Infrastructure Finance and Debt to Support Surface Transportation Investment

Source: William J. Mallett, Grant A. Driessen, Congressional Research Service, CRS Report, R43308, November 17, 2016

…..The federal government’s largest source of support for surface transportation infrastructure is the Highway Trust Fund (HTF), which is funded principally by taxes on gasoline and diesel fuel. Funds from the HTF are distributed to state governments and local transit agencies for projects meeting federal standards. State governments, local governments, and transit agencies must also contribute their own resources because grants from the HTF do not meet states’ entire surface transportation capital needs. The federal government supports additional infrastructure spending by providing a tax exclusion for owners of municipal bonds, or “munis,” issued by state and local governments. The federal government also supports project finance through loan programs, such as the Transportation Infrastructure Finance and Innovation Act (TIFIA) program and the Railroad Rehabilitation and Improvement Financing (RRIF) program, which can help leverage private investment via public-private partnerships (P3s), and through federally authorized state infrastructure banks (SIBs).

All of these financing mechanisms impact the federal budget, although none are as costly as federal grant funding. With less federal support, financing places a greater burden on state and local governments to identify revenue sources to repay loans or to provide a return to private investors. In many cases, non federal revenue to finance a project is provided by a highway or bridge toll, but it could be a pledge of future sales tax or real estate tax revenue.

There are many legislative options that Congress might consider in modifying the federal role in surface transportation financing. This report considers five:
1. Creation of a new type of bond offering federal tax credits to investors in infrastructure.
2. Changes to the TIFIA and RRIF programs.
3. Greater encouragement for P3s.
4. Creation of a national infrastructure bank to provide low-cost, long-term loans for infrastructure on flexible terms.
5. Enhancement of SIBs that already exist in many states, possibly with dedicated federal funding……