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Chapter 2

New Tools to Finance Expanding Transportation Needs

A growing population and increased North American Free Trade Agreement (NAFTA)-related traffic are putting major strains on Texas’ transportation system. According to the Texas Department of Transportation (TxDOT), vehicle miles traveled in Texas have increased at a rate of 4.1 percent annually over the last seven years—16 times faster than the state’s construction of new lane miles. TxDOT estimates that its current funding streams will meet only 36 percent of Texas’ need for road construction projects over the next decade.

Texas can meet its critical transportation needs by taking advantage of all opportunities to maximize the impact of its revenues. TxDOT’s ability to use innovative financing techniques should be expanded to speed the completion of new construction projects.

Use Innovative Financing Techniques

Giving TxDOT the ability to use innovative financing tools will speed delivery of new construction projects. The most appropriate tools include both traditional capital market borrowing (general obligation and revenue bonds) and the newly emerging federally-supported leveraging techniques such as Grant Anticipation Revenue Vehicles (GARVEEs) and federal credit.

GARVEEs are highway construction bonds backed by future obligations of federal highway funds. This technique or use of these bonds would allow TxDOT to start building a highway prior to the federal funds being allocated to the state. This innovative financing technique would allow highway projects to begin sooner. TxDOT also should be authorized to participate in the federal government’s Transportation Infrastructure Finance and Innovation Act (TIFIA) which provides loans, loan guarantees and standby lines of credit for eligible transportation projects.

GARVEE bonds and TIFIA borrowing are gaining acceptance among transportation agencies and the public throughout the country and are now being used by a growing number of state departments of transportation. The primary objectives of these programs are to maximize the ability to leverage federal funds for needed investments, better utilize currently available funding, and move projects into construction faster than under traditional approaches.

Use the Texas Turnpike Authority to Obtain Greater Funding for TxDOT Projects and Operations

In addition to setting tolling authority, the legislation establishing the Texas Turnpike Authority (TTA) gave it more flexibility in project development than is granted to TxDOT. This flexibility should be fully utilized by giving TTA a larger role in TxDOT operations. For example, TTA should be used as a test bed for implementing new, innovative strategies not currently used by TxDOT, such as design-build. Moreover, state law should be amended to allow TxDOT to financially participate in toll road development without requiring repayment. By leveraging TTA to the maximum level, major projects could be completed faster.

Expand The Reach of the State Infrastructure Bank

TxDOT could use Texas’ State Infrastructure Bank (SIB) Program to increase its funding by issuing revenue bonds for state and local construction projects. A SIB is a revolving fund that can provide a wide range of financial assistance, including loans, for construction projects on the state highway system. State law should be amended to allow TxDOT to expand the availability of these funds to include loans to counties. Currently, the $197 million cash balance is available only for state projects.

Manage Cash Flow More Effectively

Monthly cash balances at TxDOT range from $300 million to $400 million, far more than needed to cushion the agency from a potential deficit balance. The cash balances represent underutilized resources, and in conjunction with other recommendations, could be converted into faster project delivery for Texas citizens. State law should be amended to give TxDOT the authority to borrow on a short-term basis from the State Treasury or from commercial banks. This would allow TxDOT to manage its cash position more aggressively.