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Transportation Funding & Financing

Section 129 Loans

Overview

Section 129 of Title 23 allows Federal participation in a state loan to support projects with dedicated revenue stream including tolls, excise taxes, sales taxes, real property taxes, motor vehicle taxes, incremental property taxes, or other beneficiary fees.

Section 129 of Title 23 was originally amended by ISTEA to allow federal participation in a state loan to a toll project. In response to experience under TE-045, the 1995 NHS Act further expanded Federal-aid eligibility to include state loans to non-toll projects with a dedicated revenue stream.

Similar to State Infrastructure Banks, Section 129 loans allow states to leverage additional transportation resources and recycle assistance to other eligible projects. States have the flexibility to negotiate interest rates and other terms of Section 129 loans. When a loan is repaid, the state is required to use the funds for a Title 23 eligible project or credit enhancement activities, such as the purchase of insurance or a capital reserve to improve credit market access or lower interest rate costs for a Title 23 eligible project. One important distinction between SIB and Section 129 loans is that projects benefiting from the proceeds of Section 129 loans are not required to meet the same number of Federal requirements as those using SIB loans.

Qualified Projects

States may make Section 129 loans to a public or private entity to construct either a toll project that is eligible for Federal-aid funding or a non-toll highway project that has a revenue source specifically dedicated to support the project. The amount loaned by the state is considered an eligible Federal-aid project cost. Any Federal transportation program category can be used for a Section 129 loan as long as the project receiving the loan is eligible for funding from that category.

There are no Federal requirements that apply to how a state selects a public or private entity to be a recipient of a Section 129 loan. Rather, this selection process is governed by state law, and it is the state's responsibility to ensure that the recipient uses the loan for the specified purposes. Assuming that a project meets the test for eligibility, a loan can be made at any time. The Federal-aid loan may be for any amount, provided the maximum Federal share (typically 80 percent) of the total eligible project costs is not exceeded. Total eligible project costs are limited to the costs of engineering, right-of-way acquisition, and construction at the time FHWA authorizes the loan to be made. In other words, a loan can be made to an active, eligible project, but the amount cannot include the cost of work done prior to the loan authorization. A project loan can be authorized in conjunction with advance construction. Loans must be repaid to the state, beginning within five years after construction is completed and the project is open to traffic. Repayment must be completed within 30 years after the date Federal funds were authorized for the loan.

Process

The process for funding a Section 129 loan is very similar to the process for committing funds to and obtaining reimbursement for any other Federal-aid project. The first step is for the state to identify a candidate project and a project sponsor that could benefit from public credit assistance through a Section 129 loan, determine the approximate amount of the loan, and determine the amount and source of Federal-aid highway funding to be committed to the loan. Apportionments from any program category may be committed to Section 129 loans as long as the project receiving the loan is eligible for funding from that program category.

After identifying the candidate project, the next step is for the state to discuss the project and loan structure with the FHWA Division Office. After ensuring that the project meets all the requirements specific to Section 129(a)(7), the Division Office will authorize either the entire amount of the loan or an incremental amount, depending on project cash flow needs. At this point in the process, Federal-aid funds are obligated for whatever portion of the loan was authorized. Federal reimbursements can be received after the state actually disburses loan funds to the project sponsor. The non-Federal matching share for all Section 129 loan projects is 20 percent.

Use of Section 129 loans for project financing has been very limited. One reason for this is the creation of the TIFIA direct Federal credit program in 1998, which created new, Federally administered credit opportunities-as well as a new pot of funding-for the same kinds of projects that would likely use Section 129 loans. However, for projects that do not meet the cost threshold required for TIFIA projects (generally $50 million) or do not otherwise fit the profile of TIFIA projects, Section 129 loans remain a good alternative.

Projects

President George Bush Turnpike
A descriptive FHWA case study for this project also discusses the application of the Section 129 loan.

Legislation

Section 129 of Title 23
The United States legal code under Title 23 Highways, Chapter I Federal Aid Highways outlines Section 129 legislation for toll roads, bridges, tunnels, and ferries. Section 129(a)(7) discusses loans.

Resources

FHWA Section 129 Toll Agreements
The FHWA Office of Operations maintains a Tolling and Pricing Program website with a discussion of Section 129 toll agreements.

Chapter 3 of FHWA's Project Finance Primer
This comprehensive document was issued by FHWA in 2010 and provides good coverage of Section 129 loans.

Guidance on Section 313(a) of the NHS Act Toll Facilities under Section 129(a) of Title 23
Written in May of 1996 to provide updated information on the NHS Act Provision, this document offers implementing guidance on the Section 129(a) toll provisions.

Guidance on Section 313(b) of the NHS Act Loan Provisions under Section 129(a)(7) of Title 23
Similar to the guide on implementing the NHS Act for toll facilities, this document outlines the background, eligibility, and requirements for loan provisions under Section 129 of Title 23.