- Briefing Room
Project finance refers to specially designed techniques and tools that supplement traditional highway financing methods, improving governments' ability to deliver transportation projects.
Project finance typically entails borrowing money, either through bonds, loans or other financing mechanisms. Borrowing money for project implementation helps accelerate implementation of needed infrastructure. But just like borrowing money for a mortgage or college education, project finance tools require a repayment source. In many instances, using project finance tools requires the development and imposition of new revenue streams to pay back bonds or loans issued to support investment.
Project finance is typically used for large capital projects in cases where using "pay-as-you-go" does not make good planning and programming sense; that is, because the project's capital needs would consume most if not all available funding - and still often fall short of being fully funded. Further, given long-term benefits of transportation infrastructure, it can be economically sound to spread the project costs over the asset's life-cycle. However, project finance comes at a cost, because interest is paid over the long-term for the money that is borrowed today. But the additional cost of financing might be justified if it is less than the potential project cost increase due to inflation, or it is outweighed by the benefits of having the project available in the near-term.
Project finance has evolved at the Federal level as a product of dialogue between policy and administrative officials at USDOT and partners at the state and local levels. Most of the programs and tools have been enabled by legislative changes to the U.S. Code, Title 23. As transportation finance needs evolve, new tools and programs are likely to add to the field of project finance.