State and Local Legislation

This section of the BATIC Institute website provides information on the legislation and approvals that are needed at the state level in order for DOTs to establish State Infrastructure Banks (SIBs) or issue GARVEE debt. These Federal tools cannot be used without specific state-level authorization.

GARVEE Legislation

The NHS Act of 1995 amended Section 122 of Title 23 of the US Code to make bond-related costs eligible for Federal reimbursement on any Federal-aid project eligible under Title 23, U.S.C. The definition of construction was also revised in 23 U.S.C. 101 to include a reference to bond-related costs. These are the Federal legislative actions that established GARVEE bonds as a tool available to states.

More about GARVEEs in the Financing section of the BATIC Institute website

Before issuing GARVEE bonds states must first enact enabling legislation allowing them to collateralize transportation funds received from the Federal government. The examples below provide summaries of and links to GARVEE enabling legislation passed in several states. The selected legislation is predominantly from the late 1990s or early 2000s; this is due to the fact that many states chose to act quickly after federal legislation granted authority to use GARVEEs as a financial tool. The BATIC Institute is unaware of any “recent” examples of state GARVEE enabling legislation.

ARIZONA GARVEE LEGISLATION

The links below provide the sections of the Arizona Code pertaining to the use of GARVEE bonds in the state. Arizona was one of the first states to issue GARVEE bonds.

§28-7611 – Definitions
§28-7612 – Grant anticipation notes
§28-7613 – Refund
§28-7614 – Limitations
§28-7615 – Application of grant revenues; grant anticipation notes fund; payment of notes
§28-7616 – Use of proceeds
§28-7617 – Nature of grant anticipation notes; limited obligation

ARKANSAS GARVEE LEGISLATION

The 82nd Arkansas General Assembly (1999) first granted GARVEE authority upon the passage of HB 1500 and 1548 (Acts 1027 and 1028). This legislation was developed with broad-based support. Act 1027, which was approved by voters by a nearly 4 to 1 margin in a statewide election June 15, 1999, enables the state to take advantage of the GARVEE provision passed in 1998 by Congress as part of a new Federal highway bill.

Subsequent Arkansas Highway Financing Acts provide authority for the use of GARVEE bonds, most recently the Arkansas Highway Financing Act of 2011 (Ark. Stat. Ann. §§27-64-504 et seq.).

CALIFORNIA GARVEE LEGISLATION

In 1999, the California Legislature, in cooperation with the California Transportation Commission (CTC), the state DOT and regional transportation agencies, passed legislation to authorize the use the GARVEE bonds to accelerate funding for eligible and designated transportation projects. Cal. Government Code §§14550 et seq. established guidelines for project eligibility and the implementation of GARVEE bond funding allocations and enacted related technical provisions.

COLORADO GARVEE LEGISLATION

The Colorado Legislature passed legislation in 1999 creating a section of state code titled Transportation Revenue Anticipation Notes, located in Colo. Rev. Stat. §§43-4-701 et seq.

FLORIDA GARVEE LEGISLATION

The General Florida GARVEE Statute (Fla. Stat. §215.616), describes the way in which the GARVEE program is administered in Florida. It was first passed in 1999.

IDAHO GARVEE LEGISLATION

The State Legislature approved S.B. 1183 in April 2005, enabling the state to issue GARVEE bonds. Idaho has used GARVEEs to support the Connecting Idaho Vision providing a 2,076-mile network of high performance roadways in the state. The following are relevant sections of the Idaho Code:

Section 40-315 establishes the duties and powers of the Idaho Transportation Board and list of eligible projects. Subsequent 2007 legislation established sole authority to allocate GARVEE bond proceeds to the Idaho Transportation Board. The legislature retained the authority to approve a total GARVEE bond amount on an annual basis.
Section 40-702 defines procedures for the deposit of Federal transportation funds into Idaho State Highway Account.
Section 40-707 enables the use of State Highway Account fund to pay GARVEE debt service.
Section 40-718 establishes GARVEE debt service and capital project funds.
Section 67-6206 establishes the authority for the Idaho housing and finance association to enter into financial agreements for the purpose of transportation projects. Additionally grants the association the power to issue bonds for transportation as recommended by the transportation board.
Section 67-6210 defines the roles and authority of the Idaho Housing and Finance Association and the Idaho Transportation Board in issuing GARVEE debt.

LOUISIANA GARVEE LEGISLATION

La. Rev. Stat. Ann. §27 was established by the Grant Anticipation Revenue Vehicle Act of 2002, and provides authority to the State Bond Commission to use GARVEE bonds. Subsequent legislation in 2015 refined this section of code.

State Infrastructure Bank (SIB) Legislation

SIBs can provide many types of financial assistance, ranging from loans to credit enhancements. Forms of assistance may include interest subsidies, letters of credit, capital reserves for bond financing, construction loans, and purchase and lease agreements for highway and transit projects.

More about SIBs in the Financing section of the BATIC Institute website.

States that have recently enacted legislation enabling SIBs are listed below.

• In 2014, lawmakers in Louisiana (La. Rev. Stat. Ann. §§48:81 et seq.) and New Hampshire (N.H. Rev. Stat. Ann. §21-L:19, L:20 & L:21) voted to create state infrastructure banks in their states.
• In 2015, the Alabama Legislature enacted legislation (AL SB 111) to create a state infrastructure bank and enacted amendment in 2018 (AL SB 100).
• In 2016, New Jersey enacted NJ A 10 establishing a State Transportation Infrastructure Bank and made revisions in 2018 (NJ S 2645) and 2020 (NJ A 5972).

The following examples provide brief overviews of several, more mature SIBs, along with links to the enabling legislation that established them.

FLORIDA SIB LEGISLATION

According to the Florida DOT’s SIB website, Florida was selected as one of ten initial states to create a SIB under the National Highway System (NHS) Act of 1995. The Florida SIB began as a revolving fund loan program, and evolved over time through a series of legislative acts between 2000 and 2007. The DOT website provides extensive documentation on the SIB program and the projects it has supported, together with links to related legislation and statutes.

Fla. Stat. §339.55
Fla. Stat. §215.617

MINNESOTA SIB LEGISLATION

The Minnesota Department of Transportation established the Transportation Revolving Loan Fund (TRLF) in 1997. The TRLF operates much like a commercial bank providing low interest loans to cities, counties, and other governmental entities for eligible transportation projects. When the loans are repaid, the funds are returned to the TRLF and used to finance additional transportation projects.

The TRLF was created by Minn. Stat. §446A.085. TRLF’s comprehensive web site provides information on all aspects of its activities, including a listing of all TRLF loans and the projects they support.

TEXAS SIB LEGISLATION

First created in 1995 as one of ten initial pilot SIBs, the Texas SIB was established to encourage public and private investment in transportation facilities both within and outside of the state highway system, including facilities that contribute to the multimodal and intermodal transportation capabilities of the state. The SIB is also intended to develop financing techniques designed to:

• Expand the availability of funding for transportation projects and to reduce direct state costs
• Maximize private and local participation in financing projects
• Improve the efficiency of the state transportation system

The Texas DOT’s website provides additional information about their SIB. Tex. Transportation Code Ann. §§222.071 et seq. contains the statutory language providing authority for the SIB.

This section of the BATIC Institute website provides information on the approvals and authorization legislation needed at the state and local level in order for departments of transportation to issue debt financing. This type of legislation also codifies the process and procedures for doing so. As such, it must reflect the unique institutional structures that are in place from state to state. While debt authorization legislation can be expected to cover the same general issues, the specific arrangements used to address vary by state. Often 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.

Several examples since 2015 illustrate programmatic bond authorizations for certain amounts or durations. More general debt authorization legislation examples follow for Arizona, Florida, and Virginia.

RECENT BONDING PACKAGES

• Connecticut (SB 1501) authorized $2.8 billion in bonds over five years to support the Let’s Go CT initiative, a 30-year program to upgrade the state transportation network.
• Massachusetts (HB 3187) was unanimously passed by both the House and Senate on the same day. The initiative provides municipalities funding to construct or reconstruct their transportation networks. The state will issue up to $200 million in new general obligation bonds to provide reimbursement to localities.
• Mississippi (HB 1630) authorized $200 million of state revenue bonds for the repair and construction of bridges on the state highway system. Repayment of the bonds will be supported in part by gaming funds dedicated to transportation.
• Maine (LD 1415) authorized $85 million in bonds for transportation projects, contingent upon voter approval in a statewide ballot initiative. Voters approved the measure in November 2015 with 73% in favor of the bonding package. $68 million is available for highway projects and $17 million for ports, harbors, aviation and other various types of surface transportation projects. Overall, voters have approved similar bond packages in seven of the past eight years. Specifically since 2015, these include $100 million (LD 1694) in 2016 for highways and bridges, as well as ports, harbors, marine transportation, freight and passenger railroads, aviation, transit and bicycle and pedestrian trails; $105 million in 2017 (LD 1552); $106 million in 2018 (LD 1815); and $105 million in 2019 (LD 1850). The funds are being used to match an estimated $137 million in federal funding.
• In 2017, Utah (SB 277) authorized $1 billion in general obligation bonds for state transportation facilities over four years.
• In 2019, Massachusetts enacted a bill (H 69) authorizing $1.5 billion in bonds for state highways, $200 million for roads in cities and towns, and $200 million for rail transit.

ARIZONA REGIONAL AREA ROAD FUND BONDS

The Arizona Regional Area Road Fund (RARF) is bond program for Arizona counties. This legislation allows counties with 1.2 million or more people (currently only Maricopa County) 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 of state law allows registered voters to approve an incremental tax on business activities within the county for a period of up to 20 years. These funds are then deposited in the RARF. Originally authorized for the period 1986-2005, the tax was renewed in 2004 for another 20 years through 2025.

The county in which 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 following sections:

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 technique (Fla. Stat. § 215.615) 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. Its rationale was based on 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 for 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.

VIRGINIA PUBLIC FINANCE ACT OF 1991

The Virginia Public Finance Act of 1991, Va. Code Ann. §§15.2-2600 et seq., codifies the process through which local governing bodies may issue bonds, subject to the approval of a majority of voters within local jurisdictions. The procedures described in this Act are typical of those governing the issuing of local public debt in other states.

The best resources for compiled P3 enabling legislation are the Federal Highway Administration’s Public-Private Partnership (P3) website and the National Conference of State Legislature’s (NCSL) P3 Legislation resources.

The FHWA State P3 Legislation webpage provides an overview and map of states (including Washington D.C. and Puerto Rico) that have enacted legislation enabling the use of P3s in the development of transportation improvements. Links to each states’ statutes and an overview of their enabling acts are provided in a table.

NCSL’s Public-Private Partnerships for Transportation: A Toolkit for Legislatures, published in December 2010, is a comprehensive analysis of legislative and statutory issues surrounding P3s for transportation projects. The toolkit provides expert guidance, dependable counsel and a compilation of best practices to assist state legislatures as they consider whether and how to pursue P3s in their states. An update to the toolkit was released in February 2014.

NCSL’s Public-Private Partnerships for Transportation: Categorization and Analysis of State Statutes, published in 2016, builds on the toolkit by categorizing and analyzing all P3 enabling state statutes. The report provides an overview of nearly 40 key elements of P3 enabling legislation and breaks down each state’s laws to demonstrate which key provisions each includes. Updates to statutes since this publication are captured on the FHWA State P3 Legislation webpage.

When a state or local government embarks on a toll road program, it is likely that new legislation will be required to allow the collection of tolls (typically this is banned on the majority of public sector roads.) Similarly, if private sector involvement is considered, this often needs specific enabling legislation.

Although each agency’s enabling act is unique in some way, the following provisions are common:

• Creation of an authority or commission, including the legal name and nature of the newly created entity
• Scope, purpose, and function of the new entity
• Definition of terms
• Delineation of district within which the entity operates
• Details about the entity’s governing board, including the number, composition, selection or appointment process, compensation, and term of members, voting/procedural rules for governing board action, and meeting requirements
• The legal powers of the commission/authority, including the ability to establish rules and regulations, hire employees, sue and be sued, enter into contracts, construct facilities, acquire property, use the power of eminent domain, and impose fees
• The authority to issue and refund bonds and use tolls and revenues in associated trust indentures
• The authority to set and revise tolls and any applicable guidelines or formulas
• The ability to invest bond proceeds
• Administrative requirements, which may include periodic audits, competitive bidding, annual reports, public notice and/or hearing requirements
• Any constraints or rules on the use of funds
• The rights and remedies of bondholders
• Tax-exempt status of authority property and bonds
• The venue and jurisdiction of legal actions against the authority/commission
• Police powers
• Operating, maintenance, and repair obligations
• Relationship to other entities, e.g., for oversight, reporting, etc.

FLORIDA TURNPIKE ENTERPRISE LAW

The Florida Turnpike Enterprise Law, Fla. Stat. §§338.01 et seq., is a sample of good generic legislation creating a state turnpike authority. The law has several different sections which govern the selection of projects, acquisition of property, bonding, concessions, fiscal management, and related issues.

FLORIDA EXPRESSWAY AUTHORITY ACT AND RELATED PROVISIONS

Traditionally, states and localities have established special purpose authorities to levy tolls on specific facilities. States have a great amount of flexibility in implementing tolls on routes that are not part of the Interstate Highway system. For example, several counties in Florida have developed local toll roads. This is due in great part to state legislation that provides strong support to counties interested in developing toll roads.

The Florida Expressway Authority Act and Related Provisions, Fla. Stat. §§348.0001 et seq., legislation allows counties to create expressway authorities by authority of the county commission. The provisions grant powers and duties to the authority and gives state DOT powers to provide operations and maintenance services for new road infrastructure. This is an innovative measure in that it covenants maintenance services to the expressway authorities, enabling them to provide a gross pledge of the toll revenues for bonding purposes.

Under this legislation, “any county, or two or more contiguous counties located within a single district of the [Florida DOT] may, by resolution adopted by the board of county commissioners, form an expressway authority.” The Act further provides that an authority can enter into a lease-purchase agreement with FDOT which performs certain operational functions on the facility under lease from the authority; upon completion of the lease agreement, title to the facility is transferred to the state. Dade County Expressway Authority in the Miami area is governed by the terms of Chapter 348, Part I, and future toll authorities will be subject to its provisions. Most of Florida’s existing toll authorities were created before the 1990 enactment of this legislation.

MINNESOTA AUTHORITY FOR TOLL FACILITY

The following statutes from Minnesota provide the legal framework for implementing toll roads in that state.
160.85 Authority for toll facility.
160.86 Toll facility development agreements; mandatory provisions.
160.87 Toll facility cost recovery.
160.88 Public toll facilities.
160.89 Toll facility revenue bonds.
160.90 Law enforcement on toll facilities.
160.91 Joint authority over toll facility.
160.92 Toll facility replacement projects.

VIRGINIA HIGHWAY CORPORATION ACT OF 1988

Virginia has several locally developed toll roads, including the Dulles Greenway, which was one of the first privately financed highways in the modern era in the United States. The Virginia Highway Corporation Act of 1988, Va. Code Ann. §§56-535 et seq., authorized the construction of the Dulles Greenway, with the provision that it be supervised by the State Corporation Commission, much like a public utility. The structure established here treats the highway concession like a public utility. The authorities provided in this Act have also been used as the basis for developing public toll roads such as the Chesapeake Expressway.

CITY OF CHESAPEAKE, VIRGINIA CITY CHARTER

Section 2.03 of the Charter of the City of Chesapeake addresses the powers of the city. It includes specific language authorizing the City’s right to operate toll roads. The City is authorized: “To acquire, construct, own, maintain and operate or authorize the construction and maintenance of roads within the city limits, and to charge or authorize the charging of tolls for use of such roads by the public, and to require compensation for such use by public utility, transmission or transportation companies, except as the right to require such compensation is affected by any contract heretofore or hereafter made with the company concerned.”

State and local governments can issue tax-exempt bonds through either established conduit issuers or creation of not-for-profit corporations pursuant to Internal Revenue Service (IRS) Revenue Ruling 63-20. While governments normally prefer to utilize an established entity for conduit issues, IRS Revenue Ruling 63-20 provides a viable alternative and has been used to finance several projects around the country.

A non-profit corporation is a private, non-stock corporation that may be formed under the nonprofit corporation act of a state. The formation does not require special legislation, nor does it require a referendum in the local or sponsoring jurisdiction. Non-profits may be formed for any lawful purpose other than for pecuniary profit, including, without limitation, any charitable, benevolent, educational, civic, or scientific purpose. Non-Profits are regulated by the State Attorney General, act, by state tax authorities for compliance with the requirements relating to their state income tax exemption, and by the Internal Revenue Service for compliance with the requirements relating to their Federal income tax exemption and the issuance of tax-exempt debt.

The following summary of IRS Section 63-20 Ruling establishes the conditions which corporations must meet in order to be considered “non-profit” organizations.

A. 63-20 Rev. ruling

• Entities issuing bonds on behalf of a State or local government. If an entity fails to satisfy the requirements necessary to be treated as a political subdivision, it may still issue tax-exempt obligations if in so doing it is deemed to be acting on behalf of a state or local governmental unit. See Rev. Rul. 77-164; Philadelphia National Bank v. United States, 666 F.2d 834 (3rd Cir.)
• Qualifying issuers
  • Constituted Authorities: Entities specifically authorized by state law to issue bonds on behalf of political subdivisions of a state. In Rev. Rul. 57-187, industrial development boards were authorized by state law for incorporation in municipalities to promote industry and develop trade. Criteria
    • the issuance of bonds must be authorized by a specific state statute:
    • the bond issuance must have a public purpose (which includes promotion of trade, industry and economic development);
    • the governing body of the authority must be controlled by the political subdivision;
    • the authority must have the power to acquire, lease, and sell property and issue bonds in furtherance of its purposes;
    • earnings cannot inure to the benefit of private persons; and
    • upon dissolution, title to all bond-financed property must revert to the political subdivision.
  • 63-20 Corporations. The so-called “63-20 corporations” are corporations formed under general state nonprofit corporation law the obligations of which are treated as issued on behalf of a political subdivision. Such corporations typically would not otherwise be “constituted authorities”. Criteria
    • the corporation must engage in activities which are essentially public in nature;
    • the corporation must be one which is not organized for profit (except to the extent of retiring indebtedness);
    • the corporate income must not inure to and private person;
    • the state or a political subdivision thereof must have a beneficial interest in the corporation while the indebtedness remains outstanding and it must obtain full legal title to the property of the corporation with respect to which the indebtedness was incurred upon the retirement of such indebtedness; and,
    • the corporation must have been approved by the state or a political subdivision thereof, either of which must also have approved the specific obligations issued by the corporation. Requirement that the sponsoring political subdivision have a beneficial interest in the 63-20 corporation while its bonds are outstanding and that it obtain full legal title to the 63-20 corporation’s property upon retirement.
    • the [sponsoring governmental] unit may not agree or otherwise be obligated to convey a fee interest in the property to any person who was a user of the property to any person who was a user of the property or a related person…within 90 days after the unit defeases the obligations…;
    • a reasonable estimate of a fair market value of the property on the latest maturity date of the obligations…is equal to at least 20 percent of the original cost of the property financed by the obligations …, and viii. a reasonable estimate of the remaining useful life of the property on the latest maturity date of the obligations… is the longer of one year or 20 percent of the originally estimated useful life of the property financed by the obligations.”
• Limits on use of 63/20 In Philadelphia National Bank v. United States, 666 F.2d 834 (ed Cir. 1981), the court interpreted Reg. section 1.103-1(b) with respect to entities issuing bonds on behalf of political subdivisions. The issue was whether loans made to Temple University by a private bank, which were obtained to defray operating expenses while the university awaited legislative appropriations, were obligations issued on behalf of the State of Pennsylvania. The court cited White’s Estate, 144 R.2d 1019 (2nd Cir. 1944), cert. denied. 323 U.S. 729 (1945), for the proposition that entities issuing bonds on behalf of political subdivisions must be acting as alter egos of the political subdivisions, and held that Temple University was not a “constituted authority.” It was not acting as an alter ego of Pennsylvania because there was “no identity of interest, control or intent” between the University and the State.