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Section 2: State Infrastructure Bank

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Overview

In November 1995, the President of the United States signed Public Law 104-59, known as the 1995 National Highway System Designation Act. Section 350 of that law allowed the United States Secretary of Transportation to designate a maximum of ten states as pilot projects for the State Infrastructure Bank (SIB) program. Texas was selected as one of the initial pilot states.

An SIB operates chiefly as a revolving loan fund and may provide a wide range of financial assistance in addition to loans. The purposes of the pilot program are to attract new funding into transportation, to encourage innovative approaches to transportation problems, and to help build needed transportation infrastructure. The law provides that each designated state may transfer up to ten percent of certain federal dollars, match those funds with state funds, and deposit them into a SIB. The greatest benefit of this program may well be the creation of a self-sustaining, growing, revolving loan fund.

Transportation Code 222 Subchapter D states that the SIB is to be administered by the Texas Transportation Commission. In September 1997, the Texas Transportation Commission approved the administrative rules that govern the SIB.

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Background

Much like a private bank, the SIB offers eligible customers a range of loans and credit enhancement services. The SIB will offer its services to finance or financially enhance transportation projects that meet its selection criteria. As loans are repaid to the SIB, additional assistance will be granted for more transportation projects. The SIB, in effect, is a revolving loan fund.

Why would local entities want to borrow money from the SIB when historically they have not had to pay for local transportation projects? The answer is twofold: time and money. Currently, TxDOT expects to be able to fund only about one third of the needed transportation projects in Texas. TxDOT will continue to fund as many needed projects as possible. In many cases, however, a project considered very high priority by one community may not be ranked high enough on a statewide basis to receive funding for several years.

If the local community wants the project completed faster, it could borrow money from the SIB and advance the project by several years. Also, if the proposed transportation project would generate additional economic development, the local community may receive enough revenue from the increased tax base to easily pay for the financial assistance from the SIB. Thus, the community could get its project completed much sooner with little or no additional cost.

The SIB program arose out of the need to improve, rehabilitate, and renovate transportation facilities. Transportation needs are increasing while federal, state, and local financial resources are constant or declining. The SIB program is one of the ways that the federal government is utilizing innovative financial techniques to address growing transportation needs.

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Purposes

The purposes of the State Infrastructure Bank are to:

  • encourage public and private investment in transportation facilities
  • expand the availability of funding for transportation projects and reduce direct state costs
  • improve the efficiency of the state transportation system.

The mission of the SIB is to provide loans and other financial assistance to improve transportation infrastructure in Texas. To accomplish this mission, TxDOT will operate the SIB as a self-sustaining, growth-oriented fund. TxDOT will also ensure projects satisfy all appropriate federal, state, and local planning and programming requirements.

TxDOT has designed the SIB to enhance borrower ability to access capital funds at lower-than-market interest rates. The success of the SIB program will depend on maintaining strong credit standards and successfully leveraging funds to increase the program’s activity through a revolving loan fund structure. The quality and diversification of the SIB’s financial assistance will have a direct impact on the interest rates paid by borrowers.

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Eligibility

Any public or private entity authorized by law to construct, maintain, or finance an eligible transportation project is eligible to apply for financial assistance from the SIB. For a project to be eligible for SIB financial assistance, it must qualify for federal aid under existing federal rules. This generally means the project must be on the state highway system and included in the Statewide Transportation Improvement Plan. In most cases, residential city streets and county-maintained rural roads will not be eligible. However, there are exceptions to this requirement, such as off-system bridges. For information about whether a specific project qualifies for assistance, please contact your local TxDOT district office.

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SIB Process

As an illustration, the following is a list of project phases that qualify for assistance from the SIB:

  • planning and preliminary studies
  • feasibility, economic, and environmental studies
  • right-of-way acquisition
  • survey, appraisal, and testing
  • utility relocation
  • engineering and design
  • construction
  • inspection and construction engineering.

Each project must stand on its own merits. Therefore, a detailed understanding of the project by TxDOT’s local district office is the first step to determine if your project qualifies. Approval for financial assistance to a private entity shall be limited to an eligible project that provides transportation services or facilities that demonstrate public benefit or is constructed or operated in cooperation with a state agency or political subdivision in accordance with an agreement between that state agency or political subdivision and the private entity.

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SIB Administration

TxDOT, through its Finance Division, conducts the activities necessary to manage and administer the SIB. The Texas Transportation Commission capitalized the SIB with available federal and state money designated for this purpose. The Commission will have final approval of any financial assistance from the SIB. The SIB may issue bonds in the future to generate additional capital for transportation projects. Interest earnings on fund balances and repayments for financial assistance will also contribute to the available capital.

The Budget and Finance Division has been designated as the department contact for the purpose of providing information and assistance to potential applicants. Assistance may include non-binding advice, counsel, and consultation regarding all aspects of a potentially eligible project. If TxDOT determines that the project is eligible for assistance and that TxDOT resources are available, TxDOT may provide engineering and other technical assistance to aid potential applicants in developing their application. (Any advice, assistance, or aid provided will not constitute a commitment or liability on the part of TxDOT or the Commission.)

The application process for SIB financial assistance is a collaborative effort between TxDOT headquarters, district staff, and the applicant. Potential applicants are encouraged to communicate with TxDOT at the earliest possible date. The Commission will be the final authority in approving all SIB applications.

The Budget and Finance Division will coordinate the efforts of other TxDOT organizations that review and comment on SIB applications.

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