State Infrastructure Banks

Public spending on highways and bridges totaled about $40 billion in 1993, the most recent year for which data are available. The Department of Transportation (DOT), however, believes that this investment falls far short of what is needed. DOT estimates that an additional $16 billion is needed each year simply to maintain--not improve--the nation's highways at 1993 levels. Postponing investment can increase costs. DOT estimates that deferring $1 in highway resurfacing for just two years can require $4 in highway reconstruction costs to repair the damage. To stretch limited federal funds, Congress has authorized some innovative financing mechanisms, including a State Infrastructure Bank Pilot Program in up to 10 states. These banks are intended to complement traditional transportation grant programs and provide states with greater flexibility to offer many types of financial assistance, such as loans and subsidized interest rates, and provide bonds or other debt-financing security tailored to fit a project's specific needs. This report provides an early snapshot of states' interest in establishing these banks. GAO identifies (1) the degree of states' interest in the pilot program and how states might use the banks and (2) the benefits and the barriers to states' using the banks. GAO also summarizes information on states' interest in using other innovative financing mechanisms that are contained primarily in the National Highway System Designation Act of 1995.

GAO found that: (1) 15 states applied for the 10 slots in the SIB pilot program; (2) these states generally have large and growing populations that need additional highway construction; (3) most of the states surveyed indicated that SIB would probably be used to help fund less than 10 percent of their state transportation projects in the next 5 years; (4) officials from 8 states believe that the most important benefit of using SIB over the next 5 years would be the expedited completion of state transportation projects; (5) 8 states believe that the absence of new federal funds to capitalize SIB diminished the likelihood that they would participate in the SIB pilot program; (6) the fiscal year 1997 Department of Transportation (DOT) appropriation provided $150 million for SIB, and how the funding is allocated could affect the number of states applying for the pilot program; (7) although a primary SIB benefit is that financing will be repaid and can be recycled to future transportation projects, some states are averse to debt financing and concerned about whether there are enough revenue-generating projects to sustain SIB; (8) some infrastructure financing experts question SIB prospects for attracting private-sector involvement; and (9) states expressed varying degrees of interest in other financing mechanisms provided for primarily in the National Highway System Designation Act of 1995.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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