CBO

JULY 2012

Infrastructure Banks and Surface Transportation

From 2008 to 2011, total government spending on 

surface transportation infrastructure—highways, mass 

transit, and passenger rail—surpassed $200 billion a year. 

The federal government spent more than $50 billion a 

year—mostly in the form of grants to state and local entities, which then determined what projects to fund—and 

state and local governments spent more than $150 billion 

a year of their own funds.1

 The private sector also 

invested in such infrastructure.2

If future government spending on surface transportation 

infrastructure matched those recent amounts, the condition of the highway and transit systems would probably 

deteriorate. According to the Federal Highway Administration (FHWA), maintaining the current attributes of 

the highway and transit system would require at least 

$13 billion per year more than has been spent in recent 

years. Moreover, if the country undertook all of the highway projects for which the FHWA’s estimate of benefits 

exceeds its estimate of costs, investment in the highway 

system would be about $83 billion per year more than 

has been spent in recent years. However, gaining the 

greatest net benefit from any increase in infrastructure 

investment would depend critically on whether that 

investment went to the most advantageous projects or 

not.

To increase the funding available for infrastructure 

projects and to improve the selection process for those 

projects, some analysts and policymakers have suggested 

the creation of an infrastructure bank. In this report, 

the Congressional Budget Office (CBO) analyzes an 

illustrative federal infrastructure bank—one that is representative of those in many recent proposals.3

 That entity, 

which would be federally funded and controlled, would 

select new, locally proposed construction projects for 

funding on the basis of a number of criteria, including 

their costs and benefits, and would provide financing for 

the projects through loans and loan guarantees. To repay 

the loans, projects financed through the infrastructure 

bank would have to include tolls, taxes, or other dedicated revenue streams. Financial assistance could be made 

to any consortium of partners with an eligible project. 

For example, a group of state and local entities could 

apply, as could a group of private, nongovernmental partners. The bank could provide the subsidy amounts 

needed to compensate private-sector investors for benefits 

that accrue to the general public and the economy at 

large.4

The illustrative infrastructure bank in this analysis would 

focus on surface transportation projects. It would not 

provide financing for water or energy projects, even 

though some recent proposals have included them. 

1. The figure for spending by state and local governments includes 

spending on capital expenses and operations and maintenance for 

roads, transit, and rail systems. Historically, about 60 percent of 

state and local spending on surface transportation infrastructure 

has been for operations and maintenance. The Congressional 

Budget Office estimated state and local spending from 2008 

through 2011 by combining data for 2007 (the last year for which 

comprehensive data are available) with growth rates obtained from 

more recent but less complete data. 

2. In 2011, the companies that own U.S. railroads spent about 

$12 billion on capital expenditures. 

3. Proposals include S. 652, the Building and Upgrading Infrastructure for Long-Term Development Act, as well as proposals by the 

Center for American Progress, Building America’s Future, and 

the U.S. Chamber of Commerce. The President proposed a 

federal infrastructure bank in his budget for 2013.

4. For additional information on issues surrounding private financing of infrastructure projects, see the statement of Joseph Kile, 

Assistant Director for Microeconomic Studies, Congressional 

Budget Office, before the Senate Committee on Finance, The 

Highway Trust Fund and Paying for Highways (May 17, 2011). 
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Water and energy projects have certain characteristics 

that make them different from transportation projects—

most notably, they have built-in ratepayers. (See Box 1 

for a discussion of issues related to water and energy 

infrastructure.) 

An infrastructure bank could play a limited role in 

enhancing investment in surface transportation projects 

by doing the following:

 Providing new federal subsidies (in the form of loans 

or loan guarantees) to a limited number of large 

projects, and

 Allowing the benefits of potential projects to be more 

readily compared in a competitive selection process.

A potential advantage of such a bank is that it could 

encourage sponsors of projects to charge users for the 

benefits they receive, which would mean that the subsidies to such projects could be a small percentage of total 

costs. A second potential advantage is that the selection 

process could overcome certain barriers to the financing 

of multijurisdictional or multimodal projects.

A key limitation of providing funding through a federal 

infrastructure bank is that only some surface transportation projects would be good candidates for such funding, 

because most projects do not involve tolls or other mechanisms to collect funds directly from project users or 

other beneficiaries. A second drawback is that the support 

offered for surface transportation by most proposed 

infrastructure banks would not differ substantially from 

the loans and loan guarantees already offered by the 

Department of Transportation (DOT) through its 

Transportation Infrastructure Finance and Innovation 

Act (TIFIA) program. As an alternative to creating a 

federal infrastructure bank, that program could be 

expanded to meet most of the same goals.5

How Would a Federal Infrastructure 

Bank Work?

In contrast to existing infrastructure banks, which are 

operated by some U.S. states and European countries 

and generally function as independent entities, a federal 

infrastructure bank would be considered part of the 

federal government—and would be accounted for in the 

federal budget. The bank would select and finance surface transportation projects nationwide (from among all 

proposed projects) that would provide significant 

national or regional economic benefits. Project sponsors 

(a combination of states, local governments, and private 

entities) would apply to the bank for loans or loan guarantees to pay for their proposed project. 

Project Selection 

If it awarded federal assistance competitively, an infrastructure bank could target the spending of limited 

federal funds with the goal of putting those amounts 

toward their most efficient use. It could replace current 

federal funding—typically distributed to states on the 

basis of formulas outlined in law—for certain new construction and would require that such construction be 

able to pay for itself using various tools along with a small 

federal subsidy. Under current law, state and local governments have significant flexibility to choose most federally 

funded projects under broad federal guidelines. An infrastructure bank would use selected criteria to determine 

which projects received certain federal funds.6

 The infrastructure bank could compare the benefits of particular 

projects and award funds on the basis of a project’s 

national or regional benefits.

Project Financing

To facilitate the financing of projects, a federal infrastructure bank would have a number of tools available: direct 

loans (at or near Treasury rates), loan guarantees, and 

lines of credit. Current law does not permit federal agencies or entities, such as a federal infrastructure bank, to be 

capitalized and then indefinitely extend credit to private 

firms using the proceeds from repayments of previous 

loans. Instead, the amount and costs of credit activities 

that federal agencies can provide is controlled by the 

Congress in annual appropriation acts (see Box 2).

An infrastructure bank, through loans, loan guarantees, 

and lines of credit with low interest rates and fees, could 

provide a federal subsidy commensurate with the benefits 

of a project that accrue to the general public rather than 

to individual end users. (A project whose benefits to end 

users exceed its costs could be completed without any 

government subsidies if the users could be charged appropriately.) Those public benefits might include improved

5. Public Law 112-141, which is the most recent authorization for 

surface transportation programs and was approved by the 

Congress in June 2012, included provisions that will expand the 

TIFIA program. See the last section of this report for details.

6. Rather than identifying projects on its own, the infrastructure 

bank would select from projects proposed by state and local 

entities. 
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air quality resulting from reductions in congestion, 

increased property values surrounding improved infrastructure, or improved regional economic performance.7

Under current law, most federal assistance for transportation projects is in the form of grants to state and local 

governments that are paid for primarily from federal tax 

revenues. Federal grants provide a large subsidy, but 

because there is no repayment requirement, they may not 

induce state and local governments to charge user fees 

that align payment of the costs with the ultimate 

beneficiaries. 

Comparison with Existing Infrastructure Banks

An infrastructure bank that is substantially owned or 

controlled by the U.S. government would, under longstanding federal budgeting practices, be included in the 

federal budget and subject to its accounting rules.8

According to those longstanding practices, any entity that 

is drawing on federal funds and subject to federal control 

will be part of the recorded budgetary activities of the 

federal government. 

Box 1.

Financing Water or Energy Projects Through an Infrastructure Bank

Some proposals for a federal infrastructure bank aim 

to make financing available not only for surface 

transportation projects but also for other types of 

infrastructure projects, such as water and energy facilities. Such facilities differ from surface transportation 

facilities in ways that affect some of the arguments for 

and against financing through an infrastructure bank.

A key difference is that unlike many transportation 

facilities, water and energy utilities can directly measure consumers’ use of their infrastructure and can 

easily charge consumers for that use. Moreover, most 

such utilities are local or regional monopolies and 

have revenues that tend to be quite predictable—even 

more so than revenues from toll roads and mass 

transit systems—because consumers cannot easily 

substitute other things for water and energy.

Another difference is that the availability and stability 

of revenues generated by users make water and energy 

projects more attractive to lenders and investors than 

many transportation projects. From 1991 to 2007, 

government bonds accounted for 87 percent of state 

and local capital spending for utilities but only 

35 percent of such spending for transportation infrastructure.1

 Over the same period, the private sector 

spent $724 billion on capital goods for utilities—an 

average of about $43 billion per year, much more 

than it spent on transportation infrastructure.

Although those attributes of water and energy projects suggest that a federal infrastructure bank could 

be used to finance those projects, they also raise the 

question of whether such a bank is needed for that 

purpose. On the one hand, federal subsidies through 

an infrastructure bank could reduce the burden on 

water and energy ratepayers and could help fund 

projects that have significant indirect benefits to nonusers (such as the public health benefits of clean 

water) or that serve low-income populations. On the 

other hand, subsidizing rates can lead to inefficient 

use of utility services; and typical water and energy 

projects do not have indirect public benefits that are 

as geographically broad as those of some surface 

transportation projects, such as those that improve 

the movement of goods regionally or nationwide. 

(Exceptions include clean water projects on major 

rivers and possibly improvements to multistate electricity transmission grids.) Moreover, federal support 

for water projects already exists in the form of grants 

from the Environmental Protection Agency to state 

revolving funds that in turn support loans and grants 

for wastewater and drinking water systems.

1. See Congressional Budget Office and Joint Committee on 

Taxation, Subsidizing Infrastructure Investment with TaxPreferred Bonds (October 2009).

7. In practice, setting the amount of the subsidy to be commensurate 

with the public benefits would be difficult, but the subsidy provided by an infrastructure bank would probably reflect the 

presence of some benefits to the public.

8. President’s Commission on Budget Concepts, Report of the 

President’s Commission on Budget Concepts (October 1967), p. 25.
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Box 2.

The Budgetary Cost of Credit Support

The Federal Credit Reform Act of 1990 (FCRA) 

established rules for calculating the budgetary costs of 

direct loans and explicit loan guarantees issued by the 

federal government. An agency calculates the subsidy 

cost (that is, the cost that the government bears), and 

that subsidy value is treated as the budgetary cost. 

Those subsidy costs are recorded on an accrual 

basis—unlike most items in the federal budget, 

which are calculated on a cash basis. The subsidy cost 

of a direct loan or loan guarantee is calculated as the 

net present value of expected cash flows, including 

any fees paid by the borrower to the government, 

over the life of the loan or loan guarantee. Under 

FCRA, net present value is estimated by discounting 

cash flows back to the time a loan is disbursed or the 

commitment of a loan guarantee is made, using the 

interest rates on Treasury securities of comparable 

maturity. As a result, the recorded budgetary cost for 

any loan is usually significantly smaller than the cash 

flows that move into and out of the Treasury. That 

cost is recorded in the budget at the time the loan is 

disbursed. In contrast, the cash flows associated with 

that loan between the Treasury, an agency, and borrowers would occur over time and would not be 

recorded in the budget.

An important aspect of the budgetary treatment of 

federal credit programs is that agencies must receive 

an appropriation equal to the estimated subsidy cost 

before they can make or guarantee a loan.1

 In the case 

of direct loans, FCRA specifies that loan repayments 

are unavailable for future spending; those repayments 

are already accounted for in the estimated net present 

value of the loan, so they are not available to “revolve” 

into new loans. Such a revolving fund is the model on 

which many state infrastructure banks are based. 

However, for the federal government, those repayments represent part of the financing for the original 

loans and are implicit in the subsidy calculation. 

Allowing loan repayments to be used for new loans—

without any additional appropriation to cover the 

subsidy costs of the new loans—would raise the effective FCRA subsidy cost of the original loans to 

100 percent (the same as for grants). 

The budgetary cost of a credit program tends to be 

lower than the budgetary cost of an economically 

equivalent grant or benefit payment because FCRA 

accounting does not provide a comprehensive measure of the economic cost of credit assistance. 

Through its use of Treasury rates for discounting, 

FCRA implicitly treats market risk—a type of risk 

that investors require compensation to bear—as having no cost to the government. Specifically, FCRA’s 

procedures incorporate the expected cost of defaults 

on government loans or loan guarantees but not the 

cost of risk associated with uncertainty about the 

magnitude of those defaults. Investors require compensation—a “market risk premium”—to bear that 

risk. The market risk premium on a risky loan or 

guarantee compensates investors for the increased 

likelihood of sustaining a loss when the overall 

economy is weak and resources are scarce; that 

likelihood is reflected in higher expected returns and 

lower prices for assets that carry more market risk. 

Taxpayers bear the investment risk for federal credit 

obligations. By omitting the cost of market risk and 

thereby understating the economic cost of federal 

credit obligations, FCRA accounting may lead policymakers to favor credit assistance over other forms 

of aid that have a similar economic cost.2

1. In contrast, no appropriations are necessary for the periodic 

subsidy reestimates that agencies make to reflect actual 

experience with loans and guarantees. Permanent indefinite 

budget authority exists for reestimates, which are recorded in 

the budget.

2. Moreover, subsidy rates computed under FCRA exclude 

federal administrative costs, even those that are essential for 

preserving the value of the government’s claim to future 

repayments, such as loan-servicing and collection costs; those 

costs are accounted for separately in the budget. For further 

discussion of the economics of FCRA, see Congressional 

Budget Office, Fair-Value Accounting for Federal Credit 

Programs (March 2012). 
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That treatment differs from the way in which two widely 

cited examples of infrastructure banks—state infrastructure banks and the European Investment Bank—operate. 

As infrastructure banks controlled by individual states, 

state infrastructure banks are primarily capitalized by 

state dollars, although most also have received federal 

grants. In addition, some state infrastructure banks operate with the goal of being self-sustaining by using only 

their earnings from the repayment of loans to support 

loans or grants to additional state projects.9

 State infrastructure banks are not included in state budgets because 

states have different budget accounting rules than the 

federal government.10 The European Investment Bank is 

an independent, nonprofit entity owned by the member 

countries of the European Union that seeks its own funding via debt instruments and makes loans to entities 

throughout the member countries.11 Neither its costs 

nor its income are reflected in the national budgets of 

the member countries because it is considered an 

independent entity. 

Why Provide Federal Support for 

Infrastructure?

A number of policymakers are looking for ways to 

increase the amount of investment in surface transportation infrastructure. Two frequently discussed (but not 

mutually exclusive) alternatives under which the federal 

government could increase its support for such investment are the following: 

 Assist specific new projects, such as those identified 

by an infrastructure bank or through some other 

selection process; or 

 Increase funding through existing mechanisms that 

use formulas to allocate funds to other levels of 

government that would in turn select projects.

The general rationale for public-sector provision of most 

surface transportation infrastructure in the United States 

is that such infrastructure displays, at least to some 

degree, important characteristics of being a “public 

good.” Public goods are usually not profitable for the 

private sector to produce because they are available to 

anyone who wants to use them; as a result, they are generally provided by the public sector.12 Also, the benefits of 

surface transportation projects—promoting commerce or 

reducing congestion, for instance—may extend beyond 

the places where they are built and beyond the people 

who use them directly, making it difficult for local governments to reap the full benefits of such projects. 

Increasing funding would probably lessen the deterioration of surface transportation infrastructure. According to 

the Federal Highway Administration, if current spending 

for highway investment was maintained over the coming 

decades (with adjustments to keep pace with inflation), 

the performance and quality of the highway system 

would decline. That agency points to data suggesting that 

all levels of government would need to spend a total of 

$115 billion per year (in 2010 dollars) on capital expenditures to maintain the current performance of highway 

and transit systems and that up to $70 billion per year 

more could be spent on additional capital projects for 

which the benefits would exceed the costs.13

What Are the Strengths and 

Weaknesses of an Infrastructure Bank? 

The number of projects that would be good candidates to 

receive a loan from a federal infrastructure bank as envisioned in recent proposals is probably limited, at least in 

the short term. In principle, such a bank could identify 

and support large-scale projects that have substantial economic benefits for which users could be charged directly, 

so only a little federal assistance would be needed to cover 

the expected costs. By encouraging such user charges, 

the bank would make the available federal funds go 

farther. In addition, a federal infrastructure bank

9. See Federal Highway Administration, Tools and Programs: Federal 

Credit Assistance Tools—State Infrastructure Banks (no date), 

www.fhwa.dot.gov/ipd/finance/tools_programs/

federal_credit_assistance/sibs/index.htm.

10. States generally must submit balanced operating budgets but may 

borrow to finance capital projects. Infrastructure banks are typically not part of that operating budget but instead are part of a 

capital budget. For additional information on states’ capital 

budgets, see Congressional Budget Office, Capital Budgeting

(May 2008), pp. 15–17.

11. For additional information on the European Investment Bank, see 

Congressional Budget Office, Issues and Options in Infrastructure 

Investment (May 2008), pp. 30–31. 

12. The other defining characteristic of a public good is that one 

person’s use of it does not interfere with another’s. Highways have 

that characteristic when they are not congested.

13. See Department of Transportation, Federal Highway Administration and Federal Transit Administration, 2010 Status of the 

Nation’s Highways, Bridges, and Transit: Conditions and Performance (no date), Exhibits 8-8 and 8-18. That report focuses on 

capital spending only. All levels of government combined spent 

about $102 billion (in 2010 dollars) on capital spending in 2007, 

the last year for which CBO has comprehensive data.
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Table 1.

Comparison of the Characteristics of Infrastructure Banks and Formula Grants

Source: Congressional Budget Office.

could centralize—and, in some people’s view, depoliticize—decisionmaking about which projects receive federal funds by creating a competitive application and 

award process for those funds. It could also overcome certain barriers to the financing of multijurisdictional or 

multimodal projects.

Volume of Suitable Projects

Over time, project sponsors might develop more proposals tailored to receive support from an infrastructure 

bank. At least initially, however, an infrastructure bank 

would probably generate neither significant new revenues 

for surface transportation nor significant new interest 

from private-sector investors, when considered as a 

share of current investment in surface transportation 

infrastructure (see Table 1). 

Number of New Large-Scale Projects. Most current highway spending is for projects too small to meet the minimum size requirements commonly proposed for an infrastructure bank. (Several proposals would set minimum 

costs at $25 million for rural projects and $100 million 

for other projects.) The majority of total nationwide capital spending on highways by all levels of government is 

not for the construction of new routes, bridges, or lanes 

but for road repair, safety improvements, or other, smaller 

projects that would typically not meet the size requirements. Among the projects involving new construction, 

relatively few projects (about 4 percent of those funded 

through the FHWA’s programs, representing about 

15 percent of the funding requested in 2007) are large 

or complex enough even to require an environmental 

impact statement.14 And the projects considered large 

enough for assistance from an infrastructure bank are 

probably a subset of those needing such a statement. 

An infrastructure bank might induce state and local governments to develop more proposals for large projects. 

However, state and local priorities for transportation 

infrastructure are influenced by factors besides a project’s 

costs, so establishing an infrastructure bank might not 

lead to many more proposals for large projects. The 

Congress also could choose to reduce the required minimum project size or make eligible for funding all projects 

for which the benefits exceed the costs by a set amount. 

However, smaller projects would generally have smaller 

benefits for the general public.

Ability of Projects to Repay Loans. Even among projects 

that are sufficiently large, most do not involve toll collections or other mechanisms for directly charging users or 

other beneficiaries. Data from the FHWA show that as of 

July 2011, more than one-half of the tolled interstates, 

bridges, and tunnels nationwide were in five heavily populated states, where the dense populations are more likely 

to be able to support tolled facilities.15 Furthermore, 

 Infrastructure Banks Formula Grants

Volume of Suitable Projects Probably small: Most projects do not meet 

minimum size requirements, do not include toll 

collections or availability payments (payments 

made by states to owners or operators of an 

asset), and can receive financing through other 

means.

Large: Projects that receive grants are broad-based 

and do not need a repayment stream.

Funding Federal and private loans are repaid using direct 

fees from end users or other dedicated taxes. 

Revenues from federal and local gasoline taxes and 

other general revenues support funding.

Project Selection The federal government uses a competitive 

process that weighs costs and benefits to select 

projects that have been proposed locally. 

State or local governments select projects under broad 

federal guidelines.

14. See William J. Mallett and Linda Luther, Accelerating Highway 

and Transit Project Delivery: Issues and Options for Congress, CRS 

Report for Congress R41947 (Congressional Research Service, 

August 3, 2011). 

15. Those states are California, Florida, New Jersey, New York, and 

Texas. See Department of Transportation, Federal Highway 

Administration, “Toll Facilities in the United States” (July 2011), 

www.fhwa.dot.gov/policyinformation/tollpage.
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current law restricts the collecting of tolls on existing 

federally funded highways.16 Lifting that restriction 

would probably increase the number of suitable projects 

and could have the added benefit, if tolls were established, of encouraging drivers to use existing road capacity more efficiently.17 Project proposals submitted to an 

infrastructure bank could dedicate specified general revenues—rather than user or beneficiary charges—as the 

source of funds to repay the loans. Such proposals would 

probably be less appealing to project evaluators at the 

bank, however, unless the Congress established an infrastructure bank whose operation differed from that envisioned in current proposals by placing less emphasis on 

generating new funds.

Availability of Other Funding. Sponsors of some projects 

that could be funded through an infrastructure bank 

might choose not to apply, because bank funds loaned at 

Treasury rates (as commonly envisioned in current 

proposals) might have too little (or no) cost advantage 

to warrant the time and uncertainty of the application 

process. The federal government already subsidizes borrowing by state and local governments by excluding 

interest received on municipal bonds from federal income 

taxes. As a result, for many years, the most creditworthy 

municipal governments could typically borrow more 

cheaply than the Treasury.18 Although the municipal 

bond market saw disruptions during the 2007–2009 

financial crisis, average municipal bond yields since 2008 

have varied from 25 basis points below to 75 basis points 

above Treasury yields (100 basis points are equal to 

1 percentage point); and in January 2012, interest rates 

on municipal bonds reached their lowest level in 

45 years.19

To the extent that projects funded by an infrastructure 

bank would otherwise have proceeded using more traditional financing, the result of creating such a bank might 

be a shift in investment sources rather than an increase in 

total investment. Of the projects that would not have 

proceeded without bank support, some might have faced 

higher interest rates elsewhere because of greater risks that 

the loans would not be repaid. Infrastructure bank loans 

to such projects would involve larger economic subsidies 

(measured as the difference between the interest rates the 

projects would have faced in the private bond market and 

the rates provided by the bank) unless the Congress 

authorized the bank to vary its lending rates according to 

each project’s risk. To increase the attractiveness to a state 

or locality of borrowing from the bank instead of issuing 

municipal bonds, the Congress could allow the bank to 

lend at below-Treasury rates. Doing so, however, would 

increase the cost of the bank’s assistance to federal taxpayers and could encourage proposals for projects that would 

not otherwise pass a cost-benefit test.

Funding

Some policymakers who are looking for additional 

sources of money for transportation projects argue that 

an infrastructure bank would “leverage” federal funds to 

induce additional funds via private-sector investment. By 

lowering the cost of borrowing, an infrastructure bank 

might induce additional private investment, but the 

amount of that investment would probably be limited by 

the fact that private-sector investors would require a rate 

of return comparable to what could be earned on other 

investments and that transportation projects for which 

such a return could be earned are probably limited.20

The projects that would attract private investors would be 

those that were able to repay loans over time using new or 

current revenues from end users. Such projects would be 

able to assign a monetary value to the benefits that they 

create by implementing some sort of pricing mechanism—like a toll—or some sort of surcharge on business 

16. Although current law generally prohibits states from installing 

tolls on existing toll-free interstates, certain exceptions exist. See 

Department of Transportation, Federal Highway Administration, 

“Road Pricing: Tolling & Pricing Programs,” www.fhwa.dot.gov/

ipd/revenue/road_pricing/tolling_pricing/. 

17. For more information on charging users for highways, see 

Congressional Budget Office, Alternative Approaches to Funding 

Highways (March 2011).

18. As authorized in Public Law 111-5, Build America Bonds also 

provide a federal subsidy for infrastructure spending. For more 

information on those bonds, see Congressional Budget Office and 

Joint Committee on Taxation, Subsidizing Infrastructure Investment with Tax-Preferred Bonds (October 2009).

19. See Robert Stone, “Where Will Muni Rates Go?,” The Bond Buyer 

(January 25, 2012).

20. For more information on the private financing of highways, see 

Congressional Budget Office, Using Public-Private Partnerships to 

Carry Out Highway Projects (January 2012). Investors could be 

both domestic and international, although evidence from Build 

America Bonds suggests that international investment would 

probably be small. For example, data in the Federal Reserve’s 

quarterly publication Flow of Funds Accounts of the United States

suggest that during 2009 and 2010, foreign purchases of Build 

America Bonds were limited and probably did not exceed $8 billion (of the $181 billion in Build America Bonds purchased).
8 INFRASTRUCTURE BANKS AND SURFACE TRANSPORTATION

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or property owners who benefit from the new construction, often called “value capture.” 

Value capture occurs when increases in the value of land 

generated by a new public investment are taxed to pay for 

that investment or for other public projects. Examples of 

value capture include taxes on the value of affected land, a 

tax increment financing district, or fees on utilities or 

developers.21 Tolls are a direct fee on the people who use a 

road, not necessarily on all of the people who benefit 

from it; by comparison, value capture refers to collecting 

from the broader group of people who benefit. In particular, value-capture techniques capture the monetary value 

of some of the benefits that accrue to property owners as 

a result of building a capital asset such as a road or a 

fixed-route transit line. 

Both tolls and value capture bring additional revenues 

from users or beneficiaries to the financing of infrastructure and provide a source of revenues against which state 

and local governments can borrow. Under current practices, though, it is difficult for private ratings agencies 

that assess the risk of debt instruments to rate projects 

that rely on value capture.22 Furthermore, collecting tolls 

could benefit the entire transportation network if toll 

rates were set above what was necessary to pay back 

debt and maintain a new asset (although using revenues 

generated by one asset to pay for another might overly 

discourage use of the tolled road) and if the additional 

funds were used to operate and maintain current infrastructure that is not tolled. 

Two examples of recent projects that use dedicated 

funding sources are the following:

 The Intercounty Connector—a new Maryland road 

connecting two major interstates in the Washington, 

D.C./Baltimore metropolitan region—is using tolls. 

That project received a loan from DOT and issued 

municipal bonds backed by the future tolls that will be 

paid by drivers who use the road. The tolls have the 

dual goals of reducing congestion through pricing that 

varies by time of day and of raising revenues to pay for 

the road. 

 Transbay Transit Center—a bus and rail hub that 

includes housing and retail development in San 

Francisco, California—is using value-capture techniques. The project received a loan from DOT that 

was backed by an incremental tax on land sold and 

developed around the transit center as well as a surcharge on sales tax revenues in the surrounding county 

and on sales of transit tickets. The incremental tax on 

revenues from land sold represents value capture, and 

the surcharges on tickets represent a form of user fee.23

In both examples, the amounts collected from end users 

or those who benefit from the new infrastructure represent new funds for transportation. Even without a federal 

infrastructure bank, both projects have already received 

federal support in the form of loans and grants. Whether 

an infrastructure bank would encourage significantly 

more such projects is unclear. 

Project Selection 

Because an infrastructure bank would most likely be 

designed to evaluate projects on the basis of their overall 

benefits and costs, it could select projects for which 

there have typically been barriers to completion, such as 

projects involving multiple modes of transportation or 

multiple government jurisdictions.24 Currently, because 

of choices made by the Congress regarding how to allocate funds among transportation projects, funding tends 

to favor projects that involve a single mode of transportation or a single jurisdiction, and more complicated 

projects can face substantial barriers to financing. An 

infrastructure bank—through a subsidy and federal 

involvement—could provide incentives for multiple 

jurisdictions to cooperate. In addition, eliminating the 

distinctions among transportation sectors when making 

funding decisions would allow funding streams to be 

unconstrained by the type of project being proposed 

(say, mass transit versus highway) and might facilitate 

connectivity in the transportation network.25

21. Tax increment financing dedicates the money from tax increases 

within a certain defined district to financing the debt that is issued 

to pay for a project. Value capture has been used primarily to 

finance rail and other urban infrastructure facilities.

22. Remarks of Michael McDermott, Senior Director, Fitch Ratings, 

at the Transportation Research Board’s 90th annual meeting, 

Washington, D.C., January 26, 2011.

23. Both the Transbay Center and the Intercounty Connector 

received TIFIA loans. Maryland is also using its authority to borrow against expected future federal payments through GARVEE 

(Grant Anticipation Revenue Vehicles) bonds. 

24. Emilia Istrate and Robert Puentes, Investing for Success: Examining 

a Federal Capital Budget and a National Infrastructure Bank,

Metropolitan Infrastructure Initiative Brief No. 7 (Washington, 

D.C.: Brookings Institution, December 2009).

25. Certain tax-exempt bonds also have such a goal. An example of a 

project that could be financed with qualified highway or surface 

freight transfer facility bonds is a facility for transferring freight 

from truck to rail or rail to truck. 
INFRASTRUCTURE BANKS AND SURFACE TRANSPORTATION 9

CBO

Another argument in favor of an infrastructure bank is 

that the involvement of the private sector in the projects 

funded by the bank might influence the behavior of the 

state or local governments sponsoring those projects in 

beneficial ways. For example, some evidence suggests that 

projects undertaken in partnership with the private sector 

can be done faster than those undertaken using conventional contracting methods, and those time savings might 

also contribute to small savings in projects’ costs.26 However, partnerships among the federal government, state 

and local governments, and the private sector also present 

challenges in determining the appropriate risks and 

responsibilities for each participant to be taking on. 

Proponents of an infrastructure bank envision an independent federal entity that would select projects on the 

basis of technical rather than political factors. Although 

establishing an infrastructure bank outside of DOT 

might change some of the forces affecting its decisionmaking or its organizational efficacy, any entity created 

and funded by the Congress would be subject to similar 

political pressures and federal administrative procedures. 

Furthermore, the distinction is irrelevant in budgetary 

terms because the bank’s activities would be recorded in 

the federal budget regardless of whether the bank was 

part of DOT, was part of another federal agency, or was 

independent. 

What Existing Options Might Meet the 

Goals of an Infrastructure Bank?

A program with many of the characteristics of an 

infrastructure bank already exists within DOT: the 

Transportation Infrastructure Finance and Innovation 

Act program. The TIFIA program provides loans, loan 

guarantees, or lines of credit to help finance complex, 

large-scale transportation projects deemed significant to 

a region or the nation. Applicants’ projects are 

weighed against those of others to determine which 

receive financing. TIFIA provides flexible repayment 

terms and potentially more favorable interest rates than 

applicants could secure in private capital markets for up 

to one-third of a project’s costs.27 As an alternative to 

establishing a federal infrastructure bank, the Congress 

could broaden the TIFIA program to achieve many of the 

same goals.

TIFIA can offer credit assistance for projects that can 

achieve an investment-grade rating and that can repay a 

loan with project-generated funds. The scope of that 

assistance could be adjusted to better support applications from municipalities that include multiple projects. 

Nevertheless, all aspects of a project would have to meet 

federal requirements to proceed under TIFIA, just as they 

would under an infrastructure bank, and only a limited 

number of projects are likely to be able to generate revenues that could be used to repay a TIFIA loan. 

Most projects receiving TIFIA loans have been able to 

leverage those loans and receive additional financing. 

Since its inception in 1998, TIFIA has received about 

$600 million in budget authority.28 That budget 

authority supported almost $8 billion in initial project 

assistance that will be repaid over time. That assistance, 

in turn, supported projects costing about $30 billion in 

total; for those projects, the private sector and state and 

local governments contributed most of the funding. 

Since 2008, the TIFIA program has received more applications for funding than it has funds available, but not all 

of those projects have been eligible for a TIFIA loan or 

ready to proceed to construction.29 In 2010, projects submitted letters of interest for about $12.5 billion worth of 

credit assistance from TIFIA. However, a letter of interest 

does not ensure that a project’s economics make it eligible for a TIFIA loan. If all of those projects were suitable,

26. For further information, see Congressional Budget Office, Using 

Public-Private Partnerships to Carry Out Highway Projects (January 

2012).

27. Another source of funding within DOT is Transportation 

Investment Generating Economic Recovery (TIGER) grants, a 

competitive program that offers grants rather than credit assistance. For more information, see Department of Transportation, 

“TIGER Grants” (no date), www.dot.gov/tiger/.

28. Budget authority is the authority provided by law to incur financial obligations that will result in immediate or future outlays of 

federal government funds. In the case of federal credit programs, 

budget authority represents the expected cost of providing loan or 

loan guarantee subsidies, as specified in the Federal Credit Reform 

Act (see Box 2). The market value of the TIFIA subsidy is higher 

than the appropriated amounts (because the budget subsidy costs 

do not reflect the market risk of the funded projects), which contributes to the high level of demand for the program. 

29. Department of Transportation, “Notice of Funding Availability 

for Applications for Credit Assistance Under the Transportation 

Infrastructure Finance and Innovation Act (TIFIA) Program; 

Clarification of TIFIA Selection Criteria; and Request for Comments on Potential Implementation of Pilot Program to Accept 

Upfront Payments for the Entire Subsidy Cost of TIFIA Credit 

Assistance,” Federal Register, vol. 74, no. 231 (December 3, 2009), 

p. 63500.
10 INFRASTRUCTURE BANKS AND SURFACE TRANSPORTATION

CBO

Figure 1.

Annual Budget Authority That Could Be Used for TIFIA Under Different Scenarios

(Millions of dollars)

Source: Congressional Budget Office.

Note: TIFIA = Transportation Infrastructure Finance and Innovation Act; Financing Commission = National Surface Transportation 

Infrastructure Financing Commission.

that volume would translate to a little less than $1.3 billion in budget authority, assuming a subsidy rate of 

10 percent. If, in contrast, only half of the projects met 

the eligibility requirements for TIFIA and were feasible, 

the Congress would need to appropriate about $600 million to meet all of the demand. In all likelihood, the 

fraction of projects meeting the eligibility requirements is 

lower, however. On the basis of its assessment of the 

demand for credit assistance, the National Surface 

Transportation Infrastructure Financing Commission 

recommended that the Congress authorize $300 million 

a year for credit assistance through TIFIA (see 

Figure 1).30

2012 Funding Funding Recommended by the

Financing Commission

Funding If Half of Projects with

Letters of Interest Were Eligible

Funding If All Projects with

Letters of Interest Were Eligible

0

200

400

600

800

1,000

1,200

1,400

30. National Surface Transportation Infrastructure Financing Commission, Paying Our Way: A New Framework for Transportation 

Finance (February 2009), p. 13. The commission also recommended expanding the TIFIA program to include grants that 

complement the loan program, for a total authorization of 

$1 billion per year.

Public Law 112-141, which is the most recent authorization 

for surface transportation programs and was approved by the 

Congress in June 2012, appropriated contract authority (a 

mandatory form of budget authority) for TIFIA in 2013 and 

2014. Those amounts totaled $750 million in contract authority 

for 2013 and $1 billion for 2014. In that law, the Congress chose 

to provide relatively more funds for TIFIA and relatively fewer 

funds for formula grant programs than it had done in the past. 

The law also included provisions that would allow DOT to make 

contingent commitments of future federal funds to certain eligible 

projects and would dedicate 10 percent of the funds for loans for 

rural infrastructure projects at an interest rate equal to one-half of 

the rate paid by the Treasury on 30-year securities.

This Congressional Budget Office (CBO) report 

was prepared in response to interest expressed by the 

Congress. In keeping with CBO’s mandate to provide 

objective, impartial analysis, the report contains no 

recommendations. Sarah Puro of CBO’s Budget 

Analysis Division wrote the report under the supervision of Peter Fontaine, Theresa Gullo, and Kim Cawley. 

Perry Beider, Jonathan Huntley, Nathan Musick, and 

Alan van der Hilst provided assistance. Bryan Grote 

of Mercator Advisors, William J. Mallett of the 

Congressional Research Service, and Robert Poole of 

the Reason Foundation offered helpful comments. The 

assistance of external reviewers implies no responsibility 

for the final product, which rests solely with CBO. 

Christine Bogusz edited the report. This report is available on the agency’s Web site (www.cbo.gov).

Douglas W. Elmendorf 

Director