Evolving Debt Finance Practices for Surface Transportation (2017)

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26 chapter six ConClusions introduCtion This chapter summarizes key findings of the synthesis project, including the state of the practice for debt use for surface transportation, and identifies suggested next steps for research. Key Findings • Most states have debt outstanding for transportation purposes. • The percentage of available funds used for debt service by states, in aggregate, increased modestly during the last 10 years (as reported to FHWA). • Although the total percentage of resources used for debt service increased, the percentage of available funds used for debt service varies across states. • In most states, provisions in state constitutions or statutes govern the level of debt issuance and the manner in which debt is issued, including the revenues that may be used for repayment. • In addition to compliance with statutory or constructional requirements and bond covenants, many states have developed formal policies to further govern debt issuance and management. ConCluding Comments—HigHligHted PraCtiCes and Future researCH needs Learning from states’ experiences is valuable, particularly those with a long history of using debt management tools. However, each state operates within its own legal and institutional frameworks and faces its own financial challenges, which means specific practices may not be transferrable. Recognizing these limits, states responding to the survey offer some broadly applicable practices: • Establish a dedicated fund from which to pay debt service. • Seek flexibility in the enactment of new revenues to facilitate debt service repayment. • Improve capital program planning to incorporate consideration of a full range of funding and financing options. • Identify optimal projects for bond proceeds and consider suitability before issuing bonds to meet state match requirements. • Recognize public–private partnership (P3) financing arrangements in debt policies and reporting practices. Areas highlighted as suitable for additional cooperative research include: • State department of transportation (DOT) approaches to managing debt affordability and other debt management policies (see Appendix D: Proposed Research Needs Statement). • Advance construction and its relationship to debt financings. • Role of Grant Anticipation Revenue Vehicles (GARVEEs) in financing transportation investments. • Institutional capacity building for transportation agency debt management. • Incorporating debt financing into transportation planning processes. • Decision-making processes related to selection of funding and financing options for transportation investments. • Emerging opportunities for revenues.

27 Over time and specifically since publication of the previous synthesis report on this topic, states have become better versed in the role that debt and related tools can play. The increase in the number of states with debt programs, the complexity of these programs in terms of the range of debt mechanisms used, and the total level of debt are noteworthy. However, it is important to consider these changes in the context of the overall scale of state transportation programs and the increasing demands of pay-as- you-go funding for federal and state projects, along with the age of transportation infrastructure and need for new capacity and renewal. The advent of increasingly flexible finance tools, including those offered by or facilitated by the federal government, has been an important development in the last decade. However, these alternative finance mechanisms remain niche tools relative to the significantly greater scope played by conventional debt mechanisms in surface transportation.