State Infrastructure Banks (SIBs)
A State Infrastructure Bank (SIB) is a revolving fund that is established and operated by a State (usually a State Department of Transportation Office). It has the capacity to offer direct loans and various types of credit enhancement products to surface transportation infrastructure projects. Federal and State funds are used to capitalize the SIB. A percentage of Federal funds are transferred from specific modal accounts, and these funds are matched with State money in a prescribed ratio.
How SIBs work
On August 10, 2005, the Safe, Accountable, Flexible, Efficient Transportation Equity Act (SAFETEA-LU; P.L. 109-59) surface transportation reauthorization legislation was signed into law. This legislation continues the existing SIB program, but expands program eligibility to all States and U.S. territories. Since the program’s inception in 1995, thirty-nine SIBs have been established and thirty-three have completed some type of financial assistance. Kansas established a State-only SIB in 2004 and structured it to meet Federal requirements. Twenty-one States established transit accounts dedicated to assisting public transportation projects, and eight have completed transit oriented loans.
In order to initiate a SIB, a cooperative agreement must be negotiated between the State and each Federal modal agency that the State wishes to include in its program. Some States may need to seek the approval of their legislature in order to legally establish their SIB program.
Just like a commercial bank, SIBs require administrative and managerial resources. The program and its financial products must be marketed to potential loan applicants, and appropriate accounting controls must be used to track loan repayments. SIBs must design and implement their application and lending procedures and decide on lending policies and priorities.
How SIBs Help with Project Finance
SIBs can provide the following advantages over relying entirely on grant based financing:
- Accelerated project delivery. Many transportation projects generate user fees that are sufficient to repay borrowed funds. By borrowing funds, a project can quickly begin construction rather than wait for grant money to materialize.
- Financial plan completion. Insufficient State grant funds may necessitate the use of borrowed funds in order to complete a proposed financial plan. In some cases SIBs have been able to lend projects the required Federal project match, in anticipation of forthcoming grant funds. In addition, SIBs can be used in conjunction with other USDOT lending programs such as TIFIA in order to facilitate project financing.
- Lower borrowing costs. SIBs are able to offer loan guarantees or pay bond insurance premiums. These credit enhancements enable lenders to reduce interest rates for debt. SIBs are also able to offer below market interest rate to loan applicants.
More information on SIBs is available on FTA's website:
- SAFETEA-LU SIB Fact Sheet (PDF)
- 2005 Report: Update on State Infrastructure Bank Assistance to Public Transportation (PDF)
- 1998 Report: Innovative Financing Techniques for America's Transit Systems - Chapter 4: State Infrastructure Banks
Additional information on SIBs is also available on the Federal Highway Administration's (FHWA) website.