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SUBJECTS › TRANSPORTATION › Innovative Funding Techniques
Published 10/05

Innovative Funding Techniques

Contents

Introduction

Traditional funding for transportation projects at national, state and local levels has been through gas taxes, property taxes and motor vehicle excise taxes. At the federal level particularly, Congress has long funded transportation infrastructure through grants from the Highway Trust Fund, with revenues almost entirely from gas tax revenues.

Innovative funding techniques are alternatives to traditional, grant-based funding. Innovative finance includes such measures as new or non-traditional sources of revenue, financing mechanisms designed to leverage resources, funds management techniques, and institutional arrangements. While a number of innovative funding techniques have been developed nationwide, their use in any individual state depends on that state's enabling statutes. To use innovative transportation finance programs, state and local governments must first enact enabling legislation to the programs and govern they way in which they work. Local legislation governs implementation of federal programs as well as local funding.

The primary objectives of innovative finance are to:

  • Maximize the ability of states and other project sponsors to leverage Federal capital for needed investment in the nation's transportation system;
  • More effectively utilize existing funds;
  • Move projects into construction more quickly than under traditional financing mechanisms; and
  • Make possible major transportation investments that might not otherwise receive financing.

Innovative funding techniques tend to be geared toward projects administered by State DOTs rather than local agencies.

[Introduction based on material from AASHTO's Innovative Finance.org Web site and FHWA's Innovative Finance Primer.]

Washington State

Design-Build and General Contractor/Construction Manager (GC/CM) Statutes

    Chapter 39.10 RCW
    Currently, the Design-Build statutes apply to "every city with a population greater than seventy thousand and any public authority chartered by such city under RCW 35.21.730 through 35.21.755 and specifically authorized as provided in RCW 39.10.120(4); every county with a population greater than four hundred fifty thousand;" (RCW 39.10.051) There are no similar population limits in the GC/CM statute (RCW 39.10.061).
    [Note: In either case, projects must be over $10M in estimated cost.]

Chapter 377 (ESHB 1830), Laws of 2005 (15 KB) added this language:

    "Notwithstanding any other provision of law, and after complying with RCW 39.10.030, any city that: (1) is located in a county authorized under this chapter to use alternative public works procedures or is located in a county that is a member of the Puget Sound regional council; (2) reports in the state auditor's local government financial reporting system combined general fund, special revenue, debt service, capital projects, and enterprise funds revenues that exceed sixty million dollars; and (3) has a population greater than twenty-five thousand but less then forty-five thousand, is authorized to use the general contractor/construction manager or design-build procedure for one demonstration project valued over ten million dollars.
    All contracts authorized under this section must be entered into before March 1, 2006."

Public-Private Initiatives Act

    Public-Private Initiatives Act Overview ( 148 KB) from the Washington State Joint Transportation Committee's Transportation Resource Manual, last updated in January 2005.
    This summarizes the Public-Private Initiatives (PPI) law. RCW 47.46.010 notes that the "ability of the state to provide an efficient transportation system will be enhanced by a public-private sector program providing for private entities to undertake all or a portion of the study, planning, design, development, financing, acquisition, installation, construction or improvement, operation, and maintenance of transportation systems and facility projects. A public-private initiatives program will provide benefits to both the public and private sectors. Public-private initiatives provide a sound economic investment opportunity for the private sector. Such initiatives will provide the state with increased access to property development and project opportunities, financial and development expertise, and will supplement state transportation revenues, allowing the state to use its limited resources for other needed projects."

State Infrastructure Banks (SIBs)

    Washington State is one of a number of states that have established State Infrastructure Banks (SIBs). A SIB can provide many types of financial assistance, ranging from loans to credit enhancements. Forms of assistance may include interest subsidies, letters of credit, capital reserves for bond financing, construction loans, and purchase and lease agreements for highway and transit projects. 

Tax Increment Financing

    Tax Increment Financing (TIF) allows cities, counties and port districts to create  special districts (tax increment areas) and to make public improvements within those districts that will generate private-sector development. During the development period, the tax base is frozen at the predevelopment level. Property taxes continue to be paid, but taxes derived from increases in assessed values (the tax increment) resulting from new development either go into a special fund created to retire bonds issued to originate the development or leverage future growth in the district.

    Washington State's adopted form of TIF (Community Revitalization Financing) has a number of limitations and restrictions that make it less useful than in other states. See Tax Increment Financing (Again): 2010 "Sunset" Provision is Repealed, by Jeffrey C. Nave, Foster Pepper & Shefelman PLLC (as included in the 2003 MRSC Budget Suggestions). For more information on TIF programs nationwide visit American Association of State Highway & Transportation Officials  Innovative Finance.org Web page.

Bonds

    Bonds overview ( 292 pdf) from the Washington State Joint Transportation Committee Transportation Resource Manual, last updated in January 2005. This summarizes how state transportation bonds are authorized, sold, and repaid and a compilation of arguments for and against bond financing. Cities and counties may also sell bonds for transportation purposes; however, local bonds are not discussed in this report.

    At the State level, Washington State utilizes bond revenues for a number of purposes, among them:

    • State and Local Highways Bonds
    • Advance Highway Construction Bonds
    • Local Programs Bonds
    • Public-Private Partnership Transportation Bonds
    • Multimodal Project Bonds

General National and State Information

Provided in this section are links to two Web sites (by AASHTO and FHWA) with material applicable nationwide and to Web sites from other states that capture the 'state of the art' in innovative techniques.

American Association of State Highway & Transportation Officials (AASHTO)

Innovative Finance.org is a very comprehensive site by the American Association of State Highway & Transportation Officials (AASHTO), and provides information on almost all areas of surface transportation finance innovation. Particularly useful are links to Federal, State and Local Legislation, Revenue Sources, Finance Mechanisms, and Federal Aid Grants Leveraging. Also, the site provides a News and Innovations links page.

Federal Highway Administration (FHWA)

The Innovative Finance  Web page  links  to Federal Credit Concepts/Issues, State Infrastructure Banks, Quarterly Innovative Finance Newsletter, TE-045 Research Program, Program Guidance, and the Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA).

In addition, FHWA has put together an Innovative Finance Primer, which explains the nature of different innovations, discusses what kinds of projects are good candidates for use of innovative techniques, catalogues some of the key requirements that attach to use of the techniques, and offers a step-by-step overview of how these techniques function in practice.

Oregon State

The Oregon Office of Innovative Partnerships and Alternative Funding Program (OIPP) was created to develop transportation projects for solicitation of private sector proposals for partnership and to respond to proposals initiated by private firms and units of government. See their brochure

Oregon Road User Fee Task Force

"As well as the gas tax has served the road needs of Oregonians in the past, it will soon become a declining revenue source. The Road User Fee Task Force is charged with the duty of designing a new revenue collection system for road funding to ultimately replace the gas tax. Oregon will be well served in finding a solution to this concern before it becomes an emergency." ~ Senator Bruce Starr, Road User Fee Task Force Chair

South Carolina

Transportation Funding Series - Three reports from the Jim Self Center on the Future at Clemson University that address transportation infrastructure funding needs for South Carolina.

Virginia

Public-Private Transportation Act of 1995,  Established innovative finance mechanisms for transportation projects.

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