Creative approaches to public finance are gaining traction in states concerned with the future of formula money provided by the Highway Trust Fund and moves away from discretionary grants.
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“States are turning to various centralized financing institutions that they have long relied on to assist local governments in accessing capital markets and federal funds for infrastructure,” writes Fatima Yousofi, a senior officer and Logan Timmerhoff, a principal associate with The Pew Charitable Trusts.
The observation comes from a
Pew’s research indicates that the bulk of the dollars and the responsibility for managing the assets is already borne by the states and localities.
Per the report, states and localities are covering 77% of the highway costs, 96% of water utility costs, and 72% of mass transit and rail costs.
The report highlights “municipal bond banks” that pool borrowing needs across local governments into single bond issuance.
The tactic mimics “local government investment pools,” which have been around since the1970s, and are typically managed by state treasurers or through intergovernmental agreements known as “joint powers” agreements.
“These are not LGIPs but programs that issue bonds or other debt and then use proceeds to make loans to individual borrowers, using the loans as collateral for the bonds,” said Marty Margolis, founder of the Public Funds Investment Institute.
According to PFII’s numbers LGIP’s account for nearly $1 trillion in assets, nearly 25% of state and local government investment assets.
“There’s lots of examples of pooled loan programs but for the most part they aren’t called “banks” and are technically not banks under state or federal law.”
State Infrastructure Banks were created in 1996 by the Federal Highway Administration and are subject to federal regulations.
They rely on state-raised capital and have broadened their reach beyond roads by financing water and energy projects.
Vermont’s Bond Bank is coming to market this week with a negotiated sale of $33.75 million tax-exempt community revenue bonds.
In April, the Rhode Island Infrastructure Bank closed on a $26.2 million state revolving fund loan to Providence Water to replace lead pipes. The bank maintains triple-A credit rating with all three major agencies.
Some states have set up independent agencies to deal with infrastructure funding flowing from the American Rescue Plan, the Inflation Reduction Act and the Bipartisan Infrastructure Law.
North Carolina’s State Water Infrastructure Authority approved 45 projects for funding during its July meeting.
In May, the South Carolina Rural Infrastructure Authority approved over $29 million in state grant assistance for 22 projects.
According to Pew, the independents are especially adept at getting the ball rolling.
“The most significant expansion of these infrastructure financing authorities’ roles has been into pre-project technical assistance and capital planning support, where they are helping local governments develop asset inventories, improvement plans, and project pipelines before borrowing or applying for grants.”