Fiscal Impacts of an Innovative Highway Financing Alternative on State Highway Expenditures

The National Highway System Designation Act of 1995 (P.L. 104-59) authorized the U.S. Department of Transportation to establish the State Infrastructure Bank (SIB) Pilot Programs. The bank allows the states to leverage state-matching funds and federal assistance funds by recycling the capitalization equity funds through various loan programs and borrowing directly from the credit market using the federal funds as collateral. This article analyzes the fiscal impacts of the federal assistance funds in the SIB programs, which are a new form of federal transportation grants to states, on state highway expenditures. Empirical findings, using the 32 SIB state data, show that $1 federal assistance fund deposited into the bank as of 1997 stretches limited state highway resources by as much as $7.55 for 3 years (1998-2000), for which data are available, mainly due to the leveraging effect. This study further suggests future research and policy directions.