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Transportation Funding & Financing


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

Project Finance

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). With guaranteed funding for highways, highway safety, and public transportation totaling $244.1 billion, SAFETEA-LU represents the largest surface transportation investment in our Nation's history. The two landmark bills that brought surface transportation into the 21st century-the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) and the Transportation Equity Act for the 21st Century (TEA-21)-shaped the highway program to meet the Nation's changing transportation needs. SAFETEA-LU builds on this firm foundation, supplying the funds and refining the programmatic framework for investments needed to maintain and grow our vital transportation infrastructure.

With guaranteed funding for highways, highway safety, and public transportation totaling $244.1 billion, SAFETEA-LU represents the largest surface transportation investment in our Nation's history.

SAFETEA-LU addresses the many challenges facing our transportation system today - challenges such as improving safety, reducing traffic congestion, improving efficiency in freight movement, increasing intermodal connectivity, and protecting the environment - as well as laying the groundwork for addressing future challenges. SAFETEA-LU promotes more efficient and effective Federal surface transportation programs by focusing on transportation issues of national significance, while giving State and local transportation decision makers more flexibility for solving transportation problems in their communities.

The following discussions prepared the FHWA Office of Legislation and Intergovernmental Affairs summarize the provisions within SAFETEA-LU influencing project finance for highways.


Authorizations and Guaranteed Spending Levels

SAFETEA-LU continues the TEA-21 concept of guaranteed funding, keyed to Highway Trust Fund (Highway Account) receipts. In essence, the guaranteed amount is a floor -- it defines the least amount of the authorizations that may be spent. Federal-aid Highway program (FAHP) authorizations in SAFETEA-LU total $193.1 billion (net of an $8.5 billion rescission scheduled for September 30, 2009). Adding in the $100 million per year authorized in title 23 for Emergency Relief, authorizations for the FAHP total $193.6 billion. Within total authorizations, the amount guaranteed for the FAHP is estimated to be $193.2 billion.

If overall discretionary budget caps were in place (not so at the time of enactment of SAFETEA-LU), highway and highway safety programs would be protected by a "firewall" from having to compete with other discretionary programs for room within those caps. The highway category firewall is established based on assumptions about future receipts to the Highway Account of the Highway Trust Fund. Beginning with FY 2007, when newer projections of receipts and actual receipts become available, the highway category firewall is adjusted accordingly. To smooth out the effects of any adjustments, the calculated adjustment will be split over two years. When the firewall is adjusted, equal adjustments are made to highway contract authority (called Revenue Aligned Budget Authority) and the Federal-aid highway obligation limitation.

Revenue Aligned Budget Authority (RABA)

Beginning in FY 2007, authorizations for Federal-aid highway and highway safety construction programs funded from the Highway Account of the Highway Trust Fund and the Motor Carrier Safety Assistance Program (MCSAP) will be adjusted whenever the highway firewall amount is adjusted to reflect changed estimates of Highway Account receipts. The additional authorizations are called RABA because they serve to align budget authority with the revised revenue. The adjustments to authorizations will be made in the same amounts and in the same years as the adjustments to the firewalls.

If the adjustment is an increase, a portion of the increase in authorizations is reserved for the Federal-aid highway and highway safety construction programs allocated by the Secretary of Transportation-programs that are not apportioned by statutory formula-and for the Motor Carrier Safety Assistance Program. The remainder of the increased funding is distributed to the States proportional to their shares of Federal-aid highway and highway safety construction apportionments from the Highway Account. If the RABA is positive for 2007, the first call on the additional funds will be to increase States' return on contributions to the Highway Account of the Highway Trust Fund to 92%. A negative adjustment (reduction) is possible, but only if, as of October 1 of that year, the balance in the Highway Account is less than $6 billion. [SAFETEA-LU Section 1105]

Administrative Expense

Unlike prior years, administrative expenses associated with the Federal-aid highway program and the Appalachian Development Highway System are provided as a separate authorization in SAFETEA-LU, not as a takedown from apportioned programs. [SAFETEA-LU Section 1103]

Obligation Ceiling

SAFETEA-LU establishes an annual obligation limitation, for the purpose of limiting highway spending each year. The highway obligation limitation applies to all programs within the overall Federal-aid highway program except Emergency Relief, $639 million per year of the Equity Bonus, and funds for certain projects in legislation before 1998. A portion of each year's limitation is reserved, or set aside, for administrative expenses and certain allocated programs, with the balance of the limitation being distributed to the States. Limitation set aside each year for certain programs-High Priority (demonstration) Projects, the Appalachian Development Highway System, Projects of National and Regional Significance, National Corridor Infrastructure Improvement program, Transportation Improvements, designated bridge projects, and $2 billion of the Equity Bonus-does not expire if not used by the end of the fiscal year, but instead is carried over into future years. The portion of the limitation set aside for research and technology programs may also be carried over, but only for three years. [SAFETEA-LU Section 1102]

Equity Bonus

Federal-aid highway funds for individual programs are apportioned by formula using factors relevant to the particular program. After those computations are made, additional funds are distributed to ensure that each State receives an amount based on equity considerations. In SAFETEA-LU, this provision is called the Equity Bonus (replaces TEA-21's Minimum Guarantee) and ensures that each State will be guaranteed a minimum rate of return on its share of contributions to the Highway Account of the Highway Trust Fund, and a minimum increase relative to the average dollar amount of apportionments under TEA-21, and that certain States will maintain the share of total apportionments they each received during TEA-21. An open-ended authorization is provided, ensuring that there will be sufficient funds to meet the objectives of the Equity Bonus.

Relative rate of return

Each State's share of apportionments from the Interstate Maintenance (IM), National Highway System (NHS), Bridge, Surface Transportation (STP), Highway Safety Improvement (HSIP), Congestion Mitigation and Air Quality Improvement (CMAQ), Metropolitan Planning, Appalachian Development Highway System, Recreational Trails, Safe Routes to School, Rail-Highway Grade Crossing, Coordinated Border Infrastructure programs, the Equity Bonus itself, along with High Priority Projects will be at least a specified percentage of that State's share of contributions to the Highway Account of the Highway Trust Fund. The specified percentage, referred to as a relative rate of return, is 90.5% for 2005 and 2006, 91.5% for 2007, and 92% for 2008 and 2009.

States with certain characteristics (e.g., low population density or total population, low median household income, high Interstate fatality rate, high indexed state motor fuel rate) are guaranteed a share of apportionments and High Priority Projects not less than the State's average annual share under TEA-21. In any given year, no State is to receive less than a specified percentage (117% for 2005, 118% for 2006, 119% for 2007, 120% for 2008, and 121% for 2009) of its average annual apportionments and High Priority Projects under TEA-21.

Administration of funds

All but $2.639 billion annually of Equity Bonus funding is programmatically distributed among certain programs-Interstate Maintenance, National Highway System, Bridge, Congestion Mitigation and Air Quality Improvement, Surface Transportation Program, and Highway Safety Improvement Program. Amounts programmatically distributed to the programs take on the eligibilities of those programs. The remaining $2.639 billion has the same eligibilities as STP funds, but is not subject to set-asides or suballocations. Of this remainder, $639,000,000 is exempt from the obligation limitation and $2 billion receives special no year limitation. [SAFETEA-LU Sections 1104, 1102]


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

Interstate System Construction Toll Pilot Program

Under this new 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

Established in 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, as it was authorized for "a term to be determined by the Secretary, but not less than 10 years." [SAFETEA-LU Sections PL 105-178, 1216(b)]

Value Pricing Pilot Program

This 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

This new 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 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.

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. [SAFETEA-LU Section 11143]

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). [SAFETEA-LU Section 1601]

State Infrastructure Banks (SIBS)

SAFETEA-LU establishes a new SIB program which allows all States, 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. [SAFETEA-LU Section 1602]

Highway Trust Fund

Operation of the Highway Trust Fund

The Highway Trust Fund (HTF) is the source of funding for most of the programs in the Act. The HTF is composed of the Highway Account, which funds highway and intermodal programs, and the Mass Transit Account. Federal motor fuel taxes are the major source of income into the HTF.

During the time that SAFETEA-LU was being developed, a number of changes impacting the Highway Trust Fund were adopted in the American Jobs Creation Act of 2004. This Act replaced the reduced tax rates that applied to gasohol with a credit paid from the General Fund of the Treasury and ended the retention of a portion of the tax on gasohol by the General Fund. These actions, coupled with a number of provisions to reduce tax evasion, provided increased tax revenues to the Highway Trust Fund.

SAFETEA-LU extends the imposition of the highway-user taxes, generally at the rates that were in place when the legislation was enacted, through September 30, 2011. Provisions for full or partial exemption from highway user taxes were also extended. Additionally, provision for deposit of almost all of the highway user taxes into the HTF is extended through September 30, 2011.

Federal law regulates not only the imposition of the taxes, but also their deposit into and expenditure from the HTF. For the Highway Account, authority to expend from the HTF for programs under the Act and previous authorization acts is provided through September 29, 2009 generally and through September 30, 2009 for administrative expenditures. For the Mass Transit Account, expenditures are authorized through September 30, 2009. After these dates, expenditures may be made only to liquidate obligations made before that date.

Highway Tax Compliance

Traditionally, the highway programs of the Federal government and most States depend on highway user tax receipts as the principal source of funding. SAFETEA-LU continues the Highway Use Tax Evasion program, funded at $127.1 million through 2009, to reduce motor fuel tax evasion. Funds may be used for inter-governmental enforcement efforts, including research and training, and for efforts of the Internal Revenue Service, including the development, operation, and maintenance of databases to support tax compliance efforts. No funding is allocated directly to the States, although States are permitted to use ¼ of 1 percent of their Surface Transportation Program funding for fuel tax evasion activities. Eligible activities are expanded to include efforts to address State-Indian tribe motor fuel tax issues and tax evasion issues associated with foreign imported fuel. A new memorandum of understanding with the Internal Revenue Service relating to the development and maintenance of electronic databases to support excise tax fuel reporting is required. [SAFETEA-LU Section 1115]

Highway Programs

Financial stewardship and oversight

SAFETEA-LU provides greater emphasis on financial integrity, project delivery, and major project oversight. Annual reviews are required of State DOT financial management systems, minimum standards for estimating project costs are to be developed, and annual reviews of State project delivery systems are to be conducted. The $1 billion threshold defining major projects is lowered to $500million, and major projects are required to have project management plans in addition to the previously required finance plans. Finance plans are also required for projects exceeding $100 million in total cost. These new provisions will strengthen oversight of projects and increase the accountability of the States' in the project delivery process. [SAFETEA-LU Section 1904]

National Highway System (NHS)

The National Highway System is a 163,000-mile system of significant rural and urban roads serving major population centers, international border crossings, intermodal transportation facilities, and major travel destinations. It includes the Interstate System, other urban and rural principal arterials, highways that provide motor vehicle access between the NHS and major intermodal transportation facilities, the defense strategic highway network, and strategic highway network connectors.

The NHS program is funded at $30.5 billion through 2009. The formula to distribute funding is continued, based on lane-miles of principal arterials (excluding Interstate), vehicle-miles traveled on those arterials, diesel fuel used on the State's highways, and per capita principal arterial lane-miles. The Act expands eligibility of NHS funding to include environmental restoration and pollution abatement to minimize the impact of transportation projects, control of noxious weeds and aquatic noxious weeds, and establishment of native species. [SAFETEA-LU Section 6006]

Interstate Maintenance (IM)

The 46,000 mile Dwight D. Eisenhower National System of Interstate and Defense Highways retains a separate identity within the NHS. The IM program, established under ISTEA to provide for the on-going work necessary to preserve and improve Interstate highways, is retained. Authorizations totaling $25.2 billion are provided through 2009, and will continue to be distributed by formula based on each State's lane-miles of Interstate routes open to traffic, vehicle-miles traveled on those routes, and contributions to the Highway Account of the Highway Trust Fund attributable to commercial vehicles. A total of $500 million of authorized funds is available at the discretion of the Secretary for high-cost, ready-to-go IM projects.

Surface Transportation Program (STP)

The STP provides flexible funding that may be used by States and localities for projects on any Federal-aid highway, including the NHS, bridge projects on any public road, transit capital projects, and public bus terminals and facilities. The Act expands STP eligibilities to include advanced truck stop electrification systems, high accident/high congestion intersections, and environmental restoration and pollution abatement, control of noxious weeds and aquatic noxious weeds, and establishment of native species. A total of $32.5 billion in STP funds is authorized through 2009. Funds will continue to be distributed among the States based on lane-miles of Federal-aid highways, total vehicle-miles traveled on those Federal-aid highways, and estimated contributions to the Highway Account of the HTF. [SAFETEA-LU Sections 1113,6006]

Each State must set aside a portion of their STP funds (10 percent or the amount set aside in 2005, whichever is greater) for transportation enhancements activities. The set-aside of 10 percent previously required for safety construction activities (i.e., hazard elimination and rail-highway crossing improvements) is eliminated beginning in 2006, as these activities are funded separately under the new Highway Safety Improvement Program. [SAFETEA-LU Section 1113]

Bridge Program

The Bridge program is broadened in scope to include systematic preventative maintenance, and freed from the requirement that bridges must be considered "significantly important." A total of $21.6 billion is authorized for this program through 2009 to enable States to improve the condition of their eligible highway bridges over waterways, other topographical barriers, other highways and railroads. The requirement that each State spend at least 15% of its bridge apportionment for bridges on public roads that are not Federal-aid highways (off-system bridges) is retained, but the 35% cap is removed. The discretionary bridge program is funded only through 2005; beginning in 2006, $100 million is to be set aside annually to fund designated projects. [SAFETEA-LU Section 1114]

Federal Lands Highways Program (FLHP)

The Federal Lands Highways program authorizations thru 2009 total $4.5 billion for Indian Reservation Roads (IRR), Park Roads and Parkways, Public Lands Highways (discretionary and Forest Highways), and Refuge Roads programs. FLHP funds can be used for transportation planning, research, engineering, and construction of highways, roads, parkways and transit facilities within public lands, national parks, and Indian reservations. In addition, FLHP funds can be used as the State/local match for most types of Federal-aid highway funded projects. New eligible uses of Public Lands Highways funds include up to $20 million per year for maintenance of Forest Highways, $1 million per year for signage identifying public hunting and fishing access, and $10 million by the Secretary of Agriculture to facilitate the passage of aquatic species beneath roads in the National Forest System.

SAFETEA-LU provides significant changes in the IRR program. IRR funding may be provided via a funding agreement in accordance with the Indian Self-Determination and Education Assistance Act to a requesting Indian tribal government(s) that has satisfactorily demonstrated financial stability and financial management to the Secretary. IRR funds shall only be expended on projects identified in a transportation improvement program approved by the Secretary. The Secretary, in cooperation with the Secretary of the Interior, is required to complete a comprehensive national inventory of transportation facilities that are eligible for assistance under the IRR program within 2 years of enactment of SAFETEA-LU. Up to 25% of a tribe's IRR program funds may now be used for the purpose of IRR system maintenance as defined in 25CFR170, although the Bureau of Indian Affairs (BIA) will retain primary responsibility for IRR maintenance programs through DOI appropriations. Funding for the BIA's program management and oversight expenses is provided, although this amount now includes BIA project-related administrative expenses. An Indian tribe may enter into a road maintenance agreement with a State to assume the responsibilities of the State for roads in and providing access to Indian reservations. A new position in DOT is established for a Deputy Assistant Secretary of Tribal Government Affairs. A total of $70 million is authorized separately (no longer a set-aside) through 2009 for projects to replace structurally deficient or functionally obsolete IRR bridges. [SAFETEA-LU Section 1119]

Emergency Relief

The Emergency Relief (ER) program assists State and local governments with the expense of repairing serious damage to Federal-aid highways and roads on Federal Lands resulting from natural disasters or catastrophic failures. In addition to the permanent authorization of $100 million annually, SAFETEA-LU authorizes such sums as may be necessary to be made available by appropriation from the General Fund to supplement the permanent authorization in years when Emergency Relief allocations exceed $100 million. [SAFETEA-LU Section 1112]

Regional Programs

SAFETEA-LU provides funding to improve transportation and economic development of the following geographic regions:


The Appalachian Development Highway System Program continues funding for the construction of the Appalachian corridor highways in 13 States to promote economic development and to establish a State-Federal framework to meet the needs of the region. [SAFETEA-LU Section 1116]


The Delta Region Transportation Development Program provides a total of $40 million over 5 years for multistate highway planning, development, and construction projects in the 8-State Delta region. In addition, the Secretary must enter into an agreement with the Delta Regional Authority within 180 days to conduct a comprehensive study of transportation assets and needs for all modes of transportation in the region; $1 million is provided from the HTF to fund the study which is due 2 years after agreement is entered. [SAFETEA-LU Sections 1308,1923]


The new Denali Access System Program in SAFETEA-LU provides $60 million from the HTF through 2009 to fund planning, design, engineering, and construction for highways and other surface transportation infrastructure priorities for the region, as determined by an advisory committee to be established within 3 months by the Denali Commission. [SAFETEA-LU Section 1960]

Corridors, Borders, and Ports

SAFETEA-LU provides funding totaling over $2.8 billion to fund transportation projects of national interest to improve transportation at international borders, ports of entry, and in trade corridors.

Coordinated Border Infrastructure Program

A new Coordinated Border Infrastructure Program provides $833 million in funding, to be distributed by formula, to expedite safe and efficient vehicle and cargo movement at or across the land border between the U.S. and Canada and the land border between the U.S. and Mexico. [SAFETEA-LU Section 1303]

Freight Intermodal Distribution Pilot Program

The Freight Intermodal Distribution Pilot Program provides $30 million through 2009 for grants to facilitate intermodal freight transportation initiatives at the State and local level to relieve congestion and improve safety, and to provide capital funding to address infrastructure and freight distribution needs at inland ports and intermodal freight facilities. The Act names 6 projects, funded at $5 million each. For each year through 2009, each of the 6 designated projects is to receive 20% of it's funding ($1 million each). [SAFETEA-LU Section 1306]

National Corridor Infrastructure Improvement Program

To further promote economic growth and international or interregional trade, the National Corridor Infrastructure Improvement Program provides $1.948 billion in discretionary funding for construction of designated highway projects in corridors of national significance. [SAFETEA-LU Section 1302]

High-Priority Corridors on the National Highway System

For projects in High-Priority Corridors on the National Highway System, an authorization for such sums as may be necessary from the General Fund is provided (requires subsequent legislation). [SAFETEA-LU Section 1304]

Other Provisions


To encourage more projects to use design-build contracting, SAFETEA-LU eliminates the $50 million floor on the size of eligible contracts. Also, the 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. [SAFETEA-LU Section 1503]

Congestion Mitigation and Air Quality Improvement (CMAQ)

The CMAQ program, continued in SAFETEA-LU at a total funding level of $8.6 billion through 2009, provides a flexible funding source to State and local governments for transportation projects and programs to help meet the requirements of the Clean Air Act. Funding is available for areas that do not meet the National Ambient Air Quality Standards (nonattainment areas) as well as former nonattainment areas that are now in compliance (maintenance areas). The formula for distribution of funds, which considers an area's population by county and the severity of its ozone and carbon monoxide problems within the nonattainment or maintenance area, with greater weight given to areas that are both carbon monoxide and ozone nonattainment/maintenance areas, is continued. SAFETEA-LU requires the Secretary to evaluate and assess the effectiveness of a representative sample of CMAQ projects, and maintain a database. [SAFETEA-LU Section 1808]


To prepare for meeting future transportation infrastructure and financing needs, SAFETEA-LU authorizes a number of studies, including:

Future of Surface Transportation System Study

The Secretary of Transportation will conduct a study of current condition and future needs of the surface transportation system and develop a conceptual plan with alternatives to ensure that the surface transportation system will continue to serve the Nation's needs. [SAFETEA-LU Section 1909]

Road User Fees Study

A total of $12.5 million is authorized to fund a long-term field test of an approach to assessing highway use fees based on actual mileage driven by a specific vehicle on specific types of highways by use of an onboard computer. The study is to be performed by the Public Policy Center of the University of Iowa. [SAFETEA-LU Section 1919]

National Surface Transportation Infrastructure Financing Commission

The Commission is to complete a study on Highway Trust Fund revenues and the impacts of these revenues for future highway and transit needs. Among the considerations will be alternative approaches to generating revenues for the HTF. The Commission will develop a report recommending policies to achieve revenues for the HTF that will meet future needs. [SAFETEA-LU Section 11142]