Transportation officials at all levels of government are challenged to identify effective ways to pay for improvements to the current transportation infrastructure system. Due to the declining motor fuels tax revenues, traditional funding sources have not kept pace with the investment demands of an aging U.S. transportation system. Moreover, state and local budgets are strained by competing demands of public employee pensions and rising health-care costs. In response to the declining financial resources for transportation infrastructure, a set of innovative finance tools have been introduced by the federal government to complement the conventional grant-based funding mechanism. One type of innovative transportation finance tool is the State Infrastructure Bank (SIB), which was authorized by the National Highway System Designation Act of 1995. Much like a private bank, a SIB uses seed capitalization funds to get started and offers low-interest loans and non-grant forms of credit enhancement to public and private sponsors of local transportation projects. Loan repayments from existing local borrowers are revolved and available for future lending. Through effectively forming a state-local financing partnership, SIBs can leverage their equity funds to increase local transportation investment.  

Many states have been successful in leveraging SIBs to stretch scarce resources for financing local transportation projects.  As of September 2012, 33 states (and Puerto Rico) had active loan programs through SIBs, having issued 1,134 loans, for a total loan amount of nearly 9 billion. Given such popularity and innovation in state transportation finance, an empirical evaluation of the effectiveness and financial performance of SIBs is both necessary and timely.  To date, no study has examined the leveraging effect of SIBs on local transportation investment.  To fill the gap that exists in current literature, the primary purpose of this paper is to explore the extent to which SIB loans leverage local transportation investment. Using panel data consisting of loans made by the ten most active SIBs from 1998-2012, the author will build an econometric model to estimate the leveraging effect of SIB loans on local transportation investment while controlling for a series of variables regarding the political, organizational, financial, and managerial factors in the setting and operation of SIBs.

This research will contribute to the field of innovative infrastructure finance in several ways: to expand our understanding of the role of SIBs in leveraging local transportation investment, to explore how institutional factors of the SIBs matter, and to offer policy suggestions for the design and administration of financially sound SIBs.