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Transportation Funding & Financing


Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users

Innovative Finance

SAFETEA-LU enhances existing innovative finance programs and makes it easier and more attractive for the private sector to participate in highway infrastructure projects.

On August 10, 2005, President George W. Bush signed into law the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), Pub. L. No. 109-59, 119 Stat. 1144. SAFETEA-LU enhances existing innovative finance programs and makes it easier and more attractive for the private sector to participate in highway infrastructure projects. Important changes include eligibility for private activity bonds, additional flexibility to use tolling to finance infrastructure improvements, and broader Transportation Infrastructure Finance and Innovation Act (TIFIA) program and State Infrastructure Bank (SIB) loan policies. SAFETEA-LU also gives States more flexibility to use road pricing to manage congestion, and promotes real-time traffic management in all States to help improve transportation security and provide better information to travelers and emergency responders.

The following discussions summarize the different elements of SAFETEA-LU that will enhance innovative finance tools and encourage public-private partnerships.

1. Tolling

SAFETEA-LU provides States with increased flexibility to use tolling, not only to manage congestion, but also to finance infrastructure improvements. The following programs are available to States to toll on a pilot or demonstration basis:

Interstate System Construction Toll Pilot Program

Under the new Interstate System Construction Toll Pilot Program, the Secretary may permit a State or compact of States to collect tolls on an Interstate highway, bridge, or tunnel for the purpose of constructing Interstate highways. This program is limited to 3 projects in total (nationwide), and prohibits a participating State from entering into an agreement with a private person which would prevent the State from improving adjacent public roads to accommodate diverted traffic.

Interstate System Reconstruction and Rehabilitation Toll Pilot Program

The Interstate System Reconstruction and Rehabilitation Toll Pilot Program was established in the Transportation Equity Act for the 21st Century (TEA-21) to allow up to 3 Interstate tolling projects for the purpose of reconstructing or rehabilitating Interstate highway corridors that could not be adequately maintained or improved without the collection of tolls. SAFETEA-LU makes no revisions to the program, therefore it continues without change.

Value Pricing Pilot Program

The Value Pricing Pilot Program is continued, funded at $59 million through 2009, to support the costs of implementing up to 15 variable pricing pilot programs nationwide to manage congestion and benefit air quality, energy use, and efficiency. A new set-aside totaling $12 million through 2009 must be used for projects not involving highway tolls.

Express Lanes Demonstration Program

The new Express Lanes Demonstration Program will allow a total of 15 demonstration projects through 2009 to permit tolling to manage high levels of congestion, reduce emissions in a nonattainment or maintenance area, or finance added Interstate lanes for the purpose of reducing congestion. A State, public authority, or public or private entity designated by a State may apply. Eligible toll facilities include existing toll facilities, existing High Occupancy Vehicle (HOV) facilities, and a newly created toll lane. Tolls charged on HOV facilities under this program must use pricing that varies according to time of day or level of traffic; for non-HOV, variable pricing is optional. Automatic toll collection is required, and the Secretary must promulgate a final rule specifying requirements, standards, or performance specifications to ensure interoperability within 180 days of enactment.

2. Innovative Finance

To help close the gap between highway infrastructure investment needs and resources available from traditional sources, SAFETEA-LU includes the following provisions which, in addition to tolling options discussed above, will enhance innovative financing and encourage private sector investment:

Private Activity Bonds

To provide the opportunity for new sources of investment capital to finance our nation's transportation infrastructure system, SAFETEA-LU expands bonding authority for private activity bonds by adding highway facilities and surface freight transfer facilities to a list of other activities eligible for exempt facility bonds. Qualified projects, which must already be receiving Federal assistance, include surface transportation projects eligible under Title 23, international bridge or tunnel projects for which an international entity authorized under Federal or State law is responsible, and facilities for the transfer of freight from truck to rail or rail to truck (including any temporary storage facilities related to the transfers). These bonds are not subject to the general annual volume cap for private activity bonds for State agencies and other issuers, but are subject to a separate National cap of $15 billion.

Transportation Infrastructure Finance and Innovation Act (TIFIA)

The TIFIA program provides Federal credit assistance to nationally or regionally significant surface transportation projects, including highway, transit and rail. This program was established in TEA-21 to fill market gaps and leverage substantial private co-investment by providing projects with supplemental or subordinate debt. SAFETEA-LU authorizes a total of $610 million through 2009 to pay the subsidy cost (similar to a commercial bank's loan reserve requirement) of supporting Federal credit under TIFIA. To encourage broader use of TIFIA financing, the threshold required for total project cost is lowered to $50 million ($15 million for ITS projects), and eligibility is expanded to include public freight rail facilities or private facilities providing public benefit for highway users, intermodal freight transfer facilities, access to such freight facilities and service improvements to such facilities including capital investment for Intelligent Transportation Systems (ITS).

State Infrastructure Banks (SIBS)

SAFETEA-LU establishes a new SIB program which allows all States, including, Puerto Rico, the District of Columbia, American Samoa, Guam, the Virgin Islands, and the Commonwealth of the Northern Mariana Islands, to enter into cooperative agreements with the Secretary to establish infrastructure revolving funds eligible to be capitalized with Federal transportation funds authorized for fiscal years 2005-2009. This program gives States the capacity to increase the efficiency of their transportation investment and significantly leverage Federal resources by attracting non-Federal public and private investment.

Toll Credits

SAFETEA-LU revised 23 USC 120(j) to permit toll credits to be earned for any toll revenues that are generated and used by public, quasi-public, and private agencies to build, improve, or maintain highways, bridges, or tunnels that serve the public purpose of interstate commerce. Previously, toll credits could only be earned from expenditures of toll revenues on projects that were completed entirely without Federal funds. Note that the other provisions of section 5 of this manual still apply (e.g., Maintenance of Effort, Revenues Must Be Spent on Eligible Expenses, etc.).

3. Miscellaneous Provisions

There are a variety of other SAFETEA-LU provisions that will encourage greater private sector involvement in highway infrastructure projects. These provisions include:

High Occupancy Vehicle (HOV) Lanes

SAFETEA-LU enhances and clarifies provisions governing the use and operation of HOV lanes. States are required to establish occupancy requirements for HOV lanes, with mandatory exemption for motorcycles and bicycles unless it creates a safety hazard, and optional exemptions for public transportation vehicles, low-emission and energy-efficient vehicles, and High Occupancy Toll (HOT) vehicles (otherwise-ineligible vehicles willing to pay a toll to use the facility). States are required to monitor, assess, and report on the operation of the facility to ensure that it does not become seriously degraded.

Environmental Review Process

A new environmental review process is established for highways, transit, and multimodal projects. A new category of "participating agencies" is added, to allow more state, local, and tribal agencies a formal role and rights in the environmental process. After providing an opportunity for public and interagency involvement, DOT will define the project's purpose and need, and establish a plan for coordinating public and agency participation. As early as practicable in the process, DOT is to provide an opportunity for a range of alternatives to be considered for a project. If any issue that could delay the process cannot be resolved within 30 days, DOT must notify Congress. A 180-day statute of limitations for lawsuits challenging Federal agency approvals is provided, but it will require a new step of publishing environmental decisions in the Federal Register. This statute of limitations will help to provide greater certainty with the environmental process.

Section 4(f)

This provision prohibits projects on publicly owned parks, recreation areas, wildlife and waterfowl refuges, or historic sites unless there is no feasible and prudent alternative and all possible mitigation is used. SAFETEA-LU includes tightly circumscribed changes in 4(f). Under SAFETEA-LU, the Secretary has some flexibility to allow an exemption from 4(f) requirements if a program or project will have a "de minimis" impact on the area - i.e., there are no adverse effects of the project and the relevant State Historic Preservation Officer or other official with jurisdiction of a property concurs. The provision creates public involvement and consultation responsibilities associated with the de minimis determination. The Secretary is to conduct a rulemaking to clarify the 4(f) standard of "prudent and feasible" for alternatives. The Interstate System is exempted from being treated as an historic resource under Section 4(f), unless the Secretary determines that individual elements posses national or exceptional historic significance and should receive protection.

State Assumption of Environmental Review Responsibilities

After entering into a Memorandum of Understanding with the Secretary, each State may assume responsibility for categorical exclusions, with FHWA in a programmatic monitoring role. Another provision calls for the Secretary to establish a categorical exclusion, to the extent appropriate, for activities that support the deployment of intelligent transportation infrastructure and systems.

The States of Alaska, Ohio, Oklahoma, Texas, and California can enter into a project delivery pilot program, allowing them to apply to the DOT to assume all DOT environmental responsibilities under NEPA and other environmental laws, excluding the Clean Air Act and transportation planning requirements. This delegation authority is limited to highway projects, and could be for specific projects within a State or a programmatic delegation.

Under another pilot program, the Secretary may allow up to five States to assume environmental responsibilities, including NEPA and Section 4(f), for Recreational Trails and Transportation Enhancement projects.


To encourage more projects to use design-build contracting, SAFETEA-LU eliminates the $50 million floor on the size of eligible contracts. Also, the DOT Secretary must issue revised regulations that will allow transportation agencies to proceed with certain actions prior to receipt of final NEPA approval. This change will encourage public-private partnerships by allowing private sector partners to be involved in the project definition process.

Highways for LIFE Pilot Program

To foster the use of new technologies and more efficient ways of building highways, this pilot program calls for the DOT Secretary to provide leadership and incentives to demonstrate and promote state-of-the-art technologies, elevated performance standards, and new business practices in the highway construction process that result in improved safety, faster construction, reduced congestion from construction, and improved quality and user satisfaction. A total of $75 million is authorized through 2009 for incentive grants, to fund up to 20% but not more than $5 million of the total cost of a qualifying project. A maximum of 15 projects may receive incentive funds in a given fiscal year, but the goal is to approve and provide funds to at least 1 project in each State by 2009. A State may also use up to 10% of its Interstate Maintenance (IM), National Highway System (NHS), Surface Transportation Program (STP), and Congestion Mitigation and Air Quality Improvement Program (CMAQ) funds for these projects; up to 100% Federal share is allowed.