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T O O L S A N D T E C H N I Q U E S T O D E L I V E R M O R E P R O J E C T S FA S T E R 41 Grant Anticipation Mechanisms Success in Using Federal Flexible Finance Move into the Mainstream Programs: A Policy Focus Wendy Franklin Denise Jackson Speaking to the topic of grant-backed debt mechanisms, Speaking to the subject of federal flexible funding pro- Wendy Franklin described grant anticipation revenue vehi- visions, Denise Jackson described their use in Michigan, cles (GARVEEs) as having entered the mainstream. The which was initiated in 1994 with the TE-045 program. high ratings that recent issues have received and an agency's The relevant provisions include tapering, flexible ability to borrow on a long-term basis (across authoriza- match, phased funding, advance construction and par- tions) indicate the market's comfort level with these bor- tial conversion of advance construction, toll credits, rowings. Franklin described how 11 states have issued over and the SIB program. $6 billion in GARVEE debt financings, with the bulk of the Giving a little history on transportation funding in ratings in the AA category. These ratings reflect "double Michigan, Jackson described the upcoming transition barrel" security (i.e., a second revenue source for backstop from a long-term governor and a relatively stable politi- repayment) and conservative leveraging. cal climate to a new governor. She described how in the early 1990s then-Governor John Engler wanted to improve the transportation system with the ultimate goal Role of State Infrastructure Banks in of improving the overall economy. The state did not, Advancing State and Local Projects: however, want to raise transportation costs, so set out to What More Can Be Done? streamline the Michigan Department of Transportation (MDOT) administration and use the state's borrowing Thomas McPherson capacity to obtain funds at relatively low rates. Jackson described MDOT's programmatic strategy Thomas McPherson addressed the role of state infra- as being the prioritization of preconstruction activities structure banks (SIBs) in advancing state and local proj- so that the agency has projects that are ready to go ects. Describing the Ohio SIB, McPherson discussed the when funding becomes available. By borrowing funds, importance of having a variety of revenue sources to the state could go a bit ahead with projects before the facilitate a multimodal SIB. The Ohio SIB has benefited statelocal match was available. from $40 million in general revenue funds. The program MDOT developed a 5-year capital program that the has had one default--from a private-sector borrower. public and industry look forward to each year. The pro- McPherson described the goal of the program as gram focuses on managing investments and communi- attracting local revenues to transportation. Job creation cating to the public what will be done during the has been a secondary benefit but not a primary focus. specified time period. The department is committed to When a project does not score high enough for direct accelerating program delivery and improving customer grant funding, then the department looks to the viability relations. It recognized the need to communicate to of a SIB loan. contractors that by borrowing into future funding (i.e., Offering examples of success, McPherson noted that continuing to use future funds for debt service rather the SIB has developed a tremendous amount of good than new projects), smaller programs would result in will through speedy loan closings and by providing an later years. This communication allowed contractors to alternative when the department is unable to provide plan their businesses and to consider impacts on the grant funding. He described a $1,500 loan to a small construction industry and the workforce. community to improve traffic signals. While the com- munity was hoping for grant funding, being offered a loan was a better alternative than simply being told no Discussion to the request. McPherson described the state's wish list for reautho- John Horsley rization: The discussion period focused on the reasons that states Federal legislation that makes SIBs available to all have been slow to use the available tools, including a states, lack of understanding and problems with underlying Revisions to the payout provisions, and legitimacy of the techniques. Consent for SIB capitalization to be used for inter- In addition, during the discussion period, McPherson modal projects. noted that innovative finance should not be treated as "a