In 1998 Congress created the Transportation Infrastructure Finance and Innovation Act (TIFIA) to provide credit assistance (loans and/or loan guarantees) for surface transportation projects. These can be highway, transit, intercity passenger facilities, freight rail and freight transfer facilities. The intent of the program is to provide “gap” funding to worthwhile transportation infrastructure projects that have dedicated funding sources (such as tolls), but which might not be fully financeable without assistance in closing a funding gap. Therefore, TIFIA provides subordinated loans which can account for no more than 33% of a project’s funding. The senior debt (e.g., toll revenue bonds) must attain an investment-grade rating in order for the project to obtain TIFIA support. A growing number of public-private partnership (PPP) projects have made use of TIFIA loans in recent years.
Why should fiscal conservatives support a federal loan program for infrastructure? Because states need to make productive improvements in their transportation systems at a time of limited resources, and tolling and PPPs are powerful tools to help them do that. The federal government looks set to limit federal transportation spending to the level of revenue coming into the Highway Trust Fund—which means federal highway and transit grant funding is likely to be lower during the next six years than during the previous six years. Therefore, Congress should give states and localities increased tools for self-help funding. This will help them to transition away from their current heavy dependence on federal grant assistance, consistent with narrowing the federal role. TIFIA is a critically important tool for this purpose.