Could a State Infrastructure Bank Finance Transit in MO?

dollar-sign-wallpaper-7Citizens for Modern Transit’s study of possible funding mechanisms for transit is underway. Study results will be available in July 2015.   In its continued exploration of transit financing options for the region, should State Infrastructure Bank financing be considered?

In 1995, State Infrastructure Banks (SIB) were piloted by the Federal Government in 10 states.    Through the enactment of the National Highway System Designation Act (NHS Act), states were allowed to use a portion of federal-aid transportation funds to seed money for banks.  The program was expanded to 39 states in 1997.  Congress has made a few changes over the years and SIB funding approaches have evolved, but SIBs are still employed to fund infrastructure projects around the country.

SIBs are revolving loan funds providing assistance to public and private entities for eligible transportation improvements.  Like private banks, SIBs use seed capital to provide loans and credit assistance to project sponsors.  In many cases, the seed capital has been provided by the federal government and augmented by state and private monies.  Loans are then repaid with interest that is then used to finance other projects.

The benefits of SIB loans can include flexible terms, interest rates at or below market value, short-term construction or long-term debt financing, or to subordinate other loans.  SIB credit enhancements can include capital reserves, letters of credit, lines of credit, bond insurance, and loan guarantees.

Between 1995 and 2008, 33 SIBs have financed 579 projects totaling $5.56 billion of investment.  Pennsylvania completed most SIB project agreements, but South Carolina, Arizona, Florida, Texas, and Ohio make up approximately 90 percent of all agreements by their loan amounts.

The Federal Government reviewed SIBs in 2002 and concluded that SIBs offer flexible project financing, accelerated completion of projects, recycling of funds, increased state/or local investment, and enhanced private investment and economic development activities.  They also found that SIBs can assist high priority projects, provide cash flow financing, can quickly address emergency or disaster repairs, can contribute to multimodal development and historic preservation, and can boost community development.

To date, a low percentage of SIB funds have gone toward transit projects, but T4America cites the reason for low transit use of SIB funds to be inadequate outreach to transit agencies, and few projects with dedicated loan repayment sources.  They go on to suggest that successful SIBs should have enough capital to provide loans on a regular basis, should achieve the priorities of the entire transportation system, and should evaluate a project’s ability to achieve strong returns on investment and provide best outcomes.

With all that said, a report by the AASHTO Center for Excellence shows that Missouri is one of the states with a SIB that contributed to that $5.56 billion dollar amount cited above.  According to their overview in 2008, Missouri had 28 agreements on the books, had committed $164,399, and had disbursed $87,959.

If you’d like to read more about SIB’s, the following resources are great places to start:

  • “State Infrastructure Banks”by AASHTO Center for Excellence.  Found on the world wide web at: http://www.transportation-finance.org/funding_financing/financing/credit_assistance/state_infrastructure_banks.aspx.
  • “State Infrastructure Bank Review,” by the Federal Highway Administration.  Found on the world wide web at http://www.fhwa.dot.gov/ipd/pdfs/finance/sib_complete.pdf.
  • “Missouri Transportation Finance Corporation Eligible Projects and Activities” by MODOT.  Found on the world wide web at: http://www.modot.org/partnershipdevelopment/documents/MTFCEligbleProjects.pdf.

The source for this summary article is “State Infrastructure Banks: Innovative Financing at the State Level,” in Capital Ideas, Raising Money for Transportation Through Innovative State Legislation a report by Transportation for America.