The success of the Florida SIB can be

measured in large part by the award to

date of $500 million in loans that have

leveraged over $3 billion in total project

costs. Because of this success, however,

the SIB has outgrown its capacity as a

“pay-as-you-go” program to meet the

needs demonstrated in solid project

proposals that exceed available funds.

Senate Bill 24A was introduced during

the 2003 legislative session to help

address these needs. In the bill, the

Florida Department of Transportation

(FDOT) proposed leveraging the existing

state-funded SIB loan portfolio through

borrowing in the tax-exempt public bond

market. Models developed by FDOT

demonstrated that a conservative

approach could generate the ability to

loan at least $100 million per year

through a leveraged SIB beginning no

later than July 2003. Assuming a conservative leveraging level of $6 for every $1

of SIB loan proceeds, this approach would

leverage/advance about $600 million of

project costs each year.

Governor Bush signed Senate Bill 24A,

passed as part of the 2003A Special

Legislative Session, on June 27, 2003.

On September 12, U.S. Transportation

Secretary Normal Y. Mineta joined state

and local officials at a groundbreaking

ceremony for the southernmost segment

of the SR 125 South toll road project in

San Diego, CA. SR 125 South was made

possible in part by a $140 million loan

provided under the Transportation

Infrastructure Finance and Innovation Act

(TIFIA) Federal credit program. The

project is the first supported by TIFIA

to be advanced with private bank debt

and substantial private sector equity.

“In addition to its other benefits, this

project demonstrates how our innovative

Federal financing tools can attract

private investment to critical transportation projects,” Secretary Mineta

said. “TIFIA has provided an alternative

to grants as a way of doing business,

allowing private partners to share with

the government the risk and rewards of

infrastructure investment, thereby

providing transportation, creating jobs,

and contributing to economic growth.”

SR 125 South is a privately developed,

9.2-mile toll road advanced under

California’s pioneering AB 680 toll road

demonstration program, enacted in

1989. The project is being designed and

constructed through a public-private

partnership between the California

Department of Transportation (Caltrans)

and California Transportation Ventures

(CTV), a wholly owned subsidiary of

Macquarie Infrastructure Group (MIG).

Through CTV, MIG is contributing more

than $150 million in private at-risk

equity. Additionally, four major local real

estate developers are donating $48 million of land for right-of-way. In total,

private equity and financing account for

78 percent of the project’s costs. To connect the roll road to the local highway

network, the San Diego Association of

Governments (SANDAG) is providing

$139 million for northern segments of

SR 125.

The TIFIA loan is an essential element

of the project’s financial plan, providing

junior-lien debt with minimum repayments during the project’s ramp-up

period. Through this structure, TIFIA

enhances the credit quality of the senior

bank financing, consistent with the program’s objective to improve transportation project access to capital markets.

The SR South Toll Road project is a

model for the future, demonstrating

how innovative approaches can help

meet today’s transportation challenges.

FEDERAL CREDIT PROGRAM

VOLUME 9, NUMBER 3 SUMMER 2003

Ground Breaks on SR 125 South Toll Road

Also in this issue...

FY 2004 TIFIA Applications

Now Being Accepted . . . . . . . . .2

GARVEEs Reach

$3 Billion Level . . . . . . . . . . . . . .3

SIB Activity Approaches

$4.5 Billion . . . . . . . . . . . . . . . .5

Alternative Financing:

The European Experience . . . . . .6

FHWA Workshops Scheduled . . .8

continued on page 5

SIB HIGHLIGHTS

Florida Leverages State-Funded Infrastructure Bank Program

Florida SIB Leveraging Potential

Contact:

Suzanne Sale,

TIFIA JPO,

602/379-4014,

suzanne.sale@fhwa.dot.gov
2

Letters of Interest and applications for Federal credit assistance

under TIFIA are currently being accepted for FY 2004,

pending Congressional action on the re-authorization of the

Transportation Efficiency Act for the 21st Century (TEA-21).

The TIFIA program expires along with TEA-21 on September

30, 2003. However, there is every indication that any short-term

extension to TEA-21 will include partial-year funding for the

TIFIA program tied to the length of the extension. Therefore

the TIFIA program is still very much in business and is

anticipated to continue throughout the authorization of the

new transportation bill. The Administration’s Safe,

Accountable, Flexible and Efficient Transportation Equity Act

(SAFETEA) proposal includes $2.6 billion in TIFIA credit

assistance for FY 2004.

To date the TIFIA program has received six Letters of Interest in

FY 2003 from projects seeking funding for transportation infrastructure projects throughout the country, as described below:

❖ I-81 – The Virginia Department of Transportation

(VDOT) is advancing this $1.84 billion project under a

public-private partnership in order to make multimodal

improvements throughout the 325-mile I-81 corridor.

❖ Pennsylvania High-Speed Maglev – A 54-mile magnetically-levitated system will extend from Pittsburgh

International Airport to downtown Pittsburgh, Monroeville,

and Greensburg. The Pennsylvania Department of

Transportation (PENNDOT) and the Port Authority of

Allegheny County (PAAC) will be the project sponsors for

this $3.5 billion project that is seeking $1.15 billion in

TIFIA credit assistance. The project is being developed as

a public-private partnership between PENNDOT, PAAC,

and Maglev, Inc., a private company.

❖ Intermodal Facility – The Southern California Logistics

Rail Authority is seeking up to $150 million to help

finance a $450 million Intermodal Facility in Victorville,

California. The project will involve the construction of lead

track from the BNSF/UP rail lines, along with the construction of an intermodal facility and related infrastructure.

❖ LA-1 – This project involves the construction of a new

four-lane, fully controlled access, elevated highway of about

16.3 miles paralleling the existing Louisiana Highway One

from Louisiana Highway 3235 to Highway 3090. The

Louisiana Transportation Authority and the Greater

Lafourche Port Commission are co-sponsoring this project

seeking credit assistance between $50-70 million.

❖ Truck Stop Electrification – IdleAire technologies is

seeking TIFIA assistance for a project to provide Truck

Stop Electrification technology designed to reduce truck

emissions and noise pollution.

❖ Banks Transportation Improvement – The Port of Greater

Cincinnati Development Authority, the City of Cincinnati,

and Hamilton County are seeking $101 million in TIFIA

assistance to help fund this $474 million project to provide

highway, transit, and intermodal improvements in downtown Cincinnati.

FY 2004 TIFIA Applications Now Being Accepted

Contact:

Duane Callender,

TIFIA JPO,

202/366-9644,

duane.callender@fhwa.dot.gov

Credit Assessments of TIFIA Projects (in Millions)

Credit Rating Primary Federal Budget Score

Project Project Instrument Credit Senior Debt TIFIA Revenue Current % of Credit Capital

Project Type Cost Type Amount Obligations Loan Pledge Status Amount Reserve

Miami Intermodal Intermodal $1,349 Direct Loan $269.076 A- A- Tax Revenues Agreement .39% $1.049

Center Direct Loan 163.676 User Charges Term Sheet 4.77% 7.807

Highway/

SR 125 Toll Road Bridge 642 Direct Loan 140.000 BBB- BB+ User Charges Agreement 7.10% 9.940

Farley Penn Station Passenger Rail 800 Direct Loan 140.000 Other Term Sheet 12.51% 17.514

Line of Credit 20.000 Other Term Sheet 11.84% 2.368

Washington Metro CIP Transit 2,324 Guarantee 600.000 A- BBB Other Agreement 1.99% 11.940

Tren Urbano (PR) Transit 1,676 Direct Loan 300.000 BBB+ BBB- Tax Revenues Paid in Full 2.59% 7.770

Highway/

Cooper River Bridge Bridge 668 Direct Loan 215.000 BBB- BBB- Other Agreement 2.76% 5.934

Staten Island Ferries Transit 482 Direct Loan 159.068 A+ A+ Other Agreement .19% .302

Highway/

Central Texas Turnpike Bridge 3,700 Direct Loan 916.760 BBB+ BB User Charges Agreement 11.26% 103.227

Reno Rail Corridor Intermodal 280 Direct Loan 50.500 BBB BB Room and Sales Tax Agreement 7.25% 3.661

Direct Loan 5.000 Lease Income Term Sheet 14.31% .716

Direct Loan 18.000 Assessment District Revenues Term Sheet 1.34% .241

San Francisco Oakland Highway/

Bay Bridge Bridge 3,305 Direct Loan 450.000 Toll Surcharge Term Sheet .29% 1.305

Warwick Train Station Intermodal 216 Direct Loan 58.000 User Charges Selection 10.26% 5.951

$15,442 $3,505.080 $173.775 
3

TIFIA Trivia

The U.S. DOT Responds to Your Questions

The “TIFIA Trivia” box provides responses to questions posed by our readers and other observers. We hope you find this

“TIFIA Trivia” section useful and that you will submit questions to Mark Sullivan, Chief, TIFIA JPO, 202/366-5785 or

Theresa Stoll, TIFIA JPO, 202/366-9649.

Question

Why is TIFIA’s annual budget authority of $130 million so much lower than the loan limitation of $2.6 billion? Is the loan

limitation or the budget authority the constraint on TIFIA lending? How is the budget authority required for an individual

project calculated?

Answer

 Under the Credit Reform Act of 1990, the budget cost or “subsidy” associated with a credit instrument is the estimated

long-term cost to the government on a net present value basis. Since it is expected that most funds lent under the TIFIA

program will be repaid with interest at the government’s discount rate or Treasury rate, the cost to the government is much

lower than the face value of the loans. The average subsidy rate of agreements to date is about five percent. This provides

justification for the budget authority level of $130 million, which is five percent of the $2.6 billion loan limitation.

 The annual loan limitation of $2.6 billion limits the face value of TIFIA loans, lines of credit, and guarantees that can be

extended. The annual budget authority of $130 million limits the budgetary cost the government may incur for credit

instruments extended under TIFIA. Either of these limits may be the binding constraint to the program size in a given

year. For example, if the credits that are extended have high-subsidy rates, then the TIFIA program may expend its budget

authority before it reaches the loan limitation and cannot enter into new agreements. Likewise, if the subsidy rates are low,

the loan limitation may be reached before all budget authority is expended. The remaining budget authority cannot be

used for new loans in that year, but can be carried forward to the next fiscal year.

 Budget authority or subsidy required for an individual project is calculated by subtracting the net present value of expected

repayments from the value of the disbursements. The expected repayments are the scheduled repayments minus expected

defaults plus expected recoveries. Defaults are estimated using historic default rates for the risk category of the TIFIA

instrument. Recoveries are estimated based on the type of revenue securing the TIFIA instrument.

GARVEE ROUNDUP

To help meet growing transportation needs, states are pushing

ahead with GARVEE bonds, secured with future Federal aid highway funds under the provisions of Section 122 of Title 23, U.S.

Code. This summer, Arizona and Colorado brought two issues

to market, totaling $249 million. With these two issues,

GARVEE debt issuance nationally through August 2003 has

reached the $3 billion level.

The Arizona issue of $149 million was sold by the State

Transportation Board in July 2003, a combined new money

($125.2 million) and refunding ($23.8 million) issue. The 2003

issue was the third Grant Anticipation Note (i.e. GARVEE) for

Arizona. The proceeds of all three issues have been allocated to

funding the accelerated completion plan for the Maricopa

Freeway System. The Series 2003 notes have a longer maturity

than the prior two issues, extending to 2015, compared to the

2000 and 2001 issues that mature in 2004 and 2008, respectively. With the 2003 issue, taking into account the refunding,

the total amount of Arizona GANs is $292 million. Over the

next two to three years, Arizona anticipates additional issuance

of up to $220 million.

* Colorado DOT issued $400.2 million in June 2002 to refund prior bonds.

** $23.8 million refunded outstanding June 2000 bonds.

continued on page 4

GARVEEs Reach $3 Billion Level

Summary of Colorado and

Arizona GARVEE Issues

State Date of Issue Face Amount

Arizona June 2000 $39.4 Million

May 2001 $142.9 Million

July 2003 ** $149.0 Million

Colorado* May 2000 $524.4 Million

April 2001 $506.4 Million

June 2002 $208.3 Million

August 2003 $100.0 Million
4

GARVEE “Questions of the Quarter”

Each issue of IFQ features questions and answers on the GARVEE program. Note that answers to these questions are

not regulatory or legislative, but represent FHWA’s current administrative interpretations. If you have questions or

want to confirm any of this information, please contact your local FHWA Division office. GARVEE guidance also is

available at: http://www.fhwa.dot.gov/innovativefinance/garguid1.htm.

What is the Difference Between a GARVEE (Grant Anticipation Revenue Vehicle) and an RVee (Reimbursement Vehicle)?

A GARVEE is any bond, debt, note, or other instrument for which a state claims reimbursement for debt service under

Section 122 of Title 23. The proceeds of GARVEE bonds must be used for projects that are eligible for Federal aid

and that follow Federal requirements. As debt service becomes due, states bill the Federal government for the

applicable Federal share of debt service (typically 80 percent) and receive reimbursement. For example, if a state issued

a $100 million bond whose debt service was $12 million annually for 10 years, the state would claim reimbursement

for 80 percent of $12 million, or $9.6 million, until the debt is retired. The reimbursement includes any interest and

issuance costs associated with the bond.

An RVee (reimbursement vehicle – formerly known as an “indirect” GARVEE) is a bond whose debt service is paid

from construction reimbursements from eligible Federal-aid projects, as well as other sources. While the state may

pledge its Federal construction reimbursements for debt service, the reimbursements it receives are not linked in any

way to the RVee; instead, they are made based on eligible construction expenditures on any Federally eligible projects.

The construction reimbursements that a state uses to pay RVee debt service may be from projects that the bond

proceeds paid for or from entirely separate projects. Because the construction reimbursements are not associated with a

debt issuance, the state is not eligible to claim reimbursement for interest and issuance costs on RVees. RVees are

issued under state laws and requirements, and proceeds from RVees do not necessarily have to be used on Federal-aid

projects. However, any project that ultimately receives Federal-aid construction reimbursement must follow all

Federal-aid requirements.

Why Would a State Issue a GARVEE Rather Than an RVee, and Vice Versa?

Depending on state laws, a state might be able to issue either type of vehicle. Some states might prefer to issue a

GARVEE in order to claim interest and issuance costs and in order to preserve a direct link between the project and

the funds used to repay its debt service. Other states may forgo the additional eligibility for interest and issuance, and

issue an RVee because it might allow them to use construction reimbursements from a variety of projects for debt

service. Some states may find it difficult to issue RVees because construction reimbursements become subject to

appropriation by the state legislature when received, or are otherwise restricted by state law. 

In either case, a state does not receive any additional Federal-aid through using either vehicle; it simply elects to use its

Federal aid funds in different but equally legitimate ways.

For more information about GARVEEs and RVees, contact Jennifer Mayer, Innovative Finance Specialist, FHWA

National Resource Center, jennifer.mayer@fhwa.dot.gov, 415/744-2634.

In August 2003, the Colorado Department of Transportation sold

$100 million in transportation revenue anticipation notes or

TRANs (its designation for GARVEEs). This was the fourth new

money issue for Colorado, bringing its total issuance to date to

over $1.3 billion. This total excludes the $400.2 million issue

in June 2002 to refund prior bonds. The 2003 TRANS are

structured as term bonds, maturing in 2016 and 2017. The

TRANs proceeds are funding 28 strategic corridor projects that

are part of the Strategic Transportation Investment Program

adopted by the Transportation Commission in 1996 to

accelerate construction. The strategic corridor projects, which

total $8.9 billion, include the multimodal Southeast Corridor

project, now known as the Transportation Expansion Project or

T-REX. Colorado’s next issue in the amount of $125 million is

planned for 2004 which would raise the total debt service for

TRANs to $2.3 billion, the voter-authorized limit.

Contact:

Jennifer Mayer,

FHWA National Resource Center,

415/744-2634,

jennifer.mayer@fhwa.dot.gov

GARVEEs Reach $3 Billion Level, continued from page 3
New SIB loan agreements over the past quarter are

nearing a milestone. As shown in the table to the right,

32 states have entered into 347 loan agreements with a

dollar value of nearly $4.5 billion as of June 30, 2003.

Florida continues to set the pace for SIB innovations. As

reported in the winter 2003 issue of IFQ, the Florida

Department of Transportation (FDOT) has established a

state-funded SIB, expanded eligibility for a broader range

of projects, and provided flexible loan options for its

borrowers. This issue of IFQ highlights FDOT’s most

recent achievement: legislative approval to leverage its SIB,

thus gaining even more financing capacity to advance

needed transportation projects throughout the state.

SIB Loans Approach $4.5 Billion

SIB HIGHLIGHTS

5

The bill authorizes FDOT to leverage the existing state

SIB loan portfolio repayment stream, through the

issuance of revenue bonds to provide a recurring source

of loan funds. It also requires that projects selected for

SIB loans must become part of FDOT’s five-year work

program beginning with projects selected for the 2003/2004

program year.

Key Considerations

Florida’s leveraged SIB incorporates the following key features:

❖ A leveraged SIB would operate in the same manner as the

current SIB program for accepting project applications

and selecting projects.

❖ No state revenue sources would be pledged to repay debt

or to backstop debt repayment. The sole primary source to

repay bonded debt would be the SIB loan repayment stream.

❖ The key policies and guidelines of the existing SIB would

continue.

Costs of Leveraging

The existing SIB program provides loans at a subsidized interest

rate compared to market rates. The SIB funds the subsidy from

available capitalized funds. This would continue in a leveraged

SIB program. The increased costs would likely include:

❖ Bond issuance costs (taken from each bond issue).

❖ Bond insurance to provide marketable bonds at an AAArated level. The cost of bond insurance could be shared with

project sponsors.

❖ Establishment of a debt service reserve (overall for all bonds)

or loss reserve fund (set aside for each project based on its

credit profile) for repayment of bonded debt. This is not a

cost, but a deduction of available funding that generally

cannot be used for loans in the short or medium terms.

Current Leveraging Activities

FDOT is working with the State of Florida, Division of Bond

Finance to prepare a Request for Proposals for solicitations to

participate in the financing of the leveraged SIB. Additionally,

FDOT currently is accepting loan applications for the

2003/2004 and 2004/2005 fiscal years in anticipation of

leveraging the existing loan portfolio. These loans will be

awarded in November 2003 and will be contingent on the sale

of bonds to provide leveraged proceeds for lending purposes.

Beginning with the 2005/2006 work program cycle the

leveraged SIB will advertise annually for projects to be included

in the work program development cycle.

Additional information on the Florida SIB, activities regarding

the leveraging of this program, or contact information is available

at: http://www.dot.state.fl.us/financialplanning/finance/sib.htm

Contact:

Phyllis Jones,

FHWA,

202/366-2854,

phyllis.jones@fhwa.dot.gov

Contact:

Gene Branigan,

FDOT,

850/414-4421,

gene.branigan@dot.state.fl.us

or

Annette Dann,

FDOT,

850/441-5528,

annette.dann@dot.state.fl.us

State Infrastructure Bank Loan Agreements by State

As of June 30, 2003

Loan 

Number of Agreement Disbursements

State Agreements Amount to Date

Alaska 1 $2,737 $2,737

Arizona 43 436,000 352,880

Arkansas 1 31 31

Colorado 8 5,890 5,890

Delaware 1 6,000 6,000

Florida 37 515,600 244,212

Indiana 2 6,000 5,715

Iowa 2 2,874 2,874

Maine 23 1,758 1,635

Michigan 23 17,034 13,033

Minnesota 15 95,719 77,000

Missouri 13 92,057 72,853

Nebraska 1 3,360 3,360

New Mexico 2 14,133 14,133

New York 5 15,450 12,000

North Carolina 2 1,713 1,713

North Dakota 2 3,565 1,565

Ohio 47 196,370 140,989

Oregon 14 19,221 18,321

Pennsylvania 34 24,252 21,265

Puerto Rico 1 15,000 15,000

Rhode Island 1 1,311 1,311

South Carolina 6 2,643,000 1,545,693

South Dakota 1 11,740 11,740

Tennessee 1 1,875 1,875

Texas 41 252,191 244,192

Utah 1 2,888 2,888

Vermont 4 1,049 1,016

Virginia 1 18,000 12,739

Washington 3 2,375 442

Wisconsin 3 1,814 1,814

Wyoming 8 77,977 42,441

347 $4,488,984 $2,879,357

Florida Leverages SIB Program

(continued from page 1)
Many transportation agencies today are finding that

conventional highway contracting and financing methods are

insufficient to meet citizens’ demands for new and improved

infrastructure. The growing gap between transportation needs

and available funds is not unique to the United States.

However, as a team of transportation experts learned, European

highway agencies over the last several decades have been

effectively implementing a variety of innovative techniques to

accelerate the delivery of critically needed projects.

A delegation of Federal, state, contracting, legal, and academic

representatives traveled to Portugal, the Netherlands, France,

and England in June 2001 to investigate how such efficiencies

and resources might be implemented in the United States.

Through this visit, the delegation concluded that many of the

alternative contract and financing techniques in use in Europe

have potential for application by U.S. transportation agencies.

European vs. U.S. Financing:

Differences and Similarities

Alternative funding sources in Europe include a combination

of bond and bank financing, with private financing much more

common than in the United States. In some cases, European

governments need to use alternative financing because public

debt ceilings have already been reached. In other cases, private

financing is the best solution for implementing the project.

In determining how European experience could be applied in

the United States to advance needed transportation investment,

the delegation identified two primary differences in how

European transportation projects are funded. First, European

countries have a very limited amount of taxes dedicated

specifically for transportation needs. Unlike in the United

States, gasoline taxes and other transportation-generated

revenues are not separated for transportation purposes, but are

deposited into a general fund along with other taxes. These

general funds then provide money for a variety of needs,

including transportation projects, based primarily on political

priorities as opposed to the source of the revenues.

Second, European governments do not have the ability to use

tax-exempt financing for public transportation projects, as is

the case in the United States. While this means that interest rates

are higher for European projects, it also means that projects are

not subject to the contracting rules applied to U.S. tax-exempt

financed projects. For this reason, private financing is much

more competitive with public financing for European

transportation projects. For example, in the U.K., the interest

savings realized when using publicly guaranteed funds as

compared to private funds is sometimes less than one percent.

While the primary funding mechanism in Europe is similar to

the traditional pay-as-you-go system in the United States, with

most of the national investment in transportation projects

funded through the annual budget allocation process, the scan

revealed several alternative approaches that offer potential for

use in the United States. One of these techniques is the use of concessions which have seen limited application in this country.

Concession Arrangements:

Extending the Reach of the Public Sector

Concessions extend public agencies’ reach by transferring responsibility for a given project, along with related construction and

financing risk, to the private sector. By leveraging the culture

of innovation and cost control inherent in private sector firms,

the public agencies can both accelerate project delivery and

reduce costs. At the same time, appropriate contract provisions

can be included to ensure that construction quality, facility

operations and maintenance, and traffic flow meet specific

performance goals over the life of the concession.

Concessions, widely used in Europe over the last 30 years, are

an innovative approach to U.S. project delivery and financing.

Through concessions, public agencies negotiate long-term contracts with a private sector firm or consortium (referred to as the

concessionaire) for the construction and operation of a given

transportation project or a network of projects. Payments to

the concessionaire are generally based on a measure of facility

usage, but also can be based on a schedule of periodic payments

from one or more government entities. In some cases, concessionaires receive incentives to promote facility usage in a win-win

scenario that increases citizens’ mobility options and reduces wear

and tear on other government-owned facilities, while at the same

time resulting in higher compensation for the concessionaire.

Concession contracts are typically negotiated between a public

entity and a private or quasi-private company for a term of 30

years, although in some cases this term can extend substantially

beyond 30 years. Companies receiving these contracts agree to

design, build, finance, operate and/or maintain a given project

over the life of the concession. At the end of this concession

period, the original concession is either renegotiated or the

facility turned over to an appropriate public entity.

By using concessions, the public sector can 1) leverage its

ability to build and finance transportation infrastructure since

concessionaires function essentially as extensions of the state

and 2) apply the innovation, expertise, and efficiency of the

private sector to transportation projects. Moreover, private

sector financing is developed as an additional source of capital

for transportation infrastructure, albeit at a somewhat higher

cost than that of government borrowing. Finally, project

completion and delivery are accelerated by up to eight years

and project costs are reduced by up to 25 percent.

The delegation developed several case studies demonstrating

the benefits of concessions in Europe:

❖ Private Capital Accelerates Projects in Portugal. In 1998

and 1999, the Portuguese Government developed the

Portuguese Highway Concession Program (PHCP) to

6

TECHNICAL CORNER

Alternative Financing: The European Experience

continued on page 7
7

accelerate completion of its national expressway network.

As part of this program, the Government requested

proposals for 30-year concessions on 16 separate “motorway,” or expressway, segments. As a result of this process,

approximately five billion Euros in non-government

investment capital was raised: 4.25 billion Euros from

banks and other equity investors, and the balance in risk

capital from the bidding concessionaires. Under this

program, winning concessionaires were compensated

through both shadow tolling and negotiated schedules of

periodic, generally annual, payments from the central government. Shadow tolls arrangements – where payments are

based on a measure of facility usage – were the stipulated

payment method in seven of 16 contracts. As a result of

the PHCP, the Portuguese Government estimates that completion of its national expressway network has been

accelerated by eight years, from 2014 to 2006.

❖ Government Augments Private Sector Financial Support

to Advance Concessions in France. Two-thirds of France’s

10,800 kilometer national “autoroute” system of expressways has been built and/or is operated under concession

arrangements. In support of the concession concept, the

French national government has provided concessionaires

with interest-free loans for up to 30 percent of project

costs, loan guarantees, and seed capital for private sector

start-ups. The interest-free loans, also known as advances

of anticipated project construction costs, generally extend

from 10 to 20 years. In addition, private sector concessionaires have obtained loans and other credit assistance,

including equity investment, from commercial banks.

Concessionaires are compensated in accordance with their

agreement with the government, with toll revenue serving

as the principal source of compensation.

As one example of a successful French concession arrangement, the Cofiroute concession was originally granted from

1970 through 2005, but recently extended to 2015 through

2030 (depending on the specific route). Initial French government financial assistance included interest-free loans

and loan guarantees, while Cofiroute also was required to

provide significant equity capital. In order to ensure acceptable quality, maintain an effective relationship with the state,

and promote shareholder value, Cofiroute establishes internal

performance goals related to safety, traffic flow, and comfort.

❖ Private Sector Financing Leads to Cost Savings in the

United Kingdom. By following the concession approach

to building and financing new transportation projects, the

British National Audit Office has concluded that project

costs have been reduced by 15 to 25 percent. In the

1990s, the British Highways Agency introduced the

Private Financing Initiative (PFI) as a way to extend its

capabilities while tapping into a new source of funding.

As implied by the name, the PFI requires private sector

concessionaires to provide funds through equity capital,

bank borrowing, or bonding. In fact, three of nine PFI contracts were financed primarily through the issuance of bonds.

The British Highway Agency believes that the benefits of

PFI include earlier delivery of transportation investment as

well as a transfer of risk from the public to the private

sectors. In addition, there is greater private sector involvement, creativity, and discipline, as well as the possibility of

additional private sector funding. Under PFI, compensation to concessionaires has been based on three discrete

performance measures. From 1994 to 1997, compensation

was based on shadow tolling (a measure of facility usage),

while from 1997 to 2001 payments were based on system

availability. Starting in 2001, the concessionaire

compensation approach has focused on facility congestion

as measured by average speed.

Conclusion

Innovative contracting and financing techniques have been

used in Europe over the last several decades. Portugal, France,

and the United Kingdom have found that these arrangements

have extended the reach of their transportation agencies,

identified new sources of project financing, accelerated project

delivery, and reduced project costs.

The table below highlights the potential advantages of using

concessions.

The European experience with innovative financing as well as

innovative project delivery mechanisms is documented in more

detail in a report available at FHWA’s International Program

website:

http://international.fhwa.dot.gov/contractadmin/contractadmin.pdf

Financial Economic and Social Political

Advantages Advantages Advantages

Easing of Streamlined A new role

budgetary construction for the public

constraints schedule and authority

reliable project

Optimal Modernization of Allocation and

allocation and the economy and not “abdication”

transfer of risk improvement of

to the private services

sector

Realistic Access to financial Project stability

evaluation and markets, combined

control of costs with the development

implementation of local financial markets

Source: FHWA, Contract Administration: Technology and Practice in Europe, Report No.

FHWA-PL-02-016, October 2002, page 71.

Contact:

Frederick Werner,

FHWA National Resource Center,

415/744-2634,

frederick.werner@fhwa.dot.gov

Alternative Financing: The European Experience, continued from page 6
8

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 AASHTO JOURNAL, AND IS

AVAILABLE ELECTRONICALLY THROUGH

FHWA’s WWW HOME PAGE:

http://www.fhwa.dot.gov/

innovative finance/

IFQ IS ALSO PROVIDED TO THE FOLLOWING

ORGANIZATIONS FOR REDISTRIBUTION

AND/OR AS INFORMATION FOR THEIR

MEMBERSHIP:

• American Public Works

Association (APWA)

• Surface Transportation Policy

Project (STPP)

• National Governor’s Association

(NGA)

• National Association of State

Treasurers (NAST)

• National Association of State

Auditors, Controllers, and

Treasurers (NASACT)

• National Association of Regional 

Council’s (NARC’s) Association

of MPOs (AMPO)

SUZANNE H. SALE, FHWA

CO-MANAGING EDITOR

602/379-4014

FAX: 602/379-3608

SUZANNE.SALE@FHWA.DOT.GOV

MAX INMAN, FHWA

CO-MANAGING EDITOR

202/366-2853

FAX: 202/366-7493

LAURIE L. HUSSEY, CS MANAGING EDITOR

CAMBRIDGE SYSTEMATICS, INC.

617/354-0167

FAX: 617/354-1542

LHUSSEY@CAMSYS.COM

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.

Contributors to Vol. 9, No. 3 of IFQ include:

Roger Berg, Cambridge Systematics, Inc.

Gene Branigan, Florida Department of Transportation

Duane Callender, TIFIA JPO

Phyllis Jones, FHWA

Jennifer Mayer, FHWA National Resource Center

Suzanne H. Sale, TIFIA JPO

Theresa Stoll, TIFIA JPO

Mark Sullivan, TIFIA JPO

Frederick Werner, FHWA National Resource Center

An FHWA workshop on project finance will be held in conjunction with the

American Road and Transportation Builders Association’s (ARTBA) 15th

Annual Conference on Public-Private Ventures in Transportation. The workshop

and conference will be held at the Renaissance Washington Hotel in Washington,

D.C, October 22-23, 2003 and will include sessions on how TEA-21 reauthorization and regulatory changes are impacting the prospects for innovative finance

and public-private partnerships in transportation. The FHWA workshop sessions,

focusing on SAFETEA and innovative finance trends, will be held on Wednesday,

October 22, from 1:45 p.m. to 4:30 p.m.

More information is available on the 2003 Public-Private Ventures Conference web

site at:

http://www.artba.org/meetings_events/2003/ppv/2003_public_private_ventures.htm

As part of the Transportation Research Board’s (TRB) 83rd Annual Meeting in

Washington, D.C. from January 11-15, 2004, the TRB Committee on Taxation

and Finance and FHWA will cosponsor a comprehensive workshop that will focus

on innovative finance trends and opportunities for the future. The emphasis of the

workshop will be on options to enhance and expand the “tool box” of project

financing approaches to help meet the nation’s transportation investment needs.

U.S. DOT finance experts will address the innovative finance provisions of

SAFETEA and provide a progress report on how new financing approaches are

changing the transportation finance landscape. In addition, project sponsors and

capital market representatives will share their insights on successful strategies that

could serve as a road map for further advancements in project delivery mechanisms.

The workshop, intended to build a better understanding of non-traditional

financing methods, will be structured in an interactive format with time set aside

for questions and answers and dialogue with transportation finance experts. The

workshop will be held on Sunday, January 11, from 2:00 p.m. to 5:30 p.m. at the

Washington Hilton Hotel and Towers, Jefferson East Room.

More information will be posted at the TRB 83rd Annual Meeting website at:

http://www4.nationalacademies.org/trb/annual.nsf

FHWA Workshops Scheduled

EVENTS

Contact:

Suzanne Sale,

TIFIA JPO,

602/379-4014,

suzanne.sale@fhwa.dot.gov