1. State Infrastructure Banks
Synopsis: A State Infrastructure Bank (SIB) is a revolving fund that is established and operated
by a State (usually a State Department of Transportation Office). It has the capacity to offer
direct loans and various types of credit enhancement products to surface transportation
infrastructure projects. Federal and State funds are used to capitalize the SIB. A percentage of
Federal funds are transferred from specific modal accounts, and these funds are matched with
State money in a prescribed ratio.
Plan: In order to initiate a SIB, a cooperative agreement must be negotiated between the State
and each Federal modal agency that the State wishes to include in its program. Some States may
need to seek the approval of their legislature in order to legally establish their SIB program. Just
like a commercial bank, SIBs require administrative and managerial resources. The program and
its financial products must be marketed to potential loan applicants, and appropriate accounting
controls must be used to track loan repayments. SIBs must design and implement their
application and lending procedures and decide on lending policies and priorities. The amount of
assistance that can be provided depends on the size of the state’s SIB. State SIBs vary
widely in size, from under $1 million to more than $100 million. SIBs can also provide loan
guarantees for private loans, or a line of credit
Implementation: There are both federal and state wide implementation options. Statewide,
these can be paid for by either loans or capital enhancement. Loans available are subsidized rates
and/or with flexible repayment provision, Grant Anticipation Notes (GANs), Short-term
construction, long-term debt financing, and Certificates of Participation. They could also be
financed by Credit Enhancement such as Capital reserves and other security for bond or debt
instrument financing, Letters of credit (direct pay or stand by), Lines of credit, Bond insurance
and loan guarantees.
State-funded SIBs, Several states-Kansas, Ohio, Georgia, and Florida-have established
SIBs (or a SIB account) capitalized solely with state funds. In this way, these states have not
funded their SIBs with Federal-aid money and did not enter into cooperative agreements with
USDOT. Projects funded by these state SIBs are not bound by the Federal regulations that
govern the particular grant program from which the initial Federal capitalization is derived.
These states' SIB activity is described under Current Projects, and further information is
available under Resources. Other forms of proposed non-grant assistance may also be sought. As
loans or other credit assistance forms are repaid, a SIB's initial capital is replenished and can be
used to support a new cycle of projects.
Advantage: The SIB program gives states the capacity to increase the efficiency of their
transportation investment and significantly leverage Federal resources by attracting non-Federal
public and private investment. A SIB, much like a private bank, can offer a range of loans and
credit assistance enhancement products to public and private sponsors of Title 23 highway
construction projects or Title 49 transit capital projects. Interest rate is set by the state
(maximum at market rate, but typically below or even 0%). Maximum loan term is 35 years
2. (though DOT will usually negotiate for less). State may be willing to take more risk than a
commercial bank would for a project with significant public benefits. A SIB loan can make a
large project affordable. For example, a $500,000 project could be financed with a ten year,
6% loan, with annual payments of $41,000.
*SIBs can provide the following advantages over relying entirely on grant based financing:
•Accelerated project delivery. Many transportation projects generate user fees that
are sufficient to repay borrowed funds. By borrowing funds, a project can quickly
begin construction rather than wait for grant money to materialize.
•Financial plan completion. Insufficient State grant funds may necessitate the use of
borrowed funds in order to complete a proposed financial plan. In some cases SIBs
have been able to lend projects the required Federal project match, in anticipation
of forthcoming grant funds. In addition, SIBs can be used in conjunction with other
USDOT lending programs such as TIFIA in order to facilitate project financing.
•Lower borrowing costs. SIBs are able to offer loan guarantees or pay bond
insurance premiums. These credit enhancements enable lenders to reduce interest
rates for debt. SIBs are also able to offer below market interest rate to loan
applicants.
Funding: Highway account - up to 10 percent of the funds apportioned to the state for the
National Highway System Program, the Surface Transportation Program, the Highway Bridge
Program, and the Equity Bonus.
Transit account - up to 10 percent of funds made available for capital projects under
Urbanized Area Formula Grants, Capital Investment Grants, and Formula Grants for Other Than
Urbanized Areas.
Rail account - funds made available for capital projects under subtitle V (Rail Programs)
of Title 49. A state must match the Federal funds used to capitalize the SIB on an 80-20
Federal/non-Federal basis, except for the highway account where the sliding scale provisions
apply. States also have the opportunity to contribute additional state or local funds beyond the
required nonfederal match.