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Lessons learned from the FHWA State Infrastructure Bank (SIB) program, 1995 to 2016

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Lessons learned from the FHWA State Infrastructure Bank (SIB) program, 1995 to 2016

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Content UNIVERSITY OF SOUTHERN CALIFORNIA
Los Angeles, California
LESSONS LEARNED FROM THE FHWA STATE INFRASTRUCTURE BANK (SIB)
PROGRAM, 1995 TO 2016
Dissertation Submitted in Fulfillment of the
Requirements for the Degree
Doctor of Policy, Planning and Development
Stephen M. Hubbard
Sol Price School of Public Policy
Committee Members:
Juliet Musso, Ph.D., Chair Price School
Michael Thom, Ph.D., Price School
James Moore, Ph.D., Viterbi School of Engineering
August, 2017
i

ABSTRACT
This study assesses the implementation and operation of the FHWA State Infrastructure Bank
program (SIB) created by Congress in 1995 with the goals of providing flexible funding, reducing
costs, increasing state contributions, and attracting private funding (PPPs). The program was
modeled after the Environmental Protection Agency's highly successful Clean Water State Revolving
Fund (CWSRF) program. Established in 1987, a 1997 study found that the CWSRF had saved $6.2
billion on a total outlay of $20.1 billion in just ten years. In 1998, the SIB program was expanded
from 10 pilot states to 39 states, yet just one year later, the head J.P. Morgan testified before
Congress that the SIB banks "seem to be going nowhere," and the innovation had not…done very
well.”
A mixed methods approach was used to determine what caused the SIB program to
underperform the CWSRF. Yin’s qualitative Structured Case Analysis was combined with semi-
structured interviews of Congressional staff, FHWA Staff, state SIB staff, and industry professionals
to develop a historical narrative for each responding bank. The interviews were combined with
quantitative analysis of SIB financial data to find what factors were associated with varying levels of
bank activity.
The results were then assessed to determine what lessons could be learned to improve the
FHWA SIB program, state-level infrastructure banks, infrastructure funding and the legislative
process in general. Because the proposed budgets of these programs run from tens to potentially
hundreds of billions of dollars, improvements could have a significant impact on employment, the
nation’s competitiveness and its ability to solve problems more efficiently.
The research found that the SIB program underperformed due to (a), inadequate planning and
execution by Congress which led to fundamental flaws being incorporated into the initial legislation,
(b) inadequate administrative procedures at the FHWA which led to insufficient resources to
implement and administer the program, (c) undercapitalization by Congress due to battles over
devolution and the Davis-Bacon Act, and (d) failures of the legislative process (cycle) which
prevented Congress to learn of or address the program’s flaws over its 22 year history.

ii
ACKNOWLEDGEMENTS
I would like to thank all of those who contributed to this research, especially the
administrative staff at the FHWA and the state department of transportations who agreed to
repeated interviews. They also patiently explained to me the intricacies of transportation funding
and the FHWA State Infrastructure Bank program. I would also like to thank my thesis panel of
Dr. Moore, Dr. Thom and the Chair Dr. Musso, who endured early drafts so rough they
challenged the magnitude and size of the Himalayas. Finally, I would like to thank both the USC
Sol Price School of Public Policy and the Viterbi School of Engineering which provided the
instruction that enabled me to conduct this research.
iii

TABLE OF CONTENTS
ABSTRACT ................................................................................................................................................... i
ACKNOWLEDGEMENTS .......................................................................................................................... ii
TABLE OF CONTENTS ............................................................................................................................. iii
LIST OF FIGURES ...................................................................................................................................... v
LIST OF TABLES ....................................................................................................................................... vi
ABBREVIATIONS, ACRONYMS AND DEFINITIONS ....................................................................... viii
1 CHAPTER I - INTRODUCTION ......................................................................................................... 1
1.1 U.S. Infrastructure Funding and Financing ................................................................................... 1
1.2 Challenges to Infrastructure Funding ............................................................................................ 3
1.3 Addressing the Perceived Funding Shortage .............................................................................. 12
1.4 Infrastructure Bank Cost Reduction Mechanisms ....................................................................... 13
1.5 Research Policy Context ............................................................................................................. 17
1.6 Research Question and Research Importance ............................................................................. 19
2 CHAPTER II - SIB PROGRAM OVERVIEW .................................................................................. 21
2.1 SIB Creation and Management Structure ................................................................................... 24
2.2 The SIB Program Design, Implementation and Stakeholder Goals ............................................ 26
3 CHAPTER III - APPROACH AND METHODOLOGY ................................................................... 32
3.1 Approach ..................................................................................................................................... 32
3.2 Selecting Candidate Banks.......................................................................................................... 37
3.3 The Case Interview Process ........................................................................................................ 40
3.4 SIB Evaluation Criteria and Methodology .................................................................................. 42
3.5 Methodology Strengths and Limitations ..................................................................................... 43
3.6 Ethical Considerations and Human Subjects .............................................................................. 44
4 CHAPTER IV - THE SIB PROGRAM ORIGIN AND EVOLUTION .............................................. 45
4.1 The SIB Program Start & NHS ACT, 1990-1995....................................................................... 50
4.2 The Transportation Appropriation Act of 1997 .......................................................................... 56
4.3 Transportation Equity Act for the 21st Century (TEA-21), 1998-2004 ...................................... 59
iv
4.4 Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users
(SAFETEA-LU), 2005 – 2011 ............................................................................................................... 63
4.5 Moving Ahead for Progress in the 21st Century Act, (MAP-21) 2012 - 2014 ........................... 65
4.6 Fixing America’s Surface Transportation Act (FAST), 2015 ..................................................... 66
4.7 Conclusions ................................................................................................................................. 66
5 CHAPTER V - ANALYTICAL FINDINGS ...................................................................................... 68
5.1 SIB Status.................................................................................................................................... 68
5.2 FHWA SIB and EPA CWSRF Comparison ............................................................................... 72
5.3 Major Factors Affecting the SIB Program .................................................................................. 75
5.4 SIB Stakeholder Expectation Evaluation .................................................................................... 85
5.5 Summary: SIB Program Root Cause Assessment ...................................................................... 98
6 CHAPTER VI - CONCLUSIONS AND LESSONS LEARNE ....................................................... 107
6.1 SIB Specific Issues ................................................................................................................... 108
6.2 FHWA Administrative Issues ................................................................................................... 113
6.3 SIB Program Goals ................................................................................................................... 115
6.4 Research Topics ........................................................................................................................ 118
6.5 Summary ................................................................................................................................... 121
APPENDIX A - INSTITUTIONAL REVIEW BOARD (IRB) EXEMPTION ....................................... 123
APPENDIX B - RESEARCH SOURCES ................................................................................................ 125
APPENDIX C - INITIAL 1997 SIB CAPITALIZATION ....................................................................... 126
APPENDIX D - FEDERAL CREDIT ASSISTANCE TOOLS: SIB PRIMER ....................................... 127
APPENDIX E - PUBLIC LAND OWNERSHIP ..................................................................................... 145
APPENDIX F - NATIONAL ROAD AND BRIDGE STATE DOT DEFICIT ....................................... 146
APPENDIX G - DETERMINING THE ACTUAL US INFRASTRUCTURE DEFICIT ....................... 148
APPENDIX H - SECTION 129 LOANS ................................................................................................. 149
APPENDIX I - SOFTWARE ANALYSIS TOOLS ................................................................................. 150
BIBLIOGRAPHY ..................................................................................................................................... 151
FOOTNOTES ........................................................................................................................................... 165
v
LIST OF FIGURES
Figure 1. Total Non-defense Public Investment as a Share of the GDP 1953 to 2013. .................. 3
Figure 2. Hours spent in congestion per person .............................................................................. 4
Figure 3. Motor fuel tax revenue, adjusted for weight-based vehicle damage, inflation and lane-
miles, 1970 – 2014. ......................................................................................................................... 6
Figure 4. Relative rates of inflation of construction costs vs. the CPI............................................ 8
Figure 5. Austerity vs. Deferred Maintenance ................................................................................ 9
Figure 6. Increase in pavement repair costs .................................................................................... 9
Figure 7. International Roughness Index (IRI) of urban roads. .................................................... 10
Figure 8. California statewide pavement condition index ............................................................ 11
Figure 9. SIB Capitalization vs. Agreements and Activity ........................................................... 18
Figure 10. SIB Financial Schematic ............................................................................................. 23
Figure 11. SIB Organization and Accounts .................................................................................. 25
Figure 12. The SIB Federal-State Legislative Cycle. ................................................................... 28
Figure 13. SIB Program Cycle ..................................................................................................... 29
Figure 14. Case Study Procedure with Adaptive Learning.......................................................... 35
Figure 15. US DOT 1995 Expenditures ........................................................................................ 47
Figure 16. Historical Federal Transportation Grants, 1947-2015. ................................................ 48
Figure 17. Public Works Spending as a percentage of GNP. ....................................................... 48
Figure 18. Total state and local government Revenue ................................................................. 64
Figure 19. Arizona revenue from select transportation taxes for FY 2004 to 2014. .................. 64
Figure 20. SIB Capitalization and Total Loans Distributed ........................................................ 71
Figure 21. Use of FHWA capitalization by account. ................................................................... 72
Figure 22. ACAP allocation schedule .......................................................................................... 82
Figure 23. Top 20 reasons startups fail ...................................................................................... 101
vi

LIST OF TABLES
Table 1. SIB financing features. ................................................................................................... 22
Table 2. Key Stakeholder Groups in the FHWA SIB program. ................................................... 29
Table 3. Factors that can affect the SIB program’s performance. ............................................... 33
Table 4. Candidate Reasons the SIB Under Performance. .......................................................... 33
Table 5. FHWA SIB Information Sources ................................................................................... 34
Table 6. Yin’s Case Study Steps with Adaptive Learning........................................................... 35
Table 7. 1996 GAO Study States ................................................................................................. 36
Table 8. Research interview subjects ........................................................................................... 36
Table 9. FHWA SIBs ................................................................................................................... 38
Table 10. The Case Interview Process ......................................................................................... 40
Table 11. State Characteristics Data ............................................................................................. 41
Table 12. Types of revolving fund financing programs and institutions. ..................................... 45
Table 13. EPA CWSRF Main Features ........................................................................................ 49
Table 14. SIB Program Features per Transportation Act ............................................................. 51
Table 15. State SIB Financing Tool [Method] Preference ........................................................... 54
Table 16. Expected SIB Benefits .................................................................................................. 54
Table 17. Likely SIB Repayment Revenue Sources ..................................................................... 55
Table 18. Factors Diminishing Interest in the SIB Pilot Program ................................................ 55
Table 19. Factors Associated with Active SIBs ........................................................................... 62
Table 20. SIB Impediments ......................................................................................................... 62
Table 21. Brookings Institute SIB Recommendations ................................................................. 65
Table 22. FHWA SIB Financial Status ........................................................................................ 69
Table 23. EPA CWSRF vs. FHWA SIB comparison .................................................................. 73
Table 24. Leveraged SRF and SIB Banks ................................................................................... 74
vii

Table 25. State Legislature Control vs. SIB Participation ............................................................ 77
Table 26. Leverage SIBs ($M)...................................................................................................... 80
Table 27. Proposed Pilot Program Projects ................................................................................. 94
Table 28. Summary of SIB Program Stakeholder Expectations and Results ............................. 97
Table 29. SIB Diminishing Factors from GAO 1996 Report ...................................................... 99
Table 30. Questions for SIB state administrators ...................................................................... 123
Table 31. Literature Review Sources .......................................................................................... 125
Table 32. SIB Bank Capitalization ............................................................................................ 126
Table 33. Public land ownership ................................................................................................ 145
Table 34. State Road and Bridge Deficits (Funding Shortfalls) ................................................ 146
Table 35. Actual U.S. Infrastructure Deficit ............................................................................... 148

viii

ABBREVIATIONS, ACRONYMS AND DEFINITIONS
Item Definition
ACAP Advance Capitalization. A provision (Section 350(g)(1)) in the 1995 NHS Act
U.S. DOT Appropriations Act that stated: “Federal disbursements shall be at a
rate consistent with historic rates for the Federal-aid highway program and the
Federal Transit program, respectively.” This limited the amount a state could
actually receive from the FHWA to capitalize their bank to the “traditional”
FHWA sliding 9 year scale, under which they would receive a portion of the
funds with the following percentages each year: (y1) 15%, (y2) 53%, (y3) 16%,
(y4) 5%, (y5) 3%, (y6) 3%, (y7) 2%, (y8) 2%, and (y9) 1%. This was replaced
by TEA-21 in 1998 with a straight 20% per year for 5 years.
Allocation Funds to be given to an agency for the given fiscal year.
AZDOT Arizona Department of Transportation. See https://www.azdot.gov.
Bank-year Used to determine the relative differences between the FHWA SIB and EPA
CWSRF annual bank capitalization. For example, 3 banks running for 4.5 years
= 13.5 bank-years. Dividing total capitalization by the bank-years over the same
period produces normalized values, enabling the capitalization rates to be
compared between the SIB and CWSRF programs.
BEA Bureau of Economic Analysis
BLM Bureau of Land Management
BTS Bureau of Transportation Statistics
Census U.S. Census Bureau
CIFA “The Council of Infrastructure Financing Authorities is the national
organization of state, regional, and local entities working for needed
environmental infrastructure funding from governments and capital
markets, and for effective use of these financial resources.” (CIFA, 2017)
Conventional
Wisdom
A body of ideas, stories and explanations that are generally accepted as fact by
experts in a given field and the public at large. Analysis or events may reveal that
the conventional wisdom is actually wrong. The phrase has been attributed to
John Kenneth Galbraith in his book The Affluent Society (1958).
CRS Congressional Research Service
CWA Clean Water Act: Originally enacted in 1948 as the Federal Water Pollution
Control Act, it was significantly reorganized and expanded in 1972. It
ix

Item Definition
established the basic regulatory structure for managing pollutants discharged in
the U.S. and for setting surface waters quality standards. (U.S. EPA, 2017)
DBOM The phases of infrastructure construction and operation: design, build,
operate, and maintain.
Deficient Bridge An FHWA classification indicating that the bridge suffers from major structural
deficiencies and when left open to traffic, “typically requires significant
maintenance and repair to remain in service and eventual rehabilitation or
replacement to address deficiencies.” They may also require weight restrictions.
Devolution Devolution or de-federalization is the process of moving powers and/or funding
from the federal government to the states or regional governments.
DM Deferred Maintenance. Maintenance spending that has been delayed (deferred) to
reduce costs. In reality, DM usually increases total life cycle costs by 2 to 4% or
more per year.
DOE U.S. Department of Energy
State DOT Department of Transportation at the state level.
US DOT U.S. Department of Transportation
EPA Environmental Protection Agency (U.S.)
Farebox Recovery
Ratio
When applied to public transit, it is the amount of revenue from the farebox
(passenger revenue), divided by the systems operational cost. For example, if a
system’s passenger revenue is $57 million and its total operational cost is $100
million, its farebox recovery ratio is 57%.
FHWA Federal Highway Administration (U.S.)
FRED Federal Reserve Economic Data, part of the U.S. Federal Reserve.
Fixed guideway Refers to systems that use rails to guide the passenger vehicles (rail cars).
FTE Full-time Equivalent. The labor produced by one person, working full-time for
one year. Typically estimated at 2080 hours per year, excluding sick leave and
vacations.
FY Fiscal Year. The fiscal year for the U.S. federal government runs from October 1
through September 30
th
of the succeeding year. Thus FY1997 started on October
1
st
, 1996 and ended September 30
th
, 1997.
x

Item Definition
GAN Grant Anticipation Notes: Transit agencies can “…borrow against future
Federal-aid funds (Federal Transit Administration Title 49 grants) that are
allocated by formula (Section 5307) or by project (Section 5309). They are
known as Grant Anticipation Notes (GANs), but are not officially termed
GARVEEs because they utilize Federal-aid funding under Title 49, not Title 23,
and do not include debt-related financing costs such as interest and issuance
costs.” (FHWA, 2014b). Note: In Colorado, known as Transportation Revenue
Anticipation Notes (TRANs).
GAO General Accounting Office
Gap funding In transportation infrastructure, gap funding refers to the funds necessary to
complete a project, or the last amount needed to fund a project completely.
GDP Gross Domestic Product. Based on production within the border of the U.S.
GIS Geographical Information System. GIS tie tabular data to geographic regions on
maps, enabling the creation of thematic maps (map colors and symbols represent
values) and area-based analysis. This helps the viewer recognize patterns that
would not have been readily apparent by looking at the tabular data.
GNP Gross National Product. Based on production by U.S. owned means, regardless
of where they are located.
GPO Government Printing Office
Grant Funds given with no requirement for future repayment.
IB Infrastructure Bank. A bank that retains loan repayments for use as future loans.
Similar or identical to SRF, LRF, RLF, and SIB.
IRI International Roughness Index. A measure of road roughness that, while
not a true measure of road condition, can be used as a proxy for it. The
advantage of the IRI is that it can be measured at driving speeds, were as
the more accurate Pavement Condition Index requires a slowly moving
vehicle with potentially additional assessments by experts on foot. See
https://www.fhwa.dot.gov/policyinformation/hpms.cfm.
Lane mile The length of one mile of road, one lane wide. Thus, 2 miles of freeway 6 lanes
wide is 12 lane miles. Used to accurately reflect the length and area of
pavement, rather than just the centerline length of a one or more lane road. In
2014 in the U.S., there were roughly 2.11 lanes per mile of road.
Life Cycle When applied to transportation, the time period that includes all phases of an
asset’s life (road section, bridge, drainage culvert, direction sign, etc.), including
design, build, operate, maintain, and disposal.
xi

Item Definition
LRF Loan Revolving Fund. Similar or identical to an IB, SIB or SRF. Loan
repayments are retained for future loans. The U.S. Department of Energy refers
to their revolving loan banks as LRFs.
MSRB Municipal Securities Rulemaking Board – Author’s investor protection rules for
the U.S. municipal securities market. See www.msrb.org
NCSL National Conference of State Legislators
NEPA The National Environmental Policy Act is a 1970 environmental law that
established the President's Council on Environmental Quality (CEQ), and that
promotes the improvement of the environmental.
Opportunity Cost
(OC)
The difference between the net benefit of how funds are planned to be spent and
the best alternative use. OC = Planned use benefit - Alternative use.
Obligation/
Obligated funds
An obligation is a legal commitment: the Federal government’s promise to pay a
State for the Federal share of a project’s eligible cost. This commitment occurs
when FHWA approves the project and executes the project agreement. (FHWA,
1997a, p. 23)
PAYGO Pay-As-You-Go or pay-as-you-go. In government, a philosophy that rejects
borrowing to pay for expenses because it increases costs by raising interest rates,
which causing inflation. A responsible government should save anticipate and save
for future expenses. There are five pure U.S. PAYGO states: Iowa, Nebraska,
South Dakota, Tennessee, and Wyoming while Missouri considers its self a near-
PAYGO state.
PCI Pavement Condition Index. A value used to measure pavement condition. It
ranges from 100 for perfect/new pavement to 20 and below (to 0) for failed
pavement that must be completely replaced, including the substrate.
PPPs Public-Private Partnership. A private firm/company/entity takes over a portion of
the Design, Build, Operate and Maintain (DBOM) process. PPP definitions vary
at both the federal and state level. Some states only use the term if the private
entity invests cash up-front in the project with the expectation of making a profit
over the long-term, while others classify projects as a PPP if a private firm is
involved in any part of the DBOM cycle.
Rent-seeking The practice of manipulating government institutions and policy for self-
enrichment while providing little to no benefit to the society that provided the
funds.
RIIB Rhode Island Infrastructure Bank.
xii

Item Definition
RITA Office of the Assistant Secretary for Research and Technology (OST-R). Part of
the U.S. DOT.
RLF Revolving Loan Fund. Similar or identical to an IB, SIB or SRF. Loan
repayments are retained for future loans.
Rural vs. Urban
region definition
The Census Bureau identifies two types of urban areas:
• Urbanized Areas (UAs) of 50,000 or more people;
• Urban Clusters (UCs) of at least 2,500 and less than 50,000 people.
"Rural" encompasses all population, housing, and territory not included within
urban areas. (U.S. Census Bureau)
Project
Acceleration
The term used to describe reducing the time required for the Design and Build
portion of a transportation project.
Root Cause
Analysis (RCA)
Root Cause Analysis is a structured and regimented approach to determining the
underlying cause of failures. It is generally used on complex systems, including
those that involve human interaction, decisions, policies and regulatory
environments.
SIB State Infrastructure Bank. In this document, SIB is used to identify the FHWA
SIB that receives funds from the FHWA. In literature, SIB is also used to
identify a state-funded infrastructure bank. See State-SIB. The US DOT defines
a SIB as:
“an infrastructure investment fund established to facilitate and encourage
investment in eligible transportation infrastructure projects sponsored by
public and/or private entities.” (Federal Register, 1995)
State
Characteristics
Data
A term used in this research for data from various government agencies that
quantifies an attribute of the state, such as whether it’s a liberal, moderate or
conservative state, uses PAYGO for managing finances, or the amount of fuel tax
collected per lane-mile of the State Highway System.
SFIB State Funded Infrastructure Bank. A “State Infrastructure Bank” that uses non-
federal funds and thus can fund state and local projects, free of federal
transportation regulations.
SLGS State and Local Government Series securities. “SLGS are special purpose
securities with terms from 15 days to 40 years that the Department of the
Treasury issues to state and local government entities, upon request by those
entities, to assist them in complying with federal tax laws and Internal Revenue
Service arbitrage regulations when they have cash proceeds to invest from their
issuance of tax-exempt bonds. There is no statutory or other requirement for the
Treasury Department to issue SLGS, so the Treasury may suspend the sale of
SLGS as the debt subject to limit approaches the debt limit.” – (Treasury Direct,
2017)
xiii

Item Definition
Stagflation Economic conditions where high unemployment and inflation occur with low
demand for goods and slow economic growth.
State-SIB A state-only infrastructure bank that operates at the state level. See SFIB.
SRF State Revolving Fund. In this document, SRF is used to refer to the EPA’s SRF
program.
Title 23 The section of the U.S. Code (laws) that govern the U.S. highway system.
Title 49 The section of the U.S. Code (laws) that govern transportation. Sections of code
specifically govern public transit and rail (fixed guideways).
Transit vs.
Transportation
In general, Transit is used to refer to publicly supported public transportation,
such as buses, rail and mobility vehicles. Transportation is used to refer to the
roads, bridges and their associated facilities that carry non-rail vehicles.
Transportation
Highway Bills
Surface Transportation and Uniform Relocation Assistance Act, 1987
Intermodal Surface Transportation Efficiency Act (ISTEA), 1991
The National Highway System Designation Act (NHS), 1995-1997
Transportation Equity Act for the 21st Century (TEA-21), 1998-2003
Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for
Users (SAFETEA-LU), 2005-2001
Moving Ahead for Progress in the 21st Century Act, (MAP-21) 2012
Fixing America’s Surface Transportation Act (FAST), 2015 – present.
VMT Vehicle Miles Traveled. The total number of miles traveled by all motor
vehicles. The value is based strictly on miles traveled and is not weighted by the
wear caused by the vehicle (Ex: Trucks vs. passenger cars).

1
CHAPTER I
INTRODUCTION
At the time of this writing, the Trump administration has called for the expenditure of $1
trillion on infrastructure over the next ten years (2017-2026) with a focus on Public-Private
Partnerships (PPPs). Additionally, infrastructure banks have been frequently mentioned by
legislators of both political parties as a way to reduce costs and attract private investment. To
inform potential means of implementing infrastructure investment, this professional dissertation
will examine the results from the U.S. Federal Highway Department’s (FHWA) State
Infrastructure Bank (SIB) program which was designed to bridge the perceived
1
transportation
funding gap by attracting non-federal and private investment (PPPs). It is hoped that the lessons
learned from the investigation can be used to improve (a) the existing SIB program, (b) the
design and implementation of new infrastructure bank programs such as the often proposed
National Infrastructure Bank (NIB), (e) infrastructure funding in general, and (d) the legislative
process as applied to infrastructure programs.
1.1 U.S. Infrastructure Funding and Financing
A series of studies and reports were published in the mid-1980’s that called into question
whether the U.S. was spending enough on its infrastructure to provide a foundation for economic
growth. They all cited a growing funding gap or “crisis.” First, the National Council on Public
Works Improvement 1987 report “Fragile Foundations,” found that existing U.S. infrastructure
could not “…support a stable and growing economy...” (NCPWI, 1988). Then, a Conservative-
led committee from the 1990 National Governor’s Association (NGA) acknowledged that the
cost of fixing U.S. transportation infrastructure ranged from $1 to $3 trillion
i
over 20 years.
2

i
All economic values in this research are expressed in U.S. dollars.
2

The NGA report was followed by a 1993 U.S Department of Transportation (USDOT) report
that it needed 40% more per year ($16 billion) just to maintain (but not improve) the federal
system’s condition and performance (GAO 1996). Finally, in 1998 the American Society of
Civil Engineers began a series of quadrennial reports called the “US Infrastructure Report Card”
giving roads a D-, bridges a C- and the country an overall grade of “D,” with a funding shortfall
(deficit) of $1.3 trillion (ASCE, 1998). Most recently, the ASCE 2013 report card showed little
improvement with the overall grade rising to just D+ but the shortfall expanding to $1.6 trillion
over 2013 to 2020.
A number of groups have disagreed with this assessment, charging that the reports were
biased, the result of rent-seeking government agencies and engineers, and used both statically
and comparative evidence to make their case. Newman (2013) cited a global study that ranked
U.S. infrastructure as 14th out of the world’s top industrial nations (Schwab & Sala-i-Martín,
2012) as evidence that the U.S. could not have a “D” class infrastructure. Suderman (2013),
cited a 2012 Reason Foundation study (Hartgen, Fields, & Jose, 2013) which showed multiple
performance metrics improving over the twenty year period 1989 to 2008 as proof that there was
no “Infrastructure crisis” and no additional funds were needed.
Gregory (2013), compared US infrastructure and transportation spending in other
countries as a percentage of GDP. He pointed out that the European Union (EU), which has an
acknowledged transportation capacity surplus, spends just 3.1% of its GDP on infrastructure,
while the U.S. spends 3.3%. He too concluded there was no infrastructure funding gap or crisis.
However, in his comparison, Gregory did not take depreciation into account (Figure 1 shows
U.S. infrastructure investment as a percentage of the GDP.) When depreciation is included, net
U.S. infrastructure investment had dropped to a 60 year low by 2013.
3
The percentage of GDP
3

spent on infrastructure is also an uncertain indicator because it does not include such factors as
the size of the country, the condition of the infrastructure in-place, or the system’s operational
practices.
4

Figure 1. Total Non-defense Public Investment as a Share of the GDP 1953 to 2013.
Source: (Lysy, 2014)

To understand why groups continue to cite the existence of a perceived infrastructure
funding gap or deficit and what tools could be used to address a funding shortfall, it is useful to
consider the challenges to adequately fund infrastructure.
1.2 Challenges to Infrastructure Funding
The perception that transportation infrastructure is underfunded is due to a number of
issues and a series of events that have combined to reduce funding while applying a majority of
the funds to urban regions. While the magnitude of a few items such as deferred maintenance
4

can be estimated, the cumulative impacts of the rest are too interdependent to isolate with the
available data. They are listed below in semi-chronological order.
Urbanization of the U.S. population caused a shift in funding
The dramatic shift of U.S.
population from predominantly rural in
1900 (60%) to majority urban in 1980
(73%), caused a majority of
transportation funds to be spent on
increasing capacity in urban centers to
relieve congestion. Between 2004 and
2008, states spent 57% of their funds on
new construction to add just 1.3%
additional capacity while the remaining
43% was used for maintenance on 98.7% of all roads. Despite this focus, delays nearly tripled in
urban regions from 1982 to 2014 costing commuters over $138 billion in 2013 (Lomax et al.,
2014). The urban focus displeased rural Congressmen, were 75% of the roads are located, who
were then not inclined to vote for additional motor fuel taxes (Miller, 2015).
1970’s oil price shocks
The 1973 Arab Oil Embargo and the 1979 Iranian Revolution more than tripled oil prices
and increased heavy construction costs by 2.3 times in just ten years (ENR, 2015). The impact
of these events on infrastructure funding can be seen in Figure 1, where the net investment falls
below depreciation in 1973 and never recovers. The resulting recession, inflation and

Figure 2. Hours spent in congestion per person
Values are for 101 largest urban regions in U.S.
Sources: U.S. Census, (Lomax, Schrank, & Eisele, 2014)
70.0%
72.0%
74.0%
76.0%
78.0%
80.0%
82.0%
84.0%
-
5
10
15
20
25
30
35
40
45
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Hrs. Congestion Per Person
Hrs. in traffic per driver
Per City Resident
US Population - Percent Urban
5

unemployment (Stagflation) and the subsequent failure of Keynesian economics to solve it
helped bring about the Conservative Revolution.
Devolution, Austerity and the Role of the Federal Government
Buoyed by rural support, the “Conservative Revolution” took the 1980 presidential
election in a landslide and replaced Roosevelt’s New Deal “the government should help” policies
with the philosophy that the size of government, especially the federal government, should be
dramatically reduced. Critics of the federal transportation funding system complained that it was
slow, wasteful and unequitable. They also reasoned that the federal motor fuel tax should be
reduced or eliminated when the federal highway system was completed in 1991.
5
Using a
philosophy called Devolution (Poole, 2006), the states would then fund their portions of the
system without federal assistance. This philosophy has caused conservatives to block any
increase in the federal gasoline tax since it was set at 18.4¢ in 1991 with several consequences
(ITEP, 2015). Adjusted for inflation, the revenue is only worth 10.2¢ (66%) in 2017, which
leaves rural states with small tax bases financially strapped. Opponents have also prevented
states from increasing their motor fuel taxes (API, 2017). At the same time, the road network has
expanded while traffic, especially heavy trucks, has increased. A fully loaded 80,000 lb. 18-
wheeler tractor-trailer creates roughly 9,600 times more wear than a standard passenger car.
6

When the total tax revenue is corrected for inflation, road wear and the increased system size
(lane-miles), the revenue per vehicle-mile traveled (VMT) collects only 27¢ for every dollar that
was collected in 1991 (red line, Figure 3). Put another way; the 1991, 18.4¢ tax is only worth 5¢
in 2017. Most recently, a 2015 Center For American Progress (CAP) study found that 61% of
U.S. roads operate at a loss or just break even, a situation that will worsen as fuel economy
increases and plug-in electrical vehicles become commonplace (MnDOT, 2009).
6

Figure 3. Motor fuel tax revenue, adjusted for weight-based vehicle damage, inflation and
lane-miles, 1970 – 2014.
Source: FHWA data.
Notes: The discontinuity in 2005 is due to a change in DOT record keeping.
IA = Indexed for Inflation, VMT = Vehicle-miles traveled, VMT Auto equivalents = Vehicle-miles were
adjusted so their road wear is expressed in passenger vehicle-miles (Ex: one 80,000 lb. truck mile produces
the same road damage as 9,600 passenger vehicles traveling over the same mile.) The discontinuity in 2005
is due to changes in FHWA vehicle classifications.
Increased inequality in transportation systems between the “have” and “have-not” states
As a result of devolution and the reduced fuel tax revenue described above, states now
shoulder approximately 75% of transportation costs (Pew, 2015), which makes it harder for
predominantly rural states with low population density to maintain their transportation
infrastructure or repay loans (bonds). Devolution threatens to trap rural regions in a cycle of
continual decline, where businesses leave for states with better roads and relocating companies
look elsewhere too, continually reducing the state’s tax base.
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Millions (Inflation Adj. Revenue (2016)
Total Revenue (IA)
Total Revenue / VMT (Auto Equivalents)
Vehicle Miles Traveled (Auto Equivalents)
Passenger Equivalent MTV (Millions)
7

Special interest groups delay projects, increasing their costs
Special interest groups discovered they could delay projects in the courts for years using
what are termed “veto points” (Morrison, 2015), dramatically increasing costs and pressure on
already tight budgets. As an example, the Century Freeway in Los Angeles was tied up in
litigation for 25 years, during which time its costs rose almost tenfold from $250 million to $2.2
billion (Reinhold, 1993).
Infrastructure construction cost increases outpace inflation
In addition to the challenges of increased usage and tax opposition, it is important to note
that infrastructure has become more expensive to produce. Figure 6 compares the historical rates
of inflation given by three widely used indices: (a) the Consumer Price Index (CPI), (b) ENR’s
Building Cost Index (BCI) and, (c) the ENR Construction Cost Index (CCI) (ENR, 2016). The
BCI and CCI are more indicative of the relative cost of transportation construction than the CPI
because they incorporate labor, energy and material costs in ratios used during construction. In
2016, the BCI was 2.5 times more, and the CCI was 4.7 times more than the CPI over the period
starting in 1915. Because wages generally follow the CPI over time, this indicates that
transportation construction costs have risen faster than government revenues over the same
period, making it far harder for municipal agencies to keep their infrastructure in good repair.
8

The 2008 Subprime collapse created record municipal debt
The 2008 subprime mortgage collapse caused the Great Recession as total federal and
state revenue fell by 30% (Chantrill, 2017), precipitating a 24% decline in total U.S. investment
(Pew, 2015)
7
while pushing municipal government debt to a record $3.8 trillion.
8
This left most
municipal organizations with little additional capacity to take on more debt to finance
infrastructure.
Austerity economics and short-term “Savings” vs. larger long-term losses
The logic of austerity economics is simple. During an economic downturn, cutting government
spending, and thereby taxes, spurs economic growth and therefore, always produces a long-term
“savings.” Unfortunately, this perception is based on incomplete accounting when applied to
infrastructure (Blyth, 2013). As shown in Figure 5, there is only a short period when deferring

Figure 4. Relative rates of inflation of construction costs vs. the CPI.
The ENR construction cost indexes increase faster than the Consumer Price Index (CPI).
Source: (FRED, 2017a), (ENR, 2016).
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
ENR Construction Cost Index
ENR Building Construction Index
FRED Historical CPI
9

maintenance (DM) on a new asset can potentially produce a net savings by not buying bonds to
finance maintenance
9
(yellow/shaded region below the green dotted line). In virtually all other
cases, austerity increases total life cycle costs (losses) by reducing asset performance, increasing
transportation costs,
10
increasing total long-term costs (life cycle), shortening operating life, or
all four.
11
Because most agencies do not have the ability to calculate future losses based on
current expenditures, elected officials can tout their reduction of wasteful government spending.
The larger losses do not appear until years later as increased pavement maintenance expense or a
shortened bridge lifespan which are rarely linked to the earlier budget cuts.
Figure 6 shows physically how the losses due to DM can occur. Pavement Condition
Index (PCI) is used to rate roads and ranges from 100 for new pavement, down to 20 and under
for failed roads. When maintenance is deferred, repair costs can increase by a factor of 5 in just
two years as the PCI drops from 60 to 20. Pavement with a PCI under 20 must be completely
replaced, costing 6 to 10 times more than the deferred maintenance “savings”. Pavement

Figure 5. Austerity vs. Deferred Maintenance
A stylized representation of cost increases over time.
Austerity savings can only occur in the yellow region.
An asset “fails” when its maintenance cost exceeds its
replacement value. Source: Author

Figure 6. Increase in pavement repair costs
Note: Cost can increase 5 fold in just 2 years.
Source: (Proctor, 2012, p. 9)
Relative Repair Cost
Years
Asset Failure
Austerity Savings (4.5%)
Reinforced Concrete
Asphalt
HVAC/Buildings
Potential Savings
Period
30-50
15
10

managers recognize this and when faced with insufficient funds, only maintain critical portions
of their system and those still in savable condition, while leaving the rest to decline. The effect
of rapid deterioration is compounded by the 16 states that require voter super-majorities to
approve tax increases (Tax Policy Center, 2013). By the time voters “feel” through driving that
the roads really need fixing, their repair costs have increased by a factor of 6 to 10 times.
The effects of austerity can be
seen in several ways. At the national
level, the FHWA annually measures the
International Road Roughness (IRI)
12
as
a proxy for road condition. In a properly
maintained road system, the amount of
rough road (increasing IRI) should follow
the black dashed line and decline after the
system’s average which is “60 - 94” in
this case. However, in systems were there are insufficient funds, the amount of road in the
poorest condition increases, as shown by the FHWA’s data (Figure 7).

This indicates that
highway pavement managers, faced with a $85.9 billion backlog (FHWA, 2013a), allowed some
roads to decline so they could maintain the heavily used sections.

Figure 7. International Roughness Index (IRI) of
urban roads.
Source: FHWA IRI data.
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
< 60 60-94 95-119 120-144 145-170 171-194 195-220 > 220
Urban Road IRI
Decreasing road quality
11

Figure 8. California statewide pavement condition index
Source: (NCE, 2016, p. ES-2)

California serves as an example of austerity’s long-term damage at the state level. Its
motor fuel tax has remained frozen for several long periods of time, including 19 years at 7¢
(1964 to 1982) where it’s buying power fell by 70%, and 17 years at 18¢ (1994 to 2010) where it
fell by another 30%. In 2008, a consortium of California cities, counties and other municipal
agencies created “Save California Streets” (SCS, 2016) which combined the data from over 200
pavement management systems responsible for 80% of the state’s roads, to produce an analytical
system that can predict the increase (or decrease) of future costs, based on current pavement
conditions and projected spending. Their 2016 report found that the pavement in 52 of 58
counties is either at risk or in poor condition (Figure 8). Additionally, they found that if no new
funds were acquired, 25% of the state’s roads would be in poor to failed condition by 2026
(NCE, 2016) and the current road and bridge backlog would balloon from $39 to $60 billion.
This is the result of decades of underfunding maintenance.
12

When the initial results from SCS were first presented in 2008, they were met with
disbelief. However, after four additional reports and analytical verification, the results could not
be ignored, and in April of 2017, the California legislature voted to increase the state’s motor
fuel tax for the first time in 23 years raising an additional $5.3 billion per year (McGreevy,
2017).
Summary of perceived transportation infrastructure underfunding causes

In summary:
1. The conversion of the U.S. from an agrarian/rural to an industrial/urban economy
required more transportation funds to be spent in urban rather than rural regions, causing
disgruntled rural legislators to refuse increasing motor fuel taxes.
2. The Arab Oil Embargo and the Iranian Revolution dramatically increased oil and
therefore construction costs while creating a recession, putting pressure on reduced
budgets.
3. Devolution and austerity economics froze federal and many state motor fuel tax rates, as
inflation and increased vehicle wear (truck traffic) reduced the revenue value to just 27%
of the 1991 amount.
4. The Great Recession led to a $3.8 trillion record municipal debt and austerity economics
reduced capital and maintenance spending, creating a large backlog (deficit).
1.3 Addressing the Perceived Funding Shortage
As can be seen in the above examples, delaying funding can dramatically increase total
life cycle and utilization costs due to (a) increasing construction costs due to inflation, (b)
increased maintenance backlog (deferred maintenance), (c) shortened asset lifetime, (d)
efficiency and utilization losses (congestion, inadequate capacity, etc.), and (e) vehicle damage.
13

In the absence of additional funding, and faced with tens to hundreds of billions in funding
deficits, the FHWA has created a variety of mechanisms that give states greater flexibility in how
they can use current and anticipated funds, including the state infrastructure bank (SIB) program.
Members of both U.S. political parties and numerous policy analysts have proposed creating a
National Infrastructure Bank (NIB) to help fund infrastructure and create jobs (J. Davis, 2016b).
This begs the question, why the continued interest in infrastructure banks? The answer lies in
the infrastructure bank’s ability to support a wide range of financial options to bridge fund
shortages, support PPPs and especially reduce funding delays.
1.4 Infrastructure Bank Cost Reduction Mechanisms
Infrastructure banks can reduce costs in three main ways:
1. Reduce the costs associated with borrowing, including interest rates, issuance cost, and
risk management (insurance),
2. Reduce total life cycle costs associated with the design, build, operate, and maintain,
cycle (DBOM), and
3. Provide a net benefit to society faster than would normally have occurred.
As shown above in Figure 6, pavement repair costs can increase by a factor of 6 - 10 in
just 2 years (deferred maintenance loss increase of 500% per year). By selling bonds at 2% to
4.5% per year interest, an infrastructure bank can increase their capital (leverage) by up to 6
times or more (Ryu, 2006), enabling them to fund more programs rapidly
i
, avoiding project
inflation and DM losses. An example of this is South Carolina’s Transportation Infrastructure
Bank $5 billion “27 in 7” program (FHWA, 2008a). The SCTIB sold bonds to build 200 projects

i
Also termed Project Acceleration or Accelerated Project by the FHWA.
14

over 7 rather than 27 years. This saved $380 million to $1.2 billion in construction cost inflation
alone (FHWA, 2008a).
Expressed mathematically, the following must be true for an IB to reduce costs:
Equation 1
∑
Time

IB/SRF/SIB
Financial
Aid Cost
<
∑
Time

(

Avoided Construction Inflation +
Avoided Deferred Maintenance +
Avoided Vehicle Damage +
Avoided Transportation Losses +
Social Benefits - Waste - Opportunity cost
)

Where (all values are expressed in U.S. dollars):
• Financial Aid Cost” is all of the primary, secondary and downstream costs associated
with delivering the aid,
• Construction inflation is the increased construction cost due to inflation over time,
• Deferred maintenance is the increased cost of repairing accelerating deterioration,
• Vehicle damage is the cost of repair due to under-maintained roads (potholes, etc.),
• Transportation losses are increased transportation costs due to system inefficiency,
• Social Benefits are the benefits society derives from a more efficient transportation
system such as increased access, increased mobility, safety, etc.,
• Opportunity cost is the difference between the net benefit provided by the selected
transportation project(s) and the net benefits of the next best use of funds spent on
transportation. The more complex issue of assessing the funds next best use in any
portion of the economy is ignored as it is assumed the dollars are dedicated to
transportation, and
• All items on both sides of the equation are appropriately discounted over time.
Simplifying Equation 1:
15

Equation 2
∑
Time

IB/SRF/SIB
Financial
Aid Cost
<
∑
Time

(

(Avoided Costs + Benefits) –
(Waste + Opportunity Cost)
)

For example, if an infrastructure bank sold bonds (leverage) and then offered a below-market
rate loan that was more expensive than a non-financed Pay-As-You-Go (PAYGO) alternative,
then the IB would increase, rather than decrease total costs. However, if the funds were not
available and the IB reduced total life cycle costs through rapid funding, then the IB would
produce a net-savings. With these restrictions in mind, Infrastructure Banks can reduce costs
using any combination of the following financing methods:
1. Leveraging funds: By selling bonds (issuing debt), IBs can increase their capital
(leverage) by up to six or more times (Ryu, 2006). This allows them to fund a larger
number of projects using the mechanisms below, including reducing future costs (avoided
costs) as outlined above. It should be noted that IBs don’t have to sell bonds to use the
additional mechanisms descried below. In the case of the FHWA SIB program, it was
left up to each state to decide if they used leverage. It should also be noted that non-
leveraged banks generally produce a lower net benefit because the capital is reduced by
inflation over time. This reduces their ability to undercut market interest rates (See No. 4
below). In a 2008 study of 74,901 loans valued at $105.8 billion, the EPA Environmental
Financial Advisory Board (EFAB) found that leveraged SRF programs were able to offer
more assistance while retaining the bank’s capital (EFAB, 2008).
2. Avoiding constitutional state debt limits: SIBs that are not covered by state’s debt
issuance laws (Snell, 2004) can issue debt without incurring legislative delays. This
enables them to reduce costs if the conditions of Equation 2 are met.
16

3. Recycling repayments into future loans: IBs can retain loan repayments for future
reuse. Once capitalized, an IB can continue making loans while growing its capital.
However, because the (weighted) average infrastructure bond term is 18 years
13
, growth
can be very slow compared with the need. Therefore, some IBs only make short-term
loans (2 to 6 years) to increase capital growth while reducing long-term risk.
4. Providing below-market rate loans: Because IB’s are non-profit, they can offer interest
rates at 1.5% or more below the municipal bond market (Yusuf, O’Connell, Hackbart, &
Liu, 2010). However, by doing so, they reduce their future capital and loan capacity. As
a result, some banks are subsidized so they continue to offer low or no cost loans.
5. Reducing costs by distributing risk: IBs can act like bond banks and reduce borrowing
costs by spreading the risk across multiple borrowers. This is especially important for
small borrowers who may be from economically depressed areas (e.g., inner city and
rural regions) with lower credit ratings. This can reduce their interest rates by as much as
2% to 4% below the bond market (CIFA, 1997).
6. Providing flexible terms and financial support: IBs can provide partial or full funding,
and loan support such as insurance, credit lines, grants, loan guarantees, and using
transportation assets as bond collateral. This enables them to obtain more favorable loan
terms than they could without the IB’s support (FHWA, 1998a).
7. Attracting non-governmental capital: Besides issuing debt, IBs can also reduce costs
by attracting non-governmental capital by funding Private-Public Partnerships (PPPs). In
PPPs
14
, a private company or partnership takes over the project and performs some or all
of the Design, Build, Operate and Maintain (DBOM) steps (CBO, 2012). They are
practical when the PPP’s total cost (including profit) is less than the public agency’s
17

estimated costs for the same services. Frequently, the savings are achieved by reducing
regulatory requirements, labor costs, construction time and operating expense.
8. Accelerated funding:
15
Providing rapid funding (FHWA – Project Acceleration)
reduces the losses associated with a delayed project. This includes construction inflation,
which grows at an average 2.1% to 4.7% per year
16
; deferring maintenance which
increases at 2.5% to 4.7% or more per year
17
; and deferring the project’s transportation
benefit. An example of loss from a delayed transportation benefit is congestion, which
cost drivers $71 billion in 1995 (BTS, 2013).
1.5 Research Policy Context
President Trump has called for a $1 trillion investment in U.S. infrastructure over ten
years using both Public-Private Partnerships (PPPs) and potentially the creation of a National
Infrastructure Bank (NIB) (Levitz, 2016). As a result, it is an opportune time to review the
FHWA’s State Infrastructure Bank program (SIB)
i
which was implemented with much publicity
in 1995 to reduce costs and expand the capital pool by attracting private investment using PPPs.
It was modeled after the Environmental Protection Agency’s (EPA) highly successful Clean
Water State Revolving Fund program (CWSRF) which was established in 1987. By 1995, it had
funded 3,510 projects worth a total of $14.3 billion ($4.1 million/project) on just $11 billion of
federal aid (EPA CWSRF, 2016). A later independent review found it had saved $6.2 billion on
a total outlay of $20.1billion in just ten years (CIFA, 1998).

i
Unless otherwise noted; SIB will denote the FHWA federally funded State Infrastructure Bank Program throughout
this document. The State-SIB or SFIB will be used to indicate a state-funded infrastructure bank.
18

Although the SIB program started with promise, as of the fall of 2016, while all 51 of the
EPA’s CWSRF’s are active,
18
7 of the original 39 SIBs never became active and 12 of the 33
operational SIBs either have no outstanding loans or have become inactive. Two potential
explanations are, (a) the lack of capitalization made the banks difficult to use and, (b) the 2008
Great Recession adversely affected the banks. Figure 9 shows initial SIB capitalization, the
number of loans made and bank inactivity (no loans or closed). The SIBs fall into roughly three
capitalization groups: under $5 million, $10 to $50 million, and $100 to $700 million. Inactive

Figure 9. SIB Capitalization vs. Agreements and Activity
Source: FHWA.

or closed banks are found up to Arizona, which started with $47 million, so under capitalization
does not fully explain SIB underperformance. Therefore, it would be useful to investigate why
the SIBs have underperformed. The knowledge gained would be highly useful to legislators
contemplating using PPPs to bridge the funding gap or implementing a NIB.
3 2 2 5 1 21 13 3 2 1 8 3 3 2 12 38 1
66 1 10 3 215 7
2
22
34 32 52
55
190
106
83
$0.00
$100.00
$200.00
$300.00
$400.00
$500.00
$600.00
$700.00
Arkansas
Iowa
Rhode Island
Washington
Tennessee
Wisconsin
Vermont
Indiana
Utah
Alaska
North Carolina
North Dakota
Maine
California
Nebraska
Colorado
Delaware
Michigan
Puerto Rico
South Dakota
New York
Pennsylvania
New Mexico
Virginia
Wyoming
Minnesota
Oregon
Arizona
Missouri
Ohio
Texas
Florida
Federal Capitalization ( Millions $)
Active Bank
Inactive Bank
Number of
Agreements
19

1.6 Research Question and Research Importance
The focus of this research will be to answer the following questions regarding the FHWA
SIB program and its performance:
What combination of Congressional legislative design, FHWA administration,
state implementation decisions and external events caused the FHWA SIB
program not to meet the expectations of its stakeholders? Additionally, what
lessons can be learned from the research to guide or improve the SIB program,
the proposed NIB, infrastructure funding and the legislative process in general?
The lessons learned through this research are important on several levels. First, based on
the CWSRF’s results, one would have expected the SIB program to be more successful. Since
its inception in 1995, the SIB program has undergone several reviews and legislative updates,
none of which seem to have improved the program’s results. This indicates that those involved
have not been able to properly identify the program’s errors, communicate them to Congress, or
for Congress to act effectively.
Second, the fact that a water-related program when applied to transportation, did not
perform as well, raises the question as to whether the causes were implementation specific,
infrastructure type specific, or some combination of the two.
Third, transportation infrastructure spending creates between 15,000 and 42,000 jobs per
billion spent. Funding just a portion of the identified backlog at $100 billion per year could
create from 750 thousand to 4.2 million jobs per year.
19

Forth, the results from the SIB could be used to gauge whether the Trump
administration’s PPP-based funding plan is sufficient or whether additional funding mechanisms
will be needed.
20

Fifth, it is hoped that the knowledge gained through this research can be used to improve
the overall legislative process, leading to more effective and lower cost programs.
And finally, the U.S. is in competition with the world, which is not sitting idly by. For
example, Russia and China have announced plans to work with the European Union to create the
“Trans-Asian Rail Network” which will move freight at 150 miles per hour, reducing travel
times across Asia from two weeks to just two days (Waters, 2016), (NBF, 2017). In contrast, the
average U.S. freight train speed in 2009 was just 23.9 mph (BTS, 2009). Such a high-speed
network could potentially give China, Russia, and the EU’s manufacturing base a significant
competitive advantage because, in the U.S., trucks haul goods from the rail heads to their
destination, through congested urban centers. The 2005 SAFETEA-LU Act added a rail (transit)
account to the SIB program. If SIBs could be used to fund freight in addition to roads, the
results could help the U.S. become more internationally competitive.

21
CHAPTER II
SIB PROGRAM OVERVIEW
This chapter looks at two key aspects of the SIB program. It first describes the operation
and organization of the banks. It then uses the lens of the legislative cycle to examine the
differences between pre-SIB and SIB program implementation. The differences between the two
approaches, when coupled with underfunding, had a profound effect on the program’s overall
results. This aspect will be discussed further in Chapter 5, Analytical Findings and Chapter 6,
Conclusions and Lessons Learned.
Before the SIB program, the FHWA released obligated funds in standard amounts over
time. This was known as Pay-As-You-Go (PAYGO) financing and did not allow states to use
the funds to support additional borrowing. However, through financial analysis, state DOTs
knew that they could lower their overall costs by borrowing against future FHWA allocations.
Thus, the SIB program was created by the National Highway System Transportation Act of 1995
with the following goals:
1. Provide flexible financing alternative to straight FHWA PAYGO grants,
2. Provide loans at or below market rates,
3. Increase non-federal (state) contributions to highway funding, and
4. Attract private capital to increase funding sources (PPPs).
The FHWA copied many elements of the CWSRF program, then gave the states wide latitude on
how they could implement their banks (Figure 10). The NHS Act only required a SIB offer at or
below market interest rates, maintain an investment grade rating and offer some or all of the
services listed in Table 1. It further let each state determine its own measure for market rates as
well as how their bank operated.
22

Table 1. SIB financing features.
• Make loans with repayment periods up to 35 years.
• Provide credit enhancement.
• Serve as a capital reserve for bond or debt financing.
• Subsidize interest rates.
• Issue letters of credit.
• Finance purchase and lease agreements.
• Provide debt financing security.
• Provide additional types of financial assistance for construction of projects that qualify for Federal-
aid highway program and transit capital programs.
• Cooperative agreements
o Not more than 10 SIB’s of which one or more can be multi-state SIBs.
o Two or more states can enter into multistate SIBs (Interstate Compacts).
20

• Accounts:
o Separate accounts for highway, transit and state contributions.
o Funds must be kept in separate accounts. Federal dollars cannot be co-mingled with other
federal or any other funds.
• Funding
o Highway Account: Not to exceed 10 percent of the funds apportioned to the State for each
of fiscal years 1996 and 1997 under each of the Title 23 sections after distribution to (4)
Congestion Mitigation and AQ Improvement and (5) Metropolitan Planning.
NOTE: Because the SIB features that are most important to answering the research question are in
other sections, a complete description of the program is given in APPENDIX D.
Sources: U.S. Congress, FHWA

The SIBs (s) were initially capitalized by a one-time additional allocation of $150 million
from the 1997 transportation bill (a).
i
Banks with targeted, shovel-ready projects received $3 to
$12 million each, while those who were less organized at the start received $1.5 million each
(FHWA, 1998b). States could augment the initial capitalization by transferring up to 10% of
future annual FHWA allocations into their SIB (b). However, states were also required to
provide a 20% match (c), achieving goal 3 above. The actual state matching amount is set by a
complex formula that takes multiple factors into account including the amount of government
owned, non-tax paying land in each state.
21
Additional capital or state contributed funds can
come from a variety of sources (h) that could be dedicated to the bank or be project or location

i
Letters in parenthesis (a), (b), (c), etc., in the text refer to the cash flows in Figure 10.
23

dependent. SIBS could also sell bonds (k) to increase their working capital (leverage) as well as
pledge future FHWA funds that are planned, but not yet appropriated or obligated as collateral.

For funding, state and municipal agencies or agents (PPPs) apply to the SIB (s) and if
their transportation project (e) meets the SIB’s federal (imposed) and state specifications (use,
loan size, type, length, interest rate, repayment revenue, etc.), they receive loans or loan support
(d). Depending on how the bank is set up, repayment (f) could come from the project owner
(municipal agency or private venture - PPPs) or the state. Local agencies usually pledge
revenues from user fees, special taxes or assessments, allocated motor fuel taxes, bond revenue,
or the general fund.
Loan terms varied considerably with Vermont allowing loans as small as $10 thousand
for transit vans (PPPs), to Florida with a $1 million minimum and with no more than 50% of a
project’s total value funded. Some states required repayment within four years after the end of

Figure 10. SIB Financial Schematic
Source: Author
SIB (s)
(b) FHWA Funds
(80%)
(c) State Matching
Funds (10 ~ 20%)
(k) Bond Holders
(m) Bond
(Capital)
(l) Bond
Payments
(e) Implementing
Agency/Agent (PPPs)
(d) Loans
& Support
(f) Loan
Payments
(g) Revenue
(h) General Fund
User Fees
Motor Fuel Taxes
State Bonds
Special Taxes
(h) Revenue & Capital
(a) Initial Capitalization
24

construction while others, such as Florida and Michigan allow loans of 20 years or more. A few
states (e.g., Arizona and Oregon) allow municipal agencies to “swap” their federal dollars for
state dollars. This enables local agencies to build their projects free of federal regulations while
the state DOT uses the “exchanged” federal funds on its own title 23 or 49 eligible projects.
2.1 SIB Creation and Management Structure
SIBs could be created either administratively or through an act of the state legislature.
Administratively created SIBs (e.g., Alaska) tend to be simple, with the bank using accounts
established within the state DOT. They also had a greater chance providing zero interest loans if
their sole customer was the state DOT. Those created by legislature such as Arizona’s HELP
SIB,
22
had a greater chance of being an independent agency that offered more complex services,
supported by dedicated revenue streams or SIB-issued bonds. Agencies created by the state
legislature also could be exempt from state laws that required legislative votes with majorities or
supermajorities to increases taxes or issue debt.
23

The management structure of a SIB generally depended on where it was situated. Those
that were part of the state DOT usually consisted of up to three individuals who managed the
application process and filed the annual FHWA reports. Additional staff from the state DOT
were used for tasks such as determining project value, borrower’s credit rating, risk assessments
and issuance preparation, and loan approval. Estimates from the interviewed SIB staff put the
average annual total labor for such SIBS at 1.5 full-time employees (FTEs).
24
Typically staff
would track potential projects for years to make sure there were sufficient funds and they met the
SIB’s lending requirements so they could fund the loan rapidly. Once an application was filed, a
loan package would be assembled, detailing the type of assistance requested, terms, risk and
25

other associated information. The loan would then be reviewed by either one or more
individuals inside the DOT or by the SIB’s loan review board (Figure 11).
Independent agencies generally had a more complex structure with a larger staff (3 to 10
or more individuals) and typically an appointed governing body for a set term (e.g., 3 to 7 years).
Loans were typically reviewed by boards composed of SIB and state DOT staff. One state did
have a problem with their governing board design. All of its members were governor appointees
or cabinet officers who generally viewed the position as a stepping stone to more lucrative
positions elsewhere. They typically only served 18 to 24 months of a five-year term and tended
to move on just as they were becoming knowledgeable about the bank’s operation. As a result,
the SIB’s staff had to continually educate the committee’s freshman members on how to manage
the bank. A change in the governing legislation helped to reduce the problem. It should be
noted that this condition was not found in other independent SIBs with governing boards.

Figure 11. SIB Organization and Accounts
Source: Author

State DOT
SIB
• FHWA Transportation (Title 23)
• State Transportation funds

• FHWA Transit (Title 49)
• State Transit funds
State DOT
SIB
(Separate Agency)
• FHWA Transportation (Title 23)
• State Transportation funds

• FHWA Transit (Title 49)
• State Transit funds
Oversight Board
Oversight Management
26

A feature of every FHWA SIB is it could have up to four accounts to manage its funds.
Title 23 and 49 funds were kept separate, and in some SIBs, additional accounts were used to
further separate state and federal dollars.
25
When funds are repaid, they and the interest
payments are placed back into the account they were drawn from. A further complexity is a SIB
might also have separate accounts if additional SIB funds were acquired under a different
transportation bill(s). As shown above, the SIB program offered states significant flexibility in
how they implemented and managed their banks. Using the lens of the legislative cycle, the next
section examines why this was done and the tradeoffs it created.
2.2 The SIB Program Design, Implementation and Stakeholder Goals
It is useful to compare the pre-SIB and the SIB legislative process to understand how the
increased flexibility could have adversely impacted the program and create more opportunities
for the process to go off track. The legislative cycle is commonly portrayed in four to seven or
more steps. Cairney’s six-step outline was adapted to frame the pre-SIB FHWA/Congress
legislative cycle (Cairney, 2011, p. 34):
1. Agenda setting: Congress holds hearings and FHWA staff meet with Congressional
committee staff to discuss legislative needs.
2. Policy formulation: Legislation is drafted and several versions and associated
amendments work their way through both the House and Senate.
3. Legitimation: Passed bills in one or both chambers are reconciled by a joint committee.
The bills are passed by both chambers and signed into law by the President. It should be
noted that funding can occur in this part of the cycle. However, the amount of funds can
be set or adjusted (up or down) in this or any succeeding legislative cycle, making the
actual process far more complex than shown.
27

4. Implementation: The FHWA creates a set of administrative rules to govern how to
implement the legislation. This is then passed to the states DOTs who implement the
program with some feedback and FHWA rule modification. Before the SIB program, the
U.S. DOT exercised significant control over how and when the states could use the
FHWA’s funds. This had the benefit of ensuring the funds would be used exactly as
Congress intended. However, one-size-fits-all approaches tend to increase costs when the
rigid rules conflict with a state’s specific needs.
5. Evaluation: Usually on an annual basis, the states, the FHWA and Congress evaluate
the program, and decide whether it should continue, be modified or terminated.
6. Policy maintenance, succession or termination: Congress and the FHWA act in
accordance with the results of the evaluation from Step 5 and adjust the program.
In contrast to earlier programs, Congress (and the FHWA) strove to build flexibility into
the SIB program by not setting any firm rules for how the states should implement their banks.
This avoided the pitfall of a one-size-fits-all approach discussed above, but introduced a different
set of issues. Rather than a single legislative cycle, the process now could involve a second set
of one or more state cycles, as shown in Figure 12. There are several points that can be drawn
from this arrangement:
1. The legislative cycles could act independently. This means there could be a substantial delay
between federal legislative changes and state responses to those changes.
2. The state cycle increases the number of ways the program can go off-track, including state
legislators inserting destructive provisions in their bill, inadequate funding, implementation
errors at the federal, state and local levels, and adverse external events.
28

3. The first three steps are the most important because they set the stage for whatever else
follows: Legislators and their staff decide which problems(s) to act upon (1: Agenda
Setting), how to address them in the legislation (2: Policy formulation), and how to get the
legislation passed through negotiation with all of the relevant stakeholders (3: Legitimation).

Figure 12. The SIB Federal-State Legislative Cycle.
Source: Adapted from (Cairney, 2011)

4. There are ten stakeholder groups involved in the dual cycle (Table 2)
26
and each works to
have their goals (expectations) achieved through the legislative and agency relationships
embodied in the diagram.
1. Federal
Agenda Setting
2. Federal Policy
Formulation
3. Federal
Legitimation
4. Federal
Implementation
5. Federal
Evluation
6. Maintenance/
Succession or
Termination
4. State
Implementation
5. State
Evluation
6. Maintenance/
Session or Termination
1. State Agenda
Setting
2. State Policy
Formulation
3. State Legitimation
29

5. Analyzing the actions of the ten major stakeholders for 33 banks across the dual legislative
cycle would be a difficult process, even with nearly perfect documentation. However, it is
doubtful such a task can be accomplished on such a complex system, especially when much
of the relevant events occurred over 20 years ago.
Table 2. Key Stakeholder Groups in the FHWA SIB program.
Main Stakeholder Groups Simplified Stakeholder Groups
1. The President.
2. U.S. Cabinet.
3. The U.S. DOT administrators.
4. The FHWA staff.
5. Congress and their staff.
6. The state governor.
7. State cabinet.
8. The state legislators.
9. The state DOT staff.
10. The private sector, industry associations,
academics and think tanks.
1. The President and the Executive Branch.
2. U.S. Congress and their staff.
3. Federal Highway Department.
4. State executive branch, legislature and DOT.
5. The Private sector, industry associations,
academics and think tanks.

Figure 13. SIB Program Cycle
Source: Author
1. Legislative &
Stakeholder
goals set
2. New federal
legislation
3. SIB program is
funded.
4. Federal
implementation.
5. State
Legislature &
DOT Goals Set
6. State
Program SIB
implementation
7. State and
federal program
assessment
8. Stakeholder attitudes &
External event impacts

30

To make the SIB program analysis tractable, both the number of stakeholders (and their
associated program expectations) can be simplified (Table 2.) It is then possible to collapse the
dual cycle into a single cycle because the steps between them are not coupled in a tight time
sequence. This leads to a simplified framework that can be used to analyze the more complex
dual-cycle process as long as the results of each step and their cause are retained. Recast, the
now eight steps in Figure 13 are as follows:
1. Legislative and Stakeholders set goals: The President, members of Congress, stakeholders and
the FHWA staff develop the SIB program with a specific set of goals (expectations) that they
want the program to achieve.
2. New Federal legislation: Legislation is generally based on a set of compromises between
stakeholders to achieve the desired results while attracting sufficient support to get the bill passed
and funded (Steps 2 through 4). However, the process can also incorporate provisions that may
weaken the program put in place by its detractors. The legislation is passed by both chambers,
negotiated in conference, and then finally agreed to and sent to the President, who signs it into
law.
3. SIB program is funded: Once legislation is passed, it must be funded by the House voting on a
joint resolution. This is where good intentions can evaporate as programs may be written into
law, but never funded properly or funded at all. Thus, a legislator can vote for a program and
then vote to under or defund it, allowing them to side with voter groups on both sides of an issue.
4. Federal implementation: The FHWA program office then decides how to administratively
implement the legislation, using the tools and resources specified in the bill. If insufficient funds
are provided, the FHWA will not be able to provide the states with the needed guidance to set up
banks that are tailored to their needs.
31

5. State Legislature and DOT goals are set: Based on the federal legislation, some states decide
to opt into the program and set goals. Due to the program’s flexibility, the state’s goals may not
coincide with those established by Congress and the FHWA in steps 1 through 4.
6. State SIB program implementation: Each state implements its version of the federal program,
which was designed with significant flexibility to avoid the pitfalls of “One-Size-Fits-All”
legislation. However, the program’s design requires that the states have the necessary expertise
to set up a bank that is tailored to its specific needs.
7. State and federal program assessment: Separately, the state and federal stakeholders assess
the program to determine if changes are needed. The changes can be motivated by financial,
social and political concerns.
8. Stakeholder attitudes and external event impacts: External events and stakeholders can
impact any of the seven steps, so they are inscribed by this last step. This also include items such
as prevailing economic conditions, prevailing political and economic philosophies (e.g.,
devolution, prevailing wages, efficient markets/laissez-faire economics, etc.)
In summary, the FHWA copied portions of the EPA’s SRF program, but gave their SIBs
far greater flexibility in how they could be implemented and operated. This provided the FHWA
with the flexible program the states had been requesting, but at the same time, increased the risk
that the state SIBs would not act in accordance with the wishes of the other stakeholders
involved with the program. Finally, by examining the complex dual legislative cycle process, a
simplified framework was developed that can be used to help guide the forthcoming analysis.
32
CHAPTER III
APPROACH AND METHODOLOGY
This chapter describes the methodology, analytical steps and tools used to answer the
research question:
What combination of Congressional legislative design, FHWA administration,
state implementation decisions and external events caused the FHWA SIB
program not to meet the expectations of its stakeholders? Additionally, what
lessons can be learned from the research to guide or improve the SIB program,
the proposed NIB, infrastructure funding and the legislative process in general?
3.1 Approach
The method used in this dissertation was inspired by Root Cause Analysis (RCA), which
was developed to analyze the failure of complex industrial processes during the late 1950’s and
early 1960’s. Initially used by Toyota in auto manufacturing and aerospace by NASA, it can be
applied to all aspects of complex systems, including those with human factors.
27
Its structured
approach is used to find not just the surface causes (causal factor
i
) of a failure, but the
underlying factors that if removed, would prevent the failure from occurring (root factor). Many
times, the root causes are found to be decisions made years before which sent the system slowly
sliding toward its eventual failure. While this research does not anticipate identifying only one
or a few root causes of SIB underperformance, it will use the approach of considering the entire
system to expose the underlying causes. Because a wide array of the factors could have affected
one of the 39 SIBs,
28
this research will take into account all available factors listed in Table 3.
The RCA philosophy is also embedded in the research question, which seeks to learn both
i
A causal factor is a factor that contributed in some way to the failure sequence.
33

narrow and broad lessons from the SIB program and to recommend changes that can prevent
similar future failures.
Table 3. Factors that can affect the SIB program’s performance.
1. Federal Politics
2. Federal Legislation
3. Federal Funding
4. Federal Implementation
5. State Politics
6. State Legislation
7. State Funding
8. State Implementation
9. State/SIB program compatibility
10. SIB Program - Infrastructure type compatibility
11. Available alternatives
12. External Events
Source: Author.
Methodology
The next step is to determine the methodology (Quantitative, Qualitative or Mixed) for
the research, based on the phenomenon being studied and the type of information being
collected. A 1996 GAO study surveyed 15 SIB candidate states to determine what issues might
adversely affect the proposed pilot program. They are listed in Table 4 with the type of research
method most applicable to them. Likewise, Table 5 lists the main research sources with their
most appropriate research method. The two tables show that “mixed methods” is the best
approach to analyze the SIB program.
Table 4. Candidate Reasons the SIB Under Performance.
Reason Primary Analysis Method
1. Insufficient SIB capitalization funds.
Quantitative or Mixed
2. Insufficient revenue to repay SIB loans.
Quantitative or Mixed
3. Public &/or legal opposition to debt financing.
Qualitative
4. Lack of state expertise to start a SIB.
Qualitative
5. Federal regulation viewed as excessive/burdensome.
Qualitative
Source: GAO (1996), Author.

34

Table 5. FHWA SIB Information Sources
Information Source Primary Analysis Method
1. FHWA & state financial reports
Quantitative
2. State-Attribute data
Quantitative
3. Federal & state legislation
Mixed
4. Federal & state documents and reports
Mixed
5. Peer-reviewed journals & books
Mixed
6. Trade publications
Mixed
7. Federal and state employees (Interviews)
Qualitative
8. Industry experts (Interviews)
Qualitative
Source: Author
Structure Case Analysis
The main sources of information about the SIB’s design, implementation and operation
were legislators and their staff, federal DOT staff, state DOT staff and industry experts. Based
on this and the information from the two tables, Yin’s Structured Case Research method (2003)
was chosen because it is best suited to interpreting human actions over time and determining the
who, what, and why of social interactions. It can utilize all of the sources listed in Table 5 and
Yin’s regimented approach is more suited to the policy analysis, whereas alternatives like
Grounded Theory (Glaser, 1992) is more appropriate for understanding how people view their
experiences and social interactions.
The interview method relied on Whiting’s semi-structured interviews (2008), which
allowed for the discovery of additional information that might not be uncovered by a rigid set of
questions. This approach supports Yin’s recommendation of using “Adaptive Learning” (Table
6), where the causes of the phenomenon being studied (SIB program development and evolution)
are not well known. In Adaptive Learning, Yin proposes the researcher use the available
information and develop a “working theory” as to why the phenomenon being studied occurred.

35

The working theory is used to create the initial case interview questions (Table 30)
29
which are
then iteratively modified (adapted) to take advantage of any newly acquired knowledge as the
case analysis proceeds (Figure 14.).
One drawback to this approach is that the interviewees must be available for follow-on
questions to ensure uniformity and the responses are not be tainted by repeated contacts. An
example where this approach would not work is if the subjects were being asked about their first
impressions of a product. In such a case, prior research has shown that interviewees can and do
shift their opinions. Fortunately, the research met both of these conditions.
Table 6. Yin’s Case Study Steps with Adaptive Learning.
1. Develop an initial mixed methods,
multiple-case theory.
2. In parallel, select cases and design data
collection protocols.
3. In parallel, conduct mixed methods,
multiple-case study research.
4. Modify theory & repeat steps 1-3.
5. Write up individual case reports.
6. Draw conclusions.
7. Develop policy implications
8. Write the case report.
Source: (Yin, 2013)

Figure 14. Case Study Procedure with Adaptive Learning.
The dotted lines represent the iterative, adaptive learning paths.
Source: Adapted from Figure 2.5, pg. 60, (Yin, 2013)

Develop/Update
Working Theory
Select Cases
Design
Interview
Protocols
Conduct Case
Study(s)
Develop Policy
Implications
Write Report
Repeat as needed
Repeat as needed
Repeat as needed
36

The working theory was based directly on the findings from 1996 GAO report since 14 of
the 15 states intervened eventually joined the program (Table 4).
Table 7. 1996 GAO Study States
State Applied Pilot State Applied Pilot
Arizona Yes Yes Oklahoma Yes Yes
California Yes Yes Oregon Yes Yes
Florida Yes Yes South Carolina Yes Yes
Massachusetts Yes No Tennessee Yes No
Michigan Yes No Texas Yes Yes
Minnesota Yes No Virginia Yes Yes
Missouri Yes Yes Washington Yes No
Ohio Yes Yes
Source: GAO (1996).
Case Interviews
To assemble a narrative of how the banks were started and evolved, seven groups were
interviewed using the semi-structured process and Yin’s structure case methodology with
adaptive learning (Table 8).
Table 8. Research interview subjects
Group Primary information
1. Former Congressman and Senators How the legislation was drafted and what outcomes were expected.
2. Congressional committee staff How the legislation was drafted and the results of committee hearings.
3. FHWA current and former staff How the program was created and administered.
4. EPA current staff How the SRF program was created and evolved and differences
between it and the SIB program.
5. Journalists, academics and industry
experts
Any portion of the above
6. State SIB current and former staff
and administrators
Why the state decided to participate and how the SIB evolved.

7. Staff of non-participating states Why did some states either drop out or not apply at all?
Source: Author.

Group 6, the current and former staff of the state SIBs provided the main information for
the case studies, with the other groups helping to fill in details and clarify issues that were used
as a starting point for each interview. Group 7 above, the information from non-participating
states was not added to the Case matrix because its questions were too diverse. Rather, those
37

interviews were used to develop a more comprehensive picture of the program and the lessons
learned. Sadly, none of the Congressman and Senators (group 1) involved with the 1995
legislation responded to interview requests, so their portion of the narrative appears to be
permanently lost. Additionally, the Congressional committee staff had turned over, so none of
the current staff knew about the program or knew those who worked on the original legislation.
3.2 Selecting Candidate Banks
The initial research approach was to determine selection criteria to identify a
representative subset of the 33 chartered banks for the case analysis (Table 9.) Twelve banks
were chosen at random. Their financial records were downloaded and semi-structured
interviews were conducted with staff members. The results exposed several flaws with this
approach. Specifically, for closed banks which were some of the most desirable candidates:
• No remaining staff knew anything about their origin or operation.
• Few if any financial records were kept by the States or by the FHWA program office.
• Because of the program’s small size, there was no useful information about them in peer-
reviewed journals or the popular press.
For banks that were still in operation, it was found that in some cases:
• The original state administrators had retired and taken the knowledge of the banks’
foundation and initial operation with them.
• The bank’s loan parameters: interest rate, term, type of support, the number of loans
made, capitalization, capital turnover, etc., were not found to predict success or failure.
• A unique set of case-specific factors was associated with a bank’s success or failure, and
in some instances, a unique event or factor overrode all others.
38

As a result, a representative bank subset could not be pre-selected, and the approach was
modified to include as many of the banks as possible to find that factors that were associated
with their continued operation, inactivity or closure. In all, staff at 23 of the original 39 states
that applied or opened banks were interviewed.
After the initial round, states that dropped out of the SIB program or considered it but
declined to open a SIB were added to the interview list to help identify the factors that prompted
their non-participation and to build a more complete picture of the program.
Table 9. FHWA SIBs
State
Bank or
Organization
Name
In
Study
Total
Cap.
Total
Bonds
Issued
Loans
Made
Loans
To Date
Loans
Out
Loans
Out($)
Funds
Available Status
1. Alaska
Alaska
Department of
Transportation
and Public
Facilities Yes $2.74 $- 1 $2.74 1 $1.10 $3.79 Active
2. Arizona AZDOT Yes $48.58 $800.00 52 $545.58 0 $- $78.77 No Loans
3. Arkansas
Arkansas State
Highway and
Transportation
Department Yes $1.50 $- 3 $2.21 0 $- $0.07
Closed or
Inactive
4. California Caltrans Yes $3.39 $- 2 $1.12 0 $- $4.02 No Loans
5. Colorado CDOT Yes $4.50 $- 38 $56.29 19 $20.28 $25.38 Active
6. Delaware DelDOT

$4.80 $4.80 1 $4.80 0 $- $-
Closed or
Inactive
7. Florida FDOT Yes $615.10 $123.60 83 $1,168.45 33 $803.02 $1,135.00 Active
8. Georgia
Georgia
Transportation
Infrastructure
Bank (GTIB) Yes $- $- 0 $- 0 $- $-
Not
funded
State
Bank
Only
9. Illinois

$- $- 0 $- 0 $- $-
Not
funded
10. Indiana
Indiana
Department of
Transportation

$2.20 $- 3 $7.57 3 $3.21 $4.36
Closed or
Inactive
11. Iowa Iowa DOT Yes $1.50 $- 2 $2.87 0 $- $2.66 No Loans
12. Louisiana

$- $- 0 $- 0 $- $-
Not
funded
13. Maine
Maine
Department of
Transportation

$3.18 $- 3 $2.46 4 $2.24 $3.43 No Loans
14. Massachusetts

$- $- 0 $- 0 $- $-
Not
funded
15. Michigan
Michigan
DOT

$11.05 $- 66 $47.80 15 $5.29 $0.58 Active
39

Table 9. FHWA SIBs
State
Bank or
Organization
Name
In
Study
Total
Cap.
Total
Bonds
Issued
Loans
Made
Loans
To Date
Loans
Out
Loans
Out($)
Funds
Available Status
16. Minnesota
Minn DOT &
Minn Dept of
Employment
& Econ
Development

$45.93 $63.71 34 $157.11 23 $37.53 $19.30 Active
17. Missouri
Missouri
Transportation
Finance
Corporation
(MTFC) Yes $59.66 $- 55 $244.18 16 $37.34 $65.27 Active
18. Nebraska
Nebraska
DOR

$3.54 $- 12 $21.23 2 $3.54 $- Active
19. New Jersey

$- $- 0 $- 0 $- $-
Not
funded
20. New Mexico
New Mexico
DOT

$17.79 $- 7 $37.01 1 $1.86 $19.95 No Loans
21. New York NYDOT Yes $15.00 $- 3 $27.00 0 $- $- Inactive
22. North
Carolina
North Carolina
DOT

$3.04 $- 8 $2.86 3 $0.73 $3.04 Active
23. North Dakota
North Dakota
DOT Yes $3.14 $- 3 $5.73 0 $- $3.37 No Loans
24. Ohio Ohio DOT Yes $137.00 $10.44 190 $363.04 93 $87.24 $8.59 Active
25. Oklahoma OKDOT Yes $- $- 0 $- 0 $- $-
Not
funded
26. Oregon ODOT Yes $45.96 $- 32 $59.38 19 $16.29 $27.47 Active
27. Pennsylvania PennDOT Yes $17.39 $- 215 $117.22 149 $- $59.54
State
Bank
28. Puerto Rico
Puerto Rico
Infrastructure
Financing
Authority
(PRIFA) Yes $15.00 $75.00 1 $15.00 0 $- $-
Closed or
Inactive
29. Rhode Island
Rhode Island
DOT Yes $1.50 $- 2 $2.35 0 $- $1.50
State
Only
30. South
Carolina
South Carolina
Transportation
Infrastructure
Bank (SCTIB) Yes $3.00 $- 22 $1,200.00 8 $1,830.00 $- Active
31. South Dakota State DOT Yes $13.61 $- 10 $32.64 3 $1.18 $20.88
State
Bank
32. Tennessee
Tennessee
DOT Yes $1.88 $- 1 $1.88 0 $- $-
Closed or
Inactive
33. Texas Texas DOT

$274.11 $- 106 $500.21 38 $140.17 $302.16 Active
34. Utah
Utah DOT
(SIB closed)

$2.48 $- 2 $3.33 1 $0.64 $- Closed
35. Vermont
Vermont
Economic
Development
Authority Yes $2.06 $- 13 $4.33 2 $0.40 $3.24 Active
36. Virginia Virginia DOT

$22.50 $- 2 $28.00 1 $- $- Active
37. Washington WSDOT Yes $1.73 $- 5 $3.94 2 $2.10 $0.29 Active
38. Wisconsin
Wisconsin
DOT

$1.88 $- 21 $7.71 9 $2.74 $0.06 Active
39. Wyoming
Wyoming
DOT Yes $26.02 $- 22 $220.69 3 $27.85 $5.88 Active
Source: FHWA
40

3.3 The Case Interview Process
Using Yin’s Case methodology outlined above, the interview process was broken down
into five steps (Table 10). Based on the working theory, an initial set of questions was
developed and then emailed to the interviewees so they could prepare (Table 30). The interviews
were then conducted over the phone and typically lasted 30 to 40 minutes, with a few running
over an hour for the more complex banks, such as Arizona and South Carolina. A typical
approach to ensure accuracy is to record the interview. However, this caused conflicts with
some state laws and acquiring recording approval became a lengthy process. So the more
accommodating procedure of first recording the responses in MS Word and then sending the
answers to the subject for review was adopted.
Table 10. The Case Interview Process
No. Step Procedure
1. Initial Interview
• Email questions to subject
• Read confidentiality statement
• Record responses in MS Word
2.
Update Questions
Reinterview
• Revise questions as necessary
• Reinterview subjects with new/modified questions as necessary
3.
Code Responses &
Check
• Transcribe responses and code them in MS Access
• Send transcribed responses to interviewee for verification
• Incorporate interviewee changes.
• Update the MS Access response database.
4. Analyze • Combine responses with other data and analyze.
5.
Write Cases & Draw
Conclusions
• Write up the case for each state with conclusions and summarize
results based on the analysis.
Source: Author
Updating questions, reinterviews and coding
The initial responses were compared against the working theory and then revised to
incorporate a more informed view of the issues involved with the SIB program. The prior
interview subject(s) were then reinterviewed to supply the missing data. The questionnaire
underwent 12 revisions during this process. The questions and their answers were reformulated
41

into a Yes/No format and stored in an MS Access 2013 database. These were then emailed to
the interview subjects for one final check.
Analysis
The case responses were applied to the six pieces of federal legislation to understand how
the program and its implementation evolved. The coded responses were then compared against
the state characteristics (Table 11) using SQL queries and statistical software (SAS JMP) to
determine if bank performance and utilization were associated with existing conditions.
Table 11. State Characteristics Data
No Data Name
Data
Date Description
1 State Population 2000 State population from U.S. 2000 census.
2 Federal Capitalization 1995-2005 Amount of FHWA funds used to capitalize the bank.
3 State GDP 2000 State gross GDP ($ Millions) from the Bureau of Economic
Analysis for the years 2000.
4 State Per-Capital GDP 2000 Per-capita state gross GDP from the Bureau of Economic
Analysis for the years 2000.
5 Public Land Ownership 2000 Percent of the total land state area owned by the state and federal
governments by the Natural Resources Council of Maine.
6 Percent Poverty 2000 Percent of students 5 to 17 years old who live in poverty. Used
to assess rural poverty in the state, which is used as a proxy for
poor rural communities who cannot afford to repay FHWA
loans. BEA/Census
7 Tax revenue per
functional mile of state
roads
2000 Net state revenue per functional mile of state-owned roads. This
reflects the funds available at the local level.
9 NHS Funds 2002 National Highway funding for FY 2002. Funds available for
National Highway System work for the state.
10 FHWA Funds 2002 Total FHWA funds per state for FY 2002. Total FHWA funds
available to the state.
11 NHS VMT 2000 National Highway System Vehicle Miles Traveled. A measure
of the road wear-and-tear.
12 Pay As You Go 2000 The five states are absolute pay-as-you-go adherents.
13 State Politics 2000 State House Control. Democratic, Republican or Split
14 GARVEE Bonds 2000 Use of Grant Anticipation Revenue bonds by the state. Used as a
proxy to indicate the state’s willingness to finance transportation.
Policy implications
The policy implications of the cases will be derived as they apply to:
42

1. The eight steps in the simplified legislative cycle (Figure 13). This includes the legislation,
federal setup, state setup, and the operation & admin at federal and state levels.
2. The six pieces of federal legislation that affected the SIB program.
3. The stakeholder groups (See Legislation below).
4. Infrastructure funding in general.
3.4 SIB Evaluation Criteria and Methodology
From the preliminary interviews, it became apparent that the goals of the state DOTs
varied dramatically from state to state, with some states creating large leveraged banks, while
others just wanted the few extra million in cash and had no intention of using the bank long-term.
Additionally, there were several groups of stakeholders involved in the program from the
President down to the state staff who had varying goals for the program (Table 2). As a result,
analytical measures such as the number of loans made, capital turnover or direct savings could
not reliably be used to measure success or failure of individual SIBs or the program as a whole.
Therefore, success or failure was evaluated by comparing the bank’s performance against the
goals of the program’s main stakeholders. It should be noted that the success of an individual
action or process did not necessarily mean that a SIB or the program was successful. In other
words, it was possible that a stakeholder’s goals (a) were achieved with broken or failing
processes and, (b) were not achieved with working processes.
Applying the RCA philosophy to include all factors embodied in the simplified
implementation process, produces a method for evaluating the SIB program (Figure 13). For
each turn of the legislative cycle, the SIB program’s results were evaluated based on two points:
(a) whether the program’s results fell below, met, or exceeded the stakeholder expectations
43

(goals), and (b) what actions aided or hindered the progress toward those goals. The goals for
each of the stakeholder groups were cataloged and analyzed in Chapter 5.
3.5 Methodology Strengths and Limitations
The strengths of the approaches used in this research are,
• An inclusive approach inspired by root cause analysis which seeks to determine the root
causes of the SIB program’s limitations.
• Use of structured case analysis, which is highly suited to developing the how and why of
the SIB program’s performance.
• Use of both qualitative and quantitative methods to examine program material.
• Access to knowledgeable individuals. At least 10 of the staff interviewed were either
founding employees or knew them.
• A draft of this research was provided to several of the SIB and FHWA staff for review
and comment to help ensure accuracy.

The limitations of the methods employed are:
• Ten out of the original 33 chartered banks either did not respond or did not have anyone
who was sufficiently knowledgeable to be interviewed. This included Texas, which has
one of the largest and most successful SIBS. Thus the results of this research can only be
considered as a subset of the actual events that transpired that affected the SIB program.
• None of the Senators, Congressmen or state legislators involved with the program
responded to requests for interviews, so sadly, their view of the events was not part of the
analysis.
44

Therefore, the results while illustrative and potentially useful, cannot be considered
comprehensive or exhaustive.
3.6 Ethical Considerations and Human Subjects
The interviews did not collect Human Information, but instead the historical context for
the creation, implementation and evolution of the SIB program and thus met the Institutional
Review Board’s definition of Non-Human Information (IRB) (APPENDIX A). The interviews
were provided a statement of confidentially at the start of every interview, stating that (a)
participation was voluntary and any question could be ignored, (b) the interview could be
terminated at any time, and (c) permission to use any or all of the information gathered could be
withdrawn in writing at any time, and (d) a summary would be submitted for their review to
ensure accuracy.
Additionally, in the analysis and conclusion sections, certain information, such as state
name, was withheld if it could be used to identify the individual(s) interviewed.

45
CHAPTER IV
THE SIB PROGRAM ORIGIN AND EVOLUTION
This section combines information from the literature and the case analysis to establish a
foundation for evaluating the SIB program. First, the origin of infrastructure banks and the SIB
program are discussed to provide a historical background. Then, the SIB program’s
development challenges are presented in chronological order, framed by the six major pieces of
legislation that shaped the program. General conclusions are then drawn in preparation for
analysis in the following section.
The forerunners of infrastructure banks were Municipal Finance Corporation bond banks
(MFC), pioneered in Canada in the late 1950’s (Rhee & Stone, 2003, p. 6). They reduced the
issuance cost of small to middle-sized loans by combining the needs of multiple agencies into
one bond issue. This also lowered interest rates by spreading the risk over multiple agencies.
Over time, the banks evolved to offer a wide variety of loan support and financial assistance with
retaining repaid loans for future use as their most common feature (Table 12).
Table 12. Types of revolving fund financing programs and institutions.
Name
(Bank Abbreviation)
Level/ Agency Description Start Loan
Range
($M)
Qty.
State Bond Bank (BB) Vermont, Maine
& others
Pools multiple small loans into one bond issue,
dramatically reducing the issuance cost and interest
rate.
1969 <$10,000 7
Loan Revolving Fund
(LRF)
Federal/DOE Clean energy program
http://energy.gov/eere/slsc/revolving-loan-funds
2009 $2-$10 50
State Revolving Fund
(SRF)
Federal/EPA Clean Water State Revolving Fund (CWSRF). Assists
small municipal agencies with sewage and other clean
water programs.
http://www.epa.gov/cwsrf
1987 <$10 51
State Revolving Fund
(SRF)
Federal/EPA Drinking Water State Revolving Fund (DWSRF).
Created as an amendment to the CWSRF program.
Provides funds for drinking water systems.
http://www.epa.gov/drinkingwatersrf
1996 <$10 51
FHWA State
Infrastructure Bank (SIB)
Federal/FHWA
Florida
Federal Highway Department, NSH Act. Pilot
program for SIBs. Can use 10% of some DOT/FHWA
funds as seed capital.
1995 <$20 34
46

Table 12. Types of revolving fund financing programs and institutions.
Name
(Bank Abbreviation)
Level/ Agency Description Start Loan
Range
($M)
Qty.
Program extended under TEA-21, SAFETEA-LU
MAP-21 and FAST.
State Funded
Infrastructure Bank (SFIB)
State State-chartered infrastructure banks.
California, Florida, Georgia, Illinois, Kansas,
Louisiana, Missouri, New York, Ohio, Pennsylvania,
Rhode Island, Virginia, Washington
1995 Variable
<$20,
>$100
13
County Infrastructure
Bank (COIB)
County County chartered infrastructure banks. Includes
Dauphin Co. PA, and Franklin Co, Ohio.
2013
2015
1-5M
100k-3M
2
City Infrastructure Bank
(CIB)
City/City of
Chicago
Infrastructure bank created by the City of Chicago,
otherwise known and the Chicago Infrastructure Trust
(CIT).
2012 UK
30
1
NOTE: Dollar ranges are approximate.
SIB Program Origin
The FHWA SIB program was created by the confluence of several key events. First, the
conservative revolution that started with the election of President Ronald Reagan in 1980 led to a
philosophical change in government funding. Following the principles of “Devolution” (Poole,
2006), federal transportation funding for roads was to be transferred to the states. Conservatives
also proposed a shift from a federal-only funding model to participatory model,
31
with states
contributing matching funds as well as working to attract private capital. Private business was
believed so much more efficient than government, a substantial portion of the country’s
transportation infrastructure could be financed through Public-Private Partnerships (PPPs) while
substantially reducing costs.
Next, President Bush, stung by the backlash when he abandoned his 1988 “no new taxes”
pledge to fund transportation, vowed to veto any new transportation bill that increased the
federal motor fuel tax (Dilger, 1992, p. 69). The country was also recovering from the 1990
Recession, and it was feared new taxes would slow or stall the recovery.
47

Coincident with President Bush’s announcement, a number of reports emerged indicating that
despite continually increasing spending
(Figure 16), transportation funding was not
keeping up with demand (Figure 17), and the
U.S. faced a substantial transportation
backlog. First, the National Council on
Public Works Improvement 1987 report
“Fragile Foundations,” found that existing
U.S. infrastructure could not “…support a
stable and growing economy...” (NCPWI,
1988). Then, a Conservative-led committee
from the 1990 National Governor’s Association (NGA), acknowledged that the cost of fixing
U.S. transportation infrastructure ranged from $1 to $3 trillion over 20 years (1% ~ 2.5% of the
1990 GDP).
2
This was followed by a 1993 U.S Department of Transportation reported that it
needed 40% more per year ($16 billion) just to maintain (but not improve) the federal system’s
condition and performance (GAO 1996). The shortfall represented 18% to 167% of the
FHWA’s 1995 annual budget (Figure 15).

Figure 15. US DOT 1995 Expenditures
Source: USDOT
100%
63%
18%
13%
11%
5%
1%
0
20
40
60
80
100
120
140
160
Total
Highway
Transit
Air
Shortfall
Water
Railroads,
Pipelines &…
Millions (U.S. $)
48

Figure 16. Historical Federal Transportation Grants, 1947-2015.
Source: (J. Davis, 2016a)

Figure 17. Public Works Spending as a percentage of GNP.
Source: (IRWA, 1988, p. 20, Fig. 1.)
49

Finally, during the early 1990’s, the staff at the FHWA’s Financial Management Division
was trying to solve three problems
32
(Kinnander, 1998a). They needed to:
1. Find innovative ways to stretch the available funds to cover the exposed deficit,
2. Provide the states DOTs with more flexible funding and financing solutions,
33
and
3. Transition from the old federal-only funding model to the new state-participatory model
(devolution).
The FHWA staff began working with members of Congress, and decided to copy the
EPA’s Clean Water State Revolving Fund program (CWSRF) (Table 13). Established in 1987,
by 1995 the highly successful program had funded 3,510 projects worth $14.3 billion ($4.1
million/project) on just $11 billion of federal aid (EPA CWSRF, 2016). A later independent
study found it had saved $6.2 billion on a total outlay of $20.1 billion in just ten years (CIFA,
1998).
34
Because the SIB program was based on the EPA’s successful CWSRF program,
expectations were high that it would produce similar results. The following sections detail the
evolution of the program over its 22-year history, organized by the six major pieces of legislation
that affected it. The major changes are detailed in Table 14 for reference.
Table 13. EPA CWSRF Main Features
1. Mandatory 20% matching state contribution (State-participatory funding model).
2. Broke the “one size fits all” approach to legislation by giving states substantial flexibility in SRF setup and
operation and the financing options offered.
3. Allowed states to issue bonds to increase available funds (optional).
4. Allowed the SRF bank to use funded assets as collateral for bonds.
5. Allowed SRF to offer loans at or below-market rates.
6. States could buy or sell local debt.
7. States could offer loan support on other loans, enabling the borrower to obtain lower cost terms,
8. States could offer flexible funding options, including 30-year loan terms.
9. States could pay administrative cost from bank proceeds. Self-funding prevents political capture by state
legislatures using the bank’s operating funds for political leverage.
Source: (EPA, 2015)

50

4.1 The SIB Program Start & NHS ACT, 1990-1995
President Clinton was aware of the SIB program’s potential and included $2 billion for it
in his 1996 FY budget proposal which he released on February 6, 1995. It stated:
“State Infrastructure Banks (SIBs): The proposal provides $2 billion to capitalize new SIBs,
enabling jurisdictions to more easily leverage public and private resources for infrastructure
and encourage more businesslike strategies for financing the national transportation system.
SIBs would reduce the need for general taxpayer financing to support infrastructure and
would focus on projects likelier to be self-supporting. The SIBs would increase States’
flexibility in using Federal funds; they could fund any type of transportation infrastructure.”
(Clinton, 1995)
The funding was to be provided by efficiencies and savings gained by President Clinton’s
proposed reorganization of the U.S. DOT which would reduce its ten internal administrations to
three.
35
51

Table 14. SIB Program Features per Transportation Act
Item 1995 NHS Act (1995)
DOT Appropriation
of Act (1997)
TEA-21 (1998) SAFETEA-LU (2005) Map-21 (2012) FAST Act (2015)
No. of Banks Chartered 10 27 2 0 0 0
States Initially up to 10 States Expanded to all 50 states CA, FL, MO, RI; TX added later
All 50 States, D.C., Puerto Rico,
and U.S. territories
Same
All 50 States, D.C., Puerto
Rico, and U.S. territories
Congressional
Appropriation
Clinton’s 1996 budget proposed $2
billion. No funds appropriated.
Reduced from $250
million to $150 million
with $125 distributed.
None None None None
Funding Categories
Title 23: Bridge, IM, NHS, STP,
Interstate reimbursement,
apportionment adjustment, donor State
bonus, minimum allocation Title 49:
Sections 5307, 5309, and 5311
Same
Title 23: Bridge, IM, NHS, STP,
minimum guarantee Title 49:
Sections 5307, 5309, and 5311, and
Subtitle V
Rail Account added,
Title 23: Bridge, NHS, STP, equity
bonus Title 49: rest same as TEA-
21
Same
Title 23: National Highway
Freight Program, NHPP,
Surface Trans. Block Grant
Program, TIFIA, Title 49 &
Sub V of 49, Rail Account
Percent of Funding
Categories
Up to 10 percent Same No limitation Up to 10 percent of apportionments
Eliminated, No
funds can be used
Up to 10 percent of
apportionments
Advanced Capitalization
9 year sliding scale: 15%, 53%, 16%,
5%, 3%, 3%, 2%, 2%, 1%
Same 5 years, 20% per year. Same Same Same
SIB Accounts Separate highway and transit accounts Same
Can move funds between Title 23
and 49 accounts.
Separate highway, transit and rail
accounts
Same Same
Use of Repaid Funds
Repaid funds limited to Title 23 or 49
eligible projects, but not subject to DBA
or NEPA.
Additional non-matching state funds not
limited to Title 23 or 49 projects.
Same
Repaid funds limited to Title 23 or
49 eligible projects, AND now
subject to all federal regulations:
DBA, NEPA, etc.
Additional non-matching state
funds are federalized & subject to
all federal restrictions.
Same Same Same
Annual Reports 90 days after end of Federal fiscal year Same Biennially By end of Federal fiscal year (9/30) Same Same
Loan Repayment Start
Within 5 yrs. of program completion or
when road is used, whichever is last.
Same Same Same Same Same
Maximum Loan Terms 35 years Same Same Same Same Same
Investment Grade Ratings BBB- or higher Same Same Same Same Same
Grants After 1
st
set of loans repaid. None allowed Same Same Same Same
Administrative Expenses Up to limit of 2% of Federal funds. Same Same Same Same Same
Interest Rates At or below-market rates Same Same Same Same Same
Investments
Funds can be invested in U.S. Treasury
securities to earn interest
Same Same Same Same Same
Local match with repaid
funds
Yes Same Same Same Same Same
Source: Adapted from presentation slides (Werner & McDonald, 2015) and the FHWA.
52

On September 29th, 1995 Congressman William “Bill” McCollum (R-FL) introduced the
SIB program in H.R. 2439, the “State Infrastructure Banks Act of 1995” which he hoped would
“encourage innovative financing partnerships between the public and private sectors.” He also
felt that the SIBs would allow states to break away from the PAYGO model, and enable them to
build infrastructure faster to keep pace with the economy while reducing deferred construction,
which increased costs. He finally identified leverage as an important factor that could help SIBs
maximize the impact of federal dollars (McCollum, 1995). His legislation was added to House
Bill (H.R. 2002, 104th Congress) and was reconciled with the Senate transportation Bill (S. 440,
104th Congress), which had no references to the SIB program. The resultant Bill stated:
• “State Infrastructure Banks are required to maintain separate accounts for
funds made available from the Highway Trust Fund and from funds
available from the Federal transit program.
• A participating State may contribute to the highway account up to10
percent of its annual apportionments from each category under section
104(b)At a minimum, a State must match 25 percent of the Federal
contribution with funds from non-Federal sources (except as provided for
by section 120(b) of title 23, United States Code).
• Once the banks were funded, they would be able to fund projects without
regard to the federal/state ratio.
• State must require the bank to make an annual report to the Secretary on
its status no later than September 30, 1996 and September 30, 1997.
• State must ensure that its SIB bank maintains an investment grade rating
on a continuing basis or has a sufficient level of bond or debt financing
instrument insurance to maintain the viability of the bank.
• Repayment of any loan from the bank will commence not later than five
years after the project has been completed or, in the case of a highway
project, the facility has been opened to traffic.
• The term for repaying any loan may not exceed 30 years after the date of
the first payment.
• Other than such regulations stated in this section, no additional Federal
regulations shall apply to use of such funds.”

The Senate, in contrast to the House, believed only large, intermodal projects were
candidates for SIB projects and had no equivalent language. In conference, while the joint
House-Senate committee accepted the House SIB program, it rejected President Clinton’s
53

proposed U.S. DOT reorganization which also eliminated the SIB program’s funding source. To
replace the funds, the Senate proposed allocating $250 million from the Aviation Trust Fund
(U.S. Senate Committee on Appropriations, 1995). However, in a later action, this was reduced
by $58 million to help fund the Alameda Corridor project in Los Angeles, and another $500,000
was taken to fund the pilot study (U.S. Senate Committee on Appropriations, 1996)
The National Highway System Transportation Act (NHS) was signed into law by
President Clinton on November 29, 1995. It authorized the FHWA to select ten states, and then
furnish Congress with a report by March 1
st
, 1997. A notice was placed in the Federal Register
on December 28
th
, 1995, inviting states to submit applications (Federal Register, 1995). It cited
Presidential Order 12983 as the basis for the program (C.F.R., 1994). The Order stressed the
need for:
1. Investment in infrastructure to promote sustained economic growth,
2. Systematic analysis of programs to determine actual cost vs. benefit before selection, and
3. Periodic review by state agencies to encourage the adoption of efficient best practices.
Selecting the Pilot States
Two Senate committees asked the GAO (1996) to provide an early assessment of interest
in SIBs by (a) investigating at how the states could use the SIBs, and (b) by noting the benefits
and barriers to their utilization. The GAO report combined a 15 state survey with financial data
and the SIB pilot applications to assess the program in four areas:
1. Financing Tool [Method] Preference,
2. Expected Benefits,
3. Repayment Revenue Sources, and
4. Factors Reducing Interest in the SIB Program.
54

The following four tables detail the study’s major findings. For the financing methods,
they found almost equal support for the use of direct loans, bond reserve and interest rate
reduction (Table 15). This reflects the need for financing flexibility.
Table 15. State SIB Financing Tool [Method] Preference
Financing Method
Probably
Yes
Possibly
Yes
Probably
No Total Positive Negative
Direct Loans 7 3 0 10 100% 0%
Reserves for bonds or loans 6 2 2 10 80% 20%
Subsidized interest rates 4 5 1 10 90% 10%
Insured credit or loan guarantees 5 2 3 10 70% 30%
Source: Figure 2, (GAO 1996)

For expected benefits, increasing private investment led the list (Table 16). This
reflected the general belief in the 1990’s that private investment in transportation would help
close transportation funding gaps. The case studies and the financial data will reveal if this was
true.
Table 16. Expected SIB Benefits
Expected Benefit Large Some
Small
or
None Total
Large
or
Some
No
Benefit
Increased private investment 6 4 0 10 100% 0%
Expanded number of projects 5 5 1 11 91% 9%
Leveraged federal funds or credit 4 5 1 10 90% 10%
Increased state and local investment 2 7 1 10 90% 10%
Expedited project completion 8 1 2 11 82% 18%
Source: Figure 3, (GAO, 1996)

Table 17 shows the most likely sources of loan repayment revenue with surprising
support for toll roads. This reflects the political difficulty with raising motor fuel taxes and the
need to find alternate funding sources. Public support in the mid-1990’s for toll roads varied
widely from 75% for a toll road in Orange County (CA) whose debt may now not be paid off
until 2053 (Doug Irving, 2013), to 9% in Oregon, where most residents expect roads to be paid
for by their fuel tax rather than tolls
36
(Zmud & Arce, 2008). Regardless of the interest
55

expressed by the respondents, the amount of Federal-Aid toll roads has only increased by 3.6%
between 1995 and 2013.
37
State DOT staff interviewed for this research expressed the opinion
that the support for toll roads may not have been real, but instead motivated by the desire to
receive a portion of whatever additional funding was tied to the program.
Table 17. Likely SIB Repayment Revenue Sources
Revenue Source
Probably
Yes Maybe
Probably
No Total
Yes or
Maybe No
Dedicated public revenues 6 4 0 10 100% 0%
Vehicle Tolls 7 3 1 11 91% 9%
General public revenues 4 3 3 10 70% 30%
Other project revenues 4 3 3 10 70% 30%
Source: Figure 5, (GAO, 1996)

Finally, Table 18 lists the factors that could reduce state interest in the SIB program.
Topping the list is the lack of capital funding, reinforcing the state view of a real funding gap.
Unfortunately, funding for the program had dropped 100 fold before the study was finished.
Table 18. Factors Diminishing Interest in the SIB Pilot Program
Diminishing Factor
No Opinion
Don’t Know
Definitely No
Probably No
Probably Yes
Definitely Yes
Total
Yes or
Maybe Yes
No Opinion
No or
Maybe No
No new federal funds to capitalize a SIB 0 5 2 0 8 15 53% 0% 47%
Not enough revenue projects to sustain the SIB 1 3 5 4 2 15 40% 7% 53%
Legal/constitutional problems with the SIB 1 3 7 2 2 15 27% 7% 67%
Needs approval of the state legislature 1 3 7 4 0 15 27% 7% 67%
Public &/or legal opposition to debt financing 1 5 5 2 2 15 27% 7% 67%
Insufficient state knowledge about SIBs 1 7 4 1 2 15 20% 7% 73%
Lack of state expertise to start the SIB 1 9 3 2 0 15 13% 7% 80%
Source: Figure 4, (GAO, 1996)

It became apparent during the case interviews that the GAO had not anticipated that the
states would express artificial enthusiasm to receive whatever additional funds Congress
appropriated for the program. This gave the FHWA staff and Congress an artificially inflated
view of support for the program.
56

The SIB pilot project applications were to include example projects, but the states were
not duty-bound to execute them. Fifteen states met the March 1
st
, 1996 deadline.
38
The FHWA
selected Arizona, Florida, Ohio, Oklahoma, Oregon, South Carolina, Texas and Virginia, with
California and Missouri added after their applications were revised. Ohio and Oregon were the
first banks to become operational, and by July 1997, all ten had signed cooperative agreements
(See APPENDIX D for a detailed description of the SIB program).
4.2 The Transportation Appropriation Act of 1997
The Act expanded the program to all 50 states and the territories, and it first authorized
$250 million as seed capital for the banks, but this was later reduced in conference to $150
million from the general fund (Wolf, 1996). It attracted 28 additional states and Puerto Rico who
applied by May 1997, and all were approved by June 1997 (U.S. DOT, 1997b). Georgia,
Illinois, Louisiana, Massachusetts, New Jersey all applied but then dropped out. Oklahoma
passed SIB legislation but then declined to capitalize the bank because the state DOT did not feel
it provided any additional capabilities (Ridley, 2011).
While articles continued to run in trade journals expressing optimism about the potential
funding bonanza that the SIB program might create, at least one member of the House had
already realized that the funding cut had hobbled the SIB program. On February 12,
Congresswoman DeLauro rose on the House floor rose to:
“…introduced four bills that I hope will add to the dialogue about the Federal
Government's role in establishing public‐ private partnerships to leverage both
public and private investment in America's infrastructure….”
She further stated:
“…The success of the newly created SIB's is limited by undercapitalization and
an inability to leverage projects other than highway and mass transit
infrastructure…” (DeLauro, 1997)

57

As mentioned above, a key feature of the program under the NHS Act was that it did not
explicitly state that federal laws pertained to repaid funds. Thus, while repaid state and federal
funds were “restricted” to Title 23 or Title 49 projects, they were not subject to regulations such
as the Davis-Bacon fair wage Act (DBA) or the EPA’s National Environmental Act (NEPA).
While investment interest earned on bank funds were also considered “restricted,” any additional
state funds used to repay loans beyond the original state match retained their state identity and
could be used for non-federal, non-FHWA purposes.
The treatment of repaid funds was an echo of the attitude of supporting Congressman and
Senators from right-to-work states who viewed the SIB program as a way to free transportation
funding from compliance with burdensome federal regulations (J. Davis, 2016b). The freedom
of repaid funds from federal regulations was also mirrored by the CWSRF program, which at the
time, also did not require compliance with Davis-Bacon.
Four banks had loans default in the first few years of their operation and all involved
some aspect of a PPP. As a result, none will make loans to private entities and all expressed
reservations about funding PPPs. Since SIB financial data did not record the project types, it is
not possible to definitively state that Design-Build (DB) projects had been funded, but several
interviewees felt that it was a safe assumption. These results have not changed since 1997,
indicating that the SIB program as currently implemented is unable to attract sufficient private
capital to bridge the funding gap.
An Evaluation of the U.S. DOT SIB Pilot Program – 1997 Report to Congress
In February of 1997, the U.S. DOT sent its initial report on the SIB pilot program to Congress
detailing early successes (U.S. DOT, 1997a). It noted that just four months into the program:
• $65 million out of $228 million had been obligated for SIB capitalization,
58

• Ohio had already made two loans totaling $20 million, and
• The two-year outlook was $1.6 billion in construction on just $324 million in outlays, or
5 times more construction was scheduled than with straight PAGO financing.
However, the report also described problems that shadow the program in 20 years later:
• Due to the ACAP schedule, capitalization was “modest” (slow). One of the goals of the
SIB as stated Congressman “Bill” McCollum and the FHWA, was to reduce costs by
providing rapid funding (project acceleration). Unfortunately, the program followed
traditional outlay patterns because some in Congress feared states would divert too much
of their future funds into the SIBs. State DOT staff commented that this was never a
possibility because most states would have to borrow funds to replace any diverted funds
already slated for planned projects.
• Georgia, Illinois, Louisiana, Oklahoma, Massachusetts and New Jersey were all
considering the form of their bank. However, they all eventually dropped out of the
program with Georgia being the sole state to create its own state-funded SIB (SFIB).
• The forthcoming funding had been reduced from $2 billion to $150 million. As a result,
the SIBs were destined to become a “niche program,” funding state and local Title 23 and
49 eligible projects with dedicated revenue streams.
It should be noted that the report, whose format was set by Congress before the funds
were lost, did not assess the impact of the reduced capitalization. There also was no data
available from the FHWA on the potential losses due to project inflation, deferred maintenance,
transportation inefficiency and the other costs associated with delayed, under maintained and
inadequate transportation infrastructure.

59

4.3 Transportation Equity Act for the 21st Century (TEA-21), 1998-2004
The Transportation Equity Act for the 21st Century (TEA-21), 1998 made five minor and
one major change. The minor changes were:
1. SIB reporting was changed from annual to biennially to reduce the program’s
administrative overhead. Roughly half of the interviewed states felt that the program’s
reporting was an irritation or burden considering the small amount of funds involved.
2. The new SIBs could use up to 100% of qualifying funds for capitalization. This change
may have been due to a typo (10% to 100%) as the FHWA had not requested the change,
and states were not using their full allotments at the time.
3. The Advance Capitalization schedule was changed from the complex nine year sliding
scale to a simple 20% per year over five years. While the new schedule was simpler and
faster, it actually reduced the total funds that could be deposited into the SIB over the
first 3 years.
4. The SIB program required states to keep four separate accounts: State contributions, State
Repayments, Title 23 funds (surface transportation) and Title 49 (public transit). States
complained about the bookkeeping and in addition, wanted the flexibility to move funds
between transportation and transit accounts. Congressional supporters of public transit
were initially hesitant to grant such a request for fear that the public transit funds would
always be used for surface transportation, creating a social justice issue.
39
Because “fair
box” revenue almost never fully pays for most public transit programs, most states cannot
afford to borrow future transit funds because they don’t have the revenue to repay the
loan. TEA-21 allowed funds to be moved between the highway (Title 23) and transit
(Title 49) accounts with little effect. As of November 8, 2016, only 24 out of 978 loans
60

have been for transit ($60 million out of $4.8 billion), and the FHWA SIB staff were
unaware that any funds had ever been moved between the two accounts.
5. The 34 banks chartered under NHS would continue, and the rule changes would not
apply to their existing operations or funds. However, any additional FHWA funds
diverted for capitalization of an existing bank or one of the four new banks (California,
Florida, Missouri and Rhode Island) would be governed by the modified TEA-21 rules.
The major change was that all new funds deposited in a SIB (including non-matching
state funds) were federalized. This meant that state contributions beyond matching funds could
only be used on Title 23 or 49 projects and were required to conform to all federal regulations
including Davis-Bacon and NEPA. The battle between the Democrats and the Republicans over
the Davis-Bacon Act (DBA) had a detrimental impact on the program’s ability to attract state
funding. The impact of this requires a more detailed examination.
The SIB program and The Davis-Bacon Act (DBA)
Senator Bacon (R-PA) introduced his legislation 1927 to prevent low-wage workers from
other regions from taking the local jobs, keeping unemployment high (known today as “Job
Poaching”). Finally, after 13 failures, it was passed by voice vote during the early days of the
depression and signed into law by Herbert Hoover in 1931. The Act requires that local
prevailing wages be used for federal construction work. Since prevailing wages are closely
associated with union wage scales, unions have worked vigorously to ensure DBA is applied to
all federal construction. As a result, more liberal representatives generally support the DBA
while more conservative ones generally oppose it because, in their view, government
interference in the free market is detrimental and will only increase prices.
40

61

Since its passage, proponents and critics have debated whether the DBA increases costs,
is revenue neutral, or increases revenue due to economic growth. Several studies have found that
it does not increase long-term costs, and in many cases creates a net regional benefit (Goldfarb &
Morrall, 1981) Some states routinely apply DBA or DBA-like standard to all projects (local,
state and federal) while others apply it only to their federal projects. Those who do not apply it
generally ignore its potentially macro-economic benefits (Duncan, 2011) and view it as a burden
that increases construction costs by 15% to 30%.
41

When the SIB bill was being written, a sunset clause in the CWDRF legislation
eliminated the DBA’s applicability at the end of FY 1994 (Mayer & Shimabukuro, 2013). The
EPA then ruled DBA no longer applied to the CWSRF program. The SIB language in the NHS
bill was ambiguous as to DBA’s applicability, so the FHWA followed the EPA’s lead and ruled
that DBA did not apply to SIB funds once they were repaid. However, labor unions objected and
DBA was added to the TEA-21 bill. The new legislation clearly stated that all federal
regulations applied to both the federal grants and to the state matching funds and any state funds
that were used to repay the loans.
42
This permanently federalized all funds in the bank, including
state contributions, and restricted their use to Title 23 or 49 eligible projects. While again the
language in the bill did not explicitly state Davis-Bacon applies to SIB funds, the FHWA staff
felt that this should have always been the case under NHS and decided to correct this
administrative oversight.
43

For states with laws prohibiting funds from losing their identity, it had the effect of
ending state contributions to the bank, negating one of the key program goals stated in the NHS
bill, that of increasing non-federal funding for federal transportation projects. An example of
this effect was reflected in the comments from one SIB staffer who said, “If I told my boss I had
62

just taken $5 million of flexible state money and made it federally restricted [SIB only, Title 23
or 49 projects], he might fire me on the spot.”
2002 FHWA program Review
In 2002 the FHWA conducted a program review. It found that more active banks were
associated with the characteristics shown in Table 19. Unsurprisingly, SIBs that had more
support, access to banking expertise and more resources were more active. This finding echoed
the SIB pilot study that listed lack of banking expertise as a potentially limiting factor.
Table 19. Factors Associated with Active SIBs
1. Strong program support by high-level officials within the State DOT.
2. Internal support and coordination within the State DOT.
3. An effective marketing program.
4. Access to existing state resources and banking expertise.
5. State contributions above the required match or additional use of TEA-21 funds.
6. A larger capital base and a more diverse loan portfolio.
Source: (FHWA 2002)

The assessment also identified 11 impediments at the federal and state level that could
slow or prevent the program from reaching its goals (Table 20). Not surprisingly, the
impediments dealt with insufficient bank expertise, the need for better federal administrative
procedures and advertising the program to potential borrowers. In 2002, the program was still
relatively new and both the FHWA and state DOTs continually found that many municipal
agencies did not know enough about it to understand how it might benefit their projects.
However, after 22 years knowledge of the program is no longer an issue.
Table 20. SIB Impediments
Federal Level
1. Provide business expertise, technical support and training.
2. Transfer SRF knowledge and practices from other groups and agencies [EPA] to the SIBs.
3. Act as a clearing house for best practices and up-to-date SIB information.
4. Develop an Annual SIB Report template to facilitate more consistent state reporting.
5. Increase financing flexibility (requested by SIBs, but not listed as an enhancement).
63

Table 20. SIB Impediments
State Level
1. Expand program outreach and marketing.
2. Implement more formal application processes.
3. Consider establishing shorter terms for loan repayments to increase lending capacity
4. Develop long-term strategies and coordinate with MPO to maximize program benefits.
5. Explore the potential for assisting revenue-generating projects.
6. Improve financial reporting and the timeliness of financial reports.
Source: (FHWA 2002)
NOTE: Federal Level, item 2 refers to agencies that have experience with revolving fund banks.
4.4 Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users
(SAFETEA-LU), 2005 – 2011
The SAFETEA-LU bill opened the program again to all 50 states, reimplemented the 10%
cap on FHWA grant diversion, separated the Tile 23 and 49 accounts again and reestablished
annual reporting. The resultant changes had little effect on the program, and no new banks were
chartered.
FTA 2005 Update on State Infrastructure Bank Assistance to Public Transportation
In 2005 the FHWA updated their program review (FTA, 2005). They found that while
the chartered banks were active with transportation loans, only 8 of the 21 eligible SIBs had
made public transit loans.
44
This is due in large part to the fact that on average, farebox revenue
only covers roughly 40% of their operating costs (Bond & Steiner, 2006).
45
As a result, it is
especially difficult to redirect funds that are already earmarked for specific projects to capitalize
a bank. They also found that only a few PPP projects had been created, indicating that the transit
portion of the SIB program was not able to attract substantial private investment. Their review
looked at its constraints and benefits and then made a series of recommendations. The main
constraint, the lack of revenue to repay loans, could not be solved by using flexible financing.
64

The constraints also
mirror those cited by the initial
1996 GAO pre-legislation
study (GAO 1996), indicating
neither the program’s
flexibility nor the additional
changes made by Congress to
the initial legislation had
addressed its core weaknesses.
The Great Recession
The Great Recession occurred
during this time period.
While most banks reported it
had no or just a small impact
on their programs, it had a
major impact on Arizona’s
bank. In 1998, Arizona
passed SB1201 (PL 28-7678),
which authorized the
Transportation Board to issue
up to $100 million in 4-year bonds to help fund their SIB.
46
The bonds were repaid by the
motor fuel tax. The program worked well until the 2008 Great Recession severely decreased
business activity and AZDOT tax revenue (Figure 18 & Figure 19), causing the State Treasurer

Figure 18. Total state and local government Revenue
Source: FRED, St. Louis.

Figure 19. Arizona revenue from select transportation taxes
for FY 2004 to 2014.
Source: (AZDOT, 2015)
65

to call in the outstanding bonds, all of which were terminated within a few months. The Arizona
bank, known as HELP (Highway Expansion and Extension Loan Program) has yet to start
making loans again as of this writing (6/2017). In 2009, Arizona ranked 2
nd
in the nation with 1
foreclosure for every 16 properties, just behind 1
st
place Nevada which had 1 foreclosure for
every 10 properties (Indiviglio, 2010).
4.5 Moving Ahead for Progress in the 21st Century Act, (MAP-21) 2012 - 2014
MAP-21 eliminated funding diversion for bank capitalization, but it had little effect since
no new banks had been chartered since TEA-21. The FHWA staff were uncertain why this
occurred and speculated that it might have been due to a legislative oversight as there had been
no discussion with them about modifying this provision.
The Brooking’s Institute 2012 report “Banking on Infrastructure” surveyed the existing
EPA, DOE and FHWA revolving loan programs. In it, the authors made three recommendations
which highlighted some of the problems with the SIB program (Table 21). Its administrative
overhead (Item 1), sometimes slowed funding, reducing its ability to accelerate projects. For
item (2), small banks cannot fund large, high ROI projects, and from Item 3, the lack of
administrative funds and the inability to utilize the knowledge gained by the EPA’s operation of
the CWSRF meant that most states did not have access to such expertise. Additionally, the three
Table 21. Brookings Institute SIB Recommendations
1. The FHWA should work with the state agencies to eliminate sources of delay.
2. Increase SIBs effectiveness by selecting high Return On Investment (ROI) projects.
3. Provide expertise to maximize loan capacity, cost reduction and bank longevity.
Source: (Puentes & Thompson, 2012)

goals to work against each other. If the bank lowers its interest rate, it reduces current costs.
However, this also reduces the interest received and in turn, the bank’s future loan capacity.
66

Further, the SIBs interest rate must be higher than inflation; otherwise, its capital will continually
lose value over time and eventually become insolvent.
This dilemma was first addressed by Holcombe (1992) whose simulations found that an
SRF would lose 50% of its value in 40 years if its interest rates were 2% below inflation and
50% in just ten years if no interest was charged. Ryu countered this by showing that if the
SRF/SIB charged between 1% and 5% interest, it could remain solvent for 10 to 20 years, which
may be a sufficient span between capitalizations to make SIBs useful (Ryu, 2006).
Unfortunately, none of the models included avoided costs and net social benefits. This has led to
an under estimation of the SIB’s ability to reduce total life-cycle costs.
4.6 Fixing America’s Surface Transportation Act (FAST), 2015
The FAST Act restored the use of up to 10% of qualifying funds for capitalization, but
since no states have applied or transferred additional funds to existing banks, this has had little
effect. Additionally, the 2015 bill enabled states to convert their banks chartered under the “pilot
program” to permanent banks under the 2015 regulations, but no states have elected to use this
option either.
4.7 Conclusions
In conclusion, the SIB program was based on the highly successful CWSRF and therefore
its stakeholders from the President downward had high expectations for the program. However,
it immediately ran into funding problems when Congress dropped President Clinton’s U.S. DOT
reorganization, thereby eliminating the $2 billion in savings that was to fund the SIB program.
In its place, Congress only provided the one-time $150 million appropriation with only $126
million of that eventually distributed. This reduced interest in the program as “per bank”
capitalization dropped from approximately $40 million to just $3 million. Five states opted to
67

leave the program while Oklahoma never activated their bank, dropping the number of active
banks to 33. Additionally, only 7 out of the 33 banks decided to use leverage, a prime focus of
program’s originators. Finally, Congress modified the program five times in succeeding
transportation bills, but the changes did not address the program’s problems due to the conflicts
over devolution, taxes and the Davis-Bacon Act. The next section will explore these and other
issues in more detail.
68
CHAPTER V
ANALYTICAL FINDINGS
This chapter utilizes the information collected in chapter 4 to assess the current status of
the SIB program, the factors that enhanced or diminished the SIB program performance, and
whether it fell below, met or exceeded its stakeholder’s expectations. These are then combined
into a narrative of the root causes of the program’s underperformance.
5.1 SIB Status
This section analyzes the SIBs to determine how they have performed. The primary
source of information about them is the FHWA program office dashboard report which is
compiled from the state filings. While the 1995 NHS Act specifies that the SIBs will “…make
an annual … and… other reports as the [U.S. DOT] Secretary may require by guidelines,” it
gave no further direction. The FHWA was not given any additional manpower or resources to
manage the project other than one-half FTE during the first year. This underfunded the data
management and retention efforts, creating the following problems:
1. The FHWA had no manpower to check the annual reports filed by the SIBs to insure they
matched the state annual certified financial reports (CFR). As a result, there are
numerous errors and omissions in the data that was submitted to the FHWA.
2. The FHWA only kept cumulative totals. This practice started in 1996 and was never
changed. As a result, it is impossible to track the evolution of each SIB or evaluate the
cost of loans vs. available alternatives. In addition, information that would have allowed
for an analysis based on project and loan type (e.g., is it a PPP) was not kept.
3. The initial pilot applications and all operating agreements were not kept. With no funds,
the SIB program office delegated this responsibility to the states. The states did not see
69

the need to retain this information and as a result, the information about how and why the
states started their banks has been lost.
The quality and availability of state data also vary significantly. The most active banks,
such as Arizona, Florida, Ohio Texas and others have records for most years of operation, but the
level of detail varies widely. Even many of the annual Certified Financial Records (CFR) do not
preserve basic data about each loan (e.g., type [PPP, fixed, variable], project purpose, interest
rate, term, risk, available alternatives, etc.). Further, states with closed banks such as Delaware
have no staff who were present when the bank was in operation, and none of their financial
reports could be found. Additionally, because accounting practices vary both over time and from
state to state, it is nearly impossible to assemble a comprehensive financial picture of SIB
operations. This reduced the financial analysis to the lowest common denominator, which is the
summary data from the FHWA SIB program office (Table 22.)
Table 22. FHWA SIB Financial Status
State
State
Capital
Federal
Capital
Total
Capital
Bonds
Out-
standing
Funds
Available
Change in
Capital
Loan $$
To Date
Loans
Disbursed
Loans
Out-
standing
Capital
Turnover
Alaska $0.3 $2.5 $27.4 $0.0 $3.8 $2.1 $2.7 1 1 1.0
Arizona $2.4 $46.2 $485.8 $0.0 $78.8

$545.6 52 0 11.2
Arkansas $0.0 $1.5 $15.0 $0.0 $0.1 $0.7 $2.2 3 1 1.5
California $0.4 $3.0 $33.9 $0.0 $4.0

$1.1 2 0 0.3
Colorado $3.0 $1.5 $45.0 $0.0 $25.4 $41.2 $56.3 38 19 12.5
Delaware $3.3 $1.5 $48.0 $0.0 $0.0 $824.6 $4.8 1 0 1.0
Florida $488.8 $126.3 $6,151.0 $498.3 $1,135.0 $5.4 $1,168.5 83 33 1.9
Indiana $0.0 $2.2 $22.0 $0.0 $4.4 $1.2 $7.6 3 3 3.4
Iowa $0.0 $1.5 $15.0 $0.0 $2.7 ? $2.9 2 0 1.9
Maine $0.6 $2.5 $31.8 $0.0 $3.4 ($5.2) $2.5 3 4 0.8
Michigan $0.0 $11.1 $110.5 $0.0 $0.6 $9.4 $47.8 66 15 4.3
Minnesota $10.9 $35.1 $459.3 $1.5 $19.3 $43.0 $157.1 34 23 3.4
Missouri $10.3 $49.4 $596.6 $0.0 $65.3 $0.0 $244.2 55 16 4.1
Nebraska $0.7 $2.8 $35.4 $0.0 $0.0 $4.0 $21.2 12 2 6.0
New Mexico $5.7 $12.1 $177.9 $0.0 $20.0 $0.7 $37.0 7 1 2.1
New York $3.0 $12.0 $150.0 $0.0 $0.0 $0.2 $27.0 3 0 1.8
North Carolina $0.4 $2.6 $30.5 $0.0 $3.0 ($47.5) $2.9 8 3 0.9
North Dakota $0.6 $2.5 $31.4 $0.0 $3.4 $42.1 $5.7 3 0 1.8
Ohio $50.0 $87.0 $1,370.0 $6.4 $8.6 ($12.0) $363.0 190 93 2.7
Oklahoma $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 0 0 0.0
Oregon $31.5 $14.5 $459.6 $0.0 $27.5 ($3.0) $59.4 32 19 1.3
Pennsylvania $0.0 $17.4 $173.9 $0.0 $59.5

$117.2 215 149 6.7
Puerto Rico $0.0 $12.0 $120.1 $0.0 $0.0 ($1.9) $15.0 1 0 1.3
Rhode Island $0.0 $1.5 $15.0 $0.0 $1.5 $168.2 $2.4 2 0 1.6
South Carolina $0.0 $3.0 $30.0 $0.0 $0.0 ($1.8) $1,200.0 0 0 400.0
South Dakota $2.5 $11.2 $136.1 $0.0 $20.9 $1.6 $32.6 10 3 2.4
Tennessee $0.4 $1.5 $18.8 $0.0 $0.0 ($22.5) $1.9 1 0 1.0
Texas $102.8 $171.3 $2,741.1 $0.0 $302.2 $0.7 $500.2 106 38 1.8
70

Table 22. FHWA SIB Financial Status
State
State
Capital
Federal
Capital
Total
Capital
Bonds
Out-
standing
Funds
Available
Change in
Capital
Loan $$
To Date
Loans
Disbursed
Loans
Out-
standing
Capital
Turnover
Utah $0.2 $2.3 $24.8 $0.0 $0.0 $0.9 $3.3 2 1 1.3
Vermont $0.6 $1.5 $20.6 $0.0 $3.2 $7.7 $4.3 13 2 2.1
Virginia $4.5 $18.0 $225.0 $0.0 $0.0 ($4.8) $28.0 2 1 1.2
Washington $0.2 $1.5 $17.3 $0.0 $0.3 $0.0 $3.9 5 2 2.3
Wisconsin $0.4 $1.5 $18.8 $0.0 $0.1 ($2.2) $7.7 21 9 4.1
Wyoming $2.5 $23.5 $260.2 $0.0 $5.9 $2.1 $220.7 22 3 8.5
Totals $726 $684 $14,098 $506 $1,799 $1,055 $4,897 998 441
Source: FHWA SIB Program Office and State SIB Offices. Values are in U.S. Millions, non-adjusted dollars.

It should be noted that as spring 2017, the SIB program office is conducting an audit of
their financial records and plan to correct, expand and enhance the program’s reporting system.
SIB Bank Activity
Figure 20 shows the current status of the SIBs with regard to total loans made,
capitalization, leverage and recent activity. It also shows the difficulty in using straight financial
data to assess the banks. Overall, banks that started with more working capital have issued more
loans as would be expected. Banks with red loan numbers have no outstanding loans or have not
issued any new loans since 2008.
47
This is predominately associated with smaller capitalization.
However, the figure also shows the problems with using the initial capital to assess bank
potential. South Carolina started with a small capitalization, but decided to use their bank for
large projects and issued several sets of bonds through the SIB, paid for by truck registration
fees.
48
Thus, even though South Carolina has the 10
th
highest rural poverty rate in the U.S.,
(U.S. Census Bureau) they funded their bank through fees from both state-wide and regional
programs. At the same time, other rural states such as Wyoming, Iowa and South Dakota did not
feel they could use fees to reimburse their bank, and as a result only made no-interest loans
solely to their state DOT.

71

Arizona also stands out due to its large number of loans. It was one of the few banks that
was strongly impacted by the Great Recession. The State Treasurer recalled all of its bonds and
as of this writing has yet to authorize the bank to start up activity. A large portion of its projects
was used to help complete the state highway system (greenfield, new construction).
Finally, Figure 21 shows that 99% of the funds have been used on highway projects, with
only 1% dedicated to transit. This indicates the incompatibility of SIBs with projects that do not
have dedicated revenue streams to repay their loans. Unless the governing authority can
implement a regional tax, increase user fees, has a tax revenue sharing program in-place, or takes
advantage of an additional revenue source such as oil fees or tourist dollars, neither transit
programs nor rural municipalities have the revenue repay SIB loans.

Figure 20. SIB Capitalization and Total Loans Distributed
Notes: B => Bank issued bonds (Leveraged). Red text no loans issued since 2008.
Source: FHWA, Author.
3 2 2 5 1 21 13 3 2 1
22
8 3 3 2
12
38
1
66
10 3
1
215
7
2
22
34
32
52
55
190
106
83
$-00
$200.00
$400.00
$600.00
$800.00
$1,000.00
$1,200.00
$1,400.00
Arkansas
Iowa
Rhode Island
Washington
Tennessee
Wisconsin
Vermont
Indiana
Utah
Alaska
South Carolina
North Carolina
North Dakota
Maine
California
Nebraska
Colorado
Delaware
Michigan
South Dakota
New York
Puerto Rico
Pennsylvania
New Mexico
Virginia
Wyoming
Minnesota
Oregon
Arizona
Missouri
Ohio
Texas
Florida
Millions ($)
Loans To Date
Total Capitlization
B
B
B
B
B
B
B
72

Figure 21. Use of FHWA capitalization by account.
Source: (FHWA, 2016a).
5.2 FHWA SIB and EPA CWSRF Comparison
The biggest differences between the SIB and CWSRF programs are funding and project
administration (highlighted lines, Table 23). First, while the SIB banks received only a one-time
$150 million appropriation,
49
the CWSRF banks have received funds every year since 1987.
Normalizing the per bank capitalization by the number of years the banks have been in operation
(bank-years
i
), the CWSRF banks received on average $44.4 million per year while the SIB’s
received just $1.1 million or 36 times less. This reduced the number, size and type of projects
they could fund, limiting the program’s effectiveness. It also made it far less likely for the states
to employ leverage (issue bonds) because small issues have relatively higher cost and therefore
are less economical than ready alternatives. This is reflected by the fact three times more SRFs
have issued bonds than SIBs (Table 24). One interesting note is that two of the five confirmed

i
Bank-years: Ex: If 3 banks have been in operation for 5 years each, this equals 15 bank-years (3x5).
73

PAYGO states
50
(Iowa and South Dakota) have issued bonds under the CWSRF program,
indicating that even these states do occasionally make exceptions to their PAYGO-only policies.
Table 23. EPA CWSRF vs. FHWA SIB comparison
No. Feature EPA CWSRF & DWSRF SIB
1. Capitalization Annual appropriation above $1 billion One time appropriation of $150 million for 33 banks.
2. Number of Banks 51 33
3. Banks with loans since 2008 51 17
4. Initial Capitalization $225 million $126 million (distributed)
5. Total Federal funds $111 Billion/102 = $1.1 Billion/bank $654 million/33 = 19.8 million/bank
6. Federal Capitalization/bank-year $44.4 million $1.1 million
7. Annual Capitalization Mandatory appropriation dedicated to
the SRF bank
Optional diversion of annual Tile 23 and 45 funds in
some years.
8. Agreements Funded/Dollar Value 48,583/$128 billion 978/$4.9 billion
9.
10. Automated Financial Selection Guide Financing Alternatives Comparison Tool
(U.S. EPA, 2011)
“Value for Money” to evaluate PPPs. (FHWA, 2013b)
11. Matching Funds required? 20%. 20% max. Reduction based on the percentage of
publicly owned land.
51

12. State Legislation Required? Optional Optional
13. Leverage Required? Optional Optional
14. Percent Banks Leveraged CWSRF 28/51 (54%); DWSRF 21/51
(41%)
4/33 (18%)
a
15. Types of assistance Loans, refinancing, guarantees Loans, refinancing, guarantees
16. Matching fund period 5 years Initially 9 years, reduced to 5 in under SAFETA_LU.
17. Repaid funds federalized? Yes NHS-No; TEA-21 through FAST (2016), Yes.
18. Davis-Bacon Act applicable? 1987 to 2000, No. 2000 through 2016,
Yes.
NHS-No; TEA-21 through FAST (2016), Yes.
19. Use funded assets as collateral for
bonds?
Yes No
20. Dedicated staff 35 to 40 individuals (FTE) ½ FTE in 1995, thereafter, none.
21. Administrative cost coverage 4% of loan plus $500k amounts for
smaller states
2% of loan value. No additional amount for smaller
states.
22. Annual smart business practice
assessment
Yes, by EPA Program Office No
23. Annual accounting audit Yes, by EPA Program Office No
24. Banks contact each other for help Yes. No
25. Annual conference Yes, at CIFA No
Notes: (a) Seven SIBs issued bonds, but Delaware and Puerto Rico’s banks are both inoperative.
Major differences are highlighted.
Source: EPA, FHWA, MSRB, NCSL.

The second difference between the two programs is administrative and also funding
related. As mentioned previously, the FHWA did not have a mechanism to ask for additional
administrative funds to manage new programs. While they are sometimes allowed to use a small
percentage of a new program’s budget, they manage new programs with available staff. This is
74

essentially what happened to the SIB program. The FHWA dedicated one-half FTE for roughly
six months to start the program, and then the available staff was used to continue running it.
52

Table 24. Leveraged SRF and SIB Banks
State
CW
SRF
SIB State
CW
SRF
SIB State
CW
SRF
SIB
Alabama Yes Louisiana
D
Ohio
P
Yes Yes
Alaska
S
Maine
S
Yes Oklahoma
P, S, D
Yes
Arizona
P,S
Yes Yes Maryland Yes Oregon
P

Arkansas
S
Yes Massachusetts
D
Yes Pennsylvania
S

California
P,S
Yes Michigan
S
Yes Puerto Rico
S
Yes
Colorado
S
Yes Minnesota
S
Yes Yes Rhode Island
S
Yes
Connecticut Yes Mississippi South Carolina
S

Delaware
S
Yes Missouri
P, S
Yes South Dakota
S
Yes
Florida
P, S
Yes Yes Montana Tennessee
S

Georgia Nebraska
S
Texas
P
Yes
Hawaii Nevada Yes Utah
S

Idaho New Hampshire Vermont
S

Illinois
D
Yes New Jersey
D
Yes Virginia
P
Yes
Indiana
S
Yes New Mexico
S
Washington
P

Iowa
S
Yes New York
S
Yes West Virginia
Kansas Yes North Carolina
S
Wisconsin
S

Kentucky Yes North Dakota
S
Yes Wyoming
S

Leveraged Banks: EPA - 28/55 (55%), FHWA - 6/33 (18%).
Notes: P=SIB Pilot Program; S=SIB; D=Dropped out of SIB program
Sources: EPA, FHWA

In contrast, the CWSRF has continuously used 30 to 40 individuals working full time to
run the program since its start. Obviously, the larger budget also requires a larger staff, but the
lack of startup funding indicates a fundamental flaw in the implementation stage of the
legislative cycle (Figure 13, Step 4). While it is uncertain whether the legislators knew about the
CWSRF’s staffing requirements, it is certain the information had been available for six years
before the start of the SIB program.

75

5.3 Major Factors Affecting the SIB Program
Combining the previous SIB history and economic data, the major factors that affected
the program are discussed in approximate descending order of importance. Factors listed in the
four reviews of the program from the GAO (GAO 1996)., FHWA (FHWA 2002), FTA (FTA,
2005) and Brookings Institute (Puentes & Thompson, 2012) are used and discussed. Where
appropriate, problems caused by failures in the legislative cycle are indicated.
Bank Undercapitalization
The CWSRF’s budget over its first two years was approximately 10% of the EPA’s total
outlays. President Clinton’s $2 billion capitalization plan (1.5% of FHWA’s 1995 outlays) was
enough to start 50 banks with $40 million each, or $240 million had they decided to leverage
their funds.
53
Instead, the reduction to a one-time $150 million disbursement gave them 36 times
less than the CWSRF banks. The dramatic capitalization reduction:
1. Made the SIB a “Niche” program. The reduction shifted the program from a major
transportation funding mechanism to just a niche program that has supplied 0.6% of all
FHWA programs from 1995 through 2016. Of the 34 original banks that received
funding,
28
25 started with less than $5 million, and the average amount was just 1.6% of
the participating state’s 1997 federal obligations.
54

2. Reduced rural loans. With less capital. The SIBs were far less likely to fund rural
projects since rural municipalities have less revenue and cannot repay loans. Examples
of this are Iowa, whose program is geared toward rural regions, but whose small cities
don’t have the revenue to repay their loans, and Alaska, whose bank has made just one
loan to a toll project. The rest of their transportation projects generate no revenue and
thus cannot repay a SIB loan.
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3. Made SIBs ill-suited to fund transit. Less than 1% of SIB loans have been for transit.
This is because on average, farebox revenue only covers about 40% of their operating
costs (Bond & Steiner, 2006).
55
As a result, they find it difficult to redirect funds that are
already earmarked for specific projects to capitalize a bank.
4. Reduced leverage opportunities. The smaller the bank’s capitalization, the less
attractive it is to use leverage to increase its capital. While the authors of the SIB
legislation expected a majority of states to leverage their banks by issuing bonds, only
seven banks did so; Arizona, Delaware, Florida, Minnesota, Ohio, Puerto Rico and South
Carolina. Of these, Delaware rapidly closed their bank, and Puerto Rico’s SIB suspended
operations due to a financial crisis brought about by Congress changing the tax status of
foreign national enterprises operating in the territory (Greenberg & Ekins, 2015).

Three times fewer SIBs than CWSRF banks were leveraged (Table 24). The Council of
Infrastructure Financing Authorities (CIFA)

authored an extensive study of all existing
bond banks, state revolving funds and infrastructure banks in 1997 and found that banks
that issue bonds reduce overall loan costs by 2% to 4% (CIFA, 1997).
56

5. Caused states to misrepresent their interest. A number of states intentionally joined
the program to receive the one-time appropriation and had no intention of using their SIB
long-term. This was not done out of malice towards the FHWA, but purely out of need
as any additional funding was not to be passed up. States also professed a desire to
implement toll facilities to repay the loans, knowing full-well that motorist would not
support them. This condition was reflected by staff from several different states telling
the same joke: When hired, they were informed that there were just two things that could
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get them fired, striking their boss and not using all available FHWA funds to the penny,
with the second being the far less forgivable of the two offenses.
6. The state’s attitude toward debt: Some states, such as the PAYGO five (Iowa,
Nebraska, South Dakota, Tennessee, and Wyoming) did not leverage their banks.
Instead, they made zero interest loans to the state or local agencies and simply recycled
the bank’s initial capital. When asked why their bank did not charge interest on their
loans, several respondents made essentially the same comment: “why would we charge
ourselves interest?” But there were also some surprises. Oregon was the first state to
establish a motor fuel tax in 1919, and have continually increased it over the years. As a
result, they are a transportation PAYGO state because the voters assume that the motor
fuel taxes adequately cover all costs. Interestingly, three of the five PAGO states (Iowa,
South Dakota, and Wyoming) participated in the program, possibly based on their
positive experience with the EPA CWSRF program.
Political Control of the Government
An important factor controlling whether a state decided to join the SIB program was
which political party controlled
the state legislature. States that
did not participate were twice as
likely to have both chambers and
the governorship controlled by the
Democratic Party. This
potentially reflects union opposition to the SIB program (and hence Democratic Party opposition
as well) because it was viewed as an attempt to circumvent the Davis-Bacon Act (DBA) and
Table 25. State Legislature Control vs. SIB Participation
Participation Yes No
Legislative
Control 1994 1996 1998 1994 1996 1998
Democratic 13 11 11 10 10 10
Split 10 10 9 5 2 3
Republican 10 12 13 5 5 4
Source: (NCSL, 2014), Author.
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environmental regulations. Four of the five states that applied but dropped were not Republican-
controlled. They were either controlled by the Democrats or had a split legislature over the 1994
to 1998 time period (Table 25).
Revenue to repay loans and attitude towards taxes
The availability of revenue to repay loans was a significant factor in determining which
states started and then continued a SIB program. States such as Arizona, Ohio and Oregon with
robust motor fuel tax programs or external sources of income such as tourism dollars in Florida,
were able to set up banks that had either dedicated revenue streams or multiple methods of
repayment (taxes, user fees, Feed In Tariffs (FIT), tax surcharges and in a few cases, tolls).
States that had insufficient revenue to repay SIB loans did not apply for the program, as was the
case with Montana. The state was initially interested but opted out when it discovered that the
capitalization had been drastically reduced. In contrast, South Carolina, politically one of the
most conservative states with the 10
th
highest rural poverty rate, decided to use its bank for large
projects. It dedicated truck fees plus 12 other sources of revenue to repay its loans
48
because the
projects were viewed as beneficial on both a regional and state-wide basis. This indicates that
political support could override many factors that might otherwise limit a SIB or stop its
implementation altogether.
Access to banking expertise and administrative resources
The SIB program was initiated by Congress without providing administrative resources.
This was an odd decision because one of the initial problems the EPA had with the CWSRF
program was that the states did not have the necessary expertise to take maximum advantage of
their SRFs (banks). It had to be built up over time. This was anticipated, so from the start, the
CWSRF program allowed states to use up to 4% of loan value for administrative costs. They
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have also made an exception for small states. It allows them to add a surcharge of up to $400k or
1/5
th
of the final balance to help manage complex projects. The EPA also conducts (a) an annual
financial audit of each bank to ensure proper accounting practices and (b) an annual performance
audit to ensure smart (best) business practices are used. CWSF banks also meet at an annual
conference hosted by CIFA where they share techniques and strategies and frequently contact
each other to discuss tactics.
Similar to the EPA, the FHWA also has a hierarchical structure with the central office
directing the program (FHWA Center for Innovative Finance Support
57
), and like the EPA, its
field offices
58
are expected to provide support for the SIB program. However, other than one-
half FTE used to set up the program, the FHWA received no additional funds from Congress,
who assumed that the FHWA’s staff could start and support the new program with no additional
resources. While SIB Staff indicated that the FHWA program office was exceptionally prompt
in answering their questions, they were unable to provide the necessary banking expertise at
startup. State SIB staff also indicated that they rarely, if ever contacted each other or received
information from the program office on specific techniques used by other SIBs.
The SIB program also had 15 banks that started with less than $3.5 million in capital. In
1995, the 2% administrative fee cap when applied to a $3 million loan would just covered the
cost of one full-time employee (FTE).
59
Most SIBs got around this restriction by using state
DOT staff to help assemble and review loan packages. In 2002, the FHWA program assessment
listed several steps to address this problem including acting as a clearing house for expert SIB
practices and helping SIB banks reach out to banking experts in the EPA’s CWSRF program.
While the FHWA staff did conduct training seminars, state SIB staff were unware of the FHWA
acting as a clearing house for smart business practices or advice from EPA staff.
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High-level Support officials Within the State DOT
States were there was support in the legislature (e.g., Arizona) or from the governor’s
office (e.g., Florida), were given the resources to implement a program tailored to the state’s
needs. It should be noted that this did not necessarily mean that result of such support was
always a large, leveraged SIB. In the case of Vermont, the state already had two successful
agencies in operation: the Vermont Municipal Bond Bank (VBB)
60
which provided loans based
on bonds, and the Vermont Economic Development Authority (VEDA)
61
which provides loans
to encourage economic development. Vermont located their SIB inside of VEDA and used it to
make smaller development loans. In contrast, states such as Oklahoma, Massachusetts, and
Delaware, which never fully implemented their program or rapidly closed their bank, clearly did
not have a comprehensive long-term plan for their SIB.
Availability of bank expertise/mentor within the responsible state agency
States such as Arizona, Florida,
Ohio, and Texas had individual(s) within
the state or the department tasked with
creating the bank who were
knowledgeable about bank operations
(mentors). As a result, they were better
able to determine the best type of bank to implement and show DOT management and legislators
the potential savings that could be achieved. A number of these states also opted to leverage
their funds with bonds (Table 26). States without mentors or DOT, legislative or gubernatorial
support were more likely to acquire one-time grant and then make simple loans. The exception
to this is Delaware which had a small grant of $4.8 million, but then issued bonds. It made a few

Table 26. Leverage SIBs ($M)
State Capitalization
Total Bonds
Issued
Arizona $48.6 $800.0
Delaware $4.0 $4.8
Florida $615.1 $123.6
Minnesota $46.0 $63.7
Ohio $137.0 $10.4
Puerto Rico $15.0 $75.0
South Carolina $3.0 $213.6
Source: FHWA, Author.
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loans and then closed. Since none of its staff or records remain, the reasons for its rapid closure
are unknown.
Availability of alternatives
Many states already had the ability to issue bonds at low rates and did not see the utility
of the SIB program. Other options included Highway Revenue Bonds, GARVEE bonds, GANs
and Section 129 loans (APPENDIX H). Examples of this include Oklahoma which never
activated their bank because staff felt it provided no additional capabilities and New York, who
opted to issue bonds outside of the SIB and let their bank become dormant.
Several states, including Arizona and Oregon, allow local municipal agencies to swap
their federally allocated dollars for state funds at a discount. This enabled local agencies to build
“federal highway” programs with state dollars free of federal regulations. The federal dollars
would then be used elsewhere by the state or by municipal agencies who were not bothered by
the additional federal regulations.
Restrictive and Burdensome Regulations
Under the 1995 NHS bill, fees that were repaid could be loaned out again, free from
federal regulations such as Davis-Bacon and NEPA, as long as they were kept within their
original use (Title 23 or 49 projects). However, a number of states found the annual reporting a
burden. A number of states did not open their banks because they did not provide enough
additional capabilities to warrant the effort, or the politics of DBA prevented them from doing
so. These included Georgia, Illinois, Louisiana, Massachusetts, New Jersey and Oklahoma.
Some states, such as Georgia, opened a state-only funded SIB (SFIB). Others add an SFIB to
their SIB to avoid federal regulations. These included California, Pennsylvania, Missouri, Rhode
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Island and Virginia. Finally, both the California iBank and the Rhode Island Infrastructure Bank
(RIIB) established successful infrastructure banks that funded multiple infrastructure types.
Capitalization from future grants
With the reduction in SIB’s separate capitalization, the FHWA staff was skeptical that
states would be able to repurpose more than a few percent of their future grants as SIB capital.
This is because projects are planned years in advance, and using the already earmarked funds as
SIB capital would necessitate either delaying promised projects or borrowing funds to makeup
the loss. Finally, because some Congressmen were concerned that the SIB program might draw
too much from future grants, the legislation stipulated that it had to be paid out at the same rate as
existing grants. As a result, the
FHWA created the Advance
Capitalization rate (ACAP) which
parceled out the funds over nine years
(Figure 22). This once again reduced
the initial banks capacity to make
loans or leverage their capital. The
1997 budget had $22.6 billion in
qualifying funds,
62
of which $2.26
billion could be repurposed as SIB capital. Initially, only six banks elected to repurpose $167
million or roughly one-quarter of the $690 million available to them (Roskin, 1997, p. 5).
Eventually, 18 out of the original 34 banks used a portion of their future FHWA allocations as
seed capital for a total of $690 million.

Figure 22. ACAP allocation schedule
Source: FHWA, Author.
15%
53%
16%
5%
3% 3%
2% 2%
1%
0%
20%
40%
60%
80%
100%
120%
1 2 3 4 5 6 7 8 9
Percent of Total
Year
ACAP
Cumulative
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PPPs and attracting private capital
As stated in previous sections, there are limited opportunities to fund revenue-generating
transportation projects, and those that are possible tend to have large costs and are covered by
other FHWA programs. As a result, few if any revenue-generating PPP programs have been
funded. Additionally, all four of the reported loan failures involved private projects. After the
failures, the four banks independently decided to exclude funding any additional private projects.
Multi-Organizational SIBs
Three groups tried to create multi-state/multi-organization banks, but all three failed due
to conflicting goals. The two Dakotas, Nebraska and Wyoming intended to form a four-state
SIB to be capitalized at over $100 million. However, the states had difficulty agreeing on
projects and the idea was abandoned when the funding was dramatically cut. All four states
subsequently established separate banks using a total of $40 million in federal funds. Arkansas
and Tennessee also tried to form a joint SIB to earthquake-proof the I-40 Bridge at their mutual
state boundary, but Tennessee wanted to fund rural projects first. As a result, the states
separated, made a few loans and then their banks became dormant. Finally, New York
established a bank run by two transportation and one transit agency to fund regional projects.
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However, once again, conflicting priorities stopped the bank after ten loans with one default.
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New York also cited the availability of competitive alternatives such as low-cost municipal
bonds, GARVEEs and GANs as a reason to not continue using their SIB.
Below-Market Rate Interest Loans
The SIB legislation stipulated that loans had to be below-market rates. While well
intended, this requirement worked against one of the primary goals of attracting private
investment because private investors expect higher than average interest rates. Using loans in
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general also did not work for many states with small rural communities, such as Wyoming and
Iowa. Their rural communities needed grants, not loans. However, grants have been prohibited
under all six versions of the SIB legislation. When asked, the FHWA staff said that when the
initial bill was being written, they decided to administratively prohibit grants since they would
reduce a SIB’s capital, defeating the purpose of the bank. In response to the need for grants, the
FHWA reports that 28% of the SIB loans have been interest-free.
The 2008 Great Recession
The 2008 Great Recession did not affect most of the SIBs. This was due to a number of
factors. First, loan volume was low and their funds were from established capital reserves.
Second, while revenue did decline, the decrease was not sufficient in most states to affect the
borrowing agency’s ability to repay a smaller loan. This indicates that SIBs can act as moderate
shock absorbers to lessen the impact of economic downturns.
Arizona was the lone bank that was adversely affected by the 2008 recession. It first
issued bonds in 1998, when the legislature authorized the state’s Transportation Board to issue
up to $100 million in 4-year bonds to fund their SIB.
65
The bonds were repaid by the motor fuel
tax. The program worked well until the 2008 Great Recession dramatically decreased business
activity and fuel tax revenue, so the State Treasurer had to recall the outstanding bonds. As of
this writing, Arizona’s bank has yet to start making loans again. In 2009, Arizona ranked 2
nd

behind Nevada’s1 foreclosure per 10 properties with 1 foreclosure for every 16 properties
(Indiviglio, 2010). The conclusion that can be drawn from this is that SIBs with diversified
repayment streams are more resistant to economic shocks.

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Providing an Effective Marketing/Outreach Program
The SIB program was not well-known when it was first introduced, and it was necessary
to advertise its capabilities. However, after 22 years the program is well-known. Still, states
with active banks continue to advertise their programs at conferences and through the internet to
ensure they remain well-known.
Compliance with Federal and State Regulations.
Early in the program, a number of states, including California and Texas found their SIBs
blocked by existing state statutes. However, these were later rectified by acts of the legislatures.
5.4 SIB Stakeholder Expectation Evaluation
Using the framework developed in Section 2.2, the program’s major stakeholder’s
expectations (goals) were culled from reports and the case interviews. The progress toward
achieving them was then assessed to see if the program fell below, met or exceeded the
stakeholder’s expectations. It should be noted that several groups were represented by proxies
due to the lack of information:
• The President’s expectations were used as a proxy for the entire executive branch, and
• State DOT’s responses were used to represent their executive and legislative branches.
The two types of goals (or program expectations) that each stakeholder group can have
are explicit and implied. Explicit goals are those that were stated or directly implied by the
literature or in the interviews. Implied expectations were generally operational in nature. For
example, the states were given no explicit directions on how to implement their bank. This
created an “implied” program expectation that the states had access to the necessary expertise to
design and implement a revolving fund bank, which may have been entirely new to them. Since
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these are too numerous to catalog, they will be addressed on an as-needed basis to highlight
implementation problems that can be avoided in future programs.
It should be noted that no state SIB staff knew of any contacts between themselves and
their counterparts at the state CWSRF banks. While the lack of information about SIB-CWSRF
contacts does not prove it never occurred, the responses from the SIB staff indicates that it was
not a common occurrence.
The Executive Branch Expectations
President Clinton viewed infrastructure as a key element to American prosperity:
“President Clinton's vision for sustained economic growth and prosperity and for
improving international competitiveness for the Nation means investing in
America and its infrastructure. Executive Order 12893 signed by the President in
January 1994 reinforced the Administration's position that investment in
transportation infrastructure lays the foundation for economic growth in the next
century.” (GPO, 1995)

President Clinton’s 1996 $148 billion Transportation Budget allocated $2 billion to
capitalize the SIBs program and was to be followed by an additional $100 million per year
(Hope, 1995). However, the initial outlay was first scaled back to $250 million, and then
eventually $150 million (Eurich, 1997) with only $126 billion distributed. It should be noted
that the EPA’s 1995 $1.6 billion allocation for the CWSRF (EPA, 2016) was roughly 22% of the
agencies $7.2 billion budget (EPA, 2017). In contrast, the FHWA’s $126 million allocation was
1/10
th
of 1% of the FHWA’s 1995 budget.
1. Executive Branch Expectations:
Increase infrastructure spending to provide a foundation for economic growth.
Results – Far Below Expectations: While some states such as Florida, Ohio, South
Carolina, and Texas have large banks, the fact that SIB banks have financed only 0.6% of all
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federal transportation projects indicates that the SIB program has not lived up to the Executive
Branches’ expectations.
Congressional Expectations
The NHS Designation Act of 1995 (NHS 1995) contained the following language (23
USC 101,SEC. 350):
“… (k) Secretarial Review.--The Secretary shall review the financial condition of
each infrastructure bank established under this section and transmit to Congress a
report on the results of such review not later than March 1, 1997. In addition, the
report shall contain—
(1) an evaluation of the pilot program conducted under this section and the ability
of such program to increase public investment and attract non-Federal capital; and
(2) recommendations of the [U.S.] Secretary [of transportation] as to whether the
program should be expanded or made a part of the Federal-aid highway and
transit programs…”
The NHS Transportation Act of 1995 further stated that a SIB bank had to maintain an
investment grade rating, have sufficient assets to maintain its viability and offer loans at or below
market rates. The SIB bill’s author, Congressman McCollum, also stated that the program would
(McCollum, 1995):
• Create PPPs between the public and private sectors,
• Replace the rigid PAYGO model with flexible financing, enabling states to build
infrastructure faster to keep pace with the economy while reducing deferred construction
costs.
• Use leverage (issue bonds) to help achieve the above goals.
Restating the items above:
Congressional Branch Expectations
2. Produce a Pilot Program Report.
The report was to assess the state of the banks.
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Results – Met Expectations: The report gave the status and progress made by the banks
four months after the program’s start. It also detailed some of the problems states were
experiencing with conflicts between the bank deign and existing state statutes. However, the
program was too early in its development to provide information on its ability to attract private
capital or how to design a program that would work in all 50 states and the territories.
3. Guide expansion of the program to all 50 states.
The expectation from Congressman McCollum and others was the pilot program would
provide the experience needed to expand the program successfully to all 50 states.
Results – Below Expectations: The 1997 report did not go far enough to assess the ability
of the program to work in all 50 states. The 2002 FHWA assessment did survey the existing
states, but ignored those that had dropped out of the program, closed their bank, created an SFIB
or never applied. As a result, there was insufficient information to produce a viable 50-state
implementation.
4. Provide at or below market interest rates.
Results – Met or Exceeded Expectations: All of the programs were able to make loans at
or below market interest rates. Some states such as Iowa, South Dakota and Wyoming did not
charge interest on their loans.
5. Maintain investment grade ratings.
Results – Met or Exceeded Expectations: All of the banks were able to maintain
investment grade ratings except for Puerto Rico (see below). Only 4 of the 22 interviewed banks
reported a loan failure (4 out of 978 loans), and in all four cases, the failures were early in the
bank’s operation, were made to private companies and 100% of the funds were recovered. This
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represents an early failure rate of 0.153%.
66
This is similar to AAA rated municipal bonds, but
the long-term rate has dropped essentially to zero. The one SIB bank debt failure was Puerto
Rico. Its debt suspension was caused by the snowballing effect of Congress’s 1996 repeal of
their multi-national tax breaks, which threw the entire territory into financial chaos (Greenberg &
Ekins, 2015).
6. Provide flexible financing.
Provide a variety of financing options and terms to reduce financing time and costs
(project acceleration).
Results – Met or Exceeded Expectations: All of the programs offered a variety of
program support that ranged from loan guarantees to gap-financing to 100% funding.
7. Use a portion of their future FHWA funds as seed capital: Eighteen of the 33 banks
used a portion of their future allocations as seed capital.
Results – Below or Met Expectations: An indication of Congress’s expectations is given
by the 10% limit on all funds and the ACAP limitation to prevent a too rapid flow of funds from
the FHWA into the SIBs. This, the program fell below or just met this expectation.
8. Reduce long-term costs through rapid funding (Project Acceleration).
Identified by Congressman McCollum as a key reason to implement SIBs.
Results – Met or Exceeded Expectations: Initially, this was not the case as unfamiliarity
with issuing loans caused delays, as was reported in the FHWA’s 2002 program assessment.
However, over time, all of the responding states indicated that they had created a pipeline to keep
track of potential borrowers. This was to ensure there were sufficient funds and that when the
loan application did go forward, it was virtually complete and most potential issues with the loan
had already been addressed. An exception to this was transit funding, which was beset by delays.
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9. Use leverage to increase lending capacity.
Increase funding faster than PAYGO normally would allow by providing flexible terms
and using leverage (issue bonds) to increase lending capacity.
Results – Far Below Expectations: It was expected that most to all of the banks would
issue bonds to expand their capital and loan capacity. Only 7 out of the 33 banks issued bonds
(Arizona, Delaware, Florida, Minnesota, Ohio, Puerto Rico and South Carolina). This was due
to a number of factors including the capitalization reduction from $2 billion to $126 million, the
lack of banking expertise and the availability of viable alternatives such as existing state bond
banks, low-cost municipal bonds, GARVEE bonds
67
and Highway Revenue Bonds.
10. Attracting non-federal capital.
This referred to state funds and was accomplished by requiring a state 20% matching
grant, mirroring the EPA CWSRF program.
68

Results – Exceeded Expectations: The FHWA found that for every $1 invested by the
FHWA, states have contributed 52 cents, which was 2.6 times more than the 20% state matching
funds and a study by Chen (2016) found that for every dollar invested by the FHWA, states spent
three additional dollars.
11. Increase private investment.
Increasing private investment, especially through Public-Private-Partnerships or PPPs to
help bridge the transportation funding gap.
69

Results – Far Below Expectations: The program has not attracted private capital (PPPs)
to bridge the funding gap. While information on loan type was not kept by the FHWA, long-
term staff estimated that less than 20 of the 978 loans involved PPPs.
70

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U.S. DOT and FHWA Expectations
FHWA Staff: In the early 1990’s, new FHWA Financial Management Division staff felt
state’s needs were not being addressed by its rigid funding practices. The result of this was a
number of initiatives to increase financing flexibility, including the SIB program. However,
supporting PPPs was not a high priority for the FHWA staff.
71

DOT administrators: In testimony before the U.S. House (Mead, 1995, p. 4,6-8), a
Division Director
72
stated:
1. The SIBs were “likely to be patterned” after the EPA’s SRF program.
2. The SIBs would either operate a basic revolving fund or leverage their funds by issuing bonds.
3. The program would receive $2 billion
73
in funds to capitalize the banks.
4. The public’s willingness to pay additional taxes and tolls would limit bank growth.
5. The banks would have difficulty funding projects in rural regions, as did the EPA’s SRFs.
74

6. The banks would attract private funds and help create public-private partnerships (PPPs).
7. Bond uses to fund PPPs could be limited by the Tax Reform Act of 1986.
75

The DOT administration also hoped the SIB pilot program would provide useful
information to help determine the best ultimate form of the program (GPO, 1995):
“USDOT has no preconceived concept of how SIBs should be implemented and
seeks to work in cooperation with the States to define the implementation
program. USDOT will not promulgate any regulations for the Pilot Program prior
to the designation process. USDOT will not require that all Pilot SIBs be
configured in the same way or that they provide the same forms of assistance.
This Pilot Program, therefore, gives States an opportunity to determine how they
might best structure SIBs.”
In 1997, the DOT’s Director of Transportation Issues, Resources, Community, and
Economic Development Division testified before the House and expressed three continuing
concerns regarding SIB ability to (Anderson, 1996):
1. Attract PPPs due the restrictions on using tax-free bonds,
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2. Fund rural projects in low population density/low revenue regions, and
3. Provide lower cost financing than already available to agencies with good credit.
Despite Congresses cutting the budget from $2 billion to $150 million, the FHWA still
planned to budget the program at $100 million per year from 1998 through 2003 (OTA, 1997,
Chapter 9, page 24). With the $150 million from 1997, this would have given the program $750
million in capital over the seven year period, or 7.6% of the $9.9 billion the CWSRF received
over the same period. This indicated that despite the setback, they FHWA still hoped the
program’s goals could be salvaged. Unfortunately, the 1997 $150 million appropriation was the
only additional funds the program would receive.
Despite the funding cut, in 1999 Congressional testimony, Peter “Jack” Basso, the
Assistant Secretary for Budget and Programs, U.S. Department of Transportation still felt the
SIB program held promise, saying that “I think that they [SIBs] will ultimately play a significant
niche role.” (Lychagin, Lychagin, & Shevtsov, 1999, p. 14)
Restated, the DOT/FHWA expectations were:
12. Provide flexible financing.
Give states with the ability to provide flexible financing that they can tailor to their
individual needs.
Results –Met or Exceeded Expectations: Taking into account the limitations imposed by
the low initial capitalization grant, the program allowed states to tailor their SIB for their specific
needs.
13. Increase State Contributions.
Induce states to contribute more to the federally funded portions of the national highway
system.
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Results –Exceeded Expectations: As described previously in the Congressional
expectation section, the states contributed 2.6 times the 20% matching grant, which was beyond
their expectations.
14. Receive annual capitalization appropriations.
To have an impact similar to the CWSRF, the program would need to receive annual
capitalization appropriations.
Results –Far Below Expectations: The program only received the one-time $150 million
appropriation, of which only $126 million was distributed. As a result, the impact of the
program was far below what was originally intended.
15. Attract private capital.
Attract private capital to bridge the transportation infrastructure funding gap.
Results – Far Below Expectations: While the FHWA staff did not focus on PPPs,
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mindful of Congress’s desires, the FHWA and DOT administrators did focus on them. As
described above, SIBs are poor vehicles for attracting private investment due to their low-interest
rates, and the fact that a majority of transportation infrastructure barely pays for itself, let alone
produce sufficient profits to compete with other private investment alternatives. Such revenue
surpluses are generated from heavily used transportation corridors, intermodal facilities, ports
and airports. These facilities need financing in the hundreds of millions to billions of dollars and
are out of the reach of a small SIB with under $5 million in capital.

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16. Provide guidance for a 50 state implementation.
Results –Below Expectations: While two studies were produced by the FHWA, they
ignored states that had opted out, created SFIBs, or never applied to the program. As a result, the
program has never produced the information needed to make it viable in all 50 states.
States Expectations
While there is little written record of what the states expected from the FHWA-SIB
program, it is assumed that they expected its results to mirror the EPA’s CWSRF program. This
is based on the fact that the program was to be capitalized initially with $2 billion, followed by
$100 million more per year. The record that does exist is in the already quoted GAO report to
Congress (GAO 1996) and Arizona’s FHWA-SIB Pilot Program application, the only one still in
existence. What is evident from the GAO report is that there was a range of interest, with some
states planning to open
fully leveraged banks
(Table 27) while others
did not bother to apply
to the pilot because the
program was not useful
to them.
17. State Expectations.
Results – Far below to Exceeded Expectations - Variable by State: Some states, such as
Montana, Wyoming and Iowa had high hopes for the program when it had a $2 billion
capitalization with the potential for sizeable follow-on appropriations. However, these quickly
evaporated when the funds were cut. So, these and like-minded states did not have their
Table 27. Proposed Pilot Program Projects
State
Proposed
Projects
Total Project Costs
($M)
Total Loans
($M)
Arizona 5 $67.00 $6.00
California 9 $4,399.00 $40.00
Florida 3 $690.00 $40.00
Missouri 7 $167.90 $22.00
Ohio 10 $356.30 $100.20
Oklahoma 2 $196.00 $30.00
Oregon 6 $279.20 $9.70
South Carolina 4 $376.00 Not listed
Texas 3 $884.00 $135.00
Virginia 5 $637.00 Not listed
Source: (GAO, 1996)
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expectations met. Other states looked at the program as a ready source of a few million dollars
they would not otherwise have received and therefore, had their expectations met. Finally,
states, such as Arizona, Ohio, Florida, Missouri, South Carolina, and Texas have drawn
substantial benefits from the program which they tailored to their needs. So their expectations
have been met or exceeded.
18. Private Sector, industry trade groups, and think tanks expectations.
There was a great deal of interest in the FHWA SIB program in infrastructure related
trade magazines and those that tracked bonds (e.g., The Bond Buyer). In general, they
expressed the hope that the program would help reduce the transportation funding gap and lead
to far more business. Many industrial representatives expected the program to yield positive
benefits for all of the states involved.
However, after the funding was cut, their view changed, as voiced by Robert H. Muller,
Managing Director, J.P. Morgan Securities, who lamented the program’s lack of progress and the
difficulty of finding funds to repay the loans (Lychagin et al., 1999)
“State infrastructure banks seem to be going nowhere. So that innovation hasn’t
done very well. Also, people hate tolls. I keep trying to come up with a way to do
innovation that does not involve tolls, but they have to come into play in some
way. The fight, as I see it, is going to be between the increasing use of tolls and
new technology that is phenomenally different. As people begin to forget the
current system of finance, tolls are likely to be more acceptable. That will bring
great change.”

Mr. Muller foresaw the need for automated road tolling while reflecting a sobering
analysis by the GAO in 2001 that found that less than 1% of all FHWA programs had been
financed by a SIB (GAO, 2001, p. 5).
A similar view was expressed by David Miller, Senior Managing Consultant from Public
Financial Management, Inc. said (Kinnander, 1998b):
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"The program, for all its advertised glory, never really had enough (federal)
capitalization ... to be as effective as its potential. It needs some type of additional
capitalization at the state level…"
Other industry experts and some academics who were hoping the program would help
bridge the infrastructure funding gap were also disappointed, so none of their expectations were
met. However, those who have received contracts from SIB financed programs are very pleased
with its performance.
Results – Far Below to Exceeded Expectations: Those who were expecting to receive or
see the SIB program duplicate the CWSRF’s results did not have their expectations met.
However, those who received economic benefit from the reduced program most likely felt it met
or exceeded their expectations.
Expectation Summary
The summary of stakeholder groups below shows that the program met almost none of
the federal goals, including the major goal of attracting private capital (PPPs). This failure is not
common to just the SIB program but rather based on the fact that most infrastructure systems do
not provide sufficient profit to attract private capital.
The program was more successful at meeting the expectations at the state level. There, a
quasi-hierarchical relationship came into play. Some states opened banks not because they
believed in the program’s long-term potential, but rather to not “miss out” on the one-time
special appropriation. Even a sum as small as $1.5 million was sufficient incentive for some
states to open a SIB and make a few loans. States that had (a) a mentor who championed the
program and (b), the sufficient funds to repay the loans were the most successful.
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Obviously, companies who worked on projects funded by SIBs were pleased to have the
business, but overall, the program fell far below Industry’s expectations, which were based on
the success of the CWSRF program which was capitalized annually.
Table 28. Summary of SIB Program Stakeholder Expectations and Results
Stakeholder Group Expectations Results Expectations
1. President and
Executive Branch
• $2 billion investment would lay
the foundation for economic
growth.
• Only $126 million was
appropriated.
• Far Below
2. Congress
• Produce a report on SIB
financial stratus
• Produced on-time • Met
3. Congress
• Guide expansion to all 50 states • Program was expanded, but not
effectively to all 50 states.
• Below
4. Congress
• Provide at or below market rate
loans
• Did so successfully. • Met or Exceeded
5. Congress
• Maintain investment grade
ratings
• Did so successfully, with the
exception of Puerto Rico.
• Met or Exceeded
6. Congress
• Provide flexible financing • All banks did so. • Met or Exceeded
7. Congress
• Use future FHWA funds as
Capital
• $690 million was used, but just
over a few years.
• Below or Met
8. Congress
• Rapid funding (Project Acc.) • Initially mixed results, yes after
several years of experience.
• Met or Exceeded
9. Congress
• Use leverage to increase capital • Only 7 of 33 banks, 2 stopped
operation
• Far Below
10. Congress
• Attract non-federal funding
(State contribution)
• States contributed 52¢ for every
federal dollar, 2.6 times the
20% matching rate.
• Exceeded
11. Congress
• Attract private investment
through PPPs
• Less than 20 out of 978 projects
were PPPs.
• Far Below
12. FHWA
• Provide flexibility financing • SIB provided a multitude of
financing support and options
• Met or Exceeded
13. FHWA
• Increase non-federal
contributions (state)
• States contributed 52 for every
federal doll, 2.6 times the 20%
matching rate.
• Exceeded
14. FHWA
• Receive annual capitalization
appropriations
• Only one $126 million grant,
rather than the anticipated $100
million to $2 billion.
• Far Below
15. FHWA
• Attract private capital (PPP) • No, less than 1% of loans • Far Below
16. FHWA
• Provide guidance for program
expansion to 50 states
• Reports were not
comprehensive enough
• Advice not used by Congress
• Below
17. State DOTs and
Legislatures
• Provide access to an additional
appropriation unavailable
outside of the SIB program.
• States were able to get between
$1.5 and $12 million.
• Below to
Exceeded, state
dependent
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Table 28. Summary of SIB Program Stakeholder Expectations and Results
Stakeholder Group Expectations Results Expectations
18. Private Sector,
Contractors, Industry,
trade groups, think
tanks
• Provide additional capital and
increase business
• Where banks have been active,
contractors have received more
business.
• Far Below to
Exceeded, group
dependent
Source: Author

5.5 Summary: SIB Program Root Cause Assessment
This section summarizes the discussion above, and applies the philosophy behind root
cause analysis to the case, financial, major factors and stakeholder expectations to detail the
major causes of the SIB program’s underperformance. The stylized SIB Program Cycle (Figure
13) will be used to frame the analysis.

Figure 13. SIB Program Cycle (duplicate)
Source: Author

1. Legislative &
Stakeholder
goals set
2. New federal
legislation
3. SIB program is
funded.
4. Federal
implementation.
5. State
Legislature &
DOT Goals Set
6. State
Program SIB
implementation
7. State and
federal program
assessment
8. Stakeholder attitudes &
External event impacts

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1. Legislative & Stakeholder goals set
In 1995, the FHWA, in conjunction with Congress, worked to create a flexible program
designed to achieve the following:
1. Provide flexible financing options for FHWA allocations,
2. Transfer federal highway system (FHS) maintenance cost to the states (devolution),
3. Increase state contributions (20% state match),
4. Reduce project inflation costs through rapid funding (project acceleration), and
5. Increase funding by attracting private capital.
President Clinton supported the effort and promised $2 billion in funding, supplied by a
reorganization of the U.S. DOT. The GAO was tasked to study the approach of using
infrastructure banks (GAO 1996) and detailed seven possible factors that could adversely affect
the program (Table 29).
Table 29. SIB Diminishing Factors from GAO 1996 Report
1. No new federal funds to capitalize a SIB.
2. Not enough revenue projects to sustain the SIB.
3. Legal/constitutional problems with the SIB.
4. Needs approval of the state legislature.
5. Public &/or legal opposition to debt financing.
6. Insufficient state knowledge about SIBs.
7. Lack of state expertise to start the SIB.
Source: (GAO 1996)

The study proved to be highly prophetic as all of the factors were significant causes of
SIB program underperformance and dysfunction. However, the study and process were rushed,
causing several omissions:
1. It only surveyed 15 of the 51
77
candidates, giving it an incomplete picture of needs and
adverse issues.
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2. While it described the EPA banks as a model, it did not investigate the issues associated
with the CWSRF’s start. As a result, Congress was unaware of the SIB program’s high
startup complexity and cost.
3. It did not make an assessment of the funding levels needed to achieve the stated goals,
even though such data was available from the FHWA and the state DOTs.
4. It did not anticipate that states would give misleading answers to get access to a few
million dollars of additional capital. As a result, support was over-estimated for
alternative revenue generation mechanisms, such as toll facilities.
Congress, therefore, received an overly optimistic view of state DOTs interest in the
program and its potential impact, even at lower funding levels.
2. New federal legislation
The NHS Act of 1995 became law in November, and states were invited to apply. All 15
of the 1996 GAO study states applied and ten were eventually selected to participate.
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Given
the results of the CWSRF, proponents of SIBs were enthusiastic about the program’s potential.
However, the bill contained several administrative flaws including (a) insufficient detail on the
program’s intended goals, and (b) how it would be administered. Since legislators favored
letting the departments determine operational procedures, no directions were given to utilize the
EPA’s experience with its CWSRF program.
Describing the legislative process to this point in business terms, it had created the
equivalent of a $2 billion startup venture based on the following:
1. A rushed and incomplete customer needs /market survey (the GAO study),
2. No market segmentation analysis (the features the states would need and why, e.g., rural
areas needed grants),
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3. Conflicting product goals (mandated below market interest rates, yet attract PPPs),
4. No competition analysis (alternatives to the SIB program),
5. No implementation or operational plan, including the startup funds needed or pre-scheduled
program assessments with feedback for Congress.
6. No risk assessment (implementation issues vs. capital vs. probability of success), and
7. A board of directors (Congress) without the micro or macro-economic data necessary to
make analytically-based strategic decisions on the product’s direction.
The list above contains at least 8 of the top 10 and 12 of the 20 reasons business startups
fail (Figure 23). Underfunding, the second leading cause of failure is discussed below.

Figure 23. Top 20 reasons startups fail
Source: (CB Insights, 2016)

42%
29%
23%
19%
18%
17% 17%
14% 14%
13% 13% 13%
10%
9% 9%
8% 8% 8% 8%
7%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Percent
Contributed to SIB failure
Minor or non-contributing factor
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3. SIB program is (under) funded
With the defeat of President Clinton’s U.S. DOT reorganization, the $2 billion in funding
first dropped to $250 million and then $150 million. No additional funding was supplied due to
conflicts over devolution and the role the U.S. government should play in funding infrastructure.
Because there was no assessment of the actual cost to the U.S. and the states, based on different
SIB program funding levels, the dominant political philosophy won the day.
With the funding cut, the SIB program was essentially relegated to a niche program that
has funded less than 0.6% of the FHWA’s projects during its operation. Five of the initial 39
states dropped out and Oklahoma, one of the pilot states, elected not to open their bank. The
underfunding also limited the SIB’s ability to fund transit and rural projects. As a result, states
already using leverage saw no need to add an FHWA SIB. It would just duplicate administrative
expense.
The replacement for the lost capitalization (using future FHWA funds) was only able to
fill a portion of the gap. States plan out their use of future FHWA allocations four or more years
in advance and transferring planned funds into the SIB would require replacing them with a loan
or revenue from the general fund. Some states were able to accomplish this, but reliance on
these funds substantially increased the chances that the SIB would have limited capacity. As a
result, SIB banks were leveraged at 1/3 the rate of the CWSRFs.
Finally, underfunding the program also reduced the ability of states to support PPPs.
Since PPPs generally involve toll or multimodal facilities with budgets above $25 million, a
bank with under $5 million would not have a meaningful impact on them.

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4. Federal implementation
After the bill had been passed, the FHWA began work to implement the new program.
Unfortunately, because the EPA’s experience with its SRF banks was not incorporated into the
SIB legislation, the FHWA was not given the resources to properly implement a program that
was more expensive to administer. The FHWA runs a very lean operation and generally limits
their administrative expense to 1% of funds provided. The CRWRF program required 4% of
funds to both start up and operate. As a result, those states with internal mentors or support at
the department, legislative and gubernatorial level implemented more sophisticated banks.
Without the guidance of a comprehensive needs assessment of the customers (the states),
the FHWA decided to prohibit SIBs from making grants, something that virtually all of the
interviewed SIB staff said were needed to fund rural projects. This was done to prevent the loss
of the bank corpus (core capital). However, some SIBs only issue no-interest loans which cause
the bank’s corpus to be eroded by inflation over time. Thus, the no grant limitation did not
protect SIB capital, but it did prohibit states from offering grants to poor and rural areas. This
defeated one of the bank’s primary missions, that of flexibility.
One additional issue that was exposed was the lack of forethought put into data
management. The EPA program has a sophisticated centralized system that started in 1987. It
keeps data on every loan in detail and is audited annually for accuracy. Initially, the SRF banks
mailed floppy disks with Lotus files to the central office in Washington D.C. where they were
used to create comprehensive financial reports. In contrast, without the necessary administrative
funds, the FHWA relied on states to maintain detailed data and only kept a running total as
submitted on paper forms to the agency. As a result, it has numerous omissions and
inaccuracies. Most importantly, the data system does not contain the necessary information to
evaluate the program’s performance or attainment of the goals outlined in the NHS Act,
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including the program’s ability to attract private equity. Due to variations in state accounting
standards, their certified reports cannot be used to recreate a comprehensive picture of the
program’s performance over the last 22 years.
5. State Legislature & DOT Goals Set
A large number of states were initially very enthusiastic about the SIB program,
especially when it appeared that it might be launched with a significant capital investment.
Several states and intrastate agencies planned to launch multi-organizational SIBs. The response
to the funding cut varied from state to state, and was influenced by the availability of funding
alternatives, and the prevailing attitudes in the state DOT offices and legislatures toward debt.
Some states such as Arizona, Florida, Ohio, South Carolina, and Texas continued forward and
created significant banks. Others kept the mission the same but scaled expectations to match the
funding. Finally, five states dropped out entirely, and those who used PAYGO just made
interest-free loans to themselves while inflation slowly decreased the value of the bank’s
founding capital.
6. State Program SIB implementation
An impediment to the program was the inability of the FHWA to supply the necessary
banking expertise. Thus, states with access to mentors, banking expertise and support from the
DOT, legislature or governor, implemented larger, more sophisticated banks. A number of states
implemented a SIB with no intention of trying to make full use of its potential. Rather, they did
not want to pass up the one-time grant, regardless of how small it was. All of the multi-state and
multi-agency banks failed due to insufficient pre-implementation planning.
As the program became more restrictive over time, states selected alternatives to SIB
financing such as municipal bonds, Highway Revenue Bonds (HRB) and GARVEE bonds. They
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also implemented either completely separate state-funded banks (Georgia) or added a state-
funded SIFB their existing SIB organization (California, Missouri, Florida and Rhode Island).
Finally, as mentioned in item four, the lack of reporting standardization resulted in
incompatible state reports with insufficient data to assemble a comprehensive picture of the
program’s loans or performance vs. alternative programs and financing strategies (e.g., PAGO).
7. State and federal program assessment
A standard smart (best) management practice is to conduct a comprehensive review early
in the lifetime of a complex project to ensure the initial guiding assumptions were correct.
Decades of experience has shown that corrective costs can increase exponentially over time
(Stecklein et al., 2004). Beyond the initial 1997 report specified by Congress in the NHS
legislation, the FHWA did not conduct a program review until 2002. A logical timeframe would
have been before the next transportation bill was due in FY 1998. However, there were no funds
to conduct such a review, and many of the above issues went largely unnoticed and were not
available to Congress. In contrast, the EPA conducted both annual financial and business
practices audits of all 51 SRF banks and the program itself in its first year and have continued to
do so annually.
Without an accurate assessment of the SIB program, Congress and the FHWA continued
to add restrictions to the program, due to the continued conflict over the federal government’s
funding role and the Davis-Bacon Act. This eventually eliminated much of the program’s
flexibility that was part of its initial genesis. As a result, no additional states have opted into the
program since 1998, and those that have enquired have all declined once they learned about the
program from existing SIB staff.

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8. Stakeholder attitudes and external events
There are several important issues and events that globally affected all of the SIBs. First, the
battle in Congress and the states over how to fund infrastructure dramatically reduced available funds
by roughly 72% over the amount available in 1991 when the federal motor fuel tax was last
increased. This reduced the ability of state DOTs to pay transportation infrastructure, regardless of
the financing method used.
Next, the Congressional battle over the Davis-Bacon Act and federal regulations in general,
made the program so similar to what already existed; states chose not to opt in or expand their bank,
especially after all SIB funds were declared federal by TEA-21.
Finally, the Great Recession sent the municipal debt to a record high of $3.8 trillion in 2008,
reducing or eliminating the ability of agencies to repay loans, regardless of the financing option used.
In summary, the SIB program had a number of institutional, structural and political flaws that
made it impossible for it to achieve the lofty goals set by its stakeholders. Indeed, some of the goals,
such as bridging the multi-billion to trillion dollar transportation funding gap, were never really
achievable given its level of funding. Many of the administrative problems the program encountered
had already been solved by the EPA in its CWSRF program. Additionally, the 1996 GAO study
identified seven issues that were a significant cause of the program’s underperformance. The fact that
none of these were addressed in the initial legislation, or in the subsequent five modifications
indicates there are fundamental flaws in the implementation cycle. Finally, without comprehensive
data on the total life cycle costs of the various economic, funding, financing and wage approaches,
Congress will continue to make decisions based on the current prevailing wisdom, rather than on
hard economic data. The recommended actions and policies to address these flaws are detailed
below in Chapter 6, Conclusions and Lessons Learned.

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CHAPTER VI
CONCLUSIONS AND LESSONS LEARNE
The previous chapter discussed the underlying issues that prevented the SIB program from
meeting or exceeding the expectations of its stakeholders. This chapter presents the lessons
learned from the SIB program, as well as suggested remedies for some of the underlying or root
causes of its under performance. Before discussing them, it is helpful to restate the research
question.
What combination of Congressional legislative design, FHWA administration,
state implementation decisions and external events caused the FHWA SIB
program not to meet the expectations of its stakeholders? Additionally, what
lessons can be learned from the research to guide or improve the SIB program,
the proposed NIB, infrastructure funding and the legislative process in general?
The answers to this question are organized into four groups, which range from SIB-specific
topics to broad issues that while not strictly related to the SIB program or the FHWA,
continually affected the program’s performance. Specifically, the groups are:
1. SIB Specific Issues: These issues are those that affect just the SIB program. Some
concern the program in general, while others pertain to specific circumstances that illustrate
useful points.
2. FHWA Administrative Issues: These involve the administrative policies and procedures
used to create, implement and monitor the SIB program.
3. The SIB program goals: An essential question to answer from this research is, did the
program achieve its intended goals? The answers are drawn from the prior two groups and
the results of the analysis in Chapter 5.
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4. Research Topics: These involve issues that affected the SIB program, but can only be
addressed by additional research.
The issues are numbered sequentially for easy reference and have one or more of the
following elements:
• A header stating the issue(s),
• A description of the issue(s),
• Lesson(s) Learned, which can be either a statement of fact(s) about the program, or
broader conclusions, based on the research, and
• Recommendations, which are suggested remedies.
The reason for this organization is two-fold. First, it enables the reader to readily find
specific issues. Second, the broader the problem, the more difficult it is to (a) gain the necessary
support to implement a solution, and (b) find solutions that do not have unintended, potentially
negative consequences. Therefore, the most complex issues are described in terms of continued
research rather than specific remedies. It should be noted that while it is possible to identify
failures in process at the federal and state level, because the legislative and executive branch
narratives are incomplete or missing entirely, it is not always possible to determine why those
failures occurred and therefore, it is not proper to suggest remedies.
6.1 SIB Specific Issues
1. Infrastructure Type did not affect FHWA SIB performance.
Was the SIB program’s underperformance due to the infrastructure type financed, i.e.,
transportation (SIB) vs. wastewater (CWSRF)?

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Lessons Learned
The underperformance of the SIB program was not due to the infrastructure type. Rather,
it was caused by the program’s design, FHWA implementation, Congressional funding and
Congressional modification over time. Additionally, all information uncovered in the course of
this research supports the view that infrastructure banks can be used to fund most infrastructure
types. This is shown by California’s iBank and the Rhode Island Infrastructure Bank (RIIB),
which both successfully fund multiple infrastructure types. The exceptions to this are caused not
by infrastructure type, but by the availability of revenue to repay the loan.
2. The 2008 Great Recession had minimal impact on the program.
The SIBs were surprising resilient with regard to the 2008 Great Recession. This is due to a
number of factors including their low loan volume vs. their supporting revenue and the fact that
many of the banks had available capital to lend. In contrast to this is Arizona’s HELP SIB which:
1. Had a larger loan volume,
2. Used shorter, four year loans,
3. Was financing Arizona’s initial highway infrastructure (greenfield facilities),
4. Was supported by motor fuel taxes in a state with significant real estate speculation, and
5. Was in a state with a high percentage of government-owned land (53.6%).
As a result, when the recession occurred, this combination of factors caused their revenue to fall,
and the state recalled all of HELP’s bonds within six months. As of this writing (6/2017),
Arizona’s SIB has yet to make any new loans.

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Lesson Learned
SIBs can act as moderate shock absorbers to lessen the impact of economic downturns
with their resilience dependent on low to moderate loan volume and a secure or diversified
revenue stream.
3. Not requiring board members to finish their term can hurt a SIB.
One SIB reported that it experienced trouble because the way its board was assembled.
The board was made of gubernatorial appointments and cabinet officers who viewed the
appointment as a stepping stone to more lucrative positions elsewhere. They only stayed for 18
to 24 months and just as they were coming up to speed on how to manage the SIB, they were off
on their next career move. As a result, the staff continually had to provide “remedial education”
to the new members.
Recommendations
When designing a SIB, managing board appointments should be drawn from individuals
who have dedicated their career to banking or infrastructure funding related fields. The risk of
short-term tenure can also be reduced by selecting candidates whose current tenure is at least as
long as the board’s term, and by stressing that they are expected to serve out their full term.
4. Reduce the SIB program’s restrictions.
The following recommendations are listed because they address impediments in the current
program. However, they could be modified or dropped, based on the findings of research into
the most cost-effective way to fund infrastructure (see Issue 17 below). It should be noted that
the FHWA’s Section 129 loans are very similar to the original 1995 SIB program in that repaid
funds are free of federal regulations (DBA, EPA NPDES, etc.) but, only two Section129 loans
have been issued since the program’s inception in 1991 (See Section 14). This indicates that
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even if the SIB program was reworked, there are enough alternatives that states might find little
reason to charter a SIB unless it is accompanied by an additional capitalization grant.
Recommendations
1. Eliminate the Advance Capitalization Schedule. The ACAP (Figure 22) addresses a
problem that does not exist. There is no danger that states will use too much of their annual
FHWA allotments as SIB capital. Eliminating it reduces the program’s complexity.
2. Defederalize repayments and state contributions. This will allow states to put funds into the
bank and then use them for non-federal projects if needed. To prevent the funds from being
swept by the state, the FHWA could consider requiring that removed funds be only spent on
transportation and transit projects. However, such a requirement might also prevent
additional capital from being added to the SIBs and therefore, this recommendation should
first be evaluated to ensure it does not have a negative impact.
3. Eliminate the below-market interest rate mandate: As previously stated, while most
transportation projects do not generate sufficient income or profit to attract private
investment, mandating that all loan rates must be below-market rates substantially reduces
the chances that a SIB can fund PPPs. Removing the restriction could allow some PPP
projects to go forward with the state deciding how to best manage their funds.
4. Allow funds to be moved from transportation (Title 23) to transit (Title 49) accounts. Allow
the banks to move funds from the transportation to the transit account so banks can help fund
transit if needed.
5. Allow SIBs to give grants: It is contradictory to mandate that SIBs must offer below-market
interest rates which reduces their future capacity, yet restrict SIBs from giving grants to
agencies that are often in poor or rural areas. The legislation or administrative procedures
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should be modified to allow grants and then, let the states manage their funds as they find
appropriate for their needs.
5. All of the multi-state and multi-agency SIBs failed.
All three attempts to form multi-state and multiagency banks failed due to conflicting goals.
Lessons Learned
Multi-state/multi-agency banks will fail unless their priorities are detailed and agree to by
all participants in advance of the bank starting operation. Conflict resolution procedures should
also be put in place to mediate unforeseen issues such as sudden changes in transportation
priorities, organizational changes, asset failures, economic downturns or changes in political
leadership.
6. The SIB program had and has poorly planned data retention policies.
As mentioned previously, the FHWA SIB central office did not retain data sufficient to
evaluate whether the program was meeting its goals as established in the initial 1995 NHS
highway bill or to analytically assess the cost of its loans vs. other available alternatives.
Because of lack of administrative funds, the FHWA only kept a running summary of data and
assumed the states would maintain detailed financial records.
Lessons Learned
Due to differences in state accounting procedures, relying on the states to maintain
program data creates a fragmented and unusable record. This prevents administrative staff,
Congress and the states from learning from past SIB loan performance, while placing the $700
million-plus SIB program at risk to save less than $50,000.
79

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Recommendation
A comprehensive data retention and management program should be developed so that
program performance can be analytically assessed. The loan information required to meet this
standard is readily available because it is part of any borrower’s loan application package. The
data could be uploaded to the FHWA in a standard format as currently done by the IRS and the
EPA,
80
eliminating the manual reporting burden. The data should be permanently retained so any
stakeholder including the Executive branch, Congress, DOT/FHWA Staff, State SIB staff, and the
public can access via it the web without having to contact state or federal staff, reducing costs.
6.2 FHWA Administrative Issues
7. Congress and the FHWA badly underestimated the complexity and cost of
implementing and managing the SIB program.
In interviews, EPA staff said that, due to its complexity, the agency anticipated the
CWSRF program would have a high startup learning curve and cost for both its branch offices
and for the states. This is why the program allowed for an administrative overhead of up to 4%
of loan value (EPA, 1987). Even so, it took several years for the 30 to 40 full-time staff, the
branch offices the states to become knowledgeable about the program. The CWSRF innovative
design also included (a) comprehensive centralized data management that utilized floppy disks to
transfer loan data to the program office (circa 1995), (b) an annual financial best practice review,
(c) an annual business practice review, and (d) a very active user community who shared
information to rapidly gain expertise and solve problems.
In contrast to this, the FHWA staff commented that with a few exceptions, they had no
mechanism in 1995 to notify congress a program needed additional administrative funds, and
were unaware that such a mechanism exited in 2017. As a result, the SIB program was limited to
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2% of loan value and had perhaps six months of one FHWA employee’s time to start the
program. It was also assumed that the existing staff could add the SIB program to their daily
work load with no adverse effects.
Lessons Learned
Despite the information being available, neither Congress nor the FHWA utilized the
existing knowledge from the EPA to gauge the workload and cost required to start-up and run the
SIB program. This indicates a substantial disconnect between Congress and the FHWA and a
lack of procedures to estimate program complexity and cost. In addition, even though the
FHWA’s 2002 SIB program review listed utilizing the EPA’s CWSRF expertise, this was never
accomplished. Although the reasons for these failures are unknown, it mirrors a common
management mistake which is assuming that the next project or program will be just like the
previous one. Since the FHWA’s administrative costs are generally 1% of project cost, it is
possible they and Congress just assumed the SIB program would be no different. This would
also explain why Congress assumed that the SIB program could be added to staff’s workload
with no ill effects.
It should be noted that states also failed to utilize the EPA’s experience with revolving
fund banks. None of the interviewed SIB staff knew of any instance where the state CWSRF
staff was contacted about the program.
Recommendations
Modify the FHWA administrative code and procedures so that it can inform Congress of
the actual administrative startup, implementation and operational costs of any proposed program.
Such an assessment could also include varying cost vs. implementation timeframes to give
Congress the option of reducing administrative costs by lengthening a program’s implementation
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timeframe. The FHWA’s administrative procedures should also be amended so that participants
in a new program are interviewed within the program’s second year of operation regarding its
strengths and weaknesses. The five-year delay for the SIB program’s first review was too long.
6.3 SIB Program Goals
This section assesses whether the SIB program achieved its stakeholder’s goals.
8. Provide flexible financing alternative to straight FHWA PAYGO grants
The SIB program did achieve this goal as stated by Congressman McCullum when he
introduced the SIB legislation. All of the SIBs offered a wide variety of services, even if
borrowers did not take advantage of them. However, this success was reduced over time as
Congress and the FHWA continually increased the program’s restrictions, rapidly making it less
attractive than available alternatives. As a result, no state has opted into the program since 1997,
and those who have investigated the program have declined to participate.
9. Provide loans at or below market rates
The SIBs achieved this goal, which was mandated by the legislation. Researched showed
that SIBs could reduce loan interest rates by 2% to 4% over those available on the market (CIFA,
1997). However, no assessment was made to determine whether SIB loans were lower in cost
than available alternatives. This subject is addressed below in Issue 17.
10. Maintain an investment grade rating
All of the SIBs were able to maintain investment grade ratings and the SIB loan failure
rate fell from those similar to AAA bonds to essentially zero, even during the 2008 Great
Recession. The lone exception to this was Puerto Rico, where the entire territory was thrown
into financial chaos when Congress eliminated tax breaks for manufacturing companies there,
and the territories tax revenue dropped dramatically.
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11. Increase non-federal contributions to highway funding
This goal was based on the success of the EPA’s CWSRF, which required states to
provide a 20% matching grant. Here, the SIB program excelled. The FHWA found that for
every $1 invested by the FHWA, states have contributed 52 cents, which was 2.6 times more
than the 20% state matching funds and a study by Chen (2016) found that for every dollar
invested by the FHWA, states spent three additional dollars.
12. Attract private capital to help bridge the transportation “funding gap.”
The SIB legislation as introduced in the House assumed that a SIB could attract private
equity and help bridge the perceived infrastructure funding gap.
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However, this was based on
the “conventional wisdom” at the time that the private sector was so much more efficient than
the government; it could simultaneously reduce costs while turning a profit. However, the
FHWA and Congress both had at their disposal sufficient data to show that this was not the
case.
82
Indeed, the Senate’s view that only multi-modal facilities, ports and airports and other
cargo facilities have sufficient income to make PPPs viable has been borne out over time by the
CWSRF and the SIB results (Hodge & Greve, 2009).
13. Reduce delays that increase costs (Project Acceleration)
State DOT staff stated that they felt their funding was both lower cost and faster than the
market because they tracked projects over time, and as a result they were able to quickly fund
projects when a loan application was finalized. The exception to this was funding transit, which
due to the additional regulations, was a more lengthy process.
14. Issue a program report to Congress by early 1997
15. Determine the program format that will work in all 50 states
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These two issues are combined. The SIB pilot program was intended to help the FHWA
and Congress determine how to tailor the program for all 50 states. However, because Congress
assumed that no additional funds would be needed to assess the SIB program, the hurried and
incomplete 1997 report was the only study until 2002. The 2002 report was also incomplete as it
did not assess states that had dropped out or declined to participate in the program. As a result,
Congress was never fully informed about the program’s shortcomings.
Lesson Learned
The SIB legislation contained a number of flaws that, when combined with its funding
reduction, virtually guaranteed the flaws would go unreported and unaddressed. While this
research did not examine how other federal transportation pilot programs have been designed, at
least in this case, it was apparent that the legislation’s authors did not appreciate the program’s
complexity or the need to finance continued assessments of the program on an annual basis, a
feature that was built into the EPA’s CWSRF program.
16. Fund Transportation and Transit
While the SIB program is well-suited for funding urban transportation programs, it is ill-
suited for rural transportation and urban transit projects because both have difficulty generating
sufficient revenue to repay the loans. The rail account, which was added in by the 2005
SAFTEA-LU Act has rarely been used.
Lesson Learned
SIBs are not a good vehicle to fund transportation or transit if the borrower is unable to
repay the SIB loan. In such cases, the potential borrower needs a grant rather than a loan.

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6.4 Research Topics
This section discusses issues that while not directly a part of the SIB program, still had a
significant impact on it. Due to their complex nature, they are presented as topics for future
study and research rather than recommendations.
17. What are the most cost-effective ways to fund transportation infrastructure?
A key question raised by this research is should the SIB program be modified,
recapitalized, left as is, or terminated. Unfortunately, this question cannot be answered because
it is currently not possible to determine if the total life cycle cost of a SIB loan is lower than
other FHWA programs, commercially available alternatives or straight PAYGO funding.
For example, Tennessee is one of the five pure PAYGO states that does not use bonds to
finance their transportation projects. However, they are periodically ranked in the top five by
Overdrive Magazine which surveys thousands of truck drivers to rank the states by road quality
(Kvidera, 2010). Their ranking is supported by the FHWA’s IRI data.
83
How did they achieve
this using PAYGO while other states borrow funds to finance transportation projects? Do they
reduce other services, or is it the product of careful planning, fiscal discipline and good
pavement management practices?
In contrast, New York uses bonds but abandoned their SIB in favor commercial loans
while Arizona, Florida and Ohio have built large leveraged SIB banks that have made hundreds
of millions of dollars in loans. Texas also has a large bank but used future FHWA funds to
capitalize it rather than issue bonds.
84
Which approach(es) is (are) the lowest cost and under
what conditions does that occur? Only a comprehensive study or series of studies that compares
the total life cycle costs of SIBs and other financing methods vs. PAYGO while also accounting
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for non-transportation/social spending can definitively answer this question. Only once such
data is available, can the SIB program be properly evaluated.
18. Determine when PPPs can be used to fund transportation projects.
One of the major goals of the SIB program was to attract private investment to help
bridge the perceived transportation infrastructure funding gap. However, out of 978 loans, less
than 20 involved PPPs (2%). Similar results are found in the EPA’s Drinking Water State
Revolving Fund program (DWSRF). A 2014 study by the National Center for Public-Private
Partnerships found that since the early 1980’s just 800 (1.5%) of the nation’s 52,000 water
systems had implemented a PPP. This indicates that despite the DWSRF’s $19.1 billion in
capital funding for systems that can increase user fees without legislation, water systems are also
poor candidates for PPPs. Finally, the 2015 CAP study showed that 61% of U.S. roads just
break even or do not earn enough revenue to pay for their upkeep. As a final note, all four of the
loan failures reported by the interviewed SIBs involved PPPs and as a result, all four banks
resolved to exclude future PPPs. Despite these and other indications, legislators and elected
officials continue to cite PPPs as a potential source of cash to fund infrastructure, such as
President Trump’s proposal to use PPPs to fund a significant portion of his $1 trillion
infrastructure spending program (Levitz, 2016).
Therefore, a comprehensive study should be conducted to determine what portion of the
U.S. transportation infrastructure can support PPPs now and in the future, when it may be
dominated by self-driving, high-mileage, low revenue producing vehicles. The results of the
study could then be used to inform the social and political dialog on how to fund transportation
infrastructure.

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19. Assess the cost of the Davis-Bacon Act on transportation projects.
The conflict over the Davis-Bacon Act helped derail funding for the SIB program. While
there have been a number of project-specific reports on the effect of the DBA on costs, there
have been no definitive studies that look at its impact in all 50 states. The conflict over it caused
both its proponents and detractors to collectively accomplish less than if they had worked
together. Therefore, a comprehensive 50 state study of Davis-Bacon Act’s impact on
transportation infrastructure costs should be conducted to help reduce or end the conflict over its
use.
20. Assess the Save California Streets consortium model for national use.
One of the major debates that affected the SIB program was over three linked issues
which are (a) the condition of the U.S. National Highway System (b), what level of funding is
needed to keep it in good order and (c) should the funds be supplied by the federal government
or the states. In 2008, California was faced with a similar set of questions. Their solution was to
form the consortium “Save California Streets” (SCS), which combines pavement management
data from over 200 agencies to produce a state-wide assessment of over 80% of the state’s roads.
The SCS system can analytically determine future road conditions and repair costs, based on
current conditions and spending levels. It showed that at the then 2008 funding levels, most of
the state’s roads would fall into disrepair. While their initial report was met with shock and
disbelief, after eight years of analytically consistent and independently verified reports (NCE,
2016), the legislature was forced to take action and in April of 2017, voted to increase the state’s
motor fuel tax for the first time in 23 years. The increase will provide an additional $5.3 billion
annually to fix the state’s roads (McGreevy, 2017).
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While such a system at the national level would not answer the third question of whether
the funding should be federal or state-based, it could help reduce the conflict over highway
conditions and the cost of keeping it in good repair. Therefore, additional research should be
undertaken to explore whether the SCS model could be implemented at the national level. While
it is uncertain whether legislators would believe its results, it is a certainty that a coherent
transportation policy must be based on hard numbers, and not political or economic philosophies.
6.5 Summary
The SIB program suffered from a number of major design, implementation, and funding
flaws that prevented it from achieving results that were expected to match or exceed those of its
model, the EPA’s Clean Water State Revolving Fund (CWSRF). The flaws are summarized as
follows:
1. Inadequate legislative design. While the SIB program was based on the EPA’s successful
CWSRF program, it appears that little of the EPA’s knowledge was used to guide the SIB’s
design, implementation and operation. As a result, the SIB legislation was drafted with built
in flaws that could have been avoided, both in the initial draft, and the succeeding five
modifications. The pilot program was also not designed in a way that enabled the FHWA or
Congress to determine how to implement the program effectively in all 50 states or if it was
achieving its intended goals. Finally, the steps in the legislative cycle taken to implement it
suffered from 8 out of the top 10 mistakes that routinely cause business startups to fail.
2. Insufficient FHWA project administration procedures. The FHWA did not have a way to
effectively request additional funds to operate a program in 1995, and 22 years later, it still
does not have this ability. In addition, the program was designed without a comprehensive
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assessment to be conducted within two years of its start. This allowed the flaws predicted by
the 1996 GAO study to go largely unaddressed over the program’s history.
3. Insufficient and ineffective Congressional oversight. Over the program’s 22-year history,
the actions of Congress have made the SIB program less attractive and less effective while
not addressing its core deficiencies. This indicates a broken or ineffective oversight process
that did not detect or address the program’s flaws.
4. Insufficient funding. Permanently reducing the funding irrevocably altered the program’s
ability to fund infrastructure and reduced it to a niche program, rather than equaling or
exceeding the CWSRF’s success.
In conclusion, the SIB program underperformed its model due to avoidable errors that
have gone uncorrected for over 20 years. However, the lessons learned from the program can be
used to correct not just the SIB program’s deficiencies, but also broken processes between the
FHWA and Congress by (a) conducting more frequent program reviews and (b) by providing
mechanism to inform congress of the cost and the status of programs. The results also indicate
that PPPs are a poor match for most transportation projects, and as such, may not produce the
results the Trump administration is anticipating. Finally addressing the areas of additional
research revealed by the SIB program’s failures could substantially improve transportation
infrastructure financing and funding while continually reducing costs, increasing efficiency and,
thereby, increasing American’s global competitiveness.

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APPENDIX A
INSTITUTIONAL REVIEW BOARD (IRB) EXEMPTION
All information from interview subjects used in this research met Institutional Review Board
rules to be classified as “Non-Human” in that it contained no personal information.
Interview Questionnaire
My name is Stephen Hubbard, and I am a Doctoral student at the University of Southern
California’s Sol Price School of Public Policy. I am conducting research on the operation and
effectiveness of the FHWA’s State Infrastructure Bank program. The purpose of this interview
is to gather detailed information regarding various aspects of how the program was implemented
and evolved.
This interview is purely voluntary, and you can decline to answer any question or elect to
terminate it at any time. The information collected during this interview is confidential. You
will not be quoted by name without your advanced written permission. To insure accuracy, a
summary of your comments will be sent to you for your review so that you may change or delete
any items as you see fit. You may also elect to have any portion of the interview removed from
the work before publication by submitting the request in writing to the Email address below.
Table 30. Questions for SIB state administrators
1. Interviewee
1.1. What year did you start with the bank?
1.2. What the earliest generation (1st, 2nd, 3rd, etc.) employee you’ve talked with?
1.3. How knowledgeable where they about the bank’s formation?
2. Initial Bank
2.1. Why did your state apply for the bank? (See what develops, make a big bank, etc.)
2.2. What was the initial bank concept? What role would it play in the state’s
transportation funding mix?
2.3. How was the bank capitalized? What were the state/federal percentages?
2.4. Is the bank supported by any additional revenue (taxes, user fees, surcharges)?
2.5. Did your bank contact or receive guidance from the state’s CWSRF staff?
3. Bank Evolution
3.1. Is PAYGO used in transportation financing? If so, how?
3.2. How has the bank evolved? Does it operate differently now?
3.3. Have any external events, state, federal or political influenced the bank’s evolution?
3.4. Have funds ever been swept by the state or the initial capital paid back to the FHWA?
3.5. Did the rule change in 1997 eliminating using funds for capitalization affect the bank?
3.6. How did the 2008 recession affect the bank?
4. State Transportation SIB
4.1. Has a state SIB created been created? If so, why?
4.2. How did the creation of the State SIB affect the FHWA SIB?
5. Bank Organization & Operation
5.1. Bank Name
5.2. Bank agency type and is it under an existing agency?
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Table 30. Questions for SIB state administrators
5.3. Does the bank have an oversight board or report to anyone?
5.4. How many people does it take to run the bank annually (FTEs)?
5.5. Does the bank have any organizational/design issues that affect its operation?
5.6. Do you talk or collaborate with other FHWA SIB banks?
5.7. How are the bank’s services advertised?
6. Bank Loans
6.1. What type of financial assistance does the bank offer, including grants?
6.2. Are the loans exclusively for capital, maintenance, or a mixture?
6.3. What are the guidelines or restrictions for loan size and term?
6.4. Is there a specific type(s) of project that is targeted?
6.5. Does the bank manage its capital?
6.6. How are interest rates set?
6.7. Describe the application and approval process.
6.8. Does the bank have a minimum matching fund requirement?
6.9. Do you have any prepayment penalties? Why?
6.10. How are loans repaid? Dedicated tax, surcharge, future funds, etc.
6.11. Who owns interest on state contributions? The bank or the State?
6.12. Does the bank issue bonds?
6.13. Have there been any loan failures? Was any money lost? If so, how much?
7. Use and Alternatives
7.1. Is the bank under, just right or oversubscribed?
7.2. What are the alternatives are available to FHAW SIB loans?
7.3. What limits loan issuance? Demand, available funds, repayment rate, complexity
repayment source, etc.
8. Federal regulations
8.1. How has dealing with the federal regulations influenced the bank’s evolution?
8.2. Is there an additional cost/overhead for federal projects? How much?
8.3. Do you allow swaps between federal and local revenues? Is there a discount?
8.4. Are state projects done to the federal standard? (Davis-Bacon, NEPA, etc.) How about
regional and local?
9. Transportation Management
9.1. Does your state make estimates on future road/bridge condition, based on current
spending?
9.2. Does the state have a transportation backlog?
10. Do you have any ideas why the FHWA program is failing, while the EPA’s CWSRFs
are still going strong?
11. If you were to list the most important lessons learned, what would they be?
12. How could the SIB program be improved?
Source: Author

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APPENDIX B
RESEARCH SOURCES
Table 31 lists the sources referenced in this research and the areas of knowledge they provided.
Table 31. Literature Review Sources
No Type General Information Provided Example Sources
1.
Federal
Reports
Expectations for and review of the SIB
program. FHWA financial data and SIB
program status. EPA program status,
review and financial status.
General Accounting Office (GAO)
Congressional Research Service (CRS)
Federal Highway Administration (FHWA)
2.
Federal data Data from various federal agencies. FHWA, BEA, U.S. Census, RITA, EPA,
BLM, etc.
3.
Congressional
hearings
Hearings regarding proposed legislation,
existing programs and future changes.
CRS, House.gov, Senate.Gov,
Government Printing Office (GPO)
4.
State reports,
documents
and data
SIB analysis, SIB financial data, state
transportation policy analysis and data.
State SIB pilot program application,
State/FHWA operating agreement.
State Department of Transportation office
(DOT), State Treasurer or Controller, etc.
5.
State
legislation
Law governing the SIB’s form, function
and operating rules.
Alaskan State Legislature, Arizona State
Legislature, etc.
6.
Universities
and Journals
Peer-reviewed articles regarding SIBs,
their performance, employment and
transportation policy.
Public Works Management and
Administration, George Mason University,
7.
Trade
Publications
News Papers
Magazines
Legislative process and progress, debt
issuance, speculation and expectations of
SIB impact on transportation funding and
debt reduction and financial data. Stories
about SIBs.
The Bond Buyer, Standard & Poors,
MSRB, The New York Times, Trucking
Magazine
8.
NGOs SIB Review reports, Land Ownership
data, transportation policy, etc.
CIFA, Brookings Institute, Center for
American Progress, Natural Resources
Council, The Heritage Foundation.
9.
Interviews Interviews with the administrators who
created and helped shape the FHWA
program and industry experts.
FHWA, ENO Transportation Institute,
Brookings Institute
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APPENDIX C
INITIAL 1997 SIB CAPITALIZATION
Table 32. SIB Bank Capitalization
State Obligations:
Regular Highway
Funds
Highway Obligations:
FY97 Appropriations
Transit Obligations:
FY97 Appropriations
Federal Outlays
Alaska $- $2,490,000 $- $-
Arizona $14,519,799 $6,700,000 $- $14,519,799
Arkansas $- $1,500,000 $- $-
California $- $3,000,000 $- $-
Colorado $- $1,500,000 $- $-
Delaware $- $1,500,000 $- $-
District of Columbia
Florida $20,077,605 $8,650,000 $- $20,077,604
Indiana $- $3,390,000 $- $-
Iowa $- $870,000 $630,000 $-
Maine $- $2,540,000 $- $-
Michigan $- $11,050,000 $- $-
Minnesota $- $3,960,000 $- $-
Missouri $13,000,000 $- $7,410,000 $8,500,000
Nebraska $- $2,830,000 $- $-
New Jersey $- $1,500,000 $- $-
New Mexico $- $8,140,000 $- $-
New York $- $12,000,000 $- $-
North Carolina $- $1,500,000 $- $-
North Dakota $- $2,540,000 $- $-
Ohio $35,000,000 $5,100,000 $6,900,000 $35,000,000
Oklahoma $- $4,700,000 $- $-
Oregon $8,973,000 $5,510,000 $- $8,973,000
Pennsylvania $- $1,000,000 $2,390,000 $-
Puerto Rico $- $1,500,000 $- $-
Rhode Island $- $1,500,000 $- $-
South Carolina $- $3,000,000 $- $-
South Dakota $- $2,830,000 $- $-
Tennessee $- $1,500,000 $- $-
Texas $75,211,476 $12,000,000 $- $75,211,476
Utah $- $2,310,000 $- $-
Vermont $- $1,500,000 $- $-
Virginia $- $3,000,000 $- $-
Washington $- $1,500,000 $- $-
Wisconsin $- $1,500,000 $- $-
Wyoming $- $2,510,000 $- $-
Total $166,781,880 $126,620,000 $17,330,000 $162,281,879
Source: FHWA
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APPENDIX D
FEDERAL CREDIT ASSISTANCE TOOLS: SIB PRIMER
Reprinted from (FHWA, 1998a)
Table of Contents
I. SIBS AT A GLANCE
1. This Primer
2. What's New With SIBs
3. SIBs Can Help
II. SIB TALK - A GLOSSARY OF KEY TERMS
III. KEYS TO UNLOCKING A SIB'S POTENTIAL
1. Loans - Popular SIB Financing Tool
2. Credit Enhancement and Other Forms of Assistance - Maximizing a SIB's
Potential
a. Lines of Credit
b. Debt Service Guarantees: Letters of Credit and Bond Insurance
c. Debt Service Reserves
d. Other Forms of Assistance
IV. PUTTING SIBS TO WORK - ROADMAP TO SIB IMPLEMENTATION
1. Program Development
a. Institutional Structure
b. Financial Issues
c. Managerial Details
2. Program Implementation
a. Seeking Enabling Legislation
b. Cooperative Agreements
c. Outreach
d. Project Screening
e. Capitalization
f. Project Selection and Terms
g. Leveraging/Debt Issuance (optional)
h. Project Loans/Commitments
3. A Final Note: SIBs Complement Other Innovative Approaches
V. FURTHER INFORMATION
VI. NOTES
I. SIBs at a Glance
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The 1995 National Highway System Designation Act (Section 350) established the State
Infrastructure Bank (SIB) pilot program. Designed to complement traditional transportation
funding programs, SIBs can give states significantly increased flexibility in project selection and
financial management. Much like a private bank, a SIB uses seed capitalization funds to get
started and offers customers a range of loans and credit enhancement products.
Under the current pilot program, initial funds can be used to finance eligible surface
transportation projects, including both highway construction and transit capital projects. Under
the pilot program, recycled funds (repayments on initial assistance) can be used for any Title 23
eligible purpose.
Figure 1. Basic State Infrastructure Bank Structure

Figure 1 illustrates the basic structure of a SIB. The structure is designed to allow for SIB funds
to revolve (i.e., as loans are repaid to the SIB, the SIB uses repaid funds to make future rounds
of loans).
1. This Primer
The Federal Highway Administration (FHWA) distributed a SIB Primer at the 1995 State
Infrastructure Bank Conference held in Denver, Colorado. This new Primer builds on earlier
information and reviews in greater depth the many financing tools that can be made available to
transportation projects through a SIB. It also provides information about developing a SIB
program that takes full advantage of the project financing flexibility envisioned by the federal
pilot program.
2. What's New With SIBs
Under the initial SIB pilot program, ten states were authorized to establish SIBs (Arizona,
California, Florida, Missouri, Ohio, Oklahoma, Oregon, South Carolina, Texas, and Virginia). In
September 1996, Congress passed additional SIB legislation that enabled the United States
Department of Transportation (US DOT) to designate additional qualified states to participate in
the SIB pilot program. In response, US DOT received 26 applications for SIB designation from
29 states (including two multi-state applications). These applications were subsequently
approved and 29 new states were selected to participate in the SIB pilot program on June 19,
1997.
Congress also approved the allocation of $150 million in federal general revenue funds for SIB
capitalization. These funds may be used to capitalize either highway or transit accounts. The 39
states (including Puerto Rico) were each allocated a portion of the $150 million in amounts
ranging from $1.5 million to $12 million. Although the SIB program is still very new and
currently only a pilot program, it has attracted widespread interest and over the coming months
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and years is certain to become a valuable complement to existing federal surface transportation
funding programs.
http://www.fhwa.dot.gov/ipd/finance/resources/federal_credit/sib_primer.aspx - main_content
3. SIBs Can Help
Given budgetary constraints at all levels of government affecting transportation funding, the
ability of SIBs to stretch both federal and state dollars to increase transportation infrastructure
investment will be a useful tool for a portion of project financing demands. While, in a recently
completed survey of fifteen states, most states indicated that SIBs would probably assist less than
ten percent of their state transportation projects in the next five years, the flexibility available
through SIBs will enable certain projects to be initiated that otherwise would be delayed or not
financially feasible. 1
The primary benefits of SIBs to transportation investment include:
Flexible project financing. SIBs can assist projects through a variety of innovative financing
techniques, including a range of loans and credit options that provide flexibility to tailor financial
assistance to meet a project's specific needs. Examples of assistance to be offered by SIBs
include low interest flexible term loans, debt service guarantees, lines of credit, and other capital
financing support.
"Recycling" of funds. Repaid SIB loans can be "recycled" as a source of funds for future
transportation projects. SIBs can offer financial assistance to one set of projects and, as
assistance is repaid, funds are replenished enabling assistance to other projects. By preserving
the corpus (body of the fund) of the SIB, a state can provide expanded financial assistance to
projects in perpetuity.
Accelerated completion of projects. SIBs can enable projects to start sooner by using diverse
sources of funds to acquire necessary capital. Combining diverse funds also gives a SIB the
flexibility to assemble a financial package for needed projects. Utilizing SIB assistance to
finance projects with revenue-producing potential also can free up federal and state funds for
non-revenue producing projects.
Increased state and/or local investment. Many communities are willing to dedicate local revenue
sources to complete important projects but either do not have well-established credit ratings or
lack experience in capital financing. SIBs can be used to help these communities (and the state)
by providing both financial and technical assistance. In addition, SIBs can be a mechanism by
which localities can pool funds. This pooling of funds would function similarly to a bond bank
by lowering the cost of capital through lower interest rates.
Attract private investment. SIBs can enhance private investment in two vital ways. First, by
lowering the financial risk, SIBs can help attract private developers wishing to take an equity
interest in projects. Second, SIBs can help create a stronger market for transportation bonds.
Federal and state funds committed to projects help assure private investors of the likely success
of projects. In turn, private investment can help close the transportation funding gap and also
attract transportation-related economic development.
The benefits of SIBs to the transportation sector, outlined above, can be maximized by using
SIBs in conjunction with traditional finance approaches as well as other innovative funding
approaches.
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http://www.fhwa.dot.gov/ipd/finance/resources/federal_credit/sib_primer.aspx - main_content
II. SIB Talk - A Glossary of Key Terms
Following is a glossary of terms frequently used in discussions of SIBs and related innovative
transportation financing. The definitions are targeted to how terms are generally used in the
world of SIBs.
Advance capitalization (ACAP). A federal-aid funding procedure that permits each pilot state to
notify FHWA when it has identified an amount of federal assistance that it may ultimately
convert to a SIB capitalization grant. ACAP simply establishes a baseline from which to
calculate the maximum amount of federal funding that may be deposited into a SIB during
succeeding years. For example, a state wishes to contribute $10 million of federal-aid funds to its
SIB. The declared ACAP amount is recognized at the outset and then funds are deposited to the
SIB incrementally per federal disbursement provisions. The ACAP process is not used in
capitalizing transit accounts. Instead, a similar process, in which grantees commit an amount of
grant funds to SIB capitalization, is employed.
Advance construction. States or local governments independently raise upfront capital required
for a federally approved project and preserve eligibility for future federal-aid reimbursement for
that project. At a later date, the state can obligate federal-aid highway funds for reimbursement
of the federal share. This tool allows states to take advantage of access to a variety of capital
sources, including its own funds, local funds, anticipation notes, revenue bonds, bank loans, etc.,
to speed project completion.
Build/operate/transfer. Public-private partnership arrangement involving private construction,
private operation for given period, and eventual transfer to public ownership. SIBs can provide
assistance to these partnership arrangements.
Capital reserves. Funds that remain in the SIB and are not loaned out. These funds can be used to
support a variety of credit enhancement tools. Capital reserves also can be used to leverage the
SIB, or borrow against reserves to expand the pool of available loan funds.
Capitalization. Process of depositing various funds as seed capital into the SIB to enable
financial services. This pool of money is distributed, through loans and credit enhancements, in
such a way to ensure that payments are made back to preserve the corpus of the SIB.
Cooperative agreement. Written consent between a state and the federal government used to
define the process of SIB implementation. The agreement outlines the basic structure and
purpose of the SIB and roles of each party, and sets forth how the funds of the SIB will be
administered.
Corpus. The corpus refers to all initial funds, additional, and subsequent revenue deposited for
SIB capitalization. The corpus is essentially a "body" of funds that is available, on a revolving
basis, for use in providing financial assistance to borrowers.
Credit enhancement. Financing tools - such as letters of credit, lines of credit, bond insurance,
debt service reserves, and debt service guarantees - that improve the credit quality of underlying
financial commitments. Credit enhancements, which can be provided through a SIB, have the
effect of lowering interest costs and improving the marketability or liquidity of bond issues.
Design/build. Public-private partnership arrangement whereby a single contractor (or team of
contractors) is entrusted with both design and construction of a public infrastructure project. This
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contrasts with traditional procurement where one contract is bid for the design phase and then a
second contract is bid for the construction phase of the project. SIB assistance can benefit either
arrangement at any eligible project phase. In both instances, ownership of the project remains
with the public sector.
Equity. Commitment of money from public or private sources for project finance, with a
designated rate of return target.
Fiscal Year 1997 US DOT Appropriations Act. Public Law 104-205 expanded the SIB pilot
program beyond the initial 10 states and provided $150 million in federal general revenues as
seed capitalization funds for SIBs.
Grant anticipation notes (GANs). Short-term debt that is secured by grant money expected to be
received after debt is issued. SIBs may buy anticipation notes on behalf of project sponsors in
advance of intergovernmental assistance, to enable a faster project start. Helps project sponsors
advance projects, especially when unable to access capital markets. GANs also may be used to
speed SIB capitalization.
Guarantee. A contract(s) entered into by the SIB in which the SIB agrees to take responsibility
for all or a portion of a project sponsor's financial obligations for a project under specified
conditions.
Initial assistance. First round of SIB monies, that must be loaned or used for credit enhancement
for purposes limited to highway construction under Title 23 or transit capital projects under Title
49.
Interest subsidy. SIBs may subsidize interest rates for project sponsors, lowering overall
financing costs. With this tool, project sponsors repay loans at less than current market rates.
Market rates may be determined by the cost of borrowing through conventional issues of
comparable duration.
Letter of credit. A form of loan from the SIB to be used only in the instance of a shortfall in net
revenue for debt service (i.e., a contingent loan). A letter of credit is security provided directly to
the lender/bondholders (via the trustee), rather than to the borrower/project sponsor.
Leverage. A financial mechanism used to increase SIB funds through debt issuance, for example.
A SIB is considered leveraged if its total potential liabilities exceed its equity. A SIB may be
leveraged in two ways: 1) by issuing debt (typically bonds) on its own behalf; or 2) by
guaranteeing or otherwise assuming liability for others' debt in an amount greater than the SIB's
cash balances.
Line of credit. A form of loan from the SIB to be used only in the instance of a shortfall in net
revenue for debt service or other financial commitments (i.e., a contingent loan). A line of credit,
while similar to a letter of credit, is security available directly to the borrower/project sponsor
with flexibility in use of the funds.
Loan. Any form of direct financial assistance from the SIB, subject to repayment, which is
provided to a project sponsor for all or part of project costs.
Non-federal match. The commitment of state or other non-federal funds required to receive
federal contributions. The SIB program requires a non-federal match for capitalization funds,
which is 25 percent of the amount of federal funds. The match may be lower in states which have
a sliding scale rate based on the percentage of federal land in the state.
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Obligations. Conversion of a state's declared ACAP amount into a SIB deposit. Obligated funds
represent an official commitment to capitalize the SIB.
Outlays. An outlay represents an official payment of funds from FHWA to a SIB account in
response to a SIB's submission of a voucher for reimbursement. Capitalization funds must first
be obligated, then outlayed, resulting in a deposit of funds to a SIB.
Project revenues. All rates, rents, fees, assessments, charges, and other receipts derived by a
project sponsor from a project. Generally, the source of SIB assistance repayment.
Recycled funds. Second and future generation(s) of SIB assistance, resulting from repayment of
prior assistance.
Revolving loan fund. Financing tool that recycles funds by providing loans, receiving loan
repayments, and then providing further loans. A SIB is a revolving loan fund, but with credit
options a SIB can be more than a simple revolving loan fund.
Section 350 of National Highway System Designation Act of 1995. Public Law 104-59, dated
November 28, 1995, that created SIB Pilot Program.
Soft loan. Loan provided to a project sponsor with flexible repayment terms. Soft loans, which
can be provided through a SIB, are generally subordinate to other debt, can have variable
repayment schedules and extended terms, and subsidized interest rates.
http://www.fhwa.dot.gov/ipd/finance/resources/federal_credit/sib_primer.aspx - main_content
III. Keys To Unlocking a Sib's Potential
SIBs are intended to give state and local officials new flexibility. This flexibility is possible,
however, only if a SIB takes advantage of the innovative financing tools that are available
through the SIB program. As Table 1 outlines, each of these tools can be applied at any project
stage. This section describes the spectrum of innovative financial assistance a SIB may provide.
The discussion is not meant to be exhaustive; more detailed variations on these tools exist.
Instead, the tools presented in Table 1 and discussed here demonstrate the range of approaches
that are feasible through the SIB structure.
Table 1: SIB Assistance can Benefit all Project Stages*
Preconstruction Highway Construction Transit Capital Acquisition
• Planning and cost
estimation
• Feasibility studies
• Environmental and
economic impact studies
• Project design
• Right-of-way acquisition
• Project engineering
• Project bond issuance
• Project
construction
• Additional bond
issuance
• Transit project purchase
and lease agreements
• Equipment and rolling
stock acquisition
• Additional bond issuance
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*Under current law (Public Law 104-59), initial SIB assistance from federal funds may be used
for highway construction as broadly defined in Title 23 or transit capital projects as defined in
Title 49.
1. Loans - Popular SIB Financing Tool
Loans are expected to be the most popular form of SIB assistance. A loan, provided to a project
sponsor, is any form of direct financial assistance, for all or part of the project cost and subject to
repayment terms. During the first round of assistance, a loan may be provided for any phase of
an eligible project, including before and during construction of a highway or transit capital
acquisition.

Ohio's SIB made three loans in the amounts of $10, $10, and $15 million to the Butler County
Transportation Improvement District (BCTID). BCTID expects to issue $136 million in
construction bonds in 1997. Through this bond issuance, BCTID will repay all SIB loans. This
type of structure prevents postponing the preconstruction project phases until the bonds are
issued.

Since demand for SIB assistance may be high, it is important to strategically use the SIB to assist
as many projects as possible. To do so, the SIB could assist projects during the phases that are
least likely to receive financing from another source. Often, this is the preconstruction phase,
where project revenues have not yet been realized and the estimates of future revenues are
uncertain. A SIB loan for part or all of the preconstruction phase could, for instance, make the
difference between an unfinanceable and a financeable project. This reduced risk encourages
private equity investment and debt issuance at lower interest rates.
Once the project phase and amount of the loan have been determined, there are still a variety of
alternative structures for a SIB loan to take. The interest rate on the loan and the timing of loan
repayment can be structured to meet the needs of a specific project. Loans with flexible
repayment terms are often termed "soft" loans. A SIB loan can carry a subsidized or market
interest rate and the timing of repayment can be structured to accommodate the repayment source
(i.e., user fees, tolls, gas taxes, other state and local taxes) for the project. 2
The primary benefit of providing loans to projects (rather than grants) is that loan repayments are
recycled for future generations of projects, furthering the development of transportation (see
figure 2).
Alternative forms of loans, such as grant anticipation
notes (GANs) and similar short-term debt instruments, can be issued in anticipation of certain
future revenues, including federal reimbursement of state transportation expenditures and state
appropriations. Such notes can be issued to provide financing in advance of conventional funding
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flows. Use of such instruments often requires additional credit backstops such as lines of credit,
letters of credit, or other guarantees.
A SIB could purchase such notes from eligible project sponsors - e.g., state departments of
transportation, transit agencies, and turnpike authorities - to complete projects earlier than
through the traditional reimbursement basis. Alternatively, the SIB could issue GANs in the
private capital markets on behalf of project sponsors or as a method of capitalizing the SIB.
http://www.fhwa.dot.gov/ipd/finance/resources/federal_credit/sib_primer.aspx - main_content
2. Credit Enhancement and Other Forms of Assistance - Maximizing a SIB's Potential
Credit enhancement products offered through a SIB can provide additional security or credit
support to transportation projects that are funded primarily through other means, such as through
the municipal bond market or private participation. This additional security results in bolstered
confidence of private investors (both private developers and potential bondholders), which in
turn creates lower interest rates, improved marketability of bonds, and lower overall project
financing costs.
In general, credit enhancement is third-party financial support - the lender and the borrower are
the first and second parties - that makes a loan, bond, or other financial instrument more
creditworthy, provides access to better borrowing terms, and can mean the difference between a
project being feasible or not.
From a statewide perspective, providing credit enhancement through a SIB can be more
advantageous than providing direct loans because fewer resources are tied up, and as a result,
more projects can be assisted. Credit enhancement leverages limited resources and, if properly
managed, results in more "bang for the buck" and an increased number of feasible and completed
projects.
The following sections describe the types of credit enhancement that could be made available
through a SIB. They include lines and letters of credit, debt service guarantees, and debt service
reserves, and bond insurance. SIBs' potential use of certificates of participation as well as
financing of purchase and lease agreements also are described.
a. Lines of Credit
Lines of credit are forms of credit enhancement sought by borrowers (project sponsors) to assure
lenders (other investors, bondholders, etc.) of their ability to meet their financial commitments
on the project and also serve to secure a higher debt rating (and lower interest rate) for the
borrowing. Essentially, a line of credit is a form of loan to be used only in the instance of a
shortfall in net revenue for debt service or other financial commitments (i.e., a contingent loan).
A line of credit is a mechanism available directly to the borrower/issuer with flexibility (as
defined in the line's agreement) in the use of funds. A SIB could offer its resources to provide
lines of credit to eligible project sponsors.
b. Debt Service Guarantees: Letters of Credit and Bond Insurance
The provision of debt service guarantees - generally of loans, bonds, and leases - through a SIB
can help minimize risk of outside investors through secondary support of the project. Private
investors, accordingly, could be more inclined to invest in the project. Debt service guarantees
135

generally lower the interest cost of issuing debt and improve the marketability of particular
issues.
Guarantees to meet debt service payment requirements can be offered as letters of credit or bond
insurance. In either case, the guarantee represents an irrevocable, direct commitment of the
guarantor to the bondholders to cover debt service payments in the event that project revenues
are insufficient to meet debt service. In this way, they are like lines of credit, except that the
commitment runs directly to the lender/bondholder (via a trustee), rather than through the
borrower.
Commercial bond insurers typically require an investment grade rating (BBB or above) before
they will insure a project. Projects that purchase private bond insurance therefore are already of
investment grade and would be financeable, although possibly at significant cost. The advantage
of obtaining bond insurance is that the rating on a commercially insured bond issue is normally
improved to the rating of the insurer, generally AAA, thus saving the project significant interest
costs and increasing the marketability of the supporting debt.
A SIB could provide bond insurance directly to projects. The SIB, however, would likely need to
be established with a significant and stable capital reserve in order to provide meaningful bond
insurance independent of a state commitment. Providing bond insurance could be advantageous
when commercial bond insurers will not insure a project or project phase. Insurance of project
debt that would otherwise be rated below investment grade could facilitate the completion of a
number of important projects. Bond insurance differs from a letter of credit because it is typically
in effect for the entire life of a debt issuance, whereas letters of credit usually are not.
c. Debt Service Reserves

Missouri's SIB provided the Springfield Transportation Corporation (STC) with a $1.2 million
loan to fund a debt service reserve fund required to back two STC revenue bond issues totaling
$33 million. A second SIB loan is likely to be made prior to the second bond issuance. The SIB
loans will expedite the funding, design, and construction of several important highway projects.

When a transportation project is financed through the issuance of debt (such as bonds), an
amount in addition to the project cost - typically equivalent to one year of debt service or 10
percent of the total debt issue - must be set aside in a debt service reserve fund. This fund is
drawn upon in the event that the project is unable to make debt service (principal and interest)
payments to bondholders.
SIB assistance could be used to provide the debt service reserve fund for individual projects. The
primary benefit to the project is the reduction in the amount of debt that must be issued upfront,
thus reducing the level of debt service, particularly if the issue's interest costs are high. If the
reserve is drawn upon, repayment of the draw to the SIB can be structured with flexible terms.
This would not be possible if additional debt were issued to fund the reserve.
d. Other Forms of Assistance
Certificates of participation
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Certificates of participation (COPs) are tax-exempt obligations secured with a specified revenue
source such as an equipment or facilities lease. COPs are an alternative to traditional loan
structures and provide project sponsors access to the tax-exempt market. A SIB could issue such
tax-exempt debt with maturities (i.e., dates on which the debt principal is to be repaid) that match
the lease term of assets that would be purchased by the SIB with the proceeds from the bond
issue. The SIB would then lease the equipment or facility to an operating entity, such as a transit
operator. The resulting lease payments, most likely made with a combination of formula grant
funds and local matching share, would then be "passed through" to the bondholders by the SIB
(see figure 3). The ability to make bulk purchases on behalf of multiple smaller operators
through the use of COPs could significantly reduce capital costs associated with vehicle
acquisition. 3
Finance purchase and lease agreements
Purchase and lease agreements are agreements
between two parties whereby one project sponsor purchases and/or leases the project from
another sponsor. A SIB may provide finance support to such agreements in a number of ways.
For example, a state needs to build a highway to reduce congestion, but cannot finance the
project through traditional financing. The SIB could purchase the road and lease it back to the
DOT. The DOT as lessee could use a mixture of federal-aid highway funds, state motor fuel tax
funds, and possibly local contributions or funds from a tax increment district or special
assessment district to fund its lease payments. The lease payments will become the revenue
stream used by the SIB to repay bonds that will be issued to raise the funds to begin construction.
Upon completion of the lease payments, highway ownership will revert to the DOT. SIB
capitalization will provide funds to loan for completion of preliminary engineering. Once lease-
backed revenue debt is issued it will be used to first take out the SIB loan as well as to finance
construction, thus revolving SIB funds quickly.
http://www.fhwa.dot.gov/ipd/finance/resources/federal_credit/sib_primer.aspx - main_content
IV. Putting SIBs to Work - Roadmap to SIB Implementation
Numerous decisions need to be made before a SIB program can be implemented. Figure 4
depicts the decisions necessary in the program development phase and the actions that follow
during program implementation. This section discusses these decisions and actions.
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1. Program Development
To take advantage of the full range of innovative financing tools available through a SIB, a state
must consider and integrate into its SIB's structure and policies various institutional, financial,
and managerial issues.
a. Institutional Structure
The structure of a SIB is largely determined by the institution in which the SIB's accounts are
housed. The experiences of SIB pilot states, as well as Clean Water State Revolving Funds
(SRFs) and state bond banks, suggest that a SIB's accounts can be placed in various places within
state government.
The most common choices implemented thus far in the SIB program have been to house the
SIB's accounts within the state's department of transportation or within another transportation
agency, such as a turnpike authority. Housing the SIB within a department of transportation can
be attractive if the department has the financing expertise necessary to run the SIB. The
transportation authority option also is feasible if such an organization exists that has the
necessary managerial as well as financial expertise. Other options for institutional settings
include housing the SIB's accounts within the SIB's own single purpose finance authority or
within another state agency, such as the state's treasury department, economic development
agency, or department of commerce.
Housing the SIB's accounts in one state entity while sharing managerial responsibilities with
another state entity, also is feasible. This requires that the functions of the SIB be unambiguously
divided - for instance, with the state department of transportation responsible for all
programmatic issues and a state finance agency concerned with financial managerial matters.
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The decision of where to house both the SIB's accounts as well as the SIB's managerial
responsibilities depends largely on specific situations within a state. Many viable options exist.
In nearly all states, the institution responsible for a SIB's daily operations will be overseen by an
oversight body, such as an appointed transportation commission. The existence of an oversight
body helps ensure consistency with state transportation priorities and state policies regarding
financial management. Additional groups may be called upon for various needs such as financial
and legal expertise.
b. Financial Issues
Among the numerous financial issues that must be addressed when developing a SIB,
capitalization and leveraging are the foremost decisions.
Capitalization
A SIB begins with an initial infusion of federal funds and non-federal matching contributions.
Currently, states can deposit a maximum 10 percent of certain FY 1996 and FY 1997 federal-aid
highway and federal transit funds (sections 3, 9, and 18) into the SIB's highway and transit
accounts, respectively. 4 The amount of federal funding available for capitalization is subject to a
disbursement limitation. 5 The state is required to contribute from non-federal sources 25 percent
of the federal contribution (which effectively equals 20 percent of the total deposit). The required
match may be lower in states which have a sliding scale rate based on the percentage of federal
land in the state. States, of course, may choose to contribute additional funds beyond the required
non-federal match.
As noted previously, in 1997 Congress approved the allocation of an additional $150 million in
federal general revenue funds for pilot SIB capitalization. These, as well as any future additional
appropriations approved by Congress, are outside of a state's obligation limit. Such
appropriations, however, also are subject to historical federal-aid outlay rates and require a non-
federal match.
Leveraging
In the world of SIBs, the term leveraging
has two related meanings. First, leveraging refers broadly to the expansion of funding for a
particular project through SIB support by attracting private, local, and additional state financial
resources. For instance, if SIB assistance were to provide credit enhancement for a project that
enabled the issuance of debt to finance the project, then the small amount of SIB assistance
would have been leveraged to facilitate a larger dollar investment.
The alternative, and more technical, uses of the term refer to either 1) the ability to use a portion
of capitalization funds as collateral to borrow in the bond market or 2) guaranteeing or otherwise
assuming liability for others' debt in an amount greater than the SIB's cash balances. Bond
issuance can be used to increase the pool of available funds for projects (potentially on the order
of 2 to 4 times the capitalization reserve) or to establish a guarantee reserve fund (see figure 5).
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It is clear by the basic mathematics of leveraging that more funds can be made available earlier
through leveraging than by an unleveraged program. Leveraging provides funds now that would
take years to obtain through the simple revolving of loaned funds.
c. Managerial Details
Decisions regarding the management of the SIB are crucial to successful program development.
How the SIB corpus is managed will determine the ability of the SIB to benefit transportation
investment. A primary focus should be to maintain the SIB over the long-term. While it is
important to provide the maximum amount of assistance the SIB is capable of, this should not be
done at the expense of the SIB's long-term viability.
2. Program Implementation
Once the overall design of a SIB has been established, managers can turn their attention to the
business of implementation. Various actions must be taken on an ongoing basis by a SIB's
management team to implement the program. They include:
• Seeking enabling legislation or defining existing authority;
• Establishing cooperative agreements;
• Conducting outreach;
• Screening projects;
• Capitalizing the SIB;
• Defining project selection and terms;
• Leveraging the SIB/issuing debt (optional); and
• Making project loans/commitments.
The specific implementation approach will, of course, vary given each state's unique
circumstance and resulting unique SIB structure.
a. Seeking Enabling Legislation
Ensuring the legal authority at the state level to achieve the intended scope of the program is a
crucial step in SIB implementation. The need for new legislation will vary from state to state, but
based on the experience of the first pilot states, many may benefit from at least some broader
legislative authority. In addition to considering the need for new legislation, any barriers that
may exist in current law, regulations, or policy (related to bonding, making loans or other
financial assistance, project eligibility, etc.) need to be assessed. Once these steps have been
taken, the timetable for any required legislative actions or legal opinions should be estimated.
Any new legislation should be as flexible as possible to allow for potential future uses of the
SIB, and also should consider any legislative needs of SIB customers, for example, in accepting
SIB support or dedicating revenue streams to repayment. FHWA has prepared model legislation
that provides the full range of legislative language that may be required. SIB managers should
engage their legal counsel early in the process to determine their specific legislative needs - and
the extent to which steps can or cannot be taken with existing authority.
b. Cooperative Agreements
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Following designation as a SIB state, one of the first actions to be taken is completion of a
cooperative agreement between FHWA and/or FTA and the state institution(s) responsible for
the SIB. This agreement outlines the structure of the SIB, including the administering agency,
financial assistance policies, accounting and audit procedures, and sanctions and compliance. It
is important to consider both the SIB's current financing plans, as well as any plans for future
refinements to the program.
Following this initial cooperative agreement, it will be necessary for the SIB to meet reporting
requirements both of federal agencies and state oversight groups. These requirements are still in
formative stages, given the newness of the program, but the SIB's managerial team should be
aware of their potential requirements.
c. Outreach
Outreach regarding the SIB program should be geared toward three groups - state and local
policy makers, project sponsors, and the public.
To avoid applications that do not meet the eligibility criteria and to solicit applications from
desired projects, it is necessary to perform outreach as early in the process as possible. While
potential applicants to the SIB for assistance exist in most states, it is important to inform project
sponsors about the program.
To ensure support from policy makers, it is beneficial to inform these individuals on the intent of
the program (e.g., eligible project types and forms of assistance), as well as the program's
successes as projects are completed. This outreach also will help with any beneficial legislative
action.
Several of the 10 original SIB designee states have developed effective outreach strategies to
inform both project sponsors and policy makers on the SIB program as well as to promote the
advantages of seeking SIB assistance. Sample outreach materials are available from FHWA,
upon request.
In addition to outreach, most programs will require "inreach" to educate transportation
department personnel on the potential of the SIB to enhance current activities.
d. Project Screening
Projects initially should be screened based on general eligibility guidelines and the extent to
which they are sponsored by eligible recipients of SIB assistance. Examples of broad eligibility
guidelines include:
• The existence/strength of identified revenue streams for loan or other SIB assistance
repayment;
• Eligibility of project for SIB assistance;
• Consistency with the STIP;
• Consistency with local and regional plans and programs; and
• Support of construction or improvement of federal-aid highways or transit capital
projects if federal (and associated matching) funds are to be used (other project types may
be funded by state resources).
e. Capitalization
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Each SIB will need to determine the level of initial capitalization that is appropriate given the
SIB's role in transportation financing and other competing demands for funds. The following
factors should be considered when capitalizing a SIB:
• Estimated cost of identified first round projects;
• Estimated cost of potential future projects;
• Forms of assistance to be provided;
• Available federal and non-federal sources of capitalization; and
• Degree to which the SIB and/or projects will be leveraged.
States also will need to be aware of competing demands for potential state and federal
capitalization funds.
f. Project Selection and Terms
Following initial project screening and capitalization decisions, eligible projects must be
subjected to a more detailed project selection procedure based on specific evaluation criteria.
Examples of potential criteria include:
• The transportation problem the proposed project addresses;
• Impact of the proposed project on public mobility and safety;
• Ability to leverage new funding sources;
• Ability to accelerate completion of a high priority transportation project;
• Technical and financial strength of the proposed project sponsor and the viability of the
proposed financial plan; and
• Status of necessary environmental and construction approvals.
Following the selection of a project to receive SIB assistance, terms of that assistance must be
agreed upon by the SIB and the project sponsor. It is important for the SIB to establish certain
guidelines and standards for these terms.
Interest rates charged on SIB loans as well as on draws on credit enhancement tools are likely the
most important of these terms. Although subsidized interest rates represent a cost reduction to
assisted projects, they will, over time, result in reduced growth of the SIB corpus and its ability
to assist other projects. It is thus important to determine appropriate, affordable interest rates for
projects without sacrificing the SIB's long-term viability.
The repayment timing of SIB assistance also has important effects on the corpus of the SIB.
Section 350 of the NHS Act states that repayments on a loan must commence no later than 5
years after the project has been completed, or in the case of a highway project, when the facility
has opened to traffic (whichever is later). Repayments must be completed within 30 years after
they commence.
In most cases, it would be beneficial to the stability of the SIB to set loan repayment terms that
begin and complete repayment sooner than the maximum stated in the NHS Act. Quicker
repayment of SIB assistance will enable the SIB to provide assistance to more projects more
rapidly and also will reduce the interest costs to the project sponsor.
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Of course, each project assisted by the SIB will be unique and repayment terms should be
structured to best meet the needs of the project without sacrificing the stability of the SIB.
Within this, repayment can be structured to accommodate a project's anticipated revenue stream.
For example, the structure could defer payments during the preconstruction phases, postponing
the repayment of principal and interest until after the project is anticipated to generate revenues.
A repayment account receives project repayments which may then be recycled for new projects -
Title 23 eligible projects. If a SIB credit enhancement tool has not been drawn upon after the
terms of the project agreement have been exhausted, the amount of funds supporting the credit
enhancement tool may be transferred into a repayment account.
g. Leveraging/Debt Issuance (optional)
A SIB may be leveraged in two ways: 1) by issuing debt on its own behalf, or 2) by guaranteeing
or otherwise assuming liability for others' debts in an amount greater than the SIB's own cash.
Whether leveraging is deemed advantageous by a particular state will depend on that state's
assessment of overall loan demand, as well as the timing of needs. In particular, SIBs will differ
in their need for and willingness to employ debt financing.
Although most states do not intend to initially have their SIB issue debt, many SIBs do anticipate
that they will leverage through the issuance of debt as well as through the provision of
guarantees and other credit enhancements in the future. This is consistent with developments in
the Clean Water State Revolving Fund program, where, over time, states have added debt
issuance to their programs.
The NHS Act requires that a SIB maintain "an investment grade rating on its debt issuances or
has a sufficient level of bond or debt financing instrument insurance sufficient to maintain the
viability of the bank.
6
Investment grade means a rating of BBB or Baa or higher. This statutory
requirement applies in instances where banks are leveraged either through issuing bonds or by
guaranteeing others' debt in excess of the SIB's own liquid assets. Even if the NHS Act did not
include this requirement, leveraged SIBs would probably have to obtain a rating anyway as a
practical matter. This would certainly be true if the SIB were issuing debt and wished to ensure
market acceptance of its issuances. It also would hold true if the SIB were guaranteeing outside
debt, for the value of the SIB's guarantee to back project sponsors' debt will only be as strong as
the creditworthiness of the SIB itself.
h. Project Loans/Commitments
Program implementation finally reaches fruition when SIB assistance is provided to a project.
The provisions of this assistance should include a binding contract between the project sponsor
and the SIB in the form of a loan agreement or other documentation for the assistance being
provided. This contract should outline the decisions made in negotiations with the project
sponsor (e.g., interest rates and timing of repayments). The decisions made during the program
development stages should set the guidelines for SIB managers in those negotiations. In this way,
the success of the SIB program will be borne out through its dealings with its customers and its
ability to structure agreements that build on project sponsor willingness to actively participate in
the financing of transportation investments.
3. A Final Note: SIBs Complement Other Innovative Approaches
In addition to being an excellent financing tool for transportation projects, individually, a SIB
also can complement other innovative approaches. These approaches include:
143

• Leveraging tools (e.g., flexible match provisions, ISTEA Section 1044 Toll Investment
Credits, 23 U.S.C. 129 loans, 23 U.S.C. 122 debt service reimbursement, and federal
credit initiatives);
• Related financing mechanisms (e.g., bond issuance, GANs);
• Cash flow tools (e.g., partial conversion of advance construction); and
• A host of innovative revenue-generating tools, including, for instance, improvement
districts and impact fees, public-private partnerships, and shared resource initiatives.
Today, transportation providers face a difficult challenge: they must build more with less. To
meet this challenge FHWA, FTA, states, and local governments must do business in a new way.
Taking advantage of the new financing opportunities available through a SIB exemplifies exactly
the type of creativity that is needed to meet this challenge.
http://www.fhwa.dot.gov/ipd/finance/resources/federal_credit/sib_primer.aspx - main_content
V. Further Information
The following provides additional resources on the SIB pilot program and innovative financing
for transportation. All printed material is available at no charge from FHWA.
FHWA Innovative Finance Home Page.
Innovative Finance Quarterly. A newsletter prepared quarterly by FHWA that includes updates
on SIB activity.
State SIB Enabling Legislation. Sample state legislation that provides for the establishment of a
SIB, at the BATIC Institute: An AASHTO Center for Excellence.
US Department of Transportation Report to Congress. An evaluation of the US DOT SIB Pilot
Program mandated by subsection 350(k) of the National Highway System Designation Act of
1995.
GAO Report. United States General Accounting Office. State Infrastructure Banks: A
Mechanism to Expand Federal Transportation Financing. Report to Congressional Requesters.
October 1996. Call GAO at (202) 512-6000 or fax (301) 258-4066.
FHWA Regional Finance Center Representatives. For further information please contact the
representative for your state.
Eastern Finance Center
Mike Fazioli (518) 431-4224 x216. CT, MA, ME, NH, NJ, NY, RI, VT, Puerto Rico
Audrey Davis (410) 962-0077 x3042. DE, MD, PA, VA, WV
John Jeffers (404) 347-4071. AL, FL, GA, KY, MS, NC, SC, TN
Mike Rosenstiehl (708) 283-3515. IL, IN, MI, MN, OH, WI
Western Finance Center
Sue Kiser (916) 498-5009. AR, IA, KS, LA, MO, NB, NM, OK, TX
Jennifer Mayer (415) 744-2634. CO, MT, ND, SD, UT, WY
Russ Fosha (415) 744-2655. AZ, CA, HI, NV
144

Leslie Harris (503) 326-5953. AK, ID, OR, WA
VI. Notes
1 United States General Accounting Office. State Infrastructure Banks: A Mechanism to Expand
Federal Transportation Financing. Report to Congressional Requesters. October 1996.
2 According to Section 350 of the 1995 National Highway System Designation Act , loan
repayments must begin no later than five years after the project has been completed, or in the
case of a highway project, when the facility has opened to traffic (whichever is later). The term
of the loan may extend to 30 years.
3 US DOT, FTA. Innovative Financing Handbook. May, 1995
4 Federal-aid highway apportionments may be transferred to the SIB program from the following
categories: Interstate Maintenance, National Highway System, Bridge Replacement and
Rehabilitation, Interstate Reimbursement, Hold Harmless, 90% Pay Adjustment, Surface
Transportation Program, Donor State Bonus, and Minimum Allocation.
5 The disbursement limitation for highway accounts is keyed to the standard nine-year outlay
rate (e.g., 15, 53, 16, 5, 3, 3, 2, 2, and 1 percent) and the transit account is keyed to the standard
five-year outlay rate (e.g., 15, 30, 30, 20, and 5 percent).
6 Paragraph 350(e)(2) of the NHS Act.

145
APPENDIX E
PUBLIC LAND OWNERSHIP
This Table 33 gives the percentage of public land ownership by state and federal agencies.
Table 33. Public land ownership
Rank State State
State +
Federal
Pct. Rank State State
State +
Federal
Pct.
1 Alaska 365,039 325,700 89.2% 26 Virginia 25,343 2,450 9.7%
2 Nevada 70,276 56,972 81.1% 27 Rhode Island 669 61 9.1%
3 Utah 52,588 37,020 70.4% 28 Vermont 5,919 486 8.2%
4 Idaho 52,961 35,245 66.6% 29 Louisiana 27,882 2,132 7.7%
5 Wyoming 62,147 33,964 54.7% 30 South Dakota 48,575 3,660 7.5%
6 Arizona 72,731 38,979 53.6% 31 Delaware 1,251 88 7.1%
7 California 99,823 42,288 42.4% 32
North
Carolina
31,180 2,180 7.0%
8 New Mexico 77,674 31,555 40.6% 33 Maryland 6,256 429 6.9%
9 Colorado 66,387 26,459 39.9% 34 Missouri 44,095 2,655 6.0%
10 New York 30,223 11,175 37.0% 35 Connecticut 3,101 180 5.8%
11 Washington 42,613 15,514 36.4% 36 Massachusetts 5,016 278 5.5%
12 Montana 93,156 32,473 34.9% 37 Mississippi 30,025 1,653 5.5%
13 Oregon 61,442 19,404 31.6% 38 Michigan 19,754 1,059 5.4%
14 Florida 34,558 9,069 26.2% 39
South
Carolina
19,271 1,000 5.2%
15 Maine 36,358 8,169 22.5% 40 North Dakota 44,156 2,187 5.0%
16 DC 39,040 8,182 21.0% 41 Georgia 37,068 1,735 4.7%
17 New Jersey 4,748 841 17.7% 42 Alabama 32,480 1,236 3.8%
18 Minnesota 50,955 8,952 17.6% 43 Kentucky 25,429 900 3.5%
19 Wisconsin 34,761 5,634 16.2% 44 Ohio 26,210 679 2.6%
20
New
Hampshire
5,740 908 15.8% 45 Illinois 35,580 837 2.4%
21 Pennsylvania 28,685 4,228 14.7% 46 Oklahoma 43,955 1,007 2.3%
22 Hawaii 4,111 549 13.4% 47 Indiana 22,957 522 2.3%
23 Arkansas 33,328 3,950 11.9% 48 Texas 167,625 3,216 1.9%
24 Tennessee 26,381 2,815 10.7% 49 Nebraska 49,202 786 1.6%
25 West Virginia 15,416 1,530 9.9% 50 Iowa 35,760 371 1.0%
51 Kansas 52,367 480 0.9%
Source: (NRCM, 2000), (CRS, 2017)
146
APPENDIX F
NATIONAL ROAD AND BRIDGE STATE DOT DEFICIT
Table 34. State Road and Bridge Deficits (Funding Shortfalls)
Rural Roads Cost ($B)
State Amount / Years
($Billions)
Annual
($B)
Report
Year
Source Poor Condition
Total Per ten years
Alabama $0.2/yr. $0.2 2015 (Slone, 2015)
Alaska 20.7/10 $0.21 2013 (Wilson, 2013) $6.23 $0.6
Arizona $62.7/25yr. $2.5 2015 (Slone, 2015) -
Arkansas $3.3 2015 $32.57 $3.3
California $77/10yrs. $7.7 2016 (Dawid, 2016) -
Colorado $8.8/10yrs. $0.88 2016 (CODOT, 2016) -
Connecticut $3.1/5yrs. $0.6 2017 (Phaneuf, 2017) $2.81 $0.3
Delaware $0.78/6yrs. $0.13 2015 (Slone, 2015) -
D.C $0.14 2015 $1.4 $0.14
Florida $30/5yrs. $6.0 2015 (Sickler, 2015) -
Georgia $200/30yrs. $6.7 2007 (JSCCTIF, 2014) -
Hawaii $0.1 2015 $1.03 $0.1
Idaho $0.26/yr. $0.3 2017 (Kruesi, 2017) $27.94 $2.8
Illinois $43/10yrs. $4.3 2016 (MPC, 2016) -
Indiana $0.24/yr. $0.24 2016 (Slone, 2015) -
Iowa $2.66 2015 $26.6 2.66
Kansas $7.6 2015 $75.54 $7.6
Kentucky 5.34 2014 53.4 5.34
Louisiana 12.7/10 1.2 2016 (HFD, 2016) -
Maine $1.0 2015 $10.23 $1.0
Maryland $0.6 2015 $6.0 $0.6
Massachusetts $15/20yrs. $0.8 2012 (TBF, 2012) -
Michigan $11/10yrs. $5.1 2015 (MDOT, 2015) $61.91 $6.2
Minnesota $6/10yrs. $0.6 2012 (SOM, 2015) -
Mississippi $2/4yrs. $2.4 2015 (Carter, 2015) $28.59 $2.9
Missouri $0.5/yr. $3.9 2017 (Haughey, 2017) $44.42 $4.4
Montana $0.14 $0.14 2017 (Haughey, 2017) -
Nebraska $0.96 2015 $9.63 $0.96
Nevada $0.450/4yrs. $0.11 (AP, 2017b) -
New Hampshire $0.4 2015 $4.38 $0.4
New Jersey $11.8/10yrs. $1.18 2015 (TRIP, 2015a) -
New Mexico $0.525/10yrs. $3.1 2015 (TRIP, 2015b) $30.55 $3.1
New York $0.557/5y + $68/20yrs. $.45 2015 (ASCE, 2015) -
North Carolina $16.9/10yrs. $1.69 2015 16.9 1.69
North Dakota $8.4/10yrs. 0.84 2015 8.4 .84
Ohio $1.39 2015 $13.85 $1.39
Oklahoma $5.2 2015 $51.64 $5.2
Oregon $1.38 2015 $13.81 $1.38
Pennsylvania $4.28 2015 $42.75 $4.28
Rhode Island . $0.15 2014 $1.46 $0.15
South Carolina $40/25yrs. $1.6 2016 (B. Davis, 2015) -
South Dakota $1.3 2015 $13.2 $1.3
Tennessee $6/25yrs. $0.24 2017 (AP, 2017a) -
Texas $5/5yr. $1.0 (Pollan, 2015) -
Utah $1.4 2015 $14.00 $1.4
Vermont $0.6 2015 $6.03 $0.6
Virginia $120/20yrs. $6.0 2013 (Roshan-Afshar, 2013)
Washington $2.4 2015 (Thompson, 2014) $24.33 $2.4
West Virginia $1.6 2015 $16.3 $1.63
Wisconsin $15/10yrs. 7.83 2015 $78.3 $7.83
Wyoming $0.42 2015 $4.15 $0.42
Annual National Transportation
Deficit (Billions)
$ 110.2
Source: Author. All dollar values are in Billions, U.S. Dollars.
147

Table 34 was assembled to tally a general order of magnitude estimate of the annual
transportation deficit. States with a reference in the source column are based on a published
report which usually gives a dollar estimate over a time period. The total value was then divided
by the time to give dollars per year. For states without a published value were calculated by
using the percentage of rural roads or total roads in poor condition with $1 million per lane-mile
as the estimated repair cost. For some states, if a smaller value was given, the difference was
listed. This crude method ignores bridges because estimating their repair value is too inaccurate.
As a result, the estimate is not inclusive and therefore may be low. Additionally, because it uses
data from agencies that would benefit from receiving additional funds, it must be used with
caution.

Pavement Condition http://www.tripnet.org/docs/Rural_Roads_TRIP_HI_Release_05-19-15.php
Search http://tripnet.org/docs/North_Dakota
Bridges http://t4america.org/docs/bridgereport/bridgereport-national.pdf

148
APPENDIX G
DETERMINING THE ACTUAL US INFRASTRUCTURE DEFICIT
Table 35 below is from an unpublished study by the author which sought to determine the true
size of the U.S. infrastructure deficit. It is based on communications with the ASCE which
revealed their 2013 $1.6 trillion shortfall did not include a number of significant items, including
financing costs. The approach first spot-checked values from 10 state estimates using published
state reports which found that the ASCE values were consistently less than those in published
reports. The missing values were then guesstimated using a variety of proxy values. While the
values should not be considered more accurate than ± 25%, the results show that the 2013 ASCE
report was not comprehensive and that the actual infrastructure gap is potentially far larger than
estimated. As mentioned previously, the results should be used with caution as they are based on
studies by agencies that would benefit from larger deficits.
Table 35. Actual U.S. Infrastructure Deficit
(Billion US 2013 dollars) Per Year Total
No Items Low High Low High
1 Deferred maintenance $37 $146 $219 $876
2 K-12 schools $0 $38 $0 $230
3 Gov. & military facilities $12 $17 $69 $105
4 Population increase $6 $28 $33 $166
5 High Planes water infrastructure $1 $5 $6 $28
6 Additional items subtotal $54 $234 $327 $1,405
7 Project delays $4 $80 $26 $478
8 Ground water depletion $10 $23 $60 $139
9 Additional items + project delays subtotal $69 $337 $413 $2,022
10 ASCE funding deficit $267 $267 $1,600 $1,600
11 Total ASCE + additional items $336 $604 $2,013 $3,622
12 Finance on excluded items (30 years) $8 $41 $252 $1,233
13 Financing @ 4.5% on ASCE $1.6T $72 $72 $2,160 $2,160
14 Total financing $80 $113 $2,412 $3,393
15 Actual funding needed by 2020 $416 $717 $4,425 $7,015
16 Increases in Infrastructure Funding 156% 269% 121% 251%
Source: Author.
Note: Total cost columns reflect complete interest paid on loans, which are assumed to be 30 years,
using standard loan/bond payment amortization calculations. The financing costs include all 30 years-
worth of interest.
149
APPENDIX H
SECTION 129 LOANS
Reprinted from (FHWA, 2014a)
“Section 129 Loans” were established by the Intermodal Surface Transportation Efficiency Act of 1991
(ISTEA, 199AD) and later amended by MAP-21 in 2012.
SAFE Reprinted from the FHWA website, here are descriptions of the only two Section 129 loans that
have been made. Section 129 loans are essentially the same as SIB loans, but the repaid funds are free of
additional federal compliance such as Davis-Bacon or the EPA regulations.
President George Bush Turnpike, Texas
The President George Bush Turnpike (PGBT) is a 30.5-mile circumferential toll roadway connecting
various cities in the northern part of the Dallas Metroplex. It was completed in 2006 and a 9.9-mile
eastern extension is currently under construction.
The Texas Turnpike Authority (now the North Texas Tollway Authority) was given responsibility for
constructing the PGBT as a toll facility so that scarce state and Federal funds could be directed to other
projects in the Metroplex. In order to maintain high bond ratings, the Authority requires a toll facility to
generate revenues at least 1.20 times the amount of bonds outstanding. The projected $700 million cost of
the PGBT precluded financing the project exclusively with revenue bonds, since tolls were not projected
to generate sufficient revenue to obtain a satisfactory credit rating in bond markets.
To help bridge this financing gap, the Texas Department of Transportation provided a $135 million
Section 129 loan using Surface Transportation Program (STP) funds to TTA as part of the project's plan
of finance. This funding gave TTA the ability to reduce the coverage (net revenues divided by net debt
service) on its combined debt, and greatly enhance the creditworthiness of TTA's $446 million in revenue
bonds issued for the first four segments of the project. Furthermore, the loan enabled TTA to contribute
$20 million to the project from funds that might otherwise have been required as reserves for the debt.
The repayment obligation on the Section 129 loan, which began in 2005, is subordinate to the repayment
of the toll revenue bond debt service and is spread over 25 years.
The Section 129 loan was disbursed in five payments of $20 million, $35 million, $20 million, $40
million, and $20 million over a four-year period. TXDOT employed partial conversion of advance
construction to spread the designation of Federal obligation authority over four years rather than incurring
the upfront $135 million impact to its Federal obligation authority.
Further detail on the PGBT is available as a project profile.
Blue Water Bridge, Michigan
The second span of the Blue Water Bridge crossing from Port Huron, Michigan into Canada was financed
with the help of a Section 129 loan from the Michigan Department of Transportation to the state's Bridge
Fund. The second span was constructed between 1995 and 1997 with financing from both revenue bonds
and a Section 129 loan. The total cost was $63 million, of which $45 million was provided by the Section
129 loan. The loan agreement was signed by January 1995; the second span was opened by July 1997.
Repayments began December 1998 and were completed by 2006. Interest was charged at the state's
pooled investment fund rate. Repaid funds were used for other Title 23 projects.
150
APPENDIX I
SOFTWARE ANALYSIS TOOLS
The following software tools were used to create this research:
• Adobe Creative Cloud 4.1.1.202 was used for PDF generation
• MS Word 2016 was used to write this document.
• MS Excel 2016 was used to summarize tabular data and for simple graphics, such as bar
and pie charts. Excel was also used for uploading and downloading data from MS
Access.
• MS Access 2016 was used to store all tabular data.
• MS Access SQL was used to analyze the data and summarize the results for reimporting
into Excel to graph the results. See www.microsoft.com for all Microsoft software.
• Tableau 10.0 was used for more complex graphics. See http://www.tableau.com.
• SAS JMP 12.0 Professional was used for statistical analysis. See
http://www.jmp.com/en_us/home.html
151

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BdPM9Vq0e&sig=DDeE8IxX_Q08JAenjSlu3SY60YA

165

FOOTNOTES
1
Throughout this document, the term “perceived” is used qualify the transportation
infrastructure funding “gap” or “shortfall” due to the lack of peer-reviewed studies that have
definitively proven there is a true shortfall. Virtually all of the reports listing a funding gap have
been made by agencies or groups that could substantially benefit from increased transportation
budgets and as a result, suffer from potential bias. See APPENDIX F for additional information.
2
Finding by the National Governor’s Association Task Force on Transportation Infrastructure,
America in Transition, 1990, headed by Gov. James R. Thompson (R-Ill.), and reported in: Fehr,
S. C. (1990, February 21). Policy Must Address Flight Delays, Crumbling Roads, Traffic Jams.
The Washington Post, p. A12. Washington, DC. Crumbling Roads, Traffic Jams," The
Washington Post, 21 Feb 1991, A12. The 199 U.S. GDP was $6 trillion.
3
The peak in 2009 was due to the $787 billion ARRA (American Recovery and Reinvestment
Act of 2009 (ARRA), 2009).
4
A transportation system that uses smart (best) practices and planned, optimal maintenance can
reduce costs a factor of 5 to 10 over reactive, fire-fighting approaches that deal only with
problems when they become a crisis. Thus, if a substantial portion of U.S. transportation
spending was done in crisis or firefighting mode, it is possible to simultaneously have an
infrastructure crisis, a funding gap while there were sufficient funds to maintain the system if
best practices were used.
5
The initial 41,000 mileDefense Highway System was proposed by President Eisenhower and
was signed into law by him in 1956 (Federal-Aid Highway Act of 1956, 1956).
6
The inflation-adjusted total local, state and federal revenue was divided by the total Vehicle
Miles Traveled (VMT) to give the revenue per passenger car-mile traveled. To do this, all
vehicle miles were transformed to passenger VMT equivalents. For example, an 80,0000 lb. 5
axle truck creates approximately 9,600 times more wear per mile that a 4,000 lb. passenger car,
so one truck VMT equals 9,600 passenger car VMTs. See RITA/BTS “Table 1-35: U.S.
Vehicle-Miles (Millions)” (BTS, 2017) and (GAO, 1979) for equivalent vehicle damage.
7
Pew value of $218 billion per year in 2012 adjusted downward by 15% to $190 billion reflect
heavy construction inflation, using the Engineering News Record’s Cost Construction Index
(CCI) (ENR, 2016).
8
See Federal Reserve Statistical Release Z.1, 9/15/2015, Table L212, pg. 117, line 1. (Federal
Reserve, 2015) and (FRED, 2017b)
9
The municipal bond rate has averaged 4.5% over the last 50 years based on the Bond Buyer’s
GO-20, 20 year bond index. See https://www.bondbuyer.com/broker/bond-buyer-data.
10
It is estimated that poor roads cost drivers $6.5 billion per year in vehicle damage (AAA,
2014) and $138 billion per year in transportation delays (Lomax, Schrank, & Eisele, 2014).

166

11
Another example is De Sitter’s “Law of Fives,” which was based on 20 years of experience
with deferred maintenance on reinforced concrete structures. He divided a structure’s service
live into three periods and found that deferring maintenance in each increased the total life-cycle
cost by up to 5 times the deferred maintenance “savings.” In the end, deferring maintenance in
all three periods increased total costs up to 125 times optimally maintained structures (5x5x5).
See (De Sitter, 1984)
12
IRI: The International Roughness Index is a measure of road roughness. Measuring true road
condition, including items like crack depth and surface resilience, from a moving sensor is a
difficult task. Instead, the FHWA uses surface roughness as an indicator of pavement condition.
The larger the value, the worse the road’s condition. See (FHWA, 2016b) for a complete
description of the process.
13
Based on data from the Bond Buyer Municipal Bond “Annual Bond Sales (Dollar Volume)”
for 1986 to 2015 (TheBondBuyer, 2017) and Municipal Securities Rulemaking Board data
(2006-2015) (MSRB/EMMA, 2017), the average municipal long-term bond period is
approximately 18 years. However, over 50% of bonds are refinanced before they reach maturity.
14
Public-Private Partnership (PPP) definitions changes from state to state and also at the federal
level. For this research, a PPP is defined as a project where a private organization/company
makes an investment in the project (contributes cash) in exchange for future financial returns
(profits). In practical terms, this is any portion of the Design, Build, Operate and Maintain
(DBOM) cycle except just D (Design) (NCPPP, 2017)
15
Accelerated Project Delivery is an FHWA program designed to reduce project funding and
implementation time, which in turn, reduces cost inflation and DM growth. See (FHWA, 2017).
16
The ENR (Engineering News Record) Cost Contraction Index (CCI) averages 2.1% is the over
the 20 year period 1995 to 2014 (ENR, 2016). 4.7% is the average inflation rate for
Megaprojects ($500 million to $1 billion & up) per year (Flyvbjerg, Holm, & Buhl, 2004).
17
Based on California’s current road and bridge DM inflation rate, derived from Save California
Streets 2016 report (SCS, 2016). California’s road and bridge DM will increase by 4.7% per
year over the next 10 years from $39 billion to $59 billion without additional investment.
18
This includes 51 CWSRF banks and 51 Drinking Water State Revolving Fund (DWSRF)
banks.
19
Several studies have found that 15,000 to 42,000 job man-years are created per $1 billion of
transportation spending (FHWA, 2008b), (Heintz, Pollin, & Garrett-Peltier, 2009). However, a
study of the American Recover Act found that up to 50% of American Recovery and
Reinvestment Act (ARRA) jobs went to currently employed individuals, so these two numbers
represent the number of jobs created, and not the number unemployed individuals put back to
work.
20
‘SEC. 334. INTERSTATE COMPACT INFRASTRUCTURE BANKS.—(a) CONSENT TO
INTERSTATE COMPACTS.—In order to increase public investment, attract needed private
investment, and promote an intermodal transportation network, Congress grants consent to the
167

States to enter into interstate compacts establishing transportation infrastructure banks to
promote regional or multi-State investment in transportation infrastructure and thereby improve
economic productivity.” (U.S. Senate Committee on Appropriations, 1995)
21
See FHWA Apportionment formula for funds. The matching ratio can be as low as 10% for
some western states.
22
Arizona’s SIB is known as HELP or Highway Expansion and Extension Loan program.
23
As of 2010, 30 states operated under a state law or constitutional amendment that limits a
legislature’s ability to raise taxes (Waisanen, 2010).
24
Excluding California and Rhode Island, who have large SIBs that fund a wide variety of
infrastructure types.
25
In 1998 through 2004 under TEA-21, SIBs could transfer funds between the Transportation
and Transit accounts.
26
The ten groups were reduced for simplicity and due to the lack of a comprehensive historical
record for the separate stakeholders. They were (1), The President, (2) the cabinet officers, (3)
the U.S. DOT administrators, (4) the FHWA staff, (5) Congress (the House, the Senate, their
committees and their staff), (6) the state governors, (6) the state cabinet officers, (7) the state
DOT staff, (8), the state legislators (9), contractors, and (10) the private sector, industry trade
groups, and think tanks.
27
Root cause analysis was developed independently by the Toyota Motor Company in Japan and
NASA in the U.S. (Wayne Stottler, 2001)
28
39 states applied to create a bank, 34 opening institutions, with Oklahoma deciding not to
operate their bank after it was created.
29
See Yin, 2013, pg. 65.
30
CTI as of this writing has been reorganized and is reviewing proposals, with no projects
approved or loans made.
31
Generally on an 80% federal, 20% state match, with adjustments made for the amount of
government owned land in the state.
32
Based on interviews with the former FHWA staff.
33
The FHWA approach at that time required advanced notice of the use of funds, and then a
standard allocation over time. State DOT’s found that the program’s inflexibility forced them to
use PAYGO, reducing the performance of their transportation assets and increased costs because
they were unable to respond to shifting priorities rapidly enough (FHWA, 1996).
34
It should be noted that the report did not detail how they had arrived at this conclusion, so it is
impossible to assess what costs were included in the assessment.
168

35
See (U.S. Senate - Committee On The Budget, 1995) and (U.S. Senate - Committee On The
Budget, 1995).
36
Oregon implemented the first motor fuel tax in in the U.S. in 1919.
37
Derived by using FHWA data on the total lane-miles of toll roads over 1995 to 2013.
38
Massachusetts, Michigan, Minnesota, Tennessee and Washington applied but were not
selected.
39
In 2005, 40% of bus riders earned less than half of the $56,000 average U.S. income (APTA,
2007).
40
See Efficient Market Hypothesis.
41
Based on conversations with SIB staff with a majority viewing reporting as burdensome.
42
Former FHWA staff viewed this as an administrative oversight, and that D-BA should have
automatically applied to the funds during the pilot program.
43
Based on interviews with former staff.
44
These were Florida, Michigan, Minnesota, Missouri, North Carolina, Ohio, Oregon, and
Pennsylvania.
45
The national average percentage of cost recovery (recovery ratio) of the top 35 U.S. transit
system (including Amtrak) is 37.9% (not weighted by ridership or trip-miles).
46
The limit was later revised in 2003 to $200 million, starting in fiscal year 2004.
47
This date was chosen because it was the last snapshot with the number of loans published by
the FHWA SIB program office.
48
Additional sources of revenue for the SCTIB are Motor Fuel Tax, Vehicle Registration,
Portion of Electric Power Tax, Revenue and fees from nine other sources and interest earnings.
49
The SIB program was capitalized with an appropriation of $150 million, of which only $126
million was distributed.
50
The five PAYGO states are Iowa, Nebraska, South Dakota, Tennessee, and Wyoming.
51
See the FHWA apportionment factors for TEA-21.
52
Based on conversations with current and former FHWA staff.
53
Using a six times multiplier for average leverage (See Ryu, 2006).
54
See: “Obligation Of Federal Funds Administered By The Federal Highway Administration
During Fiscal Year 1997.”
169

55
The national average percent of cost recovery (recovery ratio) of the top 35 U.S. transit system
(including Amtrak) is 37.9% (not weighted by ridership or trip-miles).
56
The CIFA also produced the “CIFA - State Revolving Fund Training Manual” which an
extensive description of bond banks and state revolving funds features and impacts (CIFA,
2002).
57
See https://www.fhwa.dot.gov/ipd.
58
Excluding the District of Columbia field office but including Puerto Rico.
59
In 1995, the average U.S. wage was 24,700. A skilled government employee would be
expected to earn somewhat more, so 2% of $3 million in capitalization would be $60,000, or
slightly more than a fully burdened employee (FTE – Full-time Equivalent). See (SSA, 2015).
60
See www.vmbb.org.
61
See www.veda.org.
62
Amounts taken from FHWA annual statistical report, sf21, “State Funding For Highways -
Summary – 1997” (FHWA, 1997b).
63
The three agencies were the Department of Transportation, the NY Transit Authority and the
NY State Thruway Authority.
64
The default was a loan to a private company that wanted to implement a fast ferry to Canada.
They did not have their Customs procedures in place, and the enterprise went bankrupt. The
funds were eventually recovered. As with Arizona and other states, New York excluded funding
private ventures after its failure.
65
The limit was later revised in 2003 to $200 million, starting in fiscal year 2004.
66
A term of 4 years was assumed. 4 bond failures for 22 banks gives a rate of 6 for 33 banks,
then divided by 4 for the term, yielding 0.153% as the annual failure rate.
67
GARVEE bonds were introduced in 1995 as part of the NHS Act.
68
The 20% state matching fund is reduced by a formula that takes into account a wide variety of
factors, including the percentage of federal and state-owned lands, which reduces the tax base.
69
In 1993, the U.S. DOT found the national highway system funding shortfall was $13 billion
per year (GAO 1996).
70
While this information is not tracked at the federal or state level, the federal SIB staff felt the
total number of SIB projects that involved PPPs was less than 20.
71
Based on staff interviews conducted by the author.
170

72
Mr. Mead was the Director, Transportation Issues, Resources, Community, and Economic
Development Division, U.S. DOT.
73
$2 billion of the $24 billion in the UTIIP was to be for the SIB program. The Unified
Transportation Infrastructure Investment Program (UTIIP) was a proposed reorganization of the
DOT that would have broken it into three different groups, including one that would have had
responsibility for all surface transportation programs. See GAO/RCED-96-233, pg. 31
74
Water Pollution: State Revolving Funds Insufficient to Meet Wastewater Treatment Needs,
GAO/RCED-92-35, January 1992.
75
Interest earnings are exempt from federal taxes for tax-exempt bonds. However, the Tax
Reform Act of 1986 prohibits private use of tax-exempt bonds if (a) it accounts for more than
10% of the facility and (b) finances more than 10% of the cost. There are exceptions for public
airports, docks and wharves.
76
From interviews with FHWA staff.
77
50 states plus Puerto Rico.
78
Fourteen of the 15 states eventually created SIBs with Massachusetts being the lone state that
did not create a SIB. Oklahoma (part of the 14 study states) did create a bank, but never used it.
79
2016 Data storage costs are $25 per Gigabyte over its lifetime. Assuming 1 TB for the FHWA
project. The cost would be $25,000 for a $150 million program (including staff costs), or 0.01%
of the project’s cost (Kridel, 2016) when just considering the initial program capitalization. The
percentage is even small when the transferred FHWA funds and issued bonds are included.
80
The EPA uses Excel spreadsheets to upload data, but other standard formats could be used,
such as the IRS’ XML-based e-file system that annually is used for over 120 million tax returns
(IRS, 2014).
81
Interviews with the FHWA staff who worked with Congress in 1995 revealed that they were
not concerned with PPPs because they did not feel they were practical.
82
Both the FHWA and state DOTs maintain cost data on their project which could have been
compared against existing PPP data to assess the percentage and dollar volume of projects that
could have been performed as PPPs.
83
The FHWA’s Highway Performance Monitoring System’s International Roughness Index
(IRI) data for 2011 ranked Tennessee third best in terms of road roughness. See
https://www.fhwa.dot.gov/policyinformation/hpms/reviewguide.cfm
84
Texas SIB staff declined to participate in this research, so the rationale for how their bank was
set up could not be included in the analysis, including how they either replaced the future
allocations they used to capitalize their bank or deferred future projects.

Abstract (if available)

Abstract This study assesses the implementation and operation of the FHWA State Infrastructure Bank program (SIB) created by Congress in 1995 with the goals of providing flexible funding, reducing costs, increasing state contributions, and attracting private funding (PPPs). The program was modeled after the Environmental Protection Agency's highly successful Clean Water State Revolving Fund (CWSRF) program. Established in 1987, a 1997 study found that the CWSRF had saved $6.2 billion on a total outlay of $20.1 billion in just ten years. In 1998, the SIB program was expanded from 10 pilot states to 39 states, yet just one year later, the head J.P. Morgan testified before Congress that the SIB banks ""seem to be going nowhere,"" and the innovation had not…done very well.” ❧ A mixed methods approach was used to determine what caused the SIB program to underperform the CWSRF. Yin’s qualitative Structured Case Analysis was combined with semi-structured interviews of Congressional staff, FHWA Staff, state SIB staff, and industry professionals to develop a historical narrative for each responding bank. The interviews were combined with quantitative analysis of SIB financial data to find what factors were associated with varying levels of bank activity. ❧ The results were then assessed to determine what lessons could be learned to improve the FHWA SIB program, state-level infrastructure banks, infrastructure funding and the legislative process in general. Because the proposed budgets of these programs run from tens to potentially hundreds of billions of dollars, improvements could have a significant impact on employment, the nation’s competitiveness and its ability to solve problems more efficiently. ❧ The research found that the SIB program underperformed due to (a), inadequate planning and execution by Congress which led to fundamental flaws being incorporated into the initial legislation, (b) inadequate administrative procedures at the FHWA which led to insufficient resources to implement and administer the program, (c) undercapitalization by Congress due to battles over devolution and the Davis-Bacon Act, and (d) failures of the legislative process (cycle) which prevented Congress to learn of or address the program’s flaws over its 22 year history.

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Creator Hubbard, Stephen Mathew (author)

Core Title Lessons learned from the FHWA State Infrastructure Bank (SIB) program, 1995 to 2016

School School of Policy, Planning and Development

Degree Doctor of Policy, Planning & Development

Degree Program Policy, Planning, and Development

Publication Date 07/21/2017

Defense Date 07/19/2017

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag deferred maintenance,Federal Highway Administration,FHWA,financing infrastructure,Infrastructure,infrastructure bank,life cycle cost,OAI-PMH Harvest,PPP,public-private partnership,SIB,State Infrastructure Bank

Language English

Contributor Electronically uploaded by the author (provenance)

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Creator Email SMHubbardPP@gmail.com,Stephen740@Yahoo.com

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