Background
Using GARVEES
GARVEE Transaction Summary
2005 GARVEE Activity
2004 GARVEE Activity
2003 GARVEE Activity
Resources
Legislation and Regulation
Projects and Case Studies

A GARVEE is a designation applied to a debt financing instrument that has a pledge of future Federal-aid for debt service and is authorized for Federal reimbursement of debt service and related financing costs. This financing mechanism generates up-front capital for major highway projects that the state may be unable to construct in the near term using traditional pay-as-you-go funding approaches.

The 1995 NHS Act was a significant enabler for GARVEEs, expanding the eligibility of debt financing costs for Federal-aid reimbursements. States can receive Federal-aid reimbursements for a wide array of debt-related costs incurred in connection with an eligible debt financing instrument, such as a bond, note, certificate, mortgage, or lease, the proceeds of which are used to fund a project eligible for assistance under Title 23. The issuer may be a state, political subdivision, or a public authority.

This change to the Federal-aid program was codified into permanent highway law as an amendment to Section 122 of Title 23 U.S.C. Bond-related costs now eligible for Federal-aid reimbursement include interest payments, retirement of principal, and any other cost incidental to the sale of an eligible bond issue. Other legislative and administrative changes, such as the continuation of advance construction beyond the current authorization and the creation of partial conversion of advance construction, have also facilitated state issuances of GARVEEs.

Transit agencies are using similar mechanisms to borrow against future Federal-aid funding. While transit financings are quite similar to the GARVEE type instruments, the transit debt mechanisms are know as Grant Anticipation Notes (GANs).

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GARVEEs are generally used in conjunction with advance construction, to enable using Federal-aid funds for future debt service payments. The GARVEE bond technique enables a state to accelerate construction timelines and spread the cost of a transportation facility over its useful life rather than just the construction period. The use of GARVEEs serves to expand access to capital markets, as an alternative or in addition to potential general obligation or revenue bonding capabilities.

In March of 2004 the Federal Highway Administration updated its GARVEE Bond Guidance, replacing the earlier guidance issued in August 2000. There are significant changes in two areas. The "Project Approval," section now clarifies the use of bond proceeds and other Federal funds on the same project. The "Eligible Debt Financing Instruments and Bond-Related Costs" removes arbitrage rebates as an eligible cost and adds explanations on the eligibility of a debt service reserve fund and the "Transportation Conformity" section.

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Since 1997, 14 states plus Puerto Rico and the Virgin Islands have issued GARVEE bonds, totaling $4.8 billion as shown in the table and map below. As of January 2006, a total of 32 individual transactions have taken place.

As shown in the map below, as of November 2005 GARVEE bond transactions have been issued in 14 states and two U.S. territories:

• Alabama
• Alaska
• Arkansas
• Arizona
• California
• Colorado
• Kentucky
• Maine
• Montana
• New Mexico
• North Dakota
• Ohio
• Oklahoma
• Puerto Rico
• Rhode Island
• Virgin Islands

An additional nine states have authorized GARVEE bonding authority:

• Florida
• Georgia
• Idaho
• Maryland
• Michigan
• Nevada
• Oregon
• Texas
• Virginia

Two states are considering or seeking authority to issue GARVEE bonds:

• Louisiana
• Missouri

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The following four states issued GARVEEs in 2005:

• In April, Montana issued $122.8 million in GARVEEs to finance reconstruction of U.S. 93 across the Flathead Reservation, from just north of Missoula to Poulson near the Canadian border. The GARVEE proceeds are enabling more rapid reconstruction of this critical road, named “The People’s Way.” This issue received underlying ratings of Aa3 and A+ from Moody’s and Standard & Poor’s respectively, and is insured by MBIA.

• In May, Kentucky issued $139.6 million in GARVEE notes that have maturities ranging from 2005 through 2017. This issue was the first tranche of a phased GARVEE program that focuses on the widening of the Interstate 65, Interstate 75, and Interstate 74 from three to six lanes. The notes are insured by MBIA Insurance Corporation and received underlying ratings of AA- from Fitch Ratings and Standard & Poor’s and Aa3 from Moody’s Investors Service. The Kentucky General Assembly has approved a total program of $400 million for these three widening projects that will increase the state’s ability to accommodate freight and people movement. Future bonds will have to be individually authorized.

• In August, Oklahoma issued an additional $48.9 million in GARVEE bonds as part of the financing for the Governor’s identified 12 corridors of “economic significance.” The first GARVEE issue of $50 million was sold in March 2004. These issues are part of an anticipated $799 million program authorized by the legislature in 2000, of which $500 million is expected to funded with GARVEE bonds. Within these corridors, the state is expecting to issue a total of $300 million of GARVEE bonds by October 2007, with an additional $200 million planned after that date. It is expected that improvements within these identified corridors will enhance the business climate throughout the state. Examples of the proposed projects include U.S. 77 Broadway Extension in Oklahoma City, I-44 in Tulsa, U.S. 183 from U.S. 70 to I-40 in Southwest Oklahoma, and U.S. 70 from the Arkansas state line to I-35 in Southeast Oklahoma.

• Also in August, North Dakota issued $51.4 million in GARVEE bonds to finance the replacement of a bridge across the Missouri River at Bismarck, and for continued four-lane construction on U.S. 2. The issuance, the first for the state, received underlying ratings of Aa1/AA by Moody’s and Fitch respectively, and is insured by FSA.

Two state also passed enabling legislation for GARVEE bonds in 2005:

• In April, the Idaho legislature passed legislation permitting up to $1.6 billion in GARVEE bonds for Governor Kempthorne’s “Connecting Idaho” program. The program includes 13 corridors across the state, and is slated to compress 30 years of construction into the next six years. The measure places an annual cap on the amount of funds that can be used to repay the bonds, and gives the Idaho Transportation Department a greater role in project selection. The first bond issuance from the program is anticipated in the spring of 2006.

• Also in April, the Maryland General Assembly authorized the issuance of up to $750 million in GARVEE bonds to finance the InterCounty Connector (ICC), a $2.4 billion, 18-mile, limited access, toll road linking U.S. 1 in Prince George’s County to I-270/I-370 in Montgomery County. The financing package for this east-west multimodal highway also includes toll revenue bonds and earmarked funding from SAFETEA-LU.

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• On March 24 Oklahoma issued the first in a series of GARVEE bonds. The $47.575 placement will support projects in 12 corridors around the state and will be used for right-of-way acquisition utility relocation, and construction.

• On March 10, California issued a $615 million GARVEE bond which will finance San Diego’s I-15 managed lanes; Riverside Counties SR-60 and Sr-91/I-215 projects, three projects in anta Clara county (I-880, and SR-87 North and South) and three projects in Los Angeles county (I-5 HOV Lanes, I-405 Auxiliary Lanes, and the I-405/Highway 101 Gap Closure). This was California’s first GARVEE issue.

• On April 6 Puerto Rico priced its first series of GARVEE bonds as part of a $621 million issue. Part of the $136 million placement will be used to fully fund a debt service reserve fund.

• In April New Mexico issued a $700 million GARVEE issue to refinance existing debt and fund new construction. The sale funded Governor Richardson’s Investment Partnership (GRIP), which is a $1.5 billion program of highway and mobility projects throughout the state.

• In mid-May Arizona issued $51 million in Grant Anticipation Notes (GANs) to fund its share of the cost to construct the Hoover Dam Bypass Bridge

• On May 17, Colorado issued $134.6 million in Transportation Revenue Anticipation Notes (TRANS). This is the culmination of the states’ multi-billion dollar GARVEE program and will be used to support the reconstruction and widening of I-25 in Colorado Springs, pending environmental approvals.

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Four GARVEE transactions were issued in 2003. They include a $100 million issue for projects not financed wholly or in part by Federal funds, a $149 million issue for highway improvements in Maricopa County, Arizona, a $103 million issue for eight road and bridge project in Alaska, and a $217 million issue for freeway, bridge, and freight rail improvements in Rhode Island.

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• March 2004 GARVEE Bond Guidance
  In March of 2004 the Federal Highway Administration updated its GARVEE Bond Guidance, replacing the earlier guidance issued in August 2000. There are significant changes in two areas. The "Project Approval," section now clarifies the use of bond proceeds and other Federal funds on the same project. The "Eligible Debt Financing Instruments and Bond-Related Costs" removes arbitrage rebates as an eligible cost and adds explanations on the eligibility of a debt service reserve fund and the "Transportation Conformity" section.

• This article from the Winter 2004 FHWA Innovative Finance Quarterly describes Rhode Island’s $217 million bond program that has been deployed to support five major improvements. The state has developed a multi-year bond strategy using both GARVEE instruments and Motor Fuel Tax Revenue bonds. Current plans call for the state to issue a maximum of $710 million in GAVREE bonds and up to $125 million in Motor Fuel bonds.

• As can be seen above, GARVEE bonds are funding important transportation improvements in all areas of the United States. This article from the Winter 2003 FHWA Innovative Finance Quarterly describes the Virgin Islands sale of $20.8 million in GARVEEs secured by future Federal highway reimbursements, as well as Alaska’s 2003 issue.

• In May 2003, the California Transportation Commission (CTC) approved the final GARVEE guidelines developed by the California Department of Transportation (Caltrans), paving the way for the state's first planned $551 million issue in January 2004. This article provides details on the state’s proposed half billion dollar program.

• This article tracks the GARVEE issues from 2001 through 2003 in both Arizona and Colorado

• This document, issued by the FHWA in August 2000, provides specific GARVEE bond guidance for implementing the provisions of Title 23, Section 122, enabling reimbursements to states for bond

• This document is the Memorandum of Agreement between the FHWA and the Colorado Department of Transportation (CODOT) that establishes accounting and payment procedures for debt service reimbursements from the Federal government to CODOT.

• Read an article from the FHWA addressing the following topics:
  • What's New About GARVEEs?
  • How Do GARVEEs Work?
  • Are GARVEEs Marketable?
  • Are There Tax Considerations?

• Standard and Poor's. The site of this well known ratings agency provides timely discussions of ratings criteria for a variety of bond instruments. To read about S&P's assessment of grant anticipation instruments, query "grant anticipation" using the site search function.

• Consult this easy to reference list of frequently asked questions to learn the ins and outs of GARVEE features, eligible projects, eligible sponsors, and eligible projects, as well as planning and accounting guidelines for GARVEEs.

• This document, issued by the FHWA in August 2000, provides specific GARVEE bond guidance for implementing the provisions of Title 23, Section 122, enabling reimbursements to states for bond and other debt instrument financing costs.

• Report From California Legislative Analyst's Office
  This article about GARVEEs from California's Legislative Analyst's Office appeared in August 1999. Aside from general background information about GARVEEs, it provides an insightful accounting of their pros and cons, as well as a useful discussion about whether or not the state should use GARVEEs.

• Read about efforts in five states to use GARVEE bonds.

• Read about TRANS stands for Transportation Revenue Anticipation Notes in CO

• Read the FITCH credit report on the New York Metropolitan Transportation Authority (MTA) dedicated tax fund (DTF) bonds. The MTA is one of the largest users of debt finance in the United States and its DTF bonds rely on revenues received from a basket of fees and taxes, including motor fuel taxes, motor vehicle fees, the petroleum business tax, business tax surcharges, franchise taxes and district sales taxes.

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• Section 122 of Title 23, United States Code, codifies into permanent law the 1995 NHS Act provisions that make bond-related costs eligible for Federal reimbursement on any Federal-aid project eligible under Title 23.

• Fact Sheet on Transportation Equity Act for the 21st Century Funding Provisions
  (Details on enhanced security features of Federal-aid funding)

• Read the California Government Code sections pertaining to the GARVEE Program (Code Sections 14550-14555.9), last modified in November 2003

• See legislation passed in Colorado to allow GARVEEs
  Scroll down to H.B. 99-1325

• GARVEE legislation in Virginia (FRANs); See HB608

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The following projects that have used GARVEE bonds:

• Butler Regional Highway (Butler County, OH)
• New Mexico I-44
• T-REX Transportation Expansion Project (Denver, CO)

This article from Innovative Finance Quarterly presents a comparison of three different ways that states can structure a GARVEE-type debt instrument. The three projects compared are Ohio's Spring-Sandusky Interchange, New Mexico's Corridor 44, and Massachusetts's Central Artery/Tunnel. The discussion focuses on differences between "direct" and "indirect" reimbursements, the role of alternate funding sources or revenue streams, and the effect of implementing actions on the debt issued. The article demonstrates how no one structure is inherently preferable and how circumstances specific to a state will help determine which strategies are most desirable.

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