Transportation Project Financing: Get Creative with Loans and Revenue Generation

Posted 07/10/13 by Kevin Mills in Policy

In 2012, the US Congress adopted a new bill to govern surface transportation programs through September 2014. That bill, referred to now as MAP-21, provides opportunities for creative communities to develop good networks of trails and active transportation facilities.

But the new bill came with some significant changes, and transportation planners and advocates are still coming to grips with exactly what the new bill means for local efforts to build and maintain active transportation systems such as trails, sidewalks and bike paths.

Rails-to-Trails Conservancy (RTC) is leading the effort to provide education and resources related to MAP-21. In this blog series, we demonstrate how communities can leverage the programs funded by MAP-21.

In our fourth post of this series, we examine innovative financing programs. The most popular MAP-21 programs provide reimbursable funds. A state or local transportation agency conceives, plans, develops and constructs a project. Then the US Department of Transportation reimburses the agency for a portion of the incurred costs. There is another set of programs through which the US Department of Transportation provides loans, on favorable terms, which are re-paid using dedicated revenues. 

Case Study: U.S. Route 36 is the major highway between Denver and Boulder. 36 Commuting Solutions is a unique collaboration of advocacy organizations, private investors and government agencies that are developing what may be the first "complete highway." The corridor will have single-occupancy vehicle lanes, HOT, bus rapid transit and a bike path. The U.S. 36 collaborating agencies were able to combine grants, loans and private funding to ensure that the 18-mile long bikeway will open in record time.

Why would a local department of transportation want a loan instead of a grant? As the coalition in Colorado determined, a loan can be larger than a grant. It can also come with more flexible conditions and fewer restrictions. Using a loan for revenue-generating projects can free up reimbursable funds for other projects.

How can a trail or other active transportation project benefit from a loan? A trail itself will rarely generate any revenue to pay back a loan. But it may be an essential component of a larger project that generates revenue. For example, it could be along a transit line supported by dedicated taxes and fares, as in the case of the U.S. 36 projects.

Case Study: The Chicago riverfront is being redeveloped with a trail thanks to innovative loan financing. Every day, hundreds of boats ply the Chicago River, and the City of Chicago takes in a lot of money from boat landing fees and taxes. Now, the city is dedicating those taxes as collateral for a loan from the U.S. Department of Transportation (USDOT). This will allow the city to construct a riverwalk with trail connections from commuter rail stations to Chicago's downtown loop, and on to the Lakefront Trail. The large cost of this project would have made grant funding unlikely strategy. But the long-term, low-interest loan from USDOT means the project will be completed in only a few years.

USDOT provides loans in several programs. Grant Anticipation Revenue Vehicles (GARVEE) bonds allow recipients to use future anticipated federal grants as collateral for loans. The Section 129 Program allows sponsors to establish revolving loan funds. Transportation Infrastructure Finance and Innovation Act (TIFIA) provides secured loans, loan guarantees and lines of credit for a wide range of transportation projects.

You can learn more about innovative finance at this section of the Federal Highway Administration website. As the Denver and Chicago stories demonstrate, innovative finance tools, combined with grants, can allow for the development of complete systems of trails and active transportation corridors.

Do you have a success story involving innovative finance? Let us know. Do you need help identifying the best funding sources for your project? Get in touch with the RTC Office near you

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