More than 450 Federal, state, metropolitan, and local government officials and

private sector representatives met in

Dallas, TX, from April 23 through April

25, 1997 to participate in a conference on

Transportation Finance for the 21st

Century. The conference, which was

jointly sponsored by the Transportation

Research Board, the Federal Highway

Administration (FHWA), the Federal

Railroad Administration (FRA), and the

Federal Transit Administration (FTA),

provided a national forum to discuss techniques and case studies of innovative

finance that are being used for transportation projects. An outcome of the conference will be the identification of legislative

and administrative changes needed to

facilitate the implementation of innovative

finance techniques, and development of a

research and information transfer program

that will disseminate best practices to state

and local transportation agencies.

Conference participants grappled with one

of the most critical issues confronting the

transportation industry today: how the

shift from traditional Federal sources of

funding will affect the future of our

nation’s transportation infrastructure.

These traditional sources of funding are

forecast to fall far short of the estimated

costs of maintaining and improving transportation infrastructure, raising serious

concerns about U.S. competitiveness, productivity, and quality of life. Simply

increasing these traditional sources is

impossible, given resistance to higher taxes,

as well as the desire to balance the budget

by the year 2002. Given the conference’s

tremendous turnout, it is clear that these

concerns are shared industry-wide, and

that transportation providers are seeking

new ways to raise revenues and finance the

necessary transportation improvements. 

Work already has begun on identifying

new sources of revenue for transportation,

and on using financing mechanisms common in other industries but not previously

applied to transportation. Conference

break-out sessions featured case studies on

this growing “tool box” of techniques,

including the use of advanced construction, soft match, tapering, and other

mechanisms to accelerate transportation

projects by leveraging available Federal

dollars; certificates of participation, cross

border leasing, and other ways of financing transportation assets; public/private

partnerships; bonding; using new technologies, such as intelligent transportation

systems, to generate new revenues; Federal

credit assistance; congestion, or value,

pricing; innovative procurement strategies,

such as turnkey and design-build; and the

State Infrastructure Bank (SIB) program.

Speakers and attendees discussed how

these tools are being used in their states

and metropolitan areas, and offered advice

on how they might be applied by others. 

A panel discussion on the new programs

that are being proposed as part of the

reauthorization debate generated lively

discussion. At Thursday’s lunch, keynote

speaker Joseph Giglio, Professor of

Strategy at Northeastern University,

offered his perspective on the roles of the

public and private sectors in regulating and providing transportation services. On Friday, the Honorable

Norman Y. Mineta, Senior Vice President at Lockheed Martin and former

Chair of the House Transportation and

Infrastructure Committee, challenged

attendees to mix public tax funding with

private toll revenues so as to maintain

and improve the transportation infrastructure that is a major underpinning of

the nation’s economy. 

By the close of the conference, attendees

recognized that a combination of new

revenue sources and more creative

means of financing transportation infrastructure improvements will be necessary to meet the challenges of the

future. Conference proceedings will be

available in September 1997.

Innovative

Finance

WILLIAM A. HYMAN, EDITOR VOL. 2, NO. 3

ESTHER STRAWDER, FHWA MANAGING EDITOR JUNE 1997

Conference Provides National Forum for

Transportation Finance

Also in this Issue . . .

King County SR520: 

Keeping Communities 

Well Connected in 

Washington State

State Infrastructure Bank

Update

Alternative Finance Briefing

Sessions Planned

Internet Update

Reader Feedback Sought

Contact:

Mary DeMinter, TRB, 202/334-3205.
2

Innovative

Finance

In November, 1995, the FHWA approved an innovative

financing proposal from the Washington State Department of

Transportation (WSDOT) for State Route 520 near Seattle.

The proposal centers on a high-occupancy vehicle (HOV)

lanes construction project; this is a major component of a

larger highway project, which has a total cost of $35.9 million. WSDOT requested FHWA approval to use two financing techniques pioneered under TE-045, partial conversion of

advanced construction and tapered match, to overcome temporary constraints in Federal obligation authority and a shortage of state funds. 

SR520 is an urban principal arterial and freeway connecting

the city of Seattle and the cities of Bellevue and Redmond. It

intersects with I-5, just north of Seattle’s central business district; and with I-405, just north of the Bellevue central business district. SR520 comprises a 2.5 mile floating bridge that

spans Lake Washington and approximately 10.3 miles of fourlane divided highway. On average, the most heavily traveled

segment of SR520 approaches 110,000 daily trips, with a volume-to-capacity ratio of 1.3. 

The cost of adding HOV lanes to SR520, which is the project

accepted under TE-045, is $21.3 million. Additional

improvements being made to SR520 include resurfacing, road

widening, and signalization and channelization of traffic onand off-ramps. 

Although the SR520 improvements have been in the state’s

construction program since 1990 and the affected local jurisdictions place a high priority on the project, it is unlikely that

the project would have been able to start before 1997 in the

absence of the TE-045 program. The principal problem confronting WSDOT in its efforts to advance this project was a

near-term shortage of state funds; this was compounded by a

shortage of federal obligational authority.

Faced with the possible need to defer the SR520 project until

1997, WSDOT approached FHWA to seek a means of

advancing the project without exceeding limits on Federally

imposed obligational authority or state-imposed spending

limitations. To address the obligational authority shortage, as

well as an imbalance in state expenditures for the program

category representing the HOV improvements portion of the

SR520 project, WSDOT secured approval to combine two

innovative financing techniques: partial conversion of

advanced construction, and tapered match. 

Partial conversion of advanced construction represents a

refinement to the existing advanced construction program,

which permits states to start projects with their own funds

while preserving those projects’ future eligibility for Federal

reimbursement. Under partial conversion, states may structure their obligation of advanced construction to mirror the

actual expenditures incurred in a given year. The advantage

of partial conversion is that for a large, multi-year project, a

state can obligate the project gradually over time so that the

amount of Federal funds obligated mirrors the available

obligational authority. 

The use of partial conversion of advanced construction

ensured that the SR520 project would not consume $21.3

million of fiscal year 1996 obligational authority for the sake

of receiving federal reimbursement for actual expenditures in

the first year of construction that will total only $5.0 million.

Instead, WSDOT will be able to limit its obligation of

Federal-aid funds to approximately $5.0 million, thus freeing

up the remaining $16.3 million to be obligated for other projects throughout the state. 

Although the partial conversion of advanced construction will

help WSDOT make more effective use of its fiscal year 1996

Federal obligational authority, use of tapered match will help

WSDOT resolve difficulties with shortfalls in its authority to

spend state funds. Tapered match alters the standard schedule

of Federal reimbursement by permitting states to vary the percentage share of state matching funds each year, so long as the

overall Federal contribution on a given project does not

exceed Federal aid limits. Typically, when states incur expenses on a project, they submit vouchers for reimbursement for a

set percentage (usually, 80 percent) of the actual costs

incurred. Under tapered match, however, states may submit

vouchers for 100 percent of their actual expenditures in the

early phases of a project’s development, and wait until a later

time to assume responsibility for the state share. Over time,

the total Federal contribution towards the project must not

exceed the maximum allowable Federal share. 

For the SR520 project, WSDOT will submit periodic vouchers to FHWA for Federal reimbursement of 100 percent of

the state’s actual expenditures until the maximum Federal

contribution is received. Subsequently, WSDOT will bear

100 percent of the remaining project costs. 

King County SR520: Keeping Communities Well

Connected in Washington State

Contact:

Miriam Roskin, Porter and Associates, 206/441-9808;

Patrick Balducci, FHWA, 202/366-6055.
3

The FHWA’s Eastern and Western Finance Centers, in conjunction with the Federal-Aid Financial Management Division, currently are developing an “executive” briefing session on innovative financing. This will be a new effort targeting executives who

may not be able to attend a two-day course on alternative finance and statewide financial planning. The briefing session will provide FHWA Division Administrators, Chief Administrative Officers of state DOTs and other transportation agencies, and others

interested in transportation finance with a concise, high-level overview of some of the alternative financing techniques already

being used by states, as well as financial aspects of the Administration’s National Economic Crossroads Transportation Efficiency

Act (NEXTEA) proposal. FHWA Divisions, state DOTs, and others interested in scheduling a briefing session should contact

their respective Regional Finance Center team member, as indicated below:

Alternative Finance Briefing Sessions Planned

Innovative

Finance

Contact:

Region 1 – Mike Fazioli, 518/431-4224, ext. 216

Region 3 – Audrey Davis, 410/962-0077, ext. 3042

Region 4 – John Jeffers, 404/562-3580

Region 5 – Mike Rosenstiehl, 708/283-3513

Regions 6 and 7 – Sue Kiser, 916/498-5009

Region 8 – Jennifer Mayer, 415/744-2643

Region 9 – Russ Fosha, 415/744-2655

Region 10 – Leslie Harris, 503/326-5953

The Innovative Finance web page (http://www.fhwa.dot.gov/innovativefinance) is undergoing a few minor revisions. A

schedule for Alternative Finance briefing sessions, announced in this issue of IF (see page 3), will replace the current

Innovative Finance and Statewide Financial Planning course schedule. Draft SIB Guidance will succeed the current SIB

Q&A’s. The SIB Report to Congress will be posted as soon as it becomes available. A final review of the TE-045 projects

will be posted as an addendum to the May 1996 project summaries. A variety of detailed SIB and TE-045 case studies

also will be posted to highlight projects that present exemplary applications of non-traditional financing techniques.

Internet Update

Contact:

Esther Strawder, FHWA, 202/366-6949.

One year ago, the FHWA launched the Innovative Finance newsletter to provide practical, case-oriented information on the application of alternative financing concepts to transportation projects. Now we want to hear from you. Please tell us:

• Has the newsletter proved useful to you? 

• What types of articles have been most useful? Least useful?

• Are there other types of articles you would like to see?

The editors of IF also welcome reader submissions. What innovative financing techniques have worked for you? What successes

can you share, and what lessons have you learned? Your input will help ensure that future newsletters expand the knowledge base

on the critical transportation financing issues facing all of us in the years ahead.

Reader Feedback Sought

Please address all comments and suggestions to:

Ms. Esther J. Strawder

Federal Highway Administration

Federal-Aid Financial Management Division

400 7th Street, S.W.

Washington, DC 20590

Tel: 202/366-6942 

Fax: 202/366-7493

E-mail: esther.strawder@fhwa.dot.gov
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JOURNAL, AND IS AVAILABLE ELECTRONICALLY THROUGH:

• ITE’s WWW Home Page:

“http://www.ite.org” 

(select “Reference Library”)

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Management Division’s WWW

Home Page:

“http://www.fhwa.dot.gov” 

(select “Program Areas” and

“Innovative Finance”)

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

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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,

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Innovative

Finance Innovative

Finance

The State Infrastructure Bank (SIB) pilot

program represents an effective use of

Federal funds for two key reasons. First,

SIB funds largely are self-replenishing.

Second, SIB funds attract non-Federal

funds to transportation infrastructure

investment. To date, $79 million in

Federal funds have been transferred to

states to capitalize their pilot SIBS. 

SIBs can offer:

• Lower-cost financing than otherwise

may be available to a project sponsor;

• Flexible repayment terms that can be

tailored to a project’s needs; and

• Credit enhancements that improve

a project sponsor’s access to bond

issuances and other forms of

financing.

The results to date for the SIB pilot suggest that the program will complement

the regular Federal-aid program by serving certain local and statewide projects

that have access to dedicated revenue

streams, but that need flexible financial

assistance to get underway.

For now, project sponsors’ interest in

SIB assistance appears particularly

strong in two areas:

• Loans to local agencies seeking to

close gaps in financing plans; and

• Loans to larger entities (e.g., turnpike authorities), for which the loan

addresses a specific barrier to the

sponsor’s ability to obtain outside

debt financing.

Ohio, Florida, Oklahoma, and Oregon

With just five months having passed

since most states signed their cooperative

agreements with the FHWA and the

FTA to create their SIBs, financial activity has begun with two loans from the

Ohio SIB to support a bond issuance by

Butler County for a toll road. Missouri

also has made its first loan.

Three additional states – Florida,

Oklahoma, and Oregon – intend to

make project loans by October 1997.

South Carolina and Virginia

South Carolina and Virginia are developing procedures for SIB operations and

project selection, and are likely to

request Federal capitalizing funds in fiscal year 1998.

Arizona and Texas

As they establish their banks, Arizona,

Texas, and Oklahoma are working with

their state legislatures to broaden their

current enabling legislation so that more

breadth in financial assistance can be

provided to project sponsors.

California

California is exploring structural options

for its SIB with the intention of providing third-party credit enhancements.

Since the 1997 U.S. Department of

Transportation (DOT) Appropriations

Act expanded participation in the pilot

program to additional states, the U.S.

DOT has received 26 applications from

29 states, including two multistate

applications. The U.S. DOT is reviewing these applications to select states

ready to implement a SIB. In addition,

the U.S. DOT is reviewing options for

distributing the additional $150 million

made available in the 1997 DOT

Appropriations Act.

State Infrastructure Bank Update

Contact:

Lucinda Eagle, FHWA, 202/366-5057.

4