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Transportation Funding & Financing

Authorization for Debt Financing

There are many differences in how states choose to finance transportation improvements. Some states extend the payment for new improvement projects into the future through bond financing, while others operate on a pay-as-you-go basis. In order to issue bonds state legislatures must first pass legislation authorizing the use of debt financing. This section of the Clearinghouse website provides summaries of and onward links to a variety of authorization measures enabling the use of debt financing. It is interesting to note that more often than not these measures authorize the use of debt finance to support specific programs rather than blanket permission for state or local DOTs and transit agencies to issue debt.

Information on Innovative Bond Programs and Legislation

Arizona Regional Area Road Fund Bonds

The Arizona Regional Area Road Fund (RARF) is one of the more innovative state-level bond programs in the country. This legislation allows local counties in Arizona to authorize and issue bonds or incur long-term obligations payable in whole or in part from monies in a regional area road fund. RARFs are funded with transportation excise tax monies.

This section allows registered voters in counties with over 1.2 million residents to approve an incremental tax on electricity and natural gas use within the county for a period of up to 20 years.

These funds are then deposited in the RARF. The county in which the transportation excise taxes are levied has the beneficial interest in the regional area road fund. This state has no beneficial interest in the regional area road fund except as an obligee for reimbursement of state monies that are advanced as salaries or expenses by this state or the department and that are to be repaid by the regional area road fund.

An appropriation of any nature shall not be required before the expenditure of monies from the regional area road fund. Monies in the bond proceeds account or construction account of a regional area road fund may be obligated for payment in future years for the purpose of right-of-way acquisition subject to the certain limitations. The following legislation formulates the program:

28-6301 - Definitions
28-6302 - Transportation excise tax distribution; counties with one million two hundred thousand or more persons; regional area road fund
28-6303 - Regional area road fund; separate accounts
28-6304 - Bond account; expenditures
28-6305 - Construction account; expenditures; construction contracts
28-6306 - Account expenditures; elections
28-6307 - Regional area road fund; plan
28-6308 - Regional transportation plan; transportation corridor priority list
28-6309 - Interim roadway pursuant to agreement
28-6310 - Interim roadway by city or town
28-6311 - Construction contract
28-6312 - Roadway and highway maintenance

The Mechanism for raising RARF bonds is described in the links provided below:

28-7561 - Bonds payable from transportation excise taxes
28-7562 - Bond requirements
28-7563 - Bond payment; security
28-7564 - Pledges; liens
28-7565 - Liability; bond validity
28-7566 - Bond purchase
28-7567 - Notice; bond issuance
28-7568 - Bond proceeds; distribution; expenditures
28-7569 - Agreement of state and county
28-7570 - Taxation exemption
28-7571 - Attorney general bond certification
28-7572 - Bond obligations of the board
28-7573 - Bonds; legal investments

Florida Fixed-Guideway Transportation Systems Bonds

When local governments implement transit projects, they usually utilize a mixture of revenue sources. Because of this, it is often difficult to pledge these various monies against bonds. In Florida, local governments can pass those funds onto the state which then issues a bond using the state transportation trust fund to pledge the full amount. This innovative technique capitalizes the greater credit worthiness of the state and is much more attractive to the financial markets.

Florida Bonds for Land and Bridges

This Florida Constitutional Amendment allows debt financing for the purchase of land and the construction of bridges. The Amendment was passed by popular vote. The rationale behind it involves the fact that bridges - and the benefits they bring - last for a long period of time and that in high-growth areas such as Florida, land costs historically increase in value. For these reasons, Florida voters believed that it was appropriate for the state to issue debt finance these assets. The amount of money that can be bonded is capped and is limited to a percentage of the revenues coming into the state transportation trust fund. Its been very successful. As of early 2001, the state has issued over $1 billion in debt and expects that the total amount raised will reach $2 billion. By being able to move land purchase forward, the state has been able to accelerate construction and also leverage $18 billion in construction value. In a high-growth state, this is very effective because land for right-of-way can be purchased land up front before it increases in value.