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RESOURCE PAPER Institutional Framework for Innovative Transportation Finance James T. Taylor II, Bear, Stearns & Co., Inc. O ne of the purposes of this resource paper is to complement and enhance existing federal grant reim- stimulate discussion of the long-term implica- bursement programs. These techniques can be grouped tions of innovative transportation finance into four basic "innovative finance" strategies: strategies. Are we creating financing mechanisms that will facilitate continued and timely investment in our Modify rules and regulations governing federal aid nation's transportation infrastructure over the next 40 to allow states to make more efficient use of existing to 50 years, or are we simply addressing our most resources, pressing short-term capital needs? As a starting point, Facilitate debt financings that leverage future the following highlights some of the new financing federal-aid reimbursements, vehicles and partnership structures developed under Encourage development of new toll facilities and the umbrella of "innovative finance" and questions other revenue-generating assets, and where they might be leading us. Provide state and federal credit assistance to The second half of the paper examines certain insti- sponsors of eligible projects. tutional factors that may have influenced the types of financing approaches taken to date or that could inhibit further innovation. By acknowledging and addressing Innovative Management of Federal Funds some of the tensions within and among the key players, transportation policy makers may be able to craft more What Is This Strategy Intended to Accomplish? effective strategies for fostering collaboration and increasing the overall level of transportation investment. The federal government has traditionally supported the financing of the nation's highway network by providing grants to reimburse state governments for a portion of IMPLICATIONS OF KEY FINANCING INITIATIVES the funds they spend on certain types of projects. This basic approach was established in federal legislation In the late 1980s, with the Interstate highway system enacted between 1912 and 1922 and reaffirmed in the essentially completed, the focus of federal surface trans- landmark legislation that created the Highway Trust portation policy shifted from expanding the nation's Fund in 1956. Over the years, a complex set of rules highway network to developing a more efficient and regulations governing the distribution of the federal national transportation system with improved linkages aid has been established to provide for an equitable between highways, rail, transit, ports, and airports. apportionment of the funds among the states, to ensure This broader mandate has been coupled with a con- accountability, and to direct or encourage certain certed effort to develop new financing techniques to expenditures desired by Congress. 75