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GG 23
Use Innovative Financing Techniques to Build Texas Roads

The Texas Department of Transportation should be authorized to use innovative financing tools to speed delivery of new construction projects. The most appropriate such tools include both traditional capital market borrowing (general obligation and revenue bonds) and new federally supported leveraging techniques such as grant anticipation revenue vehicles—bonds for transportation projects that use future federal highway funds to repay the principal, interest and any other costs associated with the bond issuance.


Texas’ need for new roads greatly exceeds its ability to pay for them.

A 1997 study by the Texas Department of Transportation (TxDOT) estimated the state’s roadway needs at an average of more than $11 billion a year between 1997 and 2006. A 2000 update to this study found that TxDOT, with its current levels of funding, could meet little more than a third (36 percent) of the state’s needs.[1]

Yet the large volume of truck traffic passing through the state and growing traffic congestion in our cities both underline the need for a significant expansion of Texas’ road network.

According to TxDOT, commerce related to the North American Free Trade Agreement (NAFTA) accounted for 16.5 percent of all truck traffic on Texas highways in 1996, or more than 5.2 million truck miles daily. Two highway corridors carry almost 50 percent of NAFTA truck traffic: Interstate Highway 35 carries almost a third of the traffic, while Interstate 10 carries 17 percent of all NAFTA trucks. Highways in the Lower Rio Grande Valley connecting with IH 35 and Interstate 10 carry another 24 percent of all NAFTA truck traffic. In 1997, TxDOT estimated the annual cost of capital projects needed to mitigate the impact of NAFTA at more than $349.8 million per year.[2]

More Texans, meanwhile, are finding themselves stuck in traffic for longer periods. According to Texas A&M’s Texas Transportation Institute (TTI), San Antonio, Dallas-Fort Worth and Austin rank among the top six cities in the nation for highest average annual delays due to traffic. The average annual delay for road travelers in Dallas-Fort Worth climbed from 47 hours in 1994 to 74 hours in 2000; in San Antonio, from 11 hours in 1994 to 43 hours in 2000; and in Austin, from 31 hours in 1994 to 61 hours in 2000.[3]

TTI estimates the total “cost” of traffic congestion in Texas cities at $5.2 billion in 2000, based on $5.1 billion due to delay and $705 million worth of excess fuel consumed per year.[4] According to TTI, preventing a rise in congestion in Texas’ urban areas between 1999 and 2000 would have required 289 new lane miles of freeway and 234 new lane miles of streets.[5]

Federal funding for Texas transportation projects has risen from $1 billion in 1990 to an estimated $2.4 billion in 2002, a 140 percent increase in 12 years.[6] Recent decreases in federal gasoline tax revenues, however, may reduce Texas’ federal highway funding by $250 million or more in 2003.

Texas’ transportation needs clearly exceed the ability of the state’s traditional pay-as-you-go funding methods to support highway projects. Many other states are in the same bind, and some innovative and federally supported financing methods are helping them. Two particularly promising programs are:

  • “grant anticipation revenue vehicles” (GARVEEs), which are bonds issued for transportation projects that use future federal highway funds to pay the bonds’ debt service; and
  • federal credit assistance provided through the Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA).

Both programs are intended to allow states to make maximum use of available federal funds and to move projects into construction faster than can be done under traditional approaches.[7]

GARVEE bonds

For many years, public entities such as schools, hospitals and transportation agencies have raised funds by issuing grant anticipation notes (GANs), which allow governmental entities to fund projects based on anticipated future revenues. GARVEEs employ federal highway funds in the same way, to repay the debt for road and transit projects.

New Mexico, Ohio and Massachusetts were early pioneers in the issuance of GANs and GARVEEs for transportation; they have been followed by Arizona, Arkansas, Colorado, Mississippi and New Jersey.[8] A number of other states have recently gained or confirmed their legal authority to issue GARVEEs, including Alabama, California, Florida, Nevada, Oklahoma, Louisiana and Georgia.[9] Many other states have the legal authority to pursue GARVEEs without further legislative action.

As of September 2002, six states have issued $2.7 billion in GARVEE bonds through 15 bond issues. Exhibit 1 summarizes GARVEEs issued by other states. For the most part, states use them to finance large-scale, critical projects that require faster action than can be provided by traditional funding and that have economic and other benefits that outweigh the debt issuance costs.

States may elect to pledge other sources of revenue in the event that future federal-aid highway funds are not available. This is called a “backstop” for the bonds.

Exhibit 1
Garvee Transactions to Date as of September 2002

State Date of Issue Face Amount of Issue (In Millions) Ratings Moody's/S&P/Fitch Projects Financed Backstop
New Mexico Sep-98 $ 100.2 A3/A/na New Mexico SR 44 No Backstop; Insurance obtained
Feb-01 $ 18.5 A2/A/na
Ohio May-98 $ 70.0 Aa3/AA-/AA- Various projects "Moral obligation" pledge to use state gas tax funds and seek general fund appropriations in the event of a federal shortfall
Aug-99 $ 20.0 Aa3/AA-/AA-
Sep-02 $ 100.0 Aa3/AA-/AA-
Sep-02 $ 135.0 Aa3/AA-/AA-
Arkansas Mar-00 $ 175.0 Aa2/AA/na Interstate Highways Full faith and credit of state plus motor fuel taxes
Jul-02 $ 185.0 Aa2/AA/na
Jul-02 $ 215.0 Aa2/AA/na
Colorado May-00 $ 537.0 Aa3/AA/AA Any project financed wholly or in part by Federal Funds Federal highway funds as allocated annually by Colorado Transportation Dept.
Apr-02 $ 506.4 Aa3/AA/AA
Jun-02 $ 208.3 Aa3/AA/AA
Arizona Jun-00 $ 39.4 Aa3/AA-/AA- Maricopa Freeway project Certain sub-account transfers
May-02 $ 142.9 Aa3/AA-/AA-
Alabama Apr-02 $ 200.0 Aa3/A/na County Bridge Program All federal construction reimbursements. Also insured
TOTAL   $2,652.7      
Source: Federal Highway Administration.

The increase in GARVEE issuance that began in 1998 can be attributed to several legislative actions. The National Highway System Designation Act of 1995 changed federal laws and regulations that had inhibited the issuance of debt backed directly by federal transportation funding. The federal Transportation Equity Act for the 21st Century (TEA-21) further encouraged debt issuance by incorporating several legislative procedures that reduce states’ risks in securing federal funding for their projects.

TEA-21 provides $198 billion in guaranteed surface transportation funding for the six-year period running from 1998 to 2003.[10] In addition, a minimum guarantee provision provides additional security that states will actually receive a minimum level of transportation aid. This level of funding and the nature of the guarantees offered are unprecedented and have definitely encouraged projects backed by future federal aid.

Benefits of GARVEE

The primary benefits of GARVEES include:

  • accelerated project delivery—GARVEE funding allows states to accumulate capital funding for a construction project in a lump sum rather than having to build up funding obligation over a great many years.
  • better funds management—New Mexico, for example, saves costs by using GARVEEs to “bundle” individual construction projects for financing, rather than stringing them out over many years.
  • avoided inflation of construction and right-of-way costs—given current construction and real estate inflation factors and historically low interest rates, project acceleration can yield significant net savings, even after interest and other financing costs.
  • economic development benefits, as well as safety and environmental benefits, for the community springing from quicker completion of road projects.[11]

GARVEE issues

GARVEE financing raises a number of issues, but none of them seem to pose serious barriers to its use in Texas.

Long-term commitments for repayment can lessen a transportation department’s ability to meet a state’s changing transportation needs. This would be a matter of concern if Texas were not already falling behind in meeting its transportation needs.

A transportation department may need to increase its staffing and other resources to manage an increased construction program. TxDOT, however, has proven its ability to accelerate its construction program through its implementation of projects funded through TEA-21. TxDOT’s “letting volume”—the value of construction contracts it awards in a fiscal year—totaled $3.7 billion in 2002, including $1 billion for the Texas Turnpike Authority.[12] This was the third consecutive year in which TxDOT’s letting volume topped $3 billion.

A shortage of qualified contractors also can limit an expanded construction program. Again, though, TxDOT has proven its ability to significantly increase its construction program in recent years, and with effective outreach to the construction industry should be able to continue doing so. The Association of General Contractors (AGC) is on record as saying that they are now fully prepared and ready for increased construction activity due to TEA-21. AGC members are responsible for 90 to 95 percent of transportation construction in Texas.[13]

A related issue is “artificial” inflation in construction costs due to excessive demand for these services. This would be a short-lived phenomenon, however, while construction firms ramp up to meet demand. Any temporary cost increases would be outweighed by other factors, in particular the economic gains associated with prompt construction.

Another issue is the dependability of future federal appropriations. Again, though, TEA-21 includes a minimum guarantee provision that assures each state a minimum allocation. This allocation is tied to receipts of the Highway Account of the Highway Trust Fund and essentially guarantees that each state will receive annual appropriations of not less than 90.5 percent of its contribution to the fund. What happens after the TEA-21 funding period ends (fiscal 2004 and beyond) is less certain. This does not appear to be of great concern to investors, however, as shown by recent GARVEE issuances by other states that go well beyond the current authorization period and even into the one beyond that.

Federal funding may be limited by Clean Air Act restrictions. Because GARVEEs generally are used in the context of advance construction and reimbursement, however, such factors are unlikely to pose problems for their use.

According to recently issued federal guidelines, if a state issues bonds for an FHWA-approved advance construction project and then receives notice of a failure to comply with federal clean air standards in the area, FHWA will continue to reimburse the state. Both debt-service payments and project costs will remain eligible for reimbursement as long as the bonds are issued before the date of EPA notice of the violation. Bond proceeds may be spent on the project without interruption. Federal guidelines include some limitations for design and right-of-way projects that would prevent the state from continuing with design and land acquisition until the air standards are met. In such cases, however, the state may use the bond funding for other projects, as long as they meet federal requirements.[14]

GARVEE best practices

Based on 1999-2002 research regarding other states’ approaches and knowledge of past attempts at gaining legislative approval for GARVEEs in Texas, key attributes of a GARVEE initiative include:

  • broad project eligibility. Arizona, California, Colorado and Florida have established broad eligibility in their authorizing statutes.
  • basic set of eligibility and selection criteria. Eligibility and selection criteria may be implemented by the transportation department and/or transportation commission. Examples of this approach include Ohio and Colorado.
  • limits on the percentage of the state’s federal-aid funds. Such limits may be obligated at any given time. Florida has a 10 percent limit. Colorado has a two-part limit; no more than $1.7 billion in principal can be issued and the aggregate debt service on all issuances in any fiscal year cannot exceed 50 percent of the aggregate amount of federal transportation funds paid to the department in the prior fiscal year. Other legislatures have chosen to set limitations on the total principal amount issued; examples include Arkansas ($575 million) and Mississippi ($500 million).
  • limits on the maximum term of bonds. All else being equal, longer-term issuances tend to receive lower credit ratings due to the relative uncertainty of federal funds beyond one or two authorization cycles. A number of states have imposed or are considering a maximum of 15 years. Other examples include Arkansas (12 years), Florida (12 years) and Mississippi (10 years).[15]
  • the ability to issue both stand-alone and backstopped debt. “Stand-alone” debt has no implicit or explicit financial backing by the state beyond the standard required state match; “backstopped” debt is backed by a pledge of other revenues, such as a state’s gas tax or general obligation authority, to enhance the bonds’ creditworthiness. Examples of states that have legislation with a provision for a state backstop include Arkansas, Arizona, Colorado and Mississippi.
  • the ability to secure bond insurance. As an alternative means of credit support. Alabama and New Mexico have taken advantage of this approach.[16]

According to Standard and Poor’s, highly rated GARVEE programs (ranging from AA to AAA) typically have broad security pledges, with back-up or alternative revenue, such as gas tax revenue or other available funds, pledged in addition to federal funds. On the other hand, statewide programs secured solely by federal highway revenues and debt service coverage at least 1.5 times greater than the size of the actual debt are likely to receive minimum ratings in the ‘A’ category. Factors that can help boost ratings include the use of short bond maturities and debt service reserve funds (money set aside specifically for debt service), eliminating some of the uncertainties regarding the timing and nature of future federal funding.[17]

Federal credit

The Transportation Infrastructure Finance and Innovation Act also can be used to support road projects. TIFIA was enacted as part of TEA-21 to help advance projects that have dedicated revenues, including tolls and a wide range of other user charges, as well as state and local dedicated funds. (The U.S. Department of Transportation [U.S. DOT] interprets the term “dedicated revenue sources” to include “tolls, user fees, special assessments, tax increment financing and any portion of a tax or fee that produces revenues that are pledged for the purpose of retiring debt on the given project.” U.S. DOT also may accept general obligation pledges and other pledges on a case-by-case basis.)

TIFIA assistance may come in the form of direct loans, loan guarantees or standby lines of credit. It can be used for projects worth at least $100 million (or $30 million for Intelligent Transportation System [ITS] projects) and can support up to a third of total project costs. Projects receiving TIFIA assistance must be included in the state transportation plan and the approved State Transportation Improvement Program (STIP), the state’s FHWA-approved plan for future road projects.[18] TIFIA funding is provided under TEA-21 and is separate from individual state apportionments.

U.S. DOT selected five projects for TIFIA’s first round of funding. The projects are valued at a combined total cost of nearly $6.5 billion, with TIFIA providing about $1.6 billion in credit assistance. These projects include:

  • two transit programs, the Washington D.C. Metro system and Tren Urbano in Puerto Rico;
  • the Miami Intermodal Center, a $1.3 billion project designed to improve access to and within Miami International Airport;
  • Farley-Pennsylvania Station in New York City, a $749 million project to expand and refurbish the Farley Post Office building and the existing Penn Station as an intermodal transportation and commercial facility; and
  • State Route 125 in San Diego, California, a critical transportation link to provide improved access to the Otay Border Mesa Crossing, the principal commercial border crossing in southern California between the U.S. and Mexico. This $397 million project includes a nine-mile toll facility.[19]

Texas’ TIFIA experience

The Texas Turnpike Authority (TTA) submitted an application on behalf of the Central Texas Turnpike Project in and around Austin for second-round TIFIA assistance, and received an $800 million federal loan for toll roads to relieve traffic congestion in Central Texas.[20] According to TTA director Phillip Russell, total construction of the Central Texas Turnpike system is expected to cost more than $2 billion over the next eight to ten years. The loan will advance the completion of the project by as much as 25 years.[21]

The Central Texas Turnpike Project is the largest TIFIA-funded project in the U.S. and, because of its unique financing— a blend of local, state and federal resources supplemented by revenue bonds—it is considered the most innovative TIFIA project to date. Williamson and Travis counties and the cities of Austin and Round Rock contributed $500 million; TxDOT added $700 million; and TIFIA has increased the initial loan amount from $800 million to $917 million. Finally, in August 2002, TTA issued $2.2 billion in revenue bonds to support the project.[22]

Other Texas projects that could benefit from TIFIA assistance include the west section of the I-635 corridor in Dallas, a high-occupancy lane project on the LBJ Freeway, and I-10 in Houston. The program also could benefit a number of border investment projects, given the emphasis on trade and regional benefits in the federal selection criteria.

General obligation and revenue bonds

The Texas Department of Transportation cannot issue general obligation debt for transportation. The commission may issue revenue bonds on behalf of the State Infrastructure Bank and the Texas Turnpike Authority but not for the State Highway Fund.

General obligation and revenue bond financing capability would share many of the benefits of GARVEEs and federal credit, and could be issued at lower interest cost, depending on the specific nature and structure of the transaction. Revenue debt would require project-specific revenue streams or the dedication of state-level financial resources and thus generally would bear slightly higher interest costs than general obligation debt.

Other states’ debt financing

A recent survey of state transportation departments indicated that at least 38 of 50 states and Puerto Rico use debt financing (Exhibit 2).

Exhibit 2
Use of Debt Finance by State DOTs

State Use of Debt Finance State Use of Debt Finance
Alabama Yes Nebraska No
Alaska No Nevada Yes
Arizona Yes New Hampshire Yes
Arkansas Yes New Jersey Yes
California Yes New Mexico Yes
Colorado Yes New York Yes
Connecticut Yes North Carolina Yes
Delaware Yes North Dakota No
Florida Yes Ohio Yes
Georgia Yes Oklahoma Yes
Hawaii Yes Oregon Yes
Idaho No Pennsylvania No
Illinois Yes Puerto Rico Yes
Indiana Yes Rhode Island Yes
Iowa No South Carolina Yes
Kansas Yes South Dakota No
Kentucky Yes Tennessee No
Louisiana Yes Texas No
Maine Yes Utah Yes
Maryland Yes Vermont No
Massachusetts Yes Virginia Yes
Michigan Yes Washington Yes
Minnesota Yes West Virginia Yes
Mississippi Yes Wisconsin Yes
Missouri No Wyoming No
Montana Yes    
Source: American Association of State Highway and Transportation Officials.

Texas Mobility Fund

In November 2001, Texas voters amended the state constitution to create the Texas Mobility Fund, a revolving fund designed to back bonds pledged for highway construction. This fund is intended to supplement the state’s traditional pay-as-you-go method of financing highway transportation by allowing the Texas Transportation Commission to issue bonds to accelerate major highway projects. The bond proceeds then could be used to finance construction on state-maintained highways, publicly owned toll roads and any other project eligible for the state’s Highway Fund.

The Texas Mobility Fund has not yet received any funding, however, and must be funded by future Legislatures without federal highway dollars or state revenue from the motor fuels tax and vehicle registration fees, which already are dedicated to building roads.[23] The fund will hold all new transportation funding resulting from the 2003 and later legislative sessions, and may be used to back either revenue or general obligation bonds. Future Legislatures may add revenues to the fund and raise its debt limit accordingly. The bond funds must be distributed in accordance with the same calculations TxDOT uses to make its annual allocations to the 25 districts in the state’s Unified Transportation Program.

The success of this approach, obviously, will depend upon the Legislature’s ability to dedicate new revenues to transportation. This approach could prove to be complementary to both GARVEE and TIFIA financing. Implemented together, they would afford the state the greatest flexibility to maximize the impact of its revenue streams at the lowest cost.

Texas’ debt burden

It is important to note that Texas has one of the lowest debt burdens in the nation. In 2001, Texas ranked 43rd among all states and last among the 10 largest states in state tax-supported per capita debt. According to Moody’s Medians 2001, Texas had $251 in net tax-supported debt per capita, compared to a national median of $541 per capita and a median of $689 per capita among the 10 largest states.[24]

State debt service payable from general revenue has risen as the state issues more bonds. At the end of fiscal 2001, Texas owed $3.3 billion payable from general revenue; annual debt service payable from general revenue, including authorized but unissued debt, accounted for 1.9 percent of average general revenue collections for the previous three fiscal years.[25] This is well below the constitutional debt limit of 5 percent of the average amount of general revenues for the three preceding years, as approved by Texas voters in November 1997.

At a time when Texas’ transportation decision-makers are examining all possible financing options, bonds merit increased attention. Most other major infrastructure projects, such as the construction of state office buildings and prisons and the purchase of mainframe computers, are financed with bonds and short-term notes. Texas state agencies and institutions of higher education issued $1.65 billion in bonds in fiscal 2001 and had $13.4 billion in debt outstanding as of August 31, 2001.[26]


The following recommendations would enhance Texas’ capacity to leverage federal funds and thus its ability to deliver critical transportation projects.

A. Article III of the Texas Constitution should be amended to allow the Legislature to authorize the Texas Transportation Commission (TTC) or its successor to issue bonds and enter into bond enhancement agreements payable from revenues received from the Federal Highway Trust Fund and other revenue deposited to the credit of the State Highway Fund.

Allowing the Texas Department of Transportation (TxDOT) to use innovative financing tools would speed the completion of priority highway projects. The most appropriate tools include general obligation and/or revenue bond financing and federally supported leveraging techniques such as grant anticipation revenue vehicles (GARVEEs) and federal credit.

B. Chapter 222, Subchapter B of the Transportation Code should be amended to allow for the issuance of GARVEEs. The authorizing legislation for GARVEE issuance should:

1. establish criteria for the use of bond proceeds that guides the TTC while allowing it as much flexibility as possible.

TTC should issue eligibility and selection criteria in conjunction with the Bond Review Board. These criteria should consider the potential savings associated with project advancement; the anticipated economic, environmental and other benefits of early completion; the effects, both positive and negative, on the remainder of the state’s transportation program; and any potential effect on the state’s overall credit rating. The legislation should outline these criteria while giving TTC authority to apply and weight them based on individual circumstances.

2. establish a reasonable limit on the percentage of the state’s federal funds that may be obligated at any given time.

The limit could be placed either on the annual payments of principal and interest or on total outstanding principal. Given the overall magnitude of Texas’ federal funding, a reasonable limit for total outstanding principal and interest could be from 5 to 10 percent.

3. establish a reasonable limit on the maturity of GARVEE debt.

In general, longer-term issuances will have lower credit ratings due to the relative uncertainty of federal funds beyond one or two authorization cycles. A number of states have imposed or are considering a maximum of 15 years, which would be appropriate for Texas as well. The legislation could establish 15 years as a limit, with specific terms to be established by TTC on a case-by-case basis.

4. give TTC authority to issue both “stand-alone” and “backstopped” debt, based on the specific circumstances and credit ramifications.

If necessary, the legislation could impose limitations on the maximum level of state backstop. Alternatively, TTC could be required to gain approval from the Bond Review Board and the Comptroller’s office before any issuance that makes use of a state financial backstop. A second option would be to establish, via legislation, a transportation debt oversight board with representatives from the appropriate agencies and stakeholders to approve or disapprove TTC requests.

5. specify which revenues can be used to repay GARVEE debt.

Examples of state revenues that could be made available for a state backstop include state motor fuels tax revenues, license fees and miscellaneous receipts of the state’s Highway Fund. Any and all highway fund revenues not otherwise pledged could be used as a backstop to federal sources of repayment. This would improve the creditworthiness of bond issuances and increase TxDOT’s flexibility. The availability of such backstops has been a critical ingredient in securing superior credit ratings for the GARVEEs issued by other states.

C. TxDOT should develop a comprehensive approach to the management of innovative finance methods.

A number of states have begun to establish review or oversight committees and multi-year financing programs to support decisions concerning such financing methods. Such an approach would help Texas manage the tradeoffs between traditional pay-as-you-go financing and new financing approaches such as GARVEEs and TIFIA.

D. TxDOT should issue $1.1 billion in GARVEE bonds for highway construction projects in the 2004-05 biennium.

This would provide TxDOT with funding for urgently needed state highway construction in the next biennium and beyond. For example, GARVEE bond proceeds could be used to reduce congestion along the state’s NAFTA corridors of IH-35, I-10 and I-69. Furthermore, GARVEE bond financing cannot be delayed by a bond referendum, and bonds with their own sources of debt repayment do not count toward Texas’ statutory debt limit.[27] Finally, if the state pays for highway construction from current cash, as is now the case, the financial burden falls on current users. If paid over time through a financing program, the cost is spread out over the useful life of the highway and thus is paid by future users as well.

Fiscal Impact

The fiscal impact of any combination of these recommendations would include both inflation savings and economic benefits associated with accelerated project completion.

A few examples of projects that could benefit from GARVEE bonds include SH 130, a $1.6 billion project that has received an $800 million TIFIA loan; I-35 from Waco to Hillsboro, a $700 million project; the I-10 project in Houston; and major interchange projects throughout the state. Exhibit 3 provides an example of the potential fiscal impact of a GARVEE program. The exhibit demonstrates the amount that can be leveraged and the required debt service payments over time.

Exhibit 3
Leveraging Capacity of Texas’ Federal Apportionments (Dollars in Thousands)

Estimated FY2003 Apportionments Percent Annual Apportionments Allocated to GARVEE Repayment Maximum Annual Debt Service Payment Estimated Principal Borrowing Leveraged
$2,076,000 1% $ 21,000 $ 217,000
$2,076,000 5% $104,000 $1,086,000
$2,076,000 10% $208,000 $2,173,000
$2,076,000 15% $311,000 $3,259,000
Methodology based on FHWA GARVEEs Fact Sheet,
   5% average annual interest rate
    Bonds repaid over 15 years with level debt service, semiannual payments
   Issuance costs subsumed in interest rate calculation
Source: U.S. Department of Transportation, Federal Highway Administration.

A GARVEE bond program would significantly increase the funding presently available for highway projects. After deducting issuance costs (fees for underwriters, bond counsel and financial advisors and other administrative costs), an estimated $563 million would be available in fiscal 2004 and 2005 to finance highway construction projects (Exhibit 4). This estimate assumes that the bonds would be issued in two $570 million installments, one in fiscal 2004 and the other in fiscal 2005. Debt service (principal and interest) would be paid from future federal-aid obligations.

Exhibit 4
Cash Flow for Highway Funding From GARVEE Bond Sale 2004

  2004 2005 2006 2007 2008
Bond Issue $570,000,000 $570,000,000 0 0 0
Cost of Issuance $ 6,840,000 $ 6,840,000 0 0 0
Bond $563,160,000 $563,160,000 0 0 0
Principal and Interest $ 53,510,000 $107,020,000 $107,020,000 $107,020,000 $107,020,000
Gain $509,650,000 $456,140,000 ($107,020,000) ($107,020,000) ($107,020,000)
Sources: Texas Comptroller of Public Accounts and Texas Bond Review Board.

If TxDOT issues $570 million in GARVEE bonds for highway construction each year in 2004 and 2005, a net $563 million would be available for highway construction in each year of the 2004-05 biennium. Total issuance and debt service payments would total $60.3 million in 2004 and $113.8 million in 2005. About $107 million would be deducted from federal aid obligations in 2005 and every year thereafter for a total of 15 years. Because of the state’s fund structure, issuance of these bonds would not increase the amount of revenue available for certification by the Comptroller’s office for general spending.

GARVEEs have economic implications that reach beyond the state’s immediate fiscal condition. Roads have a large effect on the economy; one comprehensive study has indicated that every dollar spent on road construction yields 29 cents in increased productivity.[28] Increased productivity represents real monetary savings to businesses that can, in turn, increase investment and other business spending in the state, resulting in even more profound economic effects.

Due to issuance and interest costs, GARVEE financing ultimately produces less revenue for roads over time than the state’s pay-as-you-go system. Nevertheless, the net economic effect would be positive due to the fact that roads would be in place and in use, benefiting their users, much earlier.

Fiscal Year Bond Proceeds, Net of Issuance Costs, to the State Highway Fund Debt Service (Cost) to the State Highway Fund Net Gain/(Cost) to the State Highway Fund
2004 $563,160,000 ($ 53,510,000) $ 509,650,000
2005 $563,160,000 ($107,020,000) $ 456,140,000
2006 0 ($107,020,000) ($107,020,000)
2007 0 ($107,020,000) ($107,020,000)
2008 0 ($107,020,000) ($107,020,000)


[1] E-mail communication from Max Proctor, director of programming and scheduling, Texas Department of Transportation, to Craig Secrest, Trans Tech Management, August 10, 2000.

[2] Texas Department of Transportation, Effect of the North American Free Trade Agreement of the Texas Highway System, Austin, Texas December 1998, pp. 3-6.

[3] Texas A&M University, Texas Transportation Institute, 2002 Urban Mobility Study (College Station, Texas 2002), Exhibit A-5.

[4] Texas Transportation Institute, 2002 Urban Mobility Study, Exhibit A-7.

[5] Texas Transportation Institute, 2002 Urban Mobility Study, Exhibit A-14.

[6] Taken from Legislative Budget Board, Fiscal Size Up for the 1994-95 1998-99 and 2002-03 biennia (Austin, Texas, January 1994, 1998, and 2002).

[7] Federal Highway Administration, “Federal Innovative Finance Tools Fact Sheet,” Washington, D.C.

[8] The Federal Highway Administration distinguishes between GARVEEs—debt instruments backed directly by federal funds—and other forms of indebtedness in which debt is repaid indirectly by federal project reimbursements. The primary distinctions are that under a GARVEE structure, all debt-related costs are eligible for reimbursement, including interest and issuance costs, whereas under the latter structure, interest and issuance costs are not eligible for reimbursement; and the degree to which federal requirements apply. FHWA does not characterize the debt issued by Massachusetts and Mississippi as GARVEE debt. Source: Jennifer Mayer, Western Finance Center, Federal Highway Administration, August 17, 2000.

[9] Federal Highway Administration, The GARVEE Goldrush: Tracking the States’ Use of Debt, a presentation to the Transportation Research Board Innovative Finance Conference, Scottsdale, Arizona, August 20, 2000.

[10] Federal Highway Administration, “Transportation Equity Act for the 21st Century: Summary,” Washington, D.C., May 29, 1998, (Last visited October 21, 2008)

[11] Based in part on Federal Highway Administration “Grant Anticipation Revenue Vehicles (GARVEEs),” (Last visited October 21, 2002.)

[12] Texas Transportation Commission, minutes of the August 29, 2002 meeting.

[13] Testimony by Tom Johnson, Associated General Contractors, before the State Border Affairs and State Affairs Committees, Houston, Texas, April 2000.

[14] Federal Highway Administration, GARVEE Bond Guidance: Implementing the Provisions of Title 23 Section 122 Reimbursements to States for Bond and Other Debt Instrument Financing Cost (August 2000), p. 4.

[15] Federal Highway Administration, Western Finance Center, Comparison: GARVEE Legislation (Draft) San Francisco, California, June 11, 1999.

[16] Federal Highway Administration, “GARVEE Roundup,” Innovative Finance Quarterly (Fall 2002), p. 5.

[17] Standard & Poor’s, “Commentary: Grant Anticipation Revenue Bond Rating Criteria,” June 19, 2000.

[18] Federal Highway Administration, Transportation Infrastructure Finance and Innovation Act Program Guide (Washington, D.C, May 2000), pp. 3-7.

[19] Federal Highway Administration, Transportation Infrastructure and Finance Innovation Act, “TIFIA Projects,” (Last visited October 21, 2002.)

[20] Federal Highway Administration, Transportation Infrastructure and Finance Innovation Act, “TIFIA Projects”; and Texas Department of Transportation, “$800 Million Loan Granted to Texas Turnpike Authority for Central Texas Project,” Austin, Texas, November 21, 2000. (Press release.)

[21] Texas Department of Transportation, “$800 Million Loan Granted to Texas Turnpike Authority for Central Texas Turnpike Project.”

[22] Texas Department of Transportation, Texas Turnpike Authority, “The Central Texas Turnpike Project,” a presentation by Phillip Russell to the 3rd National Transportation Finance Conference, Chicago, Illinois, October 29, 2002.

[23] Texas House of Representatives, House Research Organization, Constitutional Amendments Proposed for November 2001 Ballot (Austin, Texas, August 13, 2001), pp. 44-45.

[24] Texas Bond Review Board, 2001 Annual Report (Austin, Texas, November 2001), pp. 3-4.

[25] Texas Bond Review Board, 2001 Annual Report, pp. 6-7.

[26] Texas Bond Review Board, 2001 Annual Report, pp. 9 and 15.

[27] Tex. Rev. Civ. Stat. Ann. art. 717k-7, §8.

[28] Federal Highway Administration, Contributions of Highway Capital to Output and Productivity Growth in the U.S. Economy and Industries, by M. Ishaq Nadiri and Theofanis Mamuneas (Washington, D.C., August 1998), (Last visited October 21, 2002.) A summary is available at (Last visited October 21, 2002.)