ISTEA

Reauthorization

continued, page 3 
2

The President’s budget proposal for fiscal year 1998 was submitted to Congress on February 6, 1997. The total spending

package of nearly $1.7 trillion includes over $38 billion to support U.S. Department of Transportation (DOT) programs.

The budget request for the Federal Highway Administration

(FHWA) totals $20.0 billion, compared with the $20.7 billion

provided in fiscal year 1997. Of that requested amount, an

obligation limitation of $18.17 billion is proposed for the core

Federal-aid highway programs.

The Federal-aid funding level maintains U.S. DOT’s support

of economic growth by providing Federal resources to state

and local officials for investing in surface transportation. In

addition, the budget signals U.S. DOT’s continued commitment to addressing critical infrastructure needs in an era of

constrained public funding by promoting innovative finance.

The budget seeks resources both to bolster the State

Infrastructure Bank (SIB) program and to establish a new

Federal credit program to support large transportation projects

of national significance.

The SIB pilot program was established by the National

Highway System (NHS) Designation Act of 1995. The fiscal

year 1997 U.S. DOT appropriations act expanded the pilot

program by allowing additional SIBs to be established and providing $150 million in new seed money to facilitate capitalization

of the banks. The fiscal year 1998 budget requests another $150

million to boost capitalization efforts of the expanded program.

The budget also seeks $100 million for a new Transportation

Infrastructure Credit Program to further leverage Federal

resources and encourage private sector investment in transportation infrastructure. The credit program would complement existing financing techniques by providing direct loans or

other credit assistance to transportation projects of national

significance that otherwise might be delayed or not constructed at all due to risk or scope. Federal credit would encourage

more private sector and non-Federal participation, address

important public needs in a more budget-effective way, and

take advantage of the public’s willingness to pay user fees to

receive the benefits and services of transportation infrastructure sooner than would be possible under traditional, grantbased financing.

FY 1998 Budget Supports Innovative Finance

Innovative

Finance

Contact:

Bryan Grote, FHWA, 202/366-5785.

Value of Transportation Improvements Captured

Value capture refers to a type of public/private partnership 

in which the private sector compensates a public agency 

for the cost of a facility that generates economic value.

Transportation projects, including interchanges, new freeways,and public transit stations, can create or improve adjacent

market for new development, and thus generate a windfall for

private landowners. In turn, value can be captured by public

agencies with any of the following methods:

• Special assessment districts surrounding the facility;

• Joint public-private development of adjacent sites including

ground leases, sale, rentals or other partnership methods;

• Traffic impact fee or transportation utility fee districts;

• Tax increment financing districts;

• Sale of access rights or capacity rights;

• Pre-purchase and subsequent sale or lease of real estate (e.g.,

air rights over depressed freeways);

• Windfall profit tax on real estate transactions in special highway districts;

• Development dedications, exactions and concessions, including developer impact fees and dedication of right-of-way; and

• Private sector front-end "seed" money or venture capital, private sector collateral to improve credit worthiness, direct

loans, equity positions in the facility project, and guaranteed

participation in assessment districts.

The most common examples of value capture involve transportation projects that are expected to result in significant benefits to private landowners. The amount of funding contributed

by value capture depends on the potential increase in land values that can be attributed to the transportation improvement

and on the degree of risk associated with the potential increase.

Funding arrangements often involve a hybrid of value capture,

local taxes, and Federal-aid funds.

The State Route 125 South Tollway in San Diego County is an

example of such a hybrid project. The future 11.2-mile highway

will connect the Otay Mesa Port of Entry with the San Diego

regional and inter-regional highway network. The project is

intended to relieve congestion on the access road to the Port

while improving regional mobility in the South Bay and access

for residents and businesses to the employment centers on both

sides of the U.S./Mexican border. 

The planned SR125 South Tollway will capitalize on the rapidly

expanding international and local commerce activities related to

the North America Free Trade Agreement and California’s economic expansion. The activities include the burgeoning

maquiladora industries and truck movements to and from the

interior of Mexico. Development impacts of these commerce

activities include proposals for over 40,000 residential units in

eastern Chula Vista and several major mixed use development

projects. The project will create a new north-south traffic corridor linking the border area and new communities in Chula

Vista to the greater San Diego region.

SR125 South will be a state-of-the-art tollway developed by 

a public/private partnership comprised of the California 

DOT, San Diego Association of Governments (SANDAG), and

a private corporation, California Transportation Ventures, Inc.

The initial four-lane highway will be financed jointly 

by the private sector and SANDAG using TransNet local 

transportation sales tax revenues to match Federal-aid funds. 

continued, page 4 
Q: What provisions did the fiscal year 1997 U.S. DOT

Appropriations Act include regarding the SIB pilot program?

A: As a result of the fiscal year 1997 U.S. DOT Appropriations

Act, the Secretary may now designate more than ten states

to participate in the SIB pilot program. Once this selection

process has taken place, the Appropriations Act provided for

$150 million in seed money for the capitalization of the initial ten states and any other designated SIBs. These additional funds will be outside of a state’s obligation limit.

Disbursement of the $150 million is likely to be subjected

to historic Federal-aid disbursment rates and is also likely to

require a state’s traditional non-Federal match.

Q: If designated to participate in the pilot, when might the

states expect to receive these additional funds?

A: According to the fiscal year 1997 U.S. DOT Appropriations

Act, the $150 million cannot be distributed before 180 days

after enactment of the legislation (April 1997).

Q: What is meant by Section 350(g)(1) “Federal disbursements

shall be at a rate consistent with historic rates for the

Federal-aid highway program and the Federal transit program, respectively”?

A: Congress inserted this provision for overall budgetary reasons ensuring that the SIB pilot program does not disburse

cash (outlays) on an annual basis more quickly than the regular Federal-aid highway and transit programs. The traditional Federal-aid highway program disbursement rate spans

nine years in the following percentages: 15%, 53%, 16%,

5%, 3%, 3%, 2%, 2%, and 1%. The disbursements provision in Section 350(g)(1) must be implemented in conjunction with Section 350(b), which allows participating states

to contribute up to 10 percent of certain highway and transit funds toward the initial capitalization of pilot SIBs.

Q: How does FHWA plan to administer this disbursement 

provision?

A: Historic rates for the Federal-aid highway program are an

average of cash reimbursements that FHWA makes to states

on presentation of vouchers for projects. Federal-aid highway obligations are typically liquidated (in cash disbursements) over a period of nine years. For Federal budget scoring purposes, the following assumptions on average disbursements are made: 15 percent of a given year’s obligated

funds are disbursed that first year; 53 percent are disbursed

the second year; 16 percent are disbursed the third year; and

the remaining 16 percent are disbursed in years four

through nine. Implementation of Section 350(g)(1)

requires that any deposits of Federal highway funds made

under Section 50(b)(2) be consistent with those disbursement assumptions. Therefore, planned contributions (up to

a maximum of 10 percent) of highway funds must be

delayed so that actual cash deposits conform to the assumed

disbursement rates. For example, a participating state planning to contribute $10 million of its eligible fiscal year 1996

Federal-aid funds to its pilot SIB may only deposit $1.5

million (15 percent of the planned amount) in fiscal year

1996. It may deposit another $5.3 million in fiscal year

1997, and the remaining $3.2 million after fiscal year 1997.

3

The FHWA Internet address listed in the December issue of

Innovative Finance has been changed. The new address is:

http://www.fhwa.dot.gov

The Innovative Finance home page can be accessed by 

selecting What’s New or Major Program Areas from the menu.

The Innovative Finance home page contains the latest information relating to SIBs, current and past editions of Innovative

Finance, frequently asked questions, TE-045 (Initiative Finance

Initiative) project summaries, and much more. Bookmark it

today!

The most recent additions to look for include the full text of

the TE-045 Evaluation and the February issue of Innovative

Finance, which is now available as a .pdf file in addition to

WordPerfect 6.1. Future postings will include an innovative

finance publication list, ISTEA reauthorization news, and 

current events schedules and information.

Internet Update

Innovative

Finance

Contact:

Esther J. Strawder, FHWA, 202/366-6949.

Contact: 

Lucinda Eagle, FHWA, 202/366-5057. 

Answers to Frequently-Asked Questions

ALAMEDA CORRIDOR, continued from page 1

of the Alameda Project is its capacity for dockside marine-container transfer between ships and rail cars. The transfer system

will reduce shipping delays and eliminate up to 14,000 daily truck

trips up and down the corridor. Initially, 30 trains per day are

expected to use the corridor, but this number is expected to grow

to 73 daily container trains by the turn of the century.

The Alameda Corridor Project promises to deliver significant 

benefits to the entire nation. At a minimum, the project is

expected to create 70,000 new jobs and nearly $2.5 billion in

additional Federal revenues. The actual impact of the project,

however, could be far greater.

Contact:

Patrick Balducci, Cambridge Systematics, Inc.,

202/366-6011 or Bryan Grote, FHWA,

202/366-5785.
A REMINDER TO READERS

FHWA DOES NOT MAINTAIN A MAILING

LIST AND DOES NOT DISTRIBUTE IF

DIRECTLY. IF 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://cti1.volpe.dot.gov/fhwa” 

(select “Program Areas” and

“Innovative Finance”)

IF 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)

WILLIAM A. HYMAN, EDITOR

LAURIE L. HUSSEY, CS MANAGING EDITOR

CAMBRIDGE SYSTEMATICS, INC.

617/234-0531

FAX: 617/354-1542

WAH@CAMSYS.COM

LLH@CAMSYS.COM

ESTHER STRAWDER, FHWA MANAGING EDITOR

202/366-6949

FAX: 202/366-7493

ESTHER.STRAWDER@FHWA.DOT.GOV

Reproduction (in whole or in part) and

broad distribution of IF is strongly encouraged. Permission from FHWA, the editor,

or any other party is not necessary.

Innovative

Finance Innovative

Finance

The Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991 will officially

expire on October 1, 1997. The Clinton Administration and the U.S. DOT are

preparing a legislative proposal to reauthorize the surface transportation programs

beginning in fiscal year 1998. The following definitions clarify a few legislative

terms that will be frequently used during a reauthorization year.

Authorization Act – Basic substantive legislation that empowers an agency to implement a particular program and also establishes an upper limit on the amount of

funds that can be appropriated for that program (e.g., ISTEA).

Appropriations Act – Action of a legislative body that makes funds available for

expenditure with specific limitations as to amount, purpose, and duration. In most

cases, it permits money previously authorized to be obligated and payments made.

Allocation – An administrative distribution of funds among the states, done for

funds that do not have statutory distribution formulas.

Budget Authority – Empowerment by the Congress that allows Federal agencies to

incur obligations to spend or lend money. This empowerment is generally in the

form of appropriations. However, for the major highway program categories, it is in

the form of contract authority. Budget authority permits agencies to obligate all or

part of the funds that were previously authorized. Without budget authority,

Federal agencies cannot commit the Government to make expenditures or loans.

Contract Authority – A form of budget authority that permits authorized amounts

to be obligated. No appropriations act is necessary. The Federal-aid highway program operates mostly under contract authority rules.

Obligational Authority – Also referred to as a limitation on obligations, the amount

of Federal assistance that may be obligated during a specific time period. Obligation

authority controls the rate at which these funds may be used, but does not affect the

scheduled apportionment or allocation of funds.

Expenditures (Outlays) – A term signifying disbursement of funds for repayment of

obligations incurred. An electronic transfer of funds, or a check sent to a state highway or transportation agency for voucher payment, is an expenditure or outlay.

Definitions for ISTEA

Reauthorization

Contact:

Esther Strawder, FHWA, 202/366-6949.

Basic elements of project financing

include:

• Ten miles of the 11.2-mile tollway will

be financed with $242 million funded

by the private sector, including almost

$18 million worth of land dedicated

by developers for right-of-way.

• The remaining sections will be constructed using a combination of public

funds from the TransNet program and

from the Federal and state highway

programs for a total of $78 million.

• Credit enhancement through the State

Infrastructure Bank will help reduce

risk.

• The City of Chula Vista has imposed

a development impact fee along the

SR125 corridor as a contingency in

the event that the private corporation

fails to construct SR125. If the tollway is constructed, the fee revenues

are dedicated to funding ancillary

routes to SR125.

California Transportation Ventures estimates the cost of the initial four-lane

facility at $320 million. The initial

highway can later be expanded to eight

lanes plus high occupancy vehicle lanes

or fixed guideway transit. The SR125

South Tollway is anticipated to be completed in 2000.

VALUE CAPTURE, continued from page 2

Contact:

Chris Wornum, Cambridge Systematics,

Inc., 510/873-8700.

4