User:Svrmustafa/Sandbox/Funding and Finance

This page is prepared by ... for the Center for Integrated Asset Management for Multi-modal Transportation Infrastructure Systems (CIAMTIS): Region 3 University Transportation Center as part of the "Research in the Classroom: Teaching Modules for Multi-modal Transportation Infrastructure System" project.

Introduction

The funding and finance of U.S. transportation projects are a testament to the country’s intricate and decentralized governance structure. In the United States, a vast network of federal, state, and local governments, along with a multitude of agencies, collectively shape the nation's transportation landscape. This complex arrangement is not a mere quirk of the system, but a deliberate feature designed to accommodate the varied needs of a diverse country. The seemingly bewildering array of institutions involved in delivering transportation services underscores the unique flexibility and responsiveness embedded within the American governmental framework.  

To fully grasp the financial underpinnings of U.S. transportation, one must navigate the complex interplay of policies, funding streams, and institutional dynamics that have evolved over the decades, each layer adding depth to the nation's approach to building and maintaining its critical infrastructure. Central to this understanding is the distinction between funding and finance, two complementary but distinct concepts that are often interwoven in transportation projects.

Funding refers to the allocation of money that does not require repayment, typically sourced from tax revenues or government appropriations. Finance, in contrast, involves borrowing or leveraging private investments to fund projects, with the expectation that these funds will be repaid, often with interest. While funding provides the necessary resources upfront, finance helps to bridge gaps or enable large-scale projects that would otherwise be unfeasible through funding alone. Both mechanisms are essential in the development and maintenance of transportation infrastructure.

This Wikibooks page will guide readers through these intricate arrangements by exploring key concepts such as the distinction between funding and finance, capital expenditures and operations/maintenance, and the role of federalism in the highway and transit sectors. This report will predominantly concentrate on highway transportation, with a secondary examination of transit assets. Detailed analysis of other transportation modalities, such as aviation and maritime, will not be included at this time.  

To bring the crucial funding and finance concepts to life, the paper will also feature two detailed case studies, illustrating how these arrangements and governance structures play out in real-world scenarios. These case studies will not only provide practical insights but also highlight the broader implications of the funding mechanisms that shape the U.S. transportation system.

One approach to understanding funding and finance in the United States is to divide the subject into two categories: Capital Funding and Finance, which refers to the funding and financing of assets or investments that provide long-term benefits such as infrastructure, equipment, and property, and Operational Funding and Finance, which involves funding and financing the day-to-day operations of an organization, covering expenses like salaries, utilities, and maintenance. This paper applies this methodology to analyze highway funding at the federal government level, starting with a brief overview of its historical and contemporary context. It then explores capital and operational funding and financing at the federal level before turning to the funding mechanisms at the state and local levels. At these lower levels of government, the distinction between capital and operational investments can be somewhat arbitrary compared to the federal level, so this paper does not separate them in these sections.

Background on History of Highway Funding

In the early 20th century, the development of roadways in the United States was a dynamic but inconsistent  process, with responsibilities not only divided between local and state governments but approached in very different ways. Local governments primarily oversaw the construction and maintenance of smaller, local roads, while state governments to differing degrees gradually assumed a larger role in the development of major highways and arterial routes. This shift in influence was driven by individual states' growing financial resources, which were bolstered by the collection of annual registration fees and motor fuel taxes. As the number of cars on the road increased and vehicle miles traveled expanded, state highway department budgets grew significantly, enabling them to play a more dominant role in determining freeway routes within urban areas.

By 1921, the federal government began playing a greater role in highway funding. However, this increased federal involvement was met with considerable debate and controversy regarding the appropriate level of federal oversight. Despite this increased federal involvement, states continued to take the lead in planning, designing, constructing, and maintaining the nation's primary roadways. Activities receiving federal funds were conducted in accordance with federal standards and required federal approval. Consequently, by the 1930s, a rudimentary national highway network had already been established, ensuring that the majority of Americans lived within close proximity to a numbered U.S. highway, exemplified by the iconic U.S. Route 66.

The pivotal moment in the history of federal highway funding in the U.S. occurred during President Dwight D. Eisenhower's administration. In the 1950s, Congress devised a financial strategy to support the ambitious vision of an interstate highway system that had been contemplated for several decades. This effort culminated in the Federal-Aid Highway Act of 1956, which reinforced the evolving relationship between federal, state, and local governments. However, the groundwork for this division of roles was largely influenced by strategies deployed by the executive branch, particularly by key figures like Thomas MacDonald and others in the Office of Road Inquiry and the Bureau of Public Roads—predecessors to the Federal Highway Administration (FHWA). Their efforts were instrumental in shaping expectations and building a framework for how roadway financing and responsibilities would be divided among local, state, and federal governments. This dynamic had a profound impact on the design and execution of road network improvements, influencing the development and connectivity of both intercity and urban areas throughout the 20th century.

Background on Modern of Highway Funding Revenues and Expenses

Revenues and expenditures across various levels of government continue to be intricately linked. Funds are generated through a combination of fees and taxes imposed on highway users and other sources at the federal, state, and local levels. These revenues are allocated to cover the costs associated with constructing, replacing, rehabilitating, maintaining, and making other capital investments in highways and bridges. In 2021 the total revenue generated for highways and bridges by all government tiers amounted to $270.6 billion, while expenditures reached $301.1 billion. When revenues fall short of expenditures, as was the case in 2021. When revenues fall short of expenditures, as was the case in 2018, the shortfall is covered by drawing from highway reserve accounts at each governmental level.

Table 1 - Government Highway Revenues by Source, 2008-2018

Revenue Source	Federal	State	Local	Total	Federal Share of Total	State Share of Total
Motor Fuel Taxes	$29.9	$35.7	$1.2	$66.9	44.7%	53.4%
Motor Vehicle Taxes	$5.9	$28.1	$2.8	$36.8	16.0%	76.3%
Tolls	$0.0	$14.6	$3.1	$17.6	0.0%	82.6%
Subtotal: User Fees	$35.8	$78.4	$7.1	$121.3	29.5%	64.6%
Property Taxes and Assessments			$11.6	$11.6
General Fund Appropriations	$4.5	$8.1	$26.9	$39.4	11.4%	20.5%
Other Taxes and Fees	$0.0	$12.7	$9.0	$21.8	0.0%	58.2%
Investment Income and Other Receipts	$0.7	$12.9	$8.4	$22.0	3.0%	58.6%
Bond Issue Proceeds	$0.0	$14.7	$7.0	$21.7	0.0%	67.6%
Total Revenues	$40.9	$126.7	$70.1	$237.8	17.2%	53.3%

Notes: Dollar value are in billions. Motor fuel taxes, motor vehicle taxes and fees, and tolls refers to the portion of user charges that are used to fund highway spending, which excludes user fees used for mass transit and other non-highway purposes. Gross receipts generated by user charges totaled $160.5 billion in 2018, of which $121.3 billion was used for highways. The $4 billion General Fund Appropriation shown for Federal includes expenditures by the FHWA and other Federal agencies that were not paid for from the Highway Trust Fund.

Sources: Highway Statistics 2018, Table HF-10, and FHWA estimates.

From 2008 to 2018, total revenue experienced an annual growth rate of 2.1 percent. User charges, which encompass motor fuel taxes, motor vehicle taxes and fees, and tolls, collectively generated $121.3 billion. The most significant increase in revenue came from tolls, which surged from $9.1 billion to $17.6 billion, reflecting an average annual growth rate of 6.8 percent. User charges comprised approximately half of the total revenue, with motor fuel and motor vehicle taxes contributing 44 percent and tolls accounting for 7 percent. The remaining $116.5 billion was derived from diverse sources, including property taxes and assessments, General Fund appropriations, additional taxes and fees, investment income, and debt financing.

PIE CHART

PIE CHART

Figure 1 - Highway Expenditures by Type in 2018

Between 2008 and 2018, total expenditures experienced an annual growth rate of 2.6 percent. In 2018, the distribution of funding sources for these expenditures was as follows: the federal government contributed 20.4 percent, state governments provided 50.7 percent, and local governments accounted for 28.9 percent. Capital outlay constituted nearly half (48 percent) of the total expenditure, with maintenance and traffic services following at 24 percent. Administrative costs, highway patrol and safety, bond retirement, and debt interest each represented between 6 and 9 percent of the total highway expenditures for the year. During the same period, capital outlay increased at an average annual rate of 2.6 percent. Federal funding grew by 2.3 percent, while State and local spending rose by 2.9 percent. In 2018, the Federal government was responsible for 40.1 percent of capital outlay but only 20.4 percent of overall highway expenditures. Notably, about two-thirds (66.1 percent) of capital outlay was allocated to system rehabilitation, encompassing $61.2 billion for highways and $16.2 billion for bridges. Additionally, 19.8 percent of capital outlay was dedicated to system expansion, primarily involving highway extensions.

A later section of this report will provide an in-depth analysis of these revenue and expenditure sources, with a particular emphasis on the funding and financial mechanisms available at the federal level.

Funding and Finance at the Federal Level

In the realm of transportation infrastructure, the structure of funding programs is critical to understanding how projects are planned and executed. Two primary examples of funding mechanisms are taxes and tolls. Taxes, particularly fuel taxes, serve as a critical part of transportation funding in the U.S. The federal government, states, and local governments all levy fuel taxes, which are deposited into the Highway Trust Fund (HTF). This fund is the primary source of federal transportation dollars, supporting the construction and maintenance of roads, bridges, and transit systems across the country. However, with fuel efficiency improving and the rise of electric vehicles, fuel tax revenues have stagnated, leading to funding gaps that challenge the sustainability of this mechanism​ (Tyler Data & Insights).

On the other hand, tolls represent a user-based financing method, where those who directly use a specific transportation facility—such as highways, bridges, or tunnels—pay for its upkeep. Tolling is increasingly popular for financing new infrastructure or maintaining existing roads, especially in densely populated regions where congestion pricing or electronic toll collection can help manage demand while generating revenue.  

While taxes provide a stable but increasingly insufficient funding base, tolls offer a flexible, scalable solution to meet the growing demands on transportation infrastructure. Both mechanisms are essential to understanding how transportation projects are financed and executed in the modern era, with each presenting unique challenges and opportunities for policymakers.

Funding Programs for Capital Investment

Funding and Financing Highways and Public Transportation Under the Infrastructure Investment and Jobs Act (IIJA)

The most significant recent legislation for federal capital investment funding is the IIJA, signed into law in 2021. This bipartisan legislation seeks to enhance U.S. infrastructure and generate employment. With an investment exceeding $1 trillion, it designates funds for key sectors including transportation, broadband, water, and energy. The initiative is anticipated to create millions of jobs and will be implemented in phases over several years.

The IIJA authorized spending on federal highway and public transportation programs until September 30, 2026. It included a substantial $118 billion in general fund transfers to the HTF, securing its solvency throughout the act's duration.

However, projections from the Congressional Budget Office (CBO) foresee a shortfall of $149.7 billion over the five fiscal years following the IIJA's expiration, prompting discussions on how to address this potential deficit. This issue is chronic and not yet directly addressed by the Congress beyond increasing the amounts transferred from the general fund. The IIJA introduced changes to the funding structure by providing additional non-trust fund sums through advance multiyear supplemental appropriations. It included advance appropriations totaling $47 billion for highways and $21 billion for public transportation over FY2022-FY2026, ensuring a guaranteed funding source.

The IIJA's reliance on large general fund amounts, in addition to HTF monies, may  a focal point during its reauthorization debate in FY2025-FY2026. Potential considerations include exploring options such as raising motor fuel taxes, adopting a vehicle miles traveled (VMT) charge, implementing a carbon tax, or an electric vehicle fee. Alternatives involve continuing the use of Treasury general fund transfers, potentially requiring budget offsets, or evaluating a combination of authorized trust-funded budget authority and multiyear appropriations.

Multimodal Project Discretionary Grants (MPDG)

Several programs will be highlighted in the coming pages, collectively supporting a wide range of transportation projects aligned with the Department of Transportation's strategic goals. MPDG represents a collection of grant programs aimed at funding these initiatives. This includes categories such as MEGA Grants, INFRA Grants, and Rural Grants, each designed to address specific transportation needs.

MEGA Grants: These grants provide substantial funding for large-scale transportation projects that have significant regional or national impacts. Examples of such projects include the construction of major highways, bridges, and transit systems that enhance connectivity and economic growth. Mega Grants are crucial for undertaking ambitious infrastructure projects that require extensive resources and long-term commitment.

INFRA Grants: The Infrastructure for Rebuilding America (INFRA) grants are aimed at addressing critical transportation challenges that impede the efficient movement of goods and people. These grants focus on projects that improve freight mobility, reduce congestion, enhance safety, and boost the reliability of transportation networks. INFRA grants support initiatives that are vital for maintaining the competitiveness of the U.S. economy by ensuring that critical infrastructure is modernized and well-maintained.

Rural Grants: Recognizing the unique transportation needs of rural areas, Rural Grants provide targeted funding to support infrastructure projects in these regions. These grants help address the disparities in transportation infrastructure between urban and rural areas, ensuring that rural communities have access to safe and reliable transportation options. Projects funded by Rural Grants often include road improvements, bridge repairs, and enhancements to public transit systems, which are crucial for the economic and social well-being of rural populations.

Rebuilding American Infrastructure with Sustainability and Equity (RAISE) Program

The Rebuilding American Infrastructure with Sustainability and Equity (RAISE) program, formerly known as BUILD (Better Utilizing Investments to Leverage Development) and TIGER (Transportation Investment Generating Economic Recovery), is a discretionary grant initiative managed by the U.S. Department of Transportation. The RAISE program aims to invest in a wide range of infrastructure projects, including road, rail, transit, and port projects. It supports state and local project sponsors and focuses on projects that are multimodal and multi-jurisdictional in nature.

A key feature of the RAISE program is its investment in a diverse array of infrastructure projects. The program allocates funds to a wide range of initiatives aimed at improving transportation networks across various modes, including highways, rail systems, public transit, and port facilities. This broad approach ensures a comprehensive strategy for infrastructure development, contributing to a more resilient and robust transportation system.

Another important aspect of the RAISE program is its support for multimodal projects. By funding initiatives that integrate multiple transportation modes, the program seeks to foster a more efficient and interconnected transportation network. This multimodal strategy aims to reduce congestion, decrease emissions, and enhance overall transportation efficiency. For example, a project might upgrade both rail and road infrastructure, creating smoother connections between different transportation modes and improving the movement of goods and people.

The RAISE program emphasizes equity and sustainability in its approach. It is designed to ensure that infrastructure investments benefit all communities, especially those that have been historically underserved. Projects funded through RAISE are intended to advance environmental sustainability by supporting green infrastructure and reducing transportation-related carbon emissions. Additionally, these projects aim to promote economic growth and social equity, contributing to the overall well-being of diverse populations. The program's focus on these values aims to support a more inclusive and sustainable future for transportation infrastructure in the United States.

Financial Programs for Capital Investments

Modern infrastructure financing has evolved to include a range of mechanisms beyond traditional “pay as you go” excise taxes aimed at improving the efficiency of public funds, accelerating project delivery, and stimulating economic growth through the use of private capital and the distribution of financial risk. The Federal government plays a crucial role in this process, with agencies such as the U.S. Department of Transportation (USDOT) and the Department of the Treasury being central to the support and facilitation of these financing approaches.

A notable development in this area is the establishment of the Build America Bureau. This initiative, part of a broader government effort to enhance infrastructure investment, was designed to actively involve private sector investors, foster collaboration, and expand opportunities for public-private partnerships (P3s). The Bureau supports this objective through key programs such as the Transportation Infrastructure Finance and Innovation Act (TIFIA) and the Railroad Rehabilitation and Improvement Financing (RRIF) credit programs.  

This section will examine these financial programs and other federal initiatives that play a role in capital investments, providing an overview of their impact and function in the current infrastructure financing landscape.

Transportation Infrastructure Finance and Innovation (TIFIA) Program

TIFIA, established in 1998, is a federal initiative aimed at enhancing the impact of limited Federal resources and attracting significant capital market investment in transportation infrastructure. It provides credit assistance through mechanisms such as direct loans, loan guarantees, and standby lines of credit, focusing on projects of national or regional importance.

The program's objectives include facilitating projects with substantial public benefits, exploring innovative revenue streams, encouraging private sector involvement, and addressing gaps in capital markets. TIFIA operates under a framework that includes requirements for project cost determinations, credit assistance limits, investment-grade ratings, and compliance with federal regulations. The application process for TIFIA is rolling and allows various entities, including state governments and transportation improvement districts, to submit project proposals. Eligible projects range widely, from highways and bridges to transit facilities and airports. To qualify, projects must demonstrate creditworthiness, obtain investment-grade ratings, and show readiness to proceed.

Legislative changes have significantly influenced TIFIA. The Moving Ahead for Progress in the 21st Century (MAP-21) Act of 2012 greatly expanded TIFIA's credit authority and introduced a "first-come, first-served" application process. The Fixing America's Surface Transportation (FAST) Act of 2015 reduced the program’s credit authority and clarified refinancing rules. The Infrastructure Investment and Jobs Act (IIJA) of 2021 further enhanced TIFIA by extending commitment periods, increasing project rating thresholds, and broadening eligible project types, while streamlining the application process for projects ready to start within 90 days.

The Railroad Rehabilitation and Improvement Financing Program (RRIF) Program

The RRIF Program was established in 1998 under the Transportation Equity Act for the 21st Century (TEA-21). This program provides direct loans and loan guarantees to support the development of railroad infrastructure. DOT is authorized to offer up to $35.0 billion in credit assistance, with at least $7.0 billion specifically reserved for projects that benefit freight railroads other than Class I carriers.

Class I carriers are the largest freight railroads, classified based on revenue thresholds set by the Surface Transportation Board. The RRIF program prioritizes assistance to smaller freight railroads and other entities not classified as Class I carriers to promote broader infrastructure development and support a diverse range of rail services.

Eligible applicants for RRIF credit assistance include state and local governments, interstate compacts, government-sponsored authorities and corporations, railroads, limited option rail freight shippers that own or operate a plant or facility, and joint ventures involving at least one of these entities.

Grant Anticipation Revenue Vehicles (GARVEEs)

A GARVEE (Grant Anticipation Revenue Vehicle) is a financial instrument used to provide upfront funding for transportation projects based on anticipated future revenue. Specifically, GARVEEs rely on expected Federal-aid grants as their revenue source. In the context of highway finance, GARVEEs are debt instruments secured by future Title 23 Federal-aid funding. They allow states to use Federal reimbursements to cover debt service and related financing costs, which can include interest payments, principal repayment, and other expenses related to issuing bonds, notes, certificates, mortgages, or leases for eligible projects.

GARVEEs offer states the ability to accelerate construction schedules and distribute the financial burden of transportation projects over their useful lifespan, rather than concentrating costs during the construction phase. This approach also provides expanded access to capital markets, complementing other bonding methods such as general obligation or revenue bonds.  

The flexibility introduced by GARVEEs, particularly under the NHS Act of 1995, has allowed for longer-term financing of Federal-aid eligible projects and improved states' financial planning capabilities. However, it is important for states to consider the implications of committing future Federal-aid funds for debt service against the immediate financial benefits of GARVEE financing.

Section 129 Loans

Generally, tolling is not allowed on Federal-aid projects funded under Title 23. However, Section 129 of Title 23 provides exceptions to this rule by permitting Federal involvement in state loans that are backed by dedicated revenue streams, including tolls.

Section 129 allows states to obtain Federal assistance for loans supported by various dedicated revenue sources, such as tolls, excise taxes, sales taxes, real property taxes, motor vehicle taxes, incremental property taxes, or other beneficiary fees. This provision enables states to use these resources to fund transportation projects and to recycle the funding for additional eligible projects.

Unlike State Infrastructure Banks (SIBs), which is discussed under the state and local section, Section 129 loans offer states flexibility in negotiating terms, including interest rates. When a Section 129 loan is repaid, the state must use the funds for other Title 23 eligible projects or for credit enhancement activities, such as purchasing insurance or establishing a capital reserve. This requirement helps manage the funding for future projects.

Section 129 loans are subject to fewer Federal requirements compared to SIB loans. The provision was modified by the Intermodal Surface Transportation Efficiency Act (ISTEA) to allow Federal participation in loans for toll projects and was further expanded by the 1995 National Highway System Act to include loans for non-toll projects supported by dedicated revenue streams. This change aimed to broaden Federal-aid eligibility based on the experiences from the Transportation Equity Act for the 21st Century (TEA-21). In summary, while Federal-aid projects typically prohibit tolling, Section 129 provides an exception that allows for Federal involvement in state loans supported by tolls and other dedicated revenue sources.

Build America Bonds

Build America Bonds (BABs), introduced under the American Recovery and Reinvestment Act (ARRA) of February 2009, represent a distinctive form of Federal financing designed to support state and local government projects. Unlike other Federal-aid programs that may have restrictions on taxable interest or specific funding caps, BABs offer a federal interest subsidy to offset the taxable nature of the bonds' interest. Overseen by the Treasury Department, BABs are issued by state or local government entities for public purposes, excluding private activities. This Federal subsidy allows BABs to finance a wide range of projects, including surface transportation, without a volume cap during the years 2009 and 2010.

There are two main types of Build America Bonds: Tax Credit BABs and Direct Payment BABs. Tax Credit BABs provide investors with a tax credit equal to 35 percent of the interest paid by the issuer, effectively reducing the issuer's interest expense by approximately 26 percent. Investors can apply these tax credits against their regular income tax liability or alternative minimum tax, with the option to carry forward unused credits to subsequent years. This structure allows issuers to attract investors seeking tax-advantaged investments while reducing their borrowing costs.

Direct Payment BABs, on the other hand, offer a more straightforward subsidy where the Treasury Department provides a refundable tax credit directly to the issuer equivalent to 35 percent of the gross interest payable to investors. This subsidy is paid in cash and does not depend on the investor's tax liability, making Direct Payment BABs highly attractive and easily marketable. Unlike Tax Credit BABs, Direct Payment BABs are primarily intended for new construction projects and are not applicable for refinancing or working capital purposes.

In comparison, Direct Payment BABs provide a higher subsidy rate (35 percent) than Tax Credit BABs (26 percent) and eliminate the need for investors to consider their tax situation when investing. However, their use is restricted to new construction projects, limiting their flexibility compared to Tax Credit BABs. From an investor's standpoint, Direct Payment BABs resemble conventional taxable bonds because the return is received entirely in cash without the tax credit component.

In summary, BABs represent a significant innovation in municipal finance by providing states and local governments with flexible financing options to stimulate infrastructure development, particularly during economic downturns. The choice between Tax Credit BABs and Direct Payment BABs depends on the specific financing needs of the issuer and the preferences of potential investors seeking either tax advantages or cash payments.

Funding for Operational Expenditure

Transportation assets, including highways and transit systems, have regular life cycles requiring ongoing maintenance, repair, and occasional replacement. Deterioration is not linear; it occurs slowly when the asset is new but accelerates as the asset ages, especially if not properly maintained, which increases operating and maintenance costs. Highway infrastructure operating costs encompass activities like fixing potholes, replacing guardrails, and snow removal. Transit infrastructure operating costs include not only maintenance and repair of vehicles and rails but also labor, fuel, and insurance. In 2020, 62% of total transit operating expenses were allocated to employee salaries, wages, and fringe benefits. The remaining operating expenses covered capital costs such as purchasing new buses. 

With the launch of the Interstate Highway Program as part of the Federal-Aid Highway Act of 1956, the federal government committed to paying 90% of the construction costs of interstate highways. However, the Act did not include maintenance stipulations. The original Federal-Aid Highway program, established by President Woodrow Wilson in 1916, designated states as the owners of the interstate highways and responsible for their maintenance.  The Federal-Aid Highway Act of 1976 authorized $175 million annually to address maintenance costs for untolled highways, with the federal government covering 90% of operating costs. This was followed by the Surface Transportation Assistance Act of 1978, which made Interstate “3R” (resurfacing, restoring, and rehabilitating) funding a permanent category within the Act, also making tolled highways eligible for 3R funding. In 1981, "reconstruction" was added as a fourth "R" to replace aged infrastructure that no longer met acceptable levels of service. In 1982, President Ronald Reagan increased the federal gas tax by 5 cents per gallon, with 4 cents going toward the Highway Trust Fund and 1 cent to the Transit Account. This program went through various iterations until 2005 when the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) was approved. SAFETEA-LU allotted $100 million annually for 4R work within the Interstate system. This program expired in 2009, leading to the establishment of the Moving Ahead for Progress in the 21st Century Act (MAP-21) in 2012, which includes clauses addressing reconstruction, resurfacing, restoration, rehabilitation, and preservation of highways and bridges. 

In 2022, 96% of all federal spending ($50 billion) went to capital investments, with the remainder going toward operating expenditures. This funding is not project-specific and is limited to the interstate highway system, excluding local roads. Given this history and the responsibility placed on states and local governments to maintain highway infrastructure, federal funding for highway operating costs remains highly limited.

Federal funding for transit infrastructure falls under a separate account from the Highway Trust Fund. Prior to the 1960s, transit was mostly private and generated enough profits to maintain service. Following the creation of the Urban Mass Transportation Administration (UMTA) around 1960, which aimed to establish public transportation agencies to replace failing private ones, transit usage surged during the 1973 oil crisis. This shift ultimately led to the National Mass Transportation Act of 1974, which provided federal support for transit operating costs at a maximum share of 50%. This Act was popular with many transit operators obtaining federal funding, but in the 1980s, the federal share for transit operating costs was reduced to 30% and further reduced to 25% in the 1990s. Additionally, the Transportation Equity Act for the 21st Century (TEA-21), passed in the 1990s, eliminated federal support for transit operating costs in urbanized areas with more than 200,000 people while maintaining support for smaller urban areas, rural areas, and small bus operators in large cities starting in 2013. This change was accompanied by a broader definition of capital expenses, allowing traditional operating costs such as preventive maintenance to be considered capital expenses, thus increasing funding. The chart below shows sources of funds for transit operating expenditures from 2006 to 2016.

BAR CHART

BAR CHART

Figure 2 - Sources of Funds for Transit Operating Expenditures, 2006-2016

In 2019, with the onset of the Coronavirus Pandemic (COVID-19), transit ridership and revenues rapidly declined, but agencies continued to provide service to support essential workers. From 2019 to 2020, fares and revenues decreased by 40%, local support fell by 16.7% to $16.3 billion, and state support decreased by 0.9% to $12.7 billion (https://www.apta.com/wp-content/uploads/APTA-2022-Public-Transportation-Fact-Book.pdf). The federal government supported transit agencies during this time with a total of $69.5 billion in 2020 and 2021, a significant increase from the $12 billion received in 2019 and the $19 billion from fares and other revenues during the same year. Prior to COVID-19, transit fares and revenues covered about 25% of the total cost of providing transit service. This support was part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which allocated $25 billion through formula funds to urban and rural areas to maintain transit services during the pandemic.

Below is a list of IIJA grant programs that provide opportunities to obtain federal funding for transportation operating costs,

• State of Good Repair Grants

• The Restoration and Enhancement Grant Program

• Urbanized Area Formula Grants

• Formula Grants for Rural Areas

• Enhanced Mobility of Seniors and Individuals with Disabilities

• Ferry Service for Rural Communities

• Public Transportation on Indian Reservations Formula

• Appalachian Development Public Transportation Assistance Program

• Charging and Fueling Infrastructure Grants (Community Charging)

• Charging and Fueling Infrastructure Grants (Corridor Charging)

• Growing State Apportionments

• Growing States and High-Density States Formula

Finance for Operational Expenditure

Federal financing for operational expenditure is very limited as this financial tool is mostly used to fund capital investments and build assets rather than maintain them. Most federal financing mechanisms, such as TIFIA loans, State Infrastructure Banks (SIBs), and Grant Anticipation Revenue Vehicles (GARVEEs), are used to pay for construction costs. These financing tools leverage future revenues to pay for the initial investment, and thus are not good tools to pay for daily expenses and repairs. These tools can support operating expenditures in some instances, but they are not primarily used for this purpose. At the federal level, funding sources are a more appropriate tool, but more commonly, state and local funding options are used to cover these expenses.

Funding and Finance at the State and Local Level

In the United States, the "user pays" principle has long been a cornerstone for highway funding, although it is important to note that this approach has not been as prevalent for transit systems, which have primarily relied on public sector support and subsidies since their transition in the 1960s. During this period, Metropolitan Planning Organizations (MPOs) emerged to address the need for coordinated planning and funding in urban areas, facilitating a more structured approach to transportation projects. By July 1965, all 224 urbanized areas had initiated an urban transportation planning process, leading to the establishment of MPOs that leveraged federal resources to enhance local capabilities. Consequently, both federal and state governments have heavily relied on fuel taxes, supplemented by vehicle-related fees and taxes, as major revenue sources considered a fair distribution of cost responsibility. These mechanisms effectively align usage levels with contributions for maintenance and development.

This funding approach is intrinsically linked to the concept of dedicated revenue sources. In many instances, state constitutions and laws mandate that specific revenue streams be reserved exclusively for transportation-related purposes. Such restrictions ensure that funds derived from designated taxes or fees are applied directly to transportation infrastructure, preventing their diversion to other governmental uses. Conversely, there are scenarios where funding sources are blended and allocated across various governmental needs. In these cases, the clarity of fund origin and usage, along with the governance structures overseeing these processes, becomes critical. Dedicated revenue restrictions act as a safeguard, yet state and local governments often face challenges in tapping into available revenues for immediate projects, long-term plans, or ongoing operational needs related to transportation services.  

Therefore, effective funding and finance mechanisms at the state and local levels are crucial not only for the successful implementation but also for the maintenance of various public infrastructure projects. This is highlighted by the fact that operation and maintenance accounted for 57% of state and local highway spending in 2022.

This section examines the various funding sources and financial programs available to state and local governments for both capital and operational activities, as these are not typically separated at this level of government unlike at the federal level. Understanding these mechanisms is crucial for the efficient allocation of resources and the long-term sustainability of projects.

State Fuel Taxes and Fees

States employ a diverse array of taxes and fees to fund roads, bridges, and various transportation modes, however, state taxes on motor fuels serve as the primary source of revenue for state highway projects, contributing over 25% of such funding nationwide. Although this percentage is substantial, it is less than the share of federal revenue derived from motor fuel taxes. Each state sets its own tax rates for motor fuels. The average state fuel tax in 2020 was 25.6 cents per gallon across all states. As of January 2022, these rates ranged from approximately 15 to 68 cents per gallon for gasoline and 15 to 100 cents per gallon for diesel fuel. These taxes often include additional levies, such as sales taxes, environmental fees, fees for underground storage tanks, and local taxes.

Table 2 - ADD TITLE

US National Average in 2022	Gasoline	Diesel
State Excise Tax	26.16 ¢ per gallon	26.72 ¢ per gallon
Other State Taxes/Fees	12.53 ¢ per gallon	13.52 ¢ per gallon
Total State Taxes/Fees*	38.69 ¢ per gallon	40.24 ¢ per gallon
Total State and Federal Taxes	57.09 ¢ per gallon	64.64 ¢ per gallon

*The national average is weighted by volume and considers fuel consumption across each state.

To maintain the effectiveness of these revenues, an increasing number of states have adopted variable-rate fuel taxes that adjust over time. As of 2020, twenty-four states raise funds through a variable-rate fuel tax. Of these variable-rate fuel taxes, there are over 12 different ways to set the rate. Some of these taxes are periodically modified based on inflation measures, such as the consumer price index, producer price index, or the National Highway Construction Cost Index. Other states calculate fuel taxes as a percentage of wholesale or retail fuel prices, or by other criteria. In certain states, variable components are added to a fixed-rate tax, while in others, the entire fuel tax is regularly recalculated. Additionally, several states have indexed their motor fuel tax rates to local consumer price indexes or wholesale fuel prices to ensure revenues keep pace with economic changes.

The table below shows the states that use variable-rate fuel taxes, the rate structure, and the year of the last increase.

Table 3- Variable Gas Tax Structure per State

State	Variable Gas Tax Structure	Year of Last Increase
Alabama	Tax indexed annually to the National Highway Construction Cost.	2019
Arkansas	Tax based on the average wholesale price of gas and diesel, with a floor (prevents the tax from dropping if the 12-month average wholesale price of fuel is less than the previous year) and a ceiling (limits the increase to no more than .1 CPG).	2019
California	Tax varies with inflation.	2020 (per 2017 legislation)
Colorado	Beginning in fiscal year 2032-33 the 8 cent road user fee, which is levied on gasoline, will be indexed to Highway Construction Cost Index inflation.	(2032) (per 2021 legislation)
Connecticut	Tax varies with gas prices.	2013
Florida	Tax varies with CPI.	2015
Georgia	Tax varies with vehicle fuel-efficiency and CPI.	2015
Hawaii	Variable rate only because general sales tax applies to gas.	**
Illinois	Tax varies with CPI.
Indiana	Tax varies with inflation and general sales tax applies to gas.	2017
Kentucky	Tax varies with gas prices.	2015
Maryland	Tax varies with gas prices and CPI.	2013
Michigan	Tax varies with inflation.	2022 (per 2015 legislation)
Minnesota	Tax varies annually with increases in the Minnesota Highway Construction Cost Index. The rate will be 28.3 cents in 2024.	2023
Nebraska	Tax varies with gas prices and appropriation decisions.	2016
New Jersey	Tax varies with gas prices and revenue collection.	2016
New York	Tax varies with gas prices.	2013
North Carolina	Tax varies with population and CPI.	2015
Pennsylvania	Tax varies with gas prices.	2015
Rhode Island	Tax varies with CPI.	2015
Utah	Tax varies with gas prices and CPI.	2015
Vermont	Tax varies with gas prices.	2015
Virginia	Tax varies with CPI.	2020
West Virginia	Tax varies with gas prices.	2017
D.C.	Tax varies with CPI.	2020

For interstate motor carriers, fuel taxation is regulated by the International Fuel Tax Agreement (IFTA), which simplifies the reporting of fuel use by carriers operating in multiple jurisdictions. The International Fuel Tax Association, a non-profit organization, manages and administers the IFTA. The allocation of state-imposed fuel tax revenues varies significantly by state. These funds can be directed to state departments of transportation, special road or bridge funds, county governments, or state general funds. State sales taxes on motor fuels may also be included in a state’s motor fuel excise tax, representing a notable portion of state motor fuel tax revenue.

State Vehicle Taxes and Fees

Beyond fuel taxes, most states also depend on a variety of vehicle-related fees and taxes to finance transportation projects. These include registration fees for passenger vehicles, which can be flat-rate or calculated based on vehicle-specific factors such as weight, value, age, or horsepower. The structure of these fees varies significantly across states, with some applying a uniform rate and others using a tiered approach based on vehicle characteristics. Not all states allocate the revenue from these fees exclusively to transportation. For instance, Alaska and Georgia do not earmark all registration fee revenues for transportation projects. Besides registration fees, states commonly levy vehicle title fees, truck registration fees based on gross vehicle weight, and special permit fees for oversize or overweight vehicles. States like Georgia, South Carolina, Utah, Vermont, and Washington impose additional fees on heavy vehicles.

To address inflation, several states have indexed their vehicle-related fees to the Consumer Price Index (CPI) or similar measures. For example, North Carolina, Pennsylvania, Utah, and West Virginia have tied their vehicle registration or title fees to the CPI. California has further indexed its transportation improvement fee, collected with registration fees, to the California Consumer Price Index. By structuring vehicle-related fees to adjust over time, states can ensure a more stable and sustainable revenue stream for maintaining and improving transportation infrastructure, thus effectively covering the associated costs.

Road Usage Fees

Figure 3 - Status of RUC Pilots in the United States

Road usage charging (RUC), also referred to as vehicle miles traveled (VMT) fees or mileage-based user fees (MBUF), is a policy that requires motorists to pay based on the distance they travel on the road network. The impetus for adopting RUC comes from two ongoing trends: increasing population and vehicle miles traveled, and the steady decline in fuel tax revenues. As more consumers opt for more fuel-efficient and electric vehicles, the per-mile contribution to fuel tax revenues decreases, and in some cases, these vehicles avoid fuel taxes entirely.  

Over the past decade, this concept has gained considerable attention as a sustainable and fair approach to funding transportation infrastructure maintenance and operations, particularly as fuel tax revenues continue to decline due to increasing fuel efficiency and adoption of alternative fuels.

RUC is grounded in the "user pays" principle, akin to tolling, but with a broader scope. While tolls are typically limited to specific roadways like expressways, bridges, or tunnels, RUC applies universally to all roads within a certain jurisdiction. The practical methods for implementing RUC range from basic paper licenses and odometer readings to sophisticated automated technologies, including in-vehicle devices and telematics systems.

Tolls

Tolls play a crucial role in state transportation funding, serving as direct user fees imposed on specific roads, lanes, or bridges in at least 19 states. Historically, toll roads were prominent in the 18th and 19th centuries when private tollway companies built and maintained roads, charging users directly. The advent of rail travel and toll evasion reduced their significance, but public toll road programs were revived in the 1930s to meet growing demands from automobiles and commerce.  In 1956, Congress allowed tolls to be included in the Interstate Highway System to increase road connectivity without increasing costs (https://highways.dot.gov/highway-history/interstate-system/50th-anniversary/greatest-decade-1956-1966-part-1-essential). By the 1980s, transportation assets were showing wear and tear, highlighting the need to increase maintenance and operating costs. TEA-21's implementation in 1998 created a pilot program where states could collect tolls on interstate highways to rehabilitate them. Further, MAP-21 removed a clause that restricted states or LPAs from establishing a toll without the permission of the FHWA. (https://www.fhwa.dot.gov/ipd/tolling_and_pricing/tolling_pricing/federal_tolling_programs.aspx). Hence, these toll revenues are earmarked by law for maintaining and improving the infrastructure they serve.

Moreover, in recent decades, tolling has experienced renewed interest as states seek additional revenue sources amid constrained public funding. Federal legislation since ISTEA in 1991 has encouraged public-private partnerships and innovative tolling practices to fund transportation infrastructure.

Some states, like Indiana, New Jersey, and Pennsylvania, allocate toll revenues to their Departments of Transportation or broader multimodal transportation initiatives. Modern tolling strategies include congestion pricing models that adjust toll rates based on traffic conditions, such as express lanes and high-occupancy toll lanes. Despite variations in state approaches, tolls are increasingly recognized as a stable revenue source that also helps manage traffic congestion effectively. The table below shows state and local road spending covered by tolls, user fees, and user taxes in 2018.

Table 4 - Share of State and Local Road Spending Covered by State and Local Tolls, User Fees, and User Taxes (FY 2018)

State	State Infrastructure Revenue	Motor Fuel Tax Revenue as a % of Infrastructure Revenue	License Revenue as a % of Infrastructure Revenue	Tools and Charges as a % of Infrastructure Revenue	State Share of Highway Spending	% of Highway Spending Funded with Transportation Taxes, License, and Fees
Alabama	$1,005,256,000	74%	24%	1%	$2,096,229,538	48%
Alaska	$180,796,000	26%	32%	42%	$1,049,724,632	17%
Arizona	$1,121,782,000	77%	21%	2%	$1,897,356,648	59%
Arkansas	$665,839,000	74%	25%	1%	$1,475,428,608	45%
California	$11,994,405,000	53%	39%	8%	$12,028,601,965	100%
Colorado	$1,776,573,000	38%	39%	23%	$2,772,456,079	64%
Connecticut	$734,855,000	66%	32%	1%	$1,624,393,202	45%
Delaware	$514,989,000	26%	11%	63%	$583,560,989	88%
District of Columbia	$66,453,000	40%	59%	1%	$433,172,639	15%
Florida	$7,255,636,000	50%	20%	30%	$9,149,817,994	79%
Georgia	$2,285,872,000	79%	17%	4%	$3,041,441,116	75%
Hawaii	$588,588,000	30%	69%	1%	$700,173,043	84%
Idaho	$611,791,000	59%	33%	7%	$735,035,798	83%
Illinois	$4,587,377,000	33%	36%	31%	$6,351,456,099	72%
Indiana	$1,814,581,000	78%	21%	1%	$1,608,662,790	100%
Iowa	$1,359,242,000	49%	50%	0%	$2,413,757,285	56%
Kansas	$852,289,000	54%	30%	16%	$1,300,095,656	66%
Kentucky	$994,139,000	71%	22%	8%	$1,568,414,015	63%
Louisiana	$768,565,000	82%	11%	7%	$1,396,341,731	55%
Maine	$513,049,000	49%	22%	29%	$785,498,103	65%
Maryland	$2,346,694,000	46%	21%	32%	$3,073,226,970	76%
Massachusetts	$2,240,354,000	34%	20%	46%	$2,820,488,160	79%
Michigan	$2,914,169,000	50%	45%	5%	$3,561,316,511	82%
Minnesota	$1,956,224,000	48%	42%	10%	$4,154,896,242	47%
Mississippi	$623,279,000	71%	25%	3%	$1,229,031,074	51%
Missouri	$1,064,220,000	67%	30%	3%	$1,561,177,182	68%
Montana	$446,746,000	57%	36%	7%	$433,591,746	100%
Nebraska	$618,280,000	60%	33%	7%	$1,321,709,603	47%
Nevada	$836,044,000	75%	24%	1%	$1,717,267,299	49%
New Hampshire	$419,101,000	44%	20%	37%	$586,801,288	71%
New Jersey	$3,376,399,000	14%	19%	67%	$3,982,997,979	85%
New Mexico	$460,410,000	50%	47%	3%	$572,029,177	80%
New York	$7,836,570,000	21%	20%	59%	$13,034,850,267	60%
North Carolina	$2,994,714,000	66%	32%	2%	$4,638,624,873	65%
North Dakota	$335,827,000	59%	37%	5%	$1,149,956,181	29%
Ohio	$3,162,061,000	60%	29%	11%	$4,608,355,216	69%
Oklahoma	$1,586,164,000	31%	49%	20%	$1,931,412,570	82%
Oregon	$1,230,917,000	47%	45%	8%	$1,581,015,574	78%
Pennsylvania	$6,003,784,000	56%	20%	24%	$9,079,177,201	66%
Rhode Island	$147,305,000	54%	14%	32%	$316,365,174	47%
South Carolina	$1,211,199,000	53%	35%	12%	$1,642,141,422	74%
South Dakota	$315,547,000	59%	37%	4%	$666,259,918	47%
Tennessee	$1,613,688,000	67%	33%	0%	$1,602,780,484	100%
Texas	$8,591,051,000	43%	32%	25%	$11,542,374,988	74%
Utah	$736,694,000	68%	30%	2%	$1,665,680,229	44%
Vermont	$158,249,000	52%	46%	1%	$452,556,470	35%
Virginia	$2,755,628,000	40%	25%	35%	$4,484,927,457	61%
Washington	$3,525,274,000	49%	36%	16%	$3,716,875,084	95%
West Virginia	$559,850,000	75%	1%	24%	$846,427,681	66%
Wisconsin	$1,776,622,000	59%	30%	11%	$3,935,721,697	45%
Wyoming	$238,314,000	48%	48%	5%	$409,774,278	58%
U.S.	$101,773,461,000	49%	30%	21%	$145,331,426,925	70%
Note: Federal highway funding to the states is subtracted from spending figures. Percentages reflect only the share of the spending that state and localities are responsible for. Sources: Tax Foundation calculations from the Census Bureau, State and Local Government Finance and Federal Highway Administration data.

General Funds and Taxes

In addition to traditional funding methods, states have supplemented transportation funding with general taxation, similar to the federal government's approach. This involves either making legislative appropriations from a general fund or dedicating a portion of general taxes specifically for transportation purposes. These funds are flexible and can be appropriated to support any transportation mode. Approximately half of the states currently use general funds for transportation, including funding for highways, public transit, rail, aviation, ports, waterways, and pedestrian and bicycle projects. These general funds are usually funded by individual income, corporate income, and sales and use taxes. Each state decides what is included and how to spend its general funds. For instance, in the state of Virginia, the general fund totaled $43.5 billion from 2020-2022. This included $31.5 billion from individual income taxes, $6.8 billion from sales and use taxes paid by individuals and businesses on goods, and $2.2 billion from corporate income taxes. However, most of this general fund goes to other sources aside from transportation since the allocations often vary yearly based on state budget priorities and available funds.

To combat this, some states, such as Arkansas, Colorado, Maine, Washington, and Wisconsin, have established recurring transfers from the general fund for transportation purposes. New York's dedicated fund for highways and bridges, which now requires substantial annual support from the state’s general fund, is another example of this approach. In spite of their widespread use, historically, general funds collectively account for only small amount of total state highway funding.

Transportation Sales Tax Districts

A Transportation Sales Tax District (TSTD) is a designated region where an additional sales tax is levied to generate revenue for specific transportation facilities or services. These districts are meticulously mapped to encompass areas that will benefit from new or enhanced transportation infrastructure. The establishment and governance of TSTDs are dictated by state authorizing statutes, which outline permissible uses, procedures for establishment, and potential duration limits that may be subject to renewal.

TSTDs are typically created in cities and counties where state authorization is in place, following local legislative processes in accordance with state guidelines. Since each sale generates a relatively small amount of revenue, TSTDs are usually formed in areas with high volumes of taxable sales, often encompassing entire cities, counties, or multiple jurisdictions. This approach ensures that sufficient funds are raised to support transportation projects. TSTDs have been effectively implemented in various states, including Illinois, Missouri, Kansas, and California. The types of taxes and fees that can be levied by local jurisdictions are determined by state constitutions and statutes. If a jurisdiction has the authority to impose a sales tax, adjusting the rate within a TSTD is generally an exercise of existing authority. However, imposing a sales tax increase in only certain parts of a jurisdiction typically requires legislative justification at both the state and local levels to avoid legal challenges related to uniformity.

The activities financed by TSTDs are governed by the state or local statutes that authorize their creation, as well as by the local statutes or ordinances that establish specific TSTDs. These districts can fund both capital and operational expenditures, supporting a wide range of transportation investments. TSTDs are particularly effective in raising substantial funds in areas with significant sales activity, thereby facilitating the development and maintenance of essential transportation infrastructure.

Local Option Sales Taxes (LOST)

Local Option Sales Taxes (LOST) are taxes imposed by local governments, with voter approval, to fund specific projects or services. These taxes are an important tool for generating revenue at the local level, allowing communities to directly support and invest in their infrastructure and public services. Local option sales taxes have become a popular method for funding transportation investments, especially for transit projects. For instance, in San Diego County, California, the TransNet program levies a half-cent sales tax to support local transportation projects. In Texas, the Capital Metro area imposes a 1% sales tax across nine jurisdictions in Williamson and Travis Counties to help fund the Capital Metro budget. Similarly, the Metropolitan Atlanta Rapid Transit Authority (MARTA) in Georgia collects a 1% sales tax in Fulton and DeKalb Counties to support its budget. Additionally, the Dallas Area Rapid Transit (DART) in Texas levies a one-cent sales tax across 13 cities in the metropolitan area to fund its budget.

Development Impact Fees

Impact fees are charges imposed on new developments to cover the costs of additional public services and infrastructure necessitated by the development. These fees help local governments manage growth and ensure that developers contribute to the community’s needs, such as schools, roads, and parks.

These fees are typically calculated using a formulaic approach rather than negotiated agreements with developers. Widely adopted across the United States, impact fees are a key funding mechanism for transportation improvements. There are two main methods for determining impact fees. The inductive method estimates the cost of expanding infrastructure capacity, such as adding lanes to roads, based on predetermined facility capacities and costs. Developers pay a share proportional to the increased demand caused by their developments. In contrast, the deductive method tailors fees to specific development plans and local needs. It involves detailed engineering assessments to identify required infrastructure improvements and assigns costs based on geographic factors and service levels. Impact fees gained popularity in the 1970s and 1980s, particularly in fast-growing areas reluctant to use general revenues for growth-related expenses. Legally, impact fees must pass the "rational nexus" test, demonstrating a logical connection between the fees collected and the infrastructure provided. Once collected, these fees must be promptly spent on designated infrastructure projects and cannot generate surplus revenue beyond what is needed for the improvements they finance.

Other Local Level Funding Sources

Other local revenue sources for transportation improvement projects include various sources such as fares, advertising, naming rights, shared resources, concessions, and transportation utility fees. Fares, for instance, are fees collected exclusively from public transit users at the local level, primarily funding ongoing transit operations and maintenance. Transit agencies often issue revenue bonds against future farebox receipts to finance capital improvements. Advertising revenue is generated by selling ad space on transportation assets like transit vehicles, stations, or highway billboards. While the contribution of transit advertising to operating budgets is relatively small as a percentage, the total revenue can be substantial. Major transit agencies, excluding New York, average $6.1 million annually from advertising programs. Naming rights revenue comes from selling the rights to name transportation assets such as toll roads or transit stations to private entities. This practice provides additional funding streams and is increasingly adopted by local agencies nationwide. Shared resources involve private donations of telecommunications technology, typically fiber optic communications, and sometimes cash, in exchange for access to public rights-of-way. This approach helps states build technological infrastructure for intelligent transportation systems (ITS) while leveraging private sector investments to meet project matching requirements.

Finance for Capital and Operational Investments

Financing is an important tool for state and local governments to not only fund projects but also access federal grants. Federal grants are usually given as reimbursements, meaning that local governments must have access to the funds prior to receiving the grant. They can also be given through matching programs, where the federal government supplies a percentage of the cost, and the local government must supply the rest. Financing is generally used to pay for capital investments rather than recurring expenses like operating costs and maintenance. Taxes and tolls are more commonly used to pay for operating expenses. The following are some financing options at the state and local level that can be used to pay for capital and operational investments. These are general guidelines, as each state or LPA will develop a bespoke option to fit their financial needs.

State Infrastructure Bank (SIB)

State Infrastructure Banks (SIBs) are state-managed investment funds specifically designed for surface transportation infrastructure. Similar to private banks, SIBs provide a variety of loans and credit enhancement products to support public and private sponsors involved in Title 23 highway construction projects or Title 49 transit capital projects. Repayments to SIBs, whether from Federal or non-Federal sources, are considered Federal funds under the requirements of Titles 23 and 49.

SIBs empower states to maximize the efficiency of their transportation funds and significantly amplify Federal resources by attracting additional public and private investments. Alternatively, SIB capital can serve as collateral for borrowing in the bond market or establishing guaranteed reserve funds. States must carefully assess factors such as loan demand, timing of infrastructure needs, and debt financing considerations when considering the strategic use of leveraged SIB approaches.

Initially capitalized with Federal-aid surface transportation funds matched by state contributions, SIBs play a crucial role in financing transportation projects. Some states have also established SIBs or separate accounts funded exclusively by state resources. As loans and other forms of credit assistance are repaid to the SIB, its initial capital is replenished, enabling continuous support for new cycles of infrastructure projects.

State Transportation Bond Programs

State transportation bond programs involve the issuance of bonds to raise capital for transportation projects. These bonds are typically repaid over time using specified revenue sources, such as tolls or taxes. By utilizing bond programs, states can swiftly secure funding for critical transportation initiatives, thereby enhancing infrastructure and connectivity. Bonds are financial instruments through which states borrow money from investors, promising repayment with interest. Types of bonds include general obligation bonds, which are backed by the state's full faith and credit, and revenue bonds, secured by specific revenue streams like tolls. Municipal bonds are often issued by states, offering tax-exempt interest to investors, which is typically exempt from federal and state income taxes.

These debt securities are mostly used for capital investment in infrastructure projects, including schools, highways, and sewage systems. They can be short-term bonds, typically paid back within 1-3 years, or long-term bonds, which can be paid back a decade or longer after issuance.

State P3 Programs

State Public-Private Partnership (P3) programs foster collaboration between public and private sectors to finance, construct, and manage infrastructure projects. These initiatives harness private investment to supplement public funding, enabling the development of projects that may otherwise be financially challenging. P3 programs enhance project efficiency, expedite timelines, and distribute risk between public and private entities. These partnerships encompass diverse arrangements where private partners design, build, finance, operate, or maintain facilities in exchange for revenue from tolls or other compensation.

While P3s can unlock additional financing avenues and generate cost efficiencies for projects, they do not directly provide new state revenues. Instead, states must repay private investments using traditional funding sources like taxes or tolls. Most states now have legislation enabling public-private partnerships to varying extents, with numerous states actively engaged in P3 projects. Recent expansions in state financing options and alternative procurement methods reflect a growing trend across states like Alabama, Arkansas, California, and others, signaling increased exploration of innovative financing mechanisms to support infrastructure development.

Transportation Improvement Districts (TIDs)

Transportation Improvement Districts (TIDs) are specialized districts created to fund transportation projects, employing various financing mechanisms like special assessments or tax increments. These districts focus on enhancing transportation infrastructure and services within their designated zones, which often span multiple local or regional jurisdictions. Unlike traditional special assessment districts that target specific project benefits, TIDs take a broader, programmatic approach aligned with adopted land use or development plans.

TIDs facilitate cooperation among multiple jurisdictions, pooling and strategically managing transportation funding resources to implement system-wide improvements. Governed by a board of directors representing constituent members, typically under the oversight of a lead entity such as a county commission, TIDs operate as distinct governmental bodies authorized by state legislation. They levy special assessments on property owners or sales taxes on consumers benefiting from district improvements, with the ability to issue debt against projected future revenues and engage in contracts related to infrastructure enhancements.

By consolidating efforts across jurisdictions, TIDs streamline the implementation of complex transportation projects that might otherwise pose challenges for individual local entities. They are well-positioned to address anticipated regional growth and often leverage targeted transportation improvements to stimulate economic development within their areas.

Tax Increment Financing (TIF)

Tax Increment Financing (TIF) is a tool employed by local governments to stimulate economic growth and redevelopment. It operates by capturing the future tax revenues generated from increases in property values within a designated area to finance current improvements. TIF districts, established under state laws across the United States, focus on specific geographic zones where planned improvements are intended to boost property values and spur development. Over a typical span of 20 to 25 years, any incremental real estate tax revenues above a baseline rate are redirected into the TIF fund.

These funds can be utilized to repay bonds issued for initial project costs or to finance ongoing infrastructure projects as they progress. In some cases, private developers may finance improvements upfront, with reimbursement from TIF revenues as tax proceeds accrue. TIF districts are often targeted at blighted or underdeveloped areas to catalyze investment and development where it might otherwise be stagnant. While predominantly used for urban revitalization and housing initiatives, TIF has also been selectively authorized for transportation infrastructure funding in certain states, although this application remains less common compared to its use in other development contexts.

Case Studies

San Francisco Bay Area Case Study​

Background

The San Francisco Bay Area is a densely populated and economically vibrant region with a population of approximately 7.75 million people. It is the fourth-largest metropolitan area in the U.S in terms of its population and it approximately has 7,000 square miles of land. It boasts high household incomes, largely driven by the prosperous tech industry. The governance structure in the Bay Area is intricate, involving nine counties such as San Francisco and Alameda, alongside numerous cities, towns, and special districts each with their own transportation needs therefore all these governmental units plays a significant role in shaping regional policies and infrastructure development.

MAP OF SAN FRANCISCO

MAP OF SAN FRANCISCO

Figure 4 - A Map of the San Francisco Bay Area

Over the past thirty years, Bay Area transit ridership has experienced cycles of growth and decline, closely tied to the local economy. A significant drop occurred during the COVID-19 pandemic, with ridership rebounding to only about 50% of pre-pandemic levels by 2022. Many white-collar workers shifted to remote work, impacting local transit systems like SFMTA, BART, Golden Gate Transit/Ferry, and Caltrain, which were designed for commuting to central business districts. By 2022, average weekday boardings had fallen to just 49% of the figures from 2019.

HISTORICAL TREND FOR TRANSIT RIDERSHIP

HISTORICAL TREND FOR TRANSIT RIDERSHIP

Figure 5 - Historical Trend for Transit Ridership by Mode in the San Francisco Bay Area

The Metropolitan Transportation Commission (MTC) serves as the transportation planning, financing, and coordinating agency for the nine-county San Francisco Bay Area. As the region’s Metropolitan Planning Organization, MTC oversees a range of transportation assets, including roads, highways, public transit, airports, and the movement of goods via ports and freight rail. In collaboration with cities and counties, MTC helps set and achieve both short- and long-term transportation goals.

Funding Sources

The funding landscape for transportation agencies in the Bay Area is diverse and complex, as illustrated by the various sources of revenue these agencies rely on.

NUMBER OF PROJECTS AND FUNDING

NUMBER OF PROJECTS AND FUNDING

Figure 6 - Number of Projects and Funding in the 2025 TIP by Bay Area County

According to the 2025 Transportation Improvement Program, more than 300 projects across the region, totaling over $11.7 billion, will receive funding between 2025 and 2028 to support environmental, design, engineering, and construction activities. The funding will primarily focus on four key areas: transit, state highways, local roads, and biking/walking improvements. The next section explores the various sources of funding across different levels of government.

Federal Level

In order to maximize the impact of federal transportation funding and increase eligibility for additional resources, MTC provides recommendations on how federal funds should be allocated and ensures compliance with project delivery regulations.

Table 5 - San Francisco Bay Area's Transportation Program with Federal Funding Sources

Name of the Program	Source
One Bay Area Grants	FHWA
Carbon Reduction Program	FHWA
National Highway Freight Program (NHFP)	FHWA
FTA State of Good Repair Grants: Transit Capital Priorities	FTA
FTA Transit Expansion Grants: Next Generation Transit	FTA
Transit & Intercity Rail Expansion and Modernization	Bipartisan Infrastructure Law
Nationally Significant Mobility & Goods Movement	Bipartisan Infrastructure Law
Safety, Equity, Resilience & Other Local Priority Projects	Bipartisan Infrastructure Law
Bridge & Highway	Bipartisan Infrastructure Law

Federal Highway Administration (FHWA) Funds

MTC allocates Federal Highway Administration (FHWA) funds to Bay Area projects prioritized in the regional long-term transportation plan, Plan Bay Area. To guide the distribution of these funds, MTC developed the One Bay Area Grant (OBAG) program and the Carbon Reduction Program (CRP).

OBAG, now in its third iteration, directs the distribution of FHWA Surface Transportation Block Grant (STP) and Congestion Mitigation and Air Quality Improvement (CMAQ) funds to projects across the Bay Area. Launched in 2015, the first iteration of OBAG focused on leveraging federal transportation funding to address climate change. It aligned with California’s climate laws and the Sustainable Communities Strategy by targeting Priority Development Areas, Priority Conservation Areas, and Climate Initiatives, while maintaining commitments to existing transportation priorities.

OBAG 2, adopted in November 2015, provided over $900 million in federal funding for projects between 2018 and 2022. The third round, OBAG 3, adopted in January 2022, distributes more than $750 million for projects from 2023 to 2026, with a focus on improving safety, spurring economic development, and meeting climate and air quality goals.

As part of OBAG 3, MTC also launched the Carbon Reduction Program (CRP) in October 2022, setting priorities for allocating $60 million in FHWA grants between 2022 and 2026 to support projects aimed at reducing carbon emissions.

Federal Transit Agency (FTA) Funds

MTC also allocates funds from the FTA to Bay Area transit agencies for maintaining and modernizing the region’s transit network. FTA funding primarily supports two types of initiatives: state of good repair projects and efforts to expand or update transit systems. Through its "Fix It First" strategy, MTC prioritizes maintaining existing infrastructure to ensure a resilient network that can accommodate the regional growth projected in Plan Bay Area. Additionally, the “Transit for the Future” program aims to partner with transit agencies to utilize FTA funds for modernizing their systems, making transportation more efficient and effective for the 21st century.

Federal Discretionary Funds

BAY AREA'S BIPARTISAN INFRASTRUCTURE

BAY AREA'S BIPARTISAN INFRASTRUCTURE

Figure 7 - Bay Are's Bipartisan Infrastructure Law Regional Priority Projects

Bay Area transportation projects of all sizes are looking to capitalize on competitive grant opportunities provided by the 2021 Infrastructure Investment and Jobs Act, also referred to as the Bipartisan Infrastructure Law. The BIL allocates $140 billion in new grant funding, allowing Bay Area surface transportation projects to compete for a share. About $100 billion of this amount is secured, with the rest dependent on future federal budget approvals. The USDOT will distribute these funds over a five-year period through more than two dozen specialized competitive grant programs.

Regional Level

The Bay Area’s transportation network is partially funded through voter-supported regional measures, including toll funding and sales taxes on fuel. By assessing the needs of the region as a whole, MTC aims to enhance collaboration among various stakeholders.

Toll revenues generated from the Bay Area’s state-owned bridges are used to fund infrastructure improvements. These improvements are intended to address traffic congestion, enhance safety, and provide various transportation options.

Regional Measure 3 allocates funding for highway and transit improvements, while Regional Measure 2 supports projects for highways, transit, bicycles, and pedestrians on and near the bridges. Regional Measure 1 financed upgrades to bridges and roadways throughout the Bay Area, contributing to the region's transportation network.

State Level

MTC invests state funds in transportation programs and projects across the Bay Area, playing a key role in allocating resources from various state revenue sources, including the Cap-and-Trade program, gas taxes, sales taxes, and other revenues to support regional transportation initiatives.

California’s Cap and Trade program generates revenue to help offset greenhouse gas emissions. MTC assists the Bay Area in submitting competitive project proposals to secure these funds, positioning the region effectively against others.

Regional Early Action Planning Grant Program (REAP 2) is a part of California's strategic investments aimed at fostering a more sustainable, resilient, and inclusive future. This program supports local planning efforts that align with state sustainability goals.

State excise taxes on gasoline and diesel fuel, along with retail sales taxes, fund essential infrastructure, including highways and local streets. These revenues also contribute to financing the Bay Area's transit network, to provide more transportation options for residents.

The State Transportation Improvement Program (STIP) outlines a five-year investment plan for state transportation funds. It integrates the Regional Transportation Improvement Programs (RTIPs) and the Interregional Transportation Improvement Program (ITIP), providing a comprehensive framework for funding state transportation projects.

Local Level

At the local level, various funding sources and programs support transportation initiatives, including county transit and transportation sales taxes that provide financial support for local transportation projects and initiatives.

The Local Highway Bridge Program (HBP) is managed by Caltrans and focuses on the upkeep and enhancement of local highway bridges. This program provides financial resources specifically designated for bridge maintenance and repairs, addressing structural integrity and safety concerns. By funding necessary improvements, HBP aims to extend the lifespan of these critical assets and ensure safe passage for vehicles and pedestrians alike.

Similarly, the Local Highway Safety Improvement Program (HSIP), also managed by Caltrans, prioritizes safety enhancements on local roads and highways. This program allocates funding for a variety of safety improvement projects designed to reduce the number of accidents and improve overall roadway safety. HSIP projects may include the installation of traffic signals, road signage, lighting improvements, and other measures that contribute to safer travel conditions for all road users. Through these initiatives, local agencies work to create a safer transportation environment in their communities.

Innovative Financing  

Some projects also utilize innovative financing strategies like Advance Construction (AC) and toll credits. AC enables local agencies to start construction using local funds, with the option to be reimbursed later by federal funds. Toll credits are allocated to the state by the federal government in exchange for using toll revenue on local transportation projects. Local agencies can apply these toll credits instead of the usual non-federal match requirement (typically 11.47 percent of the total project cost), allowing federal funding to cover 100 percent of the project costs.

A notable innovative financing approach is the P3s model. The Presidio Parkway in the San Francisco Bay Area project exemplifies this approach, combining public funding with private investment to enhance infrastructure development. Through the P3 structure, the project was able to utilize AC, allowing local agencies to start construction with local funds and later receive federal reimbursements. Additionally, the use of toll credits enabled the state to forgo the typical non-federal match requirement, allowing federal funds to cover the entire cost of the project.  

Key Findings

The San Francisco Bay Area, with a population of approximately 7.75 million residents, is a densely populated region characterized by a complex governance structure that includes nine counties and numerous cities. This intricate setup necessitates collaborative efforts to address the diverse transportation needs across the area.

The funding landscape for transportation projects in the Bay Area is both wide-ranging and multifaceted. According to the 2025 Transportation Improvement Program, over 300 projects are set to receive more than $11.7 billion in funding between 2025 and 2028. These investments primarily focus on four key areas: transit, state highways, local roads, and improvements for biking and walking.

At the federal level, the Metropolitan Transportation Commission (MTC) plays a crucial role in the allocation of funds, utilizing programs such as the One Bay Area Grant (OBAG) and the Carbon Reduction Program (CRP). These initiatives not only aim to improve transportation infrastructure but also emphasize climate change mitigation, reflecting a commitment to sustainable development.

On the state level, MTC allocates funds derived from various sources, including the Cap-and-Trade program and gas taxes, to support regional transportation initiatives. Programs like the Regional Early Action Planning Grant Program (REAP 2) focus on fostering a more sustainable and inclusive future.

Locally, funding is further enhanced through county transit and transportation sales taxes, which provide essential financial support for critical projects. Programs such as the Local Highway Bridge Program (HBP) and the Local Highway Safety Improvement Program (HSIP) prioritize the maintenance of infrastructure and safety improvements on local roads.

Lastly, innovative financing strategies such as Advance Construction (AC) and toll credits allow local agencies to maximize the efficiency of funding. These approaches enable projects to commence using local funds while facilitating reimbursement from federal sources, thereby enhancing the overall feasibility of transportation initiatives.

In summary, the Bay Area's approach to addressing transportation needs is characterized by collaborative governance, diverse funding sources, and innovative strategies aimed at ensuring a robust and effective transportation network.

Washington Metropolitan Area Case Study

Background

The Washington Metropolitan Area (WMA) has a population of approximately 6.64 million people. The average income in the region is around $98,000 per year, reflecting a relatively high standard of living. The WMA comprises multiple counties across Northern Virginia and suburban Maryland, including Fairfax and Montgomery Counties. Besides Washington D.C., the area includes cities like Arlington and Bethesda and various special districts. This interaction between different states and a federal district creates a diverse and complex governmental landscape where local, state, and federal agencies must come together to plan for the region’s future. The metropolitan planning organization (MPO) responsible for developing a plan to address the region’s transportation needs is the National Capital Region Transportation Planning Board (TPB).

The National Capital Region Transportation Planning Board (TPB) serves as the area's Metropolitan Planning Organization (MPO), coordinating and planning transportation policies across a federal district, Washington D.C., and two states: Maryland and Virginia. TPB’s members also include 23 local governments and transit agencies such as the Washington Metropolitan Area Transit Authority (WMATA). TPB's key task is to develop a continuing, cooperative, and comprehensive transportation planning process to meet the region’s diverse transportation needs.

MEMBERS OF THE NATIONAL CAPITAL REGION TPB

MEMBERS OF THE NATIONAL CAPITAL REGION TPB

Figure 8 - Members of the National Capital Region TPB

Table 6 - Agencies under the TPS responsible for developing the TIP Programming

District of Columbia	District Department of Transportation (DDOT)
Suburban Maryland	Maryland Department of Transportation   State Highway Administrations (MDOT SHA)   Maryland Transit Administration (MTA) Maryland Transportation Authority (MDTA) Charles County Department of Public Works Frederick County Department of Public Works Montgomery County Department of Transportation Prince George’s County Department of Public Works and Transportation Maryland-National capital Park and Planning Commission (M-NNCPPC) City of Frederick Planning Department Gaithersburg Public Works Department
Northern Virginia	Virginia Department of Transportation (VDOT) Virginia Department of Rail and Public Transportation (VDRPT) Virginia Railway Express (VRE) Potomac and Rappahannock Transportation Commission (PRTC) Northern Virginia Transportation Authority (NVTA) Northern Virginia Transportation Commission (NVTC) Arlington County Department of Environmental Services Fairfax County Department of Transportation Fauquier County Department of Community Development Loudoun County Department of Transportation and Capital Infrastructure Prince William County Department of Transportation City of Alexandria Department of Transportation and Environmental Services City of Fairfax Department of Public Works City of Falls Church Department of Public Works City of Manassas Public Works Department City of Manassas Park Public Works Department
Regional	Washington Metropolitan Area Transit Authority (WMATA) Eastern Federal Lands Highway Division Metropolitan Washington Airports Authority (MWAA)

Funding Sources

This case study examines the 2023-2026 Transportation Improvement Program, highlighting the financial strategies and investments necessary to meet the region's growing transportation needs. The TPB’s Transportation Improvement Program (TIP) for FY 2023–2026 includes a budget of almost $11.9 billion for the region and over 300 transportation projects. This is a decrease from the $15 billion budget outlined in the 2019-2024 TIP. Of the 300 projects, 180 are location or corridor specific. Most funds will be allocated to roadways and bridges, transit and bicycle and pedestrian infrastructure. 

Federal Level

The TPB uses Visualize 2045, the long-range transportation plan for the capital region, to determine how to allocate funds across the region. Additionally, TPB works in partnership with state agencies to ensure that all projects receiving federal funds comply with federal regulations and align with the region’s long-term priorities. This collaborative approach helps maximize the impact of federal funding and ensures that key regional transportation challenges are addressed. Once the TIP is completed, it is sent to the Environmental Protection Agency (EPA), which reviews the plan to ensure it meets air quality standards. Of the $11.9 billion budget, around $5.6 billion comes from federal sources. To ensure that all required performance areas are met, all TPB agencies involved document their roles and responsibilities in Letters of Agreement (LOAs).

Table 7 - National Capital Region Transportation Programs with Federal Funding Sources

Name of the Program	Source
BUILD Discretionary Grants	FHWA
Bridge Replacement and Rehabilitation	FHWA
Congestion Mitigation and Air Quality Improvement	FHWA
Demonstration	FHWA
High Priority Project	FHWA
Highway Infrastructure	FHWA
Highway Safety Improvement	FHWA
National Highway Freight	FHWA
Regional Surface Transportation	FHWA
Special Project	FHWA
State Planning & Research	FHWA
State Transportation Innovation Council	FHWA
Surface Transportation Block	FHWA
Transportation Alternatives	FHWA
TIFIA Loan	FHWA
Section 5303 – Metropolitan Transportation Planning	FTA
Section 5304 – Statewide Transportation Planning Grant	FTA
Section 5307 – Urbanized Area Formula	FTA
Section 5309 – Capital Investment Grant	FTA
Section 5310 – Elderly and Persons with Disabilities	FTA
Section 5311 – Non-urbanized Are Formula	FTA
Section 5337 – State of Good Repair	FTA
Section 5339(c) – Low or No Emission Vehicle	FTA
Section 5339 – Bus and Bus Facilities Formula	FTA
Passenger Rail Investment and Improvement Act	FTA

Federal Highway Administration (FHWA) Funds

The three largest federal programs that will provide funds for the capital region are the Surface Transportation Block Grant Program (STBG), the National Highway Performance Program (NHPP), TIFIA loans, and the Congestion Mitigation and Air Quality Improvement (CMAQ) program. These programs will provide $1,280,771,265; $1,280,229,943; $148,516,742; and $127,910,869 respectively. TIFIA loans will be expanded on in a later section.

The remaining three programs have distinct objectives. The STBG is a flexible program that provides funds to preserve and improve the conditions of transportation infrastructure, such as highways, bridges, tunnels, pedestrian, and bicycle infrastructure, and bus terminals. The NHPP focuses on improving and maintaining the condition and performance of the National Highway System (NHS), supporting new NHS infrastructure, and making it more resilient to climate change and natural disasters. Lastly, the CMAQ program’s main objective is to reduce emissions caused by transportation-related sources.

These three programs are the same ones that provided the most funds in the previous TIP (2019-2022). In 2019-2022, NHPP provided $1,174,690,000, STBG $1,011,220,000, and CMAQ $155,930,000. NHPP and STBG saw increases from 2019-2024 to 2023-2026, while CMAQ saw a decrease of approximately $28 million.

Federal Transit Agency (FTA) Funds

The FTA will also provide funds to the national capital region through ten grants and programs, including section 5307, which will provide $1,032,347,213, section 5337 with $878,523,728, and the Passenger Rail Investment and Improvement Act (PRIIA) with $424,000,000.

Section 5307, also known as the Urbanized Area Formula Funding Program, provides funding for capital and operating needs of transit infrastructure. Section 5337 is a formula grant for maintenance, replacement, and rehabilitation of transit infrastructure. PRIIA authorizes investments in passenger rail infrastructure.

In the previous TIP (2019-2024), the three largest FTA grants were section 5307, PRIIA, and section 5309, which supports capital investments for rail, streetcars, and bus rapid transit.

Regional Level

The Washington Metropolitan Area Transit Authority (WMATA) plays a central role in managing the region’s transit network. However, WMATA does not have a dedicated funding source that it controls. It relies on state, local, and federal government funds to support its transit services. WMATA addresses the needs of Metrorail, Metrobus, and MetroAccess systems and identifies its capital needs in the 2024-2029 Capital Improvement Program and 10-Year Plan. WMATA divides its capital needs between state of good repair needs and future compliance needs.

State and Local Level

The District of Columbia, Maryland, and Virginia each have significant roles in funding transportation projects within the region. Both Maryland and Virginia contribute to the region through various revenue sources like fuel taxes, sales taxes, and vehicle registration fees, which are used to support highway and transit infrastructure.

The Commonwealth Transportation Board (CTB) oversees the work of the Virginia Department of Transportation (VDOT) and develops the Six-Year Improvement Program (SYIP). The SYIP allocates funds for expanding roadways, improving safety, and enhancing transit services. From the TIP, Northern Virginia is expected to receive $694,356,044 from federal funds, $362,991,653 from state and local funds, and $184,113,543 from other funds. Of the state and local funds, the majority comes from state and district funding.

Similarly, the state of Maryland develops the Consolidated Transportation Program (CTP), a six-year program report on transportation projects. The CTP receives annual feedback from county and local officials before being presented, in addition to the State Report on Transportation, to the Governor and General Assembly for budget approval. From 2023-2026, Maryland is set to receive $1,817,760,227 from federal funds, $241,057,849 from state and local funds, and $2,601,890,000 from other funds, of which $2,450,000,000 comes from private developers.

The District of Columbia also develops its own six-year program, the Capital Improvement Program (CIP). The D.C. Council then acts as the state legislature to amend the CIP, which has to be approved by the U.S. Congress. The District of Columbia is set to receive $1,005,846,688 from federal funds, $632,244,805 from District/State sources, and $1,280,000 from the National Recreational Trails Funding Program.

Innovative Financing

Like the San Francisco Bay Area, the capital region also relies on Advanced Construction (AC) to accelerate the delivery of critical projects. The capital region also depends on Toll Financing, which collects tolls on major highways to reinvest in the region’s transportation infrastructure.

While most express lanes in Virginia are privately operated, some are DOT-operated. The I-66 Express Lanes Inside the Beltway (ITB) are VDOT-operated and are dynamically tolled, meaning the toll changes every 6 minutes depending on traffic density inside the express lanes (https://www.vdot.virginia.gov/projects/major-projects/66expresslanes/). Toll revenue is reinvested in public transit and other transportation improvements in the area. Express lanes often promote transit use by constructing park-and-ride facilities and allowing transit vehicles to use the express lanes for free. There are currently express lanes on several highways across Northern Virginia, mainly I-66, I-495, I-95, and I-395. Many of these have also received TIFIA loans to reduce upfront costs and finance these projects. In 2023, the region received $148,516,742 from TIFIA loans.

In previous years (2019-2024), the District of Columbia also received $294.72 million from Grant Anticipation Revenue Vehicles (GARVEE) bonds. These bonds are used to advance the upfront funding of a project. In the case of Washington D.C., GARVEE bonds were used to pay for part of the South Capitol Street Corridor project (https://www.mwcog.org/documents/2020/03/18/fy-2021-2024-transportation-improvement-program/).

Key Findings

The agencies responsible for developing the Washington Metropolitan Area, home to 6.64 million people, use diverse funding sources and innovative financing mechanisms to address transportation challenges.

The region is set to receive approximately $11.9 billion between 2023 and 2026 for over 300 projects. This is a slight decrease from the previous TIP (2019-2024), which allocated around $15 billion for transportation projects. However, it must be noted that the previous TIP covered more years. Key investment areas include roadways and bridges, transit, and bicycle and pedestrian infrastructure. The capital region TPB ensures collaboration between Virginia, Maryland, and the District of Columbia to improve the region’s transportation network and ensure compliance with federal standards.

Federal program funding will support surface transportation and transit, with a focus on air quality, climate change, and maintaining existing infrastructure. Regionally, WMATA oversees the management of the region’s extensive transit network, but it does not have a dedicated funding source that it controls, underscoring the importance of cooperation between states. Maryland, Virginia, and the District of Columbia each have their own transportation plans and departments that oversee their individual challenges and progress. The District of Columbia’s Capital Improvement Plan must be approved by the U.S. Congress, which adds a layer of complexity not found in other MPOs. Aside from their individual responsibilities, all three work together to enhance transit and surface transportation coordination. All three utilize innovative financing mechanisms such as TIFIA loans and AC to prioritize important projects and reduce upfront costs.

Case Study Comparison

Table 8 - Federal Funds Dependency Ratios for the National Capital Region and the San Francisco Bay Area

Region	Federal Dependency Ratio (Federal/Total)
National Capital Region	48.07%
San Francisco Bay Area	18.10%

Table 8 - Federal Funds Dependency Ratios for the National Capital Region and the San Francisco Bay Area

The ratios in the table above represent the average federal funding over four consecutive years—FY2023-2026 for the National Capital Region and FY2025-2028 for the San Francisco Bay Area. Understanding these dependency ratios over time is vital, as a single snapshot may not fully capture the broader trends affecting regional funding. Changes in federal policies, economic conditions, and local initiatives can all impact these ratios.

The National Capital Region has a notably higher federal dependency ratio of 48.07% compared to the San Francisco Bay Area’s 18.10%. This may be attributed to its proximity to federal agencies and a high concentration of federal employment, which could influence local economies and infrastructure funding. However, further investigation is needed to fully understand the factors contributing to this disparity, which is currently future research aim for the authors.

Conversely, the San Francisco Bay Area, with its lower ratio, reflects a more diversified economic base. While federal funding plays a role, the region appears to rely less on it compared to the National Capital Region. By examining these trends, we can gain deeper insights into the complexities of federal support and its implications for infrastructure and economic development in different regions.

Courses and Reading List

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Funding and Financing Highways and Public Transportation Under the Infrastructure Investment and Jobs Act (IIJA) (R47573). Retrieved from https://crsreports.congress.gov/product/pdf/R/R47573

Congressional Research Service. 2017. Public Transportation Infrastructure: Background for the 116th Congress (R45010)*. Retrieved from https://sgp.fas.org/crs/misc/R45010.pdf

Congressional Research Service. 2021. Highway Infrastructure: Issues in the 117th Congress (R45516). Retrieved from https://crsreports.congress.gov/product/pdf/R/R45516

Congressional Research Service. 2022. Public Transportation in the United States: An Overview (R46826) . Retrieved from https://sgp.fas.org/crs/misc/R46826.pdf

Esty, Benjamin. 2003. "Teaching Project Finance: An Overview of the Large-Scale Investment Course at Harvard Business School."

Esty, Benjamin C. 2004. “Why Study Large Projects? An Introduction to Research on Project Finance.” European Financial Management 10(2):213–24. doi: 10.1111/j.1354-7798.2004.00247.x.

Flyvbjerg, Bent, and David Gardner. 2023. How Big Things Get Done. Currency.

Tan, Willie. 2007. *Principles of Project and Infrastructure Finance. Routledge.

Taylor, Brian D., Eran A. Morris, and Jeffrey R. Brown. 2023. The Drive for Dollars. Oxford University Press.

Walter, Ingo. 2016. The Infrastructure Finance Challenge. Open Book Publishers.

Too Big to Fall: American's Failing Infrastructure and the Way Forward

Funding Federal-Aid Highways - FHWA - Office of Policy and Governmental Affairs

Infrastructure and the Economy - Lida R. Weinstock

Public-Private Partnerships (P3s) in Transportation - William J. Mallet

The Transportation Infrastructure Finance and Innovation Act (TIFIA) Program - William J. Mallett

Taylor, Brian D. “The Geography of Urban Transportation Finance” in Hanson, Susan, and Genevieve Giuliano, eds. The Geography of Urban Transportation. Guilford Press, 2004. ISBN: 9781593850555.

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Supplementary Reading

Antos, Justin David. “Paying for Public Transportation: the Optimal, the Actual, and the Possible.” PhD diss., MIT, 2007. (Abstract and introduction)

Infrastructure as an Asset Class, by Barbara Weber, Mirjam Staub-Bisang, and Hans Wilhelm Alfen, 2016 

Infrastructure Finance, by Martin Blaiklock  Project Finance in Theory and Practice, by Stefano Gatti 

Public-Private Partnerships for Infrastructure, by E. R. Yescombe and Edward Farquharson

A risk-management approach to a successful infrastructure project （https://www.mckinsey.com/capabilities/operations/our-insights/a-risk-management-approach-to-a-successful-infrastructure-project）

C40 Infrastructure Interdependencies and Cascading Climate Impacts Study (https://unfccc.int/sites/default/files/report_c40_interdependencies_.pdf)

Alova, G., Trotter, P.A. & Money, A. A machine-learning approach to predicting Africa’s electricity mix based on planned power plants and their chances of success. Nat Energy 6, 158–166 (2021). https://doi.org/10.1038/s41560-020-00755-9

Andonov, A., Kraeussl, R. and Rauh, J., The Subsidy to Infrastructure as an Asset Class, Stanford University Graduate School of Business Research Paper, 2019, 18-42. (Available at SSRN).

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Blanc-Brude, F. and Hasan, M., A Structural Credit Risk Model for Illiquid Debt, Journal of Fixed Income, 2016, 26:1, 6-19.

Blanc-Brude, F. Whittaker, T. and Wilde, S., Searching for a Listed Infrastructure Asset Class Using Mean-variance Spanning, Financial Markets and Portfolio Managements, 2017, 31, 137-179.

Blanc-Brude, F., Hasan, M. and Whittaker, T., Calibrating Credit Risk Dynamics in Private Infrastructure Debt, Journal of Fixed Income, 2018, 27:4, 54-71.

Blanc-Brude, F., Long-Term Investment in Infrastructure and the Demand for Benchmarks ASSA The Finsia Journal of Applied Finance, 2014, 3, 57-64.

OECD (2016), Green investment banks: scaling up private investment in low-carbon, climate-resilient infrastructure, Green Finance and Investment, OECD publishing, Paris

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Estache A. (2010), Infrastructure finance in developing countries: An overview, EIB papers, Volume 15,No2, 60-88

Esty B.C., Chavich C. and Sesia A. (2014), An Overview of Project Finance and Infrastructure Finance—2014 Update, Harvard Business School Background Note 214-083

Finnerty J.D. (2013), Project financing: asset-based financial engineering, New York, John Wiley: chapters: 1-5, 9-11, 13

Gatti S. (2013), Project finance in theory and practice: designing, structuring and financing private and public projects, Academic Press: chapters 1, 2, 5, 6, 8

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For those who lack a finance background:

Benninga, S. (2010) Principles of Finance with Excel, 2nd Edition U.S.: MIT Press. Take advantage of F1F9’s free financial modeling course for the project finance industry (excel tips, best practices) http://info.f1f9.com/31-day-better-financial-modelling-course

Goldman, Todd, Sam Corrett, and Martin Wachs. “Local Option Transportation Taxes: Part Two.” Berkeley, CA: University of California, Berkeley, Institute of Transportation Studies, 2001.