State Infrastructure Banks and Borrowing Costs for Transportation Projects

Abstract

State infrastructure banks (SIBs) are state-run revolving loan funds that offer financial assistance for transportation projects mainly through low-interest loans. This study examines the role of SIBs in transportation finance by investigating the extent to which SIBs provide lower cost borrowing than would be available through the municipal bond market. The authors use a two-step research approach: developing a predictive model to estimate the interest rate for the non-SIB financing alternative of municipal bond financing and then calculating the differential interest rate between SIB loans and municipal bonds. The authors also explore the impact of SIB goals, project type, state aid, and state—local equity on the size of the interest rate savings. The authors find that SIB loan interest rates are lower than those of comparable municipal bonds; the size of this interest rate savings is influenced by the SIB goals and state—local equity concerns.