Step 3: Identify funding and financing sources available.
State/Federal Funding Options
The MYP is a comprehensive six-year plan that outlines the state’s transportation priorities and identifies specific projects that will be funded during that period. The plan includes investments in all modes of transportation, including highways, bridges, transit, and aviation. The MYP is developed by the Illinois Department of Transportation (IDOT) in consultation with local governments and other stakeholders.
Source: Multi-Year Plan
The State Funds that account for 24% of the MYP are comprised of the following sources:
- Interest income: It is unclear how much interest income was allocated by the State to the MYP.
- Motor fuel tax: The State of Illinois collected $2.52 billion in motor fuel tax revenue in FY2022. A significant portion of motor fuel tax collected by the State is transferred to the Illinois Roads and Bridges Fund, which is administered by IDOT.
- Motor vehicle registrations: The State collected approximately $1.61 billion from motor vehicle registration fees in FY2021.
- Sales tax: In FY2022 Illinois collected approximately $20.0 billion in sales and use taxes. It is unclear how much of this will be used to fund transportation related programs.
The 1962 Federal-Aid Highway Act required the formation of an MPO for all urbanized areas with a population greater than 50,000. MPO’s were established to ensure that existing and future expenditures for transportation projects and programs were based on a comprehensive, cooperative, and continuing (3-C) planning process. Federal funding for transportation projects and programs are channeled through this planning process. Illinois MPO map: IDOT_MPO_Managers.pdf (illinois.gov)
For coordination of local transportation planning in non-metropolitan areas, the Illinois DOT works with local officials in to identify, plan and fund projects through available funding sources. The Illinois DOT offers this policy: OPP-01.pdf (illinois.gov)
Source: Local Planning (illinois.gov)
The Bridge Investment Program (BIP) is a competitive discretionary grant program to improve the safety, efficiency, and reliability of the movement of people and freight by replacing, rehabilitating, preserving, and protecting bridges in the National Bridge Inventory (NBI).
The BIP authorized the following 3 types of grants:
- Planning Grants – Planning grants are available for projects in the early phases of project development, where eligible activities include planning, feasibility analysis, and revenue forecasting. The goal of these grants is to provide BIP assistance associated with the development of a project that would subsequently be eligible to apply for a Large Bridge Project grant or a Bridge Project grant.
- Large Bridge Project Grants – Large Bridge Project grants are available for bridge replacement, rehabilitation, preservation, and protection projects with total eligible costs of greater than $100 million.
- Bridge Project Grants – Bridge Project grants are available for bridge replacement, rehabilitation, preservation, and protection projects with total eligible costs of $100 million or less.
Eligible applicants for a BIP grant are (see 23 U.S.C. 124(d)):
- A State or a group of States.
- A metropolitan planning organization that serves an urbanized area with a population of over 200,000.
- A unit of local government or a group of local governments.
- A political subdivision of a State or local government.
- A special purpose district or public authority with a transportation function.
- A Federal land management agency.
- A Tribal government or a consortium of Tribal governments.
- A multistate or multijurisdictional group of entities described above.
RAISE Grant Program – In 2022, Illinois was awarded $83.5 million to support four projects in from the Rebuilding American Infrastructure with Sustainability and Equity (RAISE) program to help move forward on projects that modernize roads, bridges, transit, rail, ports, and intermodal transportation and make our transportation systems safer, more accessible, more affordable, and more sustainable.
The 2022 RAISE grants were designated for planning and capital investments that support roads, bridges, transit, rail, ports, or intermodal transportation.
Source: https://www.transportation.gov/sites/dot.gov/files/2022-08/RAISE-Illinois-2022.pdf
The Rural Surface Transportation Grant
The Rural Surface Transportation grant program funding will be made available in 2023 under the MPDG combined Notice of Funding Opportunity (NOFO) that will allow applicants to use one application to apply for up to three separate discretionary grant opportunities:
- Mega Grants: known statutorily as the National Infrastructure Project Assistance program (49 U.S.C. 6701). Minimum project cost for Mega eligibility is $100 million. Grant share may not exceed 60% of eligible project costs. Total federal assistance not to exceed 80% of total project cost.
- INFRA Grants: known statutorily as the Nationally Significant Multimodal Freight and Highway Projects program (23 U.S.C. 117) carries a maximum award limit of 60% of project cost.
- Rural Surface Transportation Grant: (23 U.S.C. 173), known under the MPDG Funding Opportunity as “Rural,” supports projects to improve and expand the surface transportation infrastructure in rural areas to increase connectivity, improve the safety and reliability of the movement of people and freight, and generate regional economic growth and improve quality of life. Rural grants may be used for up to 80% of future eligible project costs.
An eligible entity may bundle two or more similar eligible projects under the Rural program if projects are included as a bundled project in a statewide transportation improvement program (STIP) under 23 U.S.C. § 135 and will be awarded to a single contractor for construction.
Sources: https://www.transportation.gov/grants/rural-surface-transportation-grant
3-21 NOFO (transportation.gov)
The Bridge Investment Program (BIP) was established by Congress to provide funding for highway bridge replacement, rehabilitation, preservation, protection, and construction projects on public roads. BFP funding is distributed by a statutory formula based on the relative costs of replacing all highway bridges classified in poor condition in a State and the relative costs of rehabilitating all highway bridges classified in fair condition in a State.
Funds are distributed to the States by a statutory formula. The statute requires that the apportionments be adjusted so that each State receives no less than $45,000,000 each fiscal year. Additionally, 15 percent of each State’s distributed funds are set aside for use on off-system bridges.
The Bipartisan Infrastructure Law (BIL) appropriates $5,500,000,000 for the Bridge Formula Program (BFP) under the Highway Infrastructure Program for each of Fiscal Years (FY) 2022 through 2026.
According to the revised apportionment of Highway Infrastructure Program Funds for the BFP, as of 2022, Illinois was eligible for the following apportionment listed below:
| Bridge (Main) | Off-System Bridges | Total | |
|---|---|---|---|
| Illinois | 252,678,280 | 44,590,285 | 297,268,565 |
The above total is a subset of Illinois’ expected $11.3 Billion over five years in Federal Highway formula funding allotted for highways and bridges[1].
[1] It is unclear how much of the $11.3 billion over five years will be designated for highways and how much will be designated for bridges.
The Surface Transportation Block Grant program (STBG) provides flexible funding that may be used by States and localities for projects to preserve and improve the conditions and performance on any Federal-aid highway, bridge and tunnel projects on any public road, pedestrian and bicycle infrastructure, and transit capital projects, including intercity bus terminals.
National Highway Performance Program (NHPP) is the largest of the Federal-aid highway formula programs (56% of the apportioned program), with annual authorizations averaging over $23 billion. The program provides funding for improvement of the condition and performance of the NHS.
Section 1106 of the FAST Act provided additional flexibility under the NHPP, extending eligibility to bridges that are on Federal-aid highways, by adding language allowing States to use NHPP funds to pay for reconstruction, resurfacing, restoration, rehabilitation, or preservation of bridges not on the NHS, as long as the bridge is on a Federal-aid highway.
- Soft Match – Federal law also permits the non-Federal share of a project’s cost to be met through a “soft match.” Two sources of soft match are toll credits (23 U.S.C. 120(j)) and the Program for Bridges Not on Federal-Aid Highways (23 U.S.C. 144(m)). By using a soft match on a Federal- aid project, the Federal share can effectively be increased to 100%.
- Tapered Match – Tapered match (23 U.S.C. 121; 23 U.S.C. 133) allows a project’s Federal share to vary from payment to payment to reach the project’s maximum authorized share. Under this scenario, states can spend the Federal share at the start of a project and apply the matching funds as the project nears completion.
- Advance Construction – Through FHWA, States can pursue an advance construction (AC) designation, which reserves the right for the State to seek full or partial reimbursement of the Federal share of project costs at a later date when the required obligational authority associated with the obligation of Federal-aid contract authority funding is available.
- Partial conversion of advance construction (PCAC) – PCAC is a modified approach that allows the State to receive staged reimbursement for the Federal share of project costs to meet cash flow requirements.
- PCAC is used in conjunction with GARVEE bonds when Federal funds are obligated for debt-service payments over a period of time.
Direct User Fees (Tolls) – Tolling involves the imposition of per-use fees on motorists to utilize a highway. The revenue generated by toll collection may be used to pay for highway operations and maintenance and, in many cases, as the primary source of repayment for long-term debt used to finance the toll facility itself.
According to Illinois Tollway Chairman and CEO, Willard Evans, Jr., “In 2022, we will reinvest nearly 72 percent of the $1.49 billion in revenue we collect in support of the roads, bridges and infrastructure that serve our customers.”
While traditionally prohibited on federal highways, tolling has recently been introduced into the federal highway program for certain projects. Tolling is permitted for new highways, additional lanes on existing highways, non-Interstate reconstruction, and reconstruction or replacement of bridges, among other options. In addition, the U.S. Department of Transportation operates pilot programs to toll reconstructed highways and implement congestion pricing programs. The region could benefit from expanded participation in these pilot programs.
Regions across the country have pursued multiple value capture mechanisms for transit and road projects. Mechanisms available within Illinois include:
- Tax Increment Financing (TIF)
- Special Service Areas (SSAs)
- Business Direct Taxes (BDs)
Sources: https://www.ilga.gov/reports/ReportsSubmitted/3258RSGAEmail6358RSGAAttachIllinois%20Tollway%202022.pdf
https://www.cmap.illinois.gov/updates/all/-/asset_publisher/UIMfSLnFfMB6/content/innovative-user-based-revenue-options-must-be-part-of-region-s-transportation-funding-solution
Federal Financing Options
The TIFIA financing option is open to state governments, state infrastructure banks, local governments and special authorities. This program provides these organizations loans, loan guarantees, or lines of credit to finance surface transportation projects.
TIFIA’s Rural Project Initiative (RPI) is aimed at helping improve transportation infrastructure in America’s rural communities.
Under this initiative, if you are in a qualified rural area and have an eligible surface transportation project between $10 million and $100 million in cost, this option can offer some significant savings over traditional TIFIA loans and other commercial financing products, including:
- Higher Maximum: Loans for up to 49% of the project’s eligible costs (compared to 33 percent under traditional TIFIA).
- Fixed interest rates equal to one half of the U.S. Treasury rate of equivalent maturity of the loan at the time of closing (traditional TIFIA loans have interest rates equal to the U.S. Treasury rate at the time of closing).
- No Fees: The Bureau pays advisor fees (while funds last).
- Project Size between $10-75 million: Rural=outside of a Census-defined urbanized area with a population of 150,000 or more.
TIFIA financing is often used in conjunction with other Federal grant and other funding programs. The maximum allowable Federal share (funding and financing) of project costs is 80%.
Sources: Illinois Exploring Bridge Bundling Webinar 3: Federal Financing for Bridge Bundling
https://www.transportation.gov/buildamerica/financing/tifia/tifia-rural-project-initiative-rpi
The RRIF financing option provides loans and loan guarantees to finance railroad and intermodal equipment and infrastructure that result in the public benefit.
There is no minimum project or loan size and up to 100% of eligible projects costs can be funded. Additionally, the loans allow for flexible amortization.
RFIF Loan Terms:
• No minimum project size or loan request
• Up to 100% of eligible project costs can be funded
• Funds drawn as needed
• Flexible amortization
• No pre-payment penalty
• Low interest rates
• Limited waiver of RRIF nonsubordination requirement under certain conditions
Sources:
Illinois Exploring Bridge Bundling Webinar 3: Federal Financing for Bridge Bundling
https://ilsoy.org/wp-content/uploads/2022/12/News-Letter-Bridge-Bundling-October-2020.pdf
The best starting point to learn more about RRIF and the process to apply for RRIF would be the Build America Bureau.
The USDA provides community facilities direct loans as a financing option in rural areas with no more than 20,000 residents according to the U.S. Census Data.
The loans are available to public bodies, special purpose districts, community based non-profit corporations. These loans can be used for several essential facilities including transportation. The funds can be used to purchase, construct, and/or improve essential community facilities, purchase equipment and pay related project costs.
The loan’s interest rates are fixed once approved and must be replayed within 40 years or no longer than the useful life of the facility, whichever is less.
GARVEE bonds (Grant Anticipation Revenue Vehicles) are bonds issued in anticipation of a specific revenue source that will pay the debt service on the bonds. In the case of a bridge bundling program, the specific revenue source for a GARVEE bond issuance would be a federal-aid grant. Specifically, GARVEEs are issued in anticipation of Title 23 Federal-aid funding. Title 23 federal aid can backstop different debt instruments, such as notes, certificate, mortgages or leases, but they are most commonly used in conjunction with bonds. Title 23 funding is intended to cover interest payments, retirement of principal, and any other costs incidental to the sale of GARVEE debt. GARVEEs are advantageous as they can accelerate construction timelines and spread a transportation facility’s cost over its useful life.
To be eligible for GARVEEs, a project must meet the following characteristics, as defined by Section 122 of Title 23:
- There is a justification for borrowing as opposed to pay-as-you-go grant funding, where the costs of delays incurred by the pay-as-you-go model exceed the costs of financing
- The project does not have access to a revenue stream (i.e. local taxes or tolls) or other forms of repayment, such as state appropriations. This is crucial as many small, rural bridges included in a bundle will not generate revenue streams.
- The State DOT or other project sponsor is willing to allocate a certain portion of future Federal-aid highway funds to satisfy debt service requirements.
How to apply for GARVEE bonds: The first step is to submit the project to the responsible FHWA Division Office for approval as an advance construction (AC) project.
A Section 129 loan allows Federal participation in a state loan to support projects with a dedicated revenue stream, including tolls, excise taxes, sales taxes, real property taxes, motor vehicle taxes, incremental property taxes, and others. With Section 129 loans, states can negotiate an interest rate and other specific loan terms. When the Federal government repays the loan, the state is required to use those funds for a Title 23 eligible project or credit enhancement activities, such as the purchase of insurance or a capital reserve to improve credit market access.
States may make Section 129 loans to public or private entities, either for a toll project that is eligible for Federal-aid funding, or a non-toll highway project that has a dedicated revenue stream. Once a project has been determined as eligible, the Federal-aid loan can be for any amount, but is typically made up to the maximum Federal share of 80%. The eligible project costs include costs of engineering, right-of-way acquisition, and construction at the time FHWA authorizes the loan (i.e. loan proceeds cannot be used retroactively for prior construction costs). Loans must be repaid to the state beginning within five years of final completion and the date the project opens to traffic. The loan must be fully repaid within 30 years after the date Federal funds were authorized for the loan.
How to apply for a Section 129 loan: The first step is to identify a candidate project and a project sponsor (a project sponsor could be a city, county, or group of cities and counties) that could benefit from public assistance through a Section 129 loan. The next step would be to determine the amount to be committed to the loan, and the source of Federal-aid highway funding to be committed to the loan.
PABs are debt instruments that are issued through a conduit issuer on behalf of a private entity for highway and freight transfer projects. PABs allow the private entities that develop and deliver Public Private Partnerships (P3s) to benefit from the tax-exemption associated with traditional municipal bonds. As PABs provide a valuable tax-exemption, the amount of PABs that can be issued is capped at $30 billion. This was increased from $15 billion with the passage of the Infrastructure Investment and Jobs Act which was signed into law in November 2021.
PABs have been used as a financing source for bridge bundling projects. Both PennDOT’s Major Bridge Initiative and Rapid Bridge Replacement (RBR) program utilized PABs as part of their financing packages, with total bond proceeds accounting for approximately $1.76 billion and $721.5 million, respectively.
Starting point for PABs: The best starting point to learn more about PABs and the process to apply for PABs would be the Build America Bureau.
More information on federal financing tools and the process to apply for them can be found here: Center for Innovative Finance Support