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As this report was being drafted, new transaction types were being implemented, or were under consideration. For example, in February of 1996 the first Lease/leaseback of transit rolling stock was undertaken by the San Diego Transit Authority. This complex transaction involved the lease of San Diego's light rail cars to an investor, which created a lease interest that could then be leased back to the transit system. That sub-lease was considered an economic instrument, and could thus be amortized in the same way as an intangible asset. This transaction was adapted from the movie industry, and has subsequently been used with transit rolling stock and facilities valued at more than $2 billion.
The State Infrastructure Bank program is likely to generate more innovations, as States realize its usefulness in completing transportation projects that have more than public benefits. As the SIBs become more mature, and more fully capitalized, they may play a major role in intercity transportation, interstate freight infrastructure, and harbor projects. And, as the SIBs begin to recoup fees and interest on loans and credit enhancements, the range of projects eligible for SIB support will grow. It is quite possible that SIBs could provide interim or construction financing to a major light rail turnkey project, then help to finance joint development projects along the completed light rail system some years later.
The Surface Transportation reauthorization bill, NEXTEA, contains a proposal to establish a "Revenue Enhancement Reserve Fund." This fund, established through a new grant authorization, would allow a major infrastructure project--a project of national significance--to apply for a grant to establish a revenue enhancement reserve. This reserve would be used to make loan repayments if revenue projections of the infrastructure project were not realized. This would be a particularly valuable program for major light rail turnkey projects which, by their very nature, have significant economic and congestion mitigation impacts as well as uncertain costs and revenue projections. Grant funds would be deposited into the fund, which, if not needed to make loan payments, could be used for any other transportation purpose once the project was completed.
But where is all this going?
The reality is that transit investment each year falls behind the level required to maintain current conditions by as much as $5 billion. The highway investment shortfall is in excess of $20 billion per year. States, Counties and cities will have to use every means at their disposal to even make a dent in this kind of investment shortfall. "Pay-as-you-go" will take on a whole new meaning.
Rather than accumulating funds until the project can be paid for in cash, States and cities will have to calculate how much revenue will be generated by the project and plan to pay for the project on that basis. Pay-as-you-go will mean depreciating assets as they are used, and financing their replacements on that basis. Pay-as-you-go will mean passing public referenda that link transportation improvements with the land and the community that they serve, so that people pay for these improvements on an annual basis (such as a Benefit Assessment) or as they use them (i.e. through user charges).
As demonstrated in the COPs transactions, Grant Anticipation Notes, and the Advance Construction Authority, projects that are "ready" tend to rise in price the longer they are delayed. Stated in the obverse, every year that a needed project can be accelerated will save the public at least inflation costs. If it is a revenue-producing project, such as a joint development, toll-road, or multi-modal center, then every year's delay also postpones potential revenues. On $1 billion of potential investment, a one-year advancement in projects will save $50 million at least. It will also allow the projects to collect revenues that much sooner. This is a capability that States and municipalities can no longer ignore.
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