[Congressional Record Volume 141, Number 154 (Friday, September 29, 1995)]
[Extensions of Remarks]
[Page E1895]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




STATE INFRASTRUCTURE BANKS--INNOVATIVE FINANCING FOR OUR TRANSPORTATION 
                                 NEEDS

                                 ______


                           HON. BILL McCOLLUM

                               of florida

                    in the house of representatives

                       Friday, September 29, 1995

  Mr. McCOLLUM. Mr. Speaker, today I have introduced the State 
Infrastructure Banks Act of 1995. This bill will provide new 
opportunities for State and local governments to finance vital 
transportation infrastructure needs.
  This act gives States the option of creating State Infrastructure 
Banks [SIBs]. SIBs are infrastructure investment funds designed to 
provide States with a variety of financing options for infrastructure 
projects.
  Traditionally, Federal transportation funding programs offer only one 
form of financial support--reimbursement grants. SIBs offer a new 
financial concept for funding transportation programs which cannot be 
accommodated within the structure of traditional Federal reimbursement 
programs. With traditional grant programs the Federal share of a 
project's costs is set, usually at 80 percent, and there are not 
alternative ways to finance the transportation projects. This act would 
allow States to transfer up to 15 percent of their federally 
apportioned transportation funds into SIBs. States would then utilize 
the SIBs to tailor the role of Federal funds to a project's needs. This 
is especially important when over time the project needs change.
  In addition, SIBs would encourage innovative financing partnerships 
between the public and private sectors. Private financing sources are 
very interested in investing in public infrastructure. Unfortunately, 
the traditional Federal funding requirements do not provide these 
potential investors with any opportunity. SIBs provide States with a 
range of loan and credit options for each infrastructure project. Such 
options may include low interest loans for all or part of a project, 
loans with interest-only periods in early years, construction period 
financing and more. Other potential investors may include the bond 
market, commercial banks, construction consortia, mutual funds, 
insurance funds and retirement funds.
  Current funding approaches do not allow infrastructure development to 
keep pace with the private economy it is designed to serve. 
Historically, Federal transportation programs require that States 
obligate Federal-aid funds on a so-called pay-as-you-go basis. In 
effect, this requires that project sponsors have all the cash required 
to build a project available well before beginning construction. In 
private sector terms, this structure effectively dictates that States 
fully fund a project's costs with 100 percent government equity before 
construction begins. The sectors of the economy that depend on 
transportation do not wait until 100 percent equity financing is 
available before they begin development. As long a infrastructure 
financing practices are tied to the current rules, infrastructure 
investment can be expected to perpetually lag behind the economy's 
needs and demands.
  By requiring the accumulation of all capital as equity in advance, 
traditional funding rules actually result in deferred reconstruction 
projects. This serves to drive up construction costs much more rapidly 
than inflation rates due to the increased rate of deterioration of the 
infrastructure. As a result, projects cost more than anticipated. 
Therefore, fewer projects can be undertaken.
  Additionally, SIBs allow the States to leverage decreasing Federal 
funds. Historically, the Federal Government substantially underwrote 
the costs of new transportation projects often with reimbursement 
grants of up to 90 percent. Today, the Federal Government's share of 
investment in transportation infrastructure is estimated to be only 30-
40 percent of total investment.
  Leveraging is accomplished in the State Infrastructure Bank Act of 
1995 by giving SIBs the option of using Federal funds as a capital 
reserve. The SIB may then borrow money in the bond market and establish 
a significantly larger loan fund. Another way of leveraging is to use 
the funds as a credit reserve for enhancement and support of privately 
financed projects by using reserve ratio accounting methods. This 
maximizes Federal dollars.
  SIBS also maximize taxpayer dollars used for transportation in other 
ways. With SIBs, this same money can be recycled numerous times for 
making several different loans for infrastructure needs. Second, the 
initial Federal investment is expanded with each new loan when they are 
repaid with interest.
  A modern transportation infrastructure is a critical element for 
creating economic development and job growth. Additionally, these 
improvements in our transportation networks generally enhance the 
quality of life for everybody. I believe the State Infrastructure Banks 
Act of 1995 offers solutions to the inherent problems of the current 
funding mechanism and better accommodates the needs of our Nation's 
infrastructure.

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