In 2005, Congress established the federal State Infrastructure Bank (SIB) program for all states in SAFETEA-LU. States choosing to participate develop cooperative agreements with the Secretary of Transportation to establish revolving infrastructure funds that are capitalized with federal transportation funds. Projects eligible for funding through the SIBs include surface transportation projects across all modes that receive traditional federal funding assistance.
Currently there are two types of infrastructure banks at the state level: federally funded SIBs and state funded SIBs. Both types of SIBs create revolving infrastructure funds. While SIBs are the more common type of infrastructure bank, a national infrastructure bank (NIB) has been discussed for several years, and was recently revived as part of the President’s jobs plan. As noted by the Brookings Institution, an NIB would use a “merit-driven approach for advancing a range of infrastructure projects that have the highest return on investment and support economic growth.” Chicago has established the country’s first local infrastructure bank developed around this model.
Four states have established SIBs capitalized solely with state funds. States using federal funds provide a 20 percent local match. States also have the opportunity to contribute additional state or local funds beyond the required nonfederal match. By the end of 2008 (the last year for which full data is available), 32 states and one territory had entered into 602 SIB loan agreements with a total dollar value of $6.2 billion.
Through the SIB financing mechanism, states can leverage money for transportation projects, accelerate construction timelines, and recycle assistance for future transportation projects. SIBs can be used in conjunction with traditional financing and other innovative tools to maximize transportation investments. By offering SIB support for a project, the sponsor may be able to attract private, local, and additional state financial resources, leveraging a small amount of SIB assistance into a larger dollar investment. Alternatively, SIB capital can be used as collateral to borrow in the bond market or to establish a guaranteed reserve fund.
In addition to the leveraging potential of a SIB, the administrative function of a bank can provide technical assistance to state and local governments when issuing complex procurements or entering into multi-year construction contracts.
Infrastructure banks offer the opportunity for states and local governments to work on high-priority projects. As part of the recent effort in Chicago, a new Bus Rapid Transit line and a CTA extension with a zoned fare structure have been floated as projects. The higher fares collected as part of these projects will provide the revenue source to fuel the public/private partnerships.
It is important to note that while the financing available through infrastructure banks is important, these banks do not in themselves constitute a revenue stream. Investors purchase bonds with the assumption that they will be paid back with a return on their investments. A project paid for with a bond issue from an infrastructure bank will need to have an identified revenue stream (tolls, transit fares, parking fees, etc.) anticipated for use in paying off the bonds.
Infrastructure banks require a significant investment of staff time and expertise on the part of the agency and their private-sector partners to establish and manage the fund. It is critical that government entities complete a detailed analysis prior to implementation. The mission, vision, goals, administrative structure, project selection methods should be finalized prior to launch.
SIBs have, to date, been used primarily for highway projects. There are states that feel their SIBs are underutilized. Although this might be listed as a negative, it also presents a significant opportunity. Transit and other multimodal projects, for instance, are underrepresented. Given the growing popularity of transit across the nation, states with SIBs might work to incorporate additional multimodal projects into their SIB programs.