Pass-Through Financing

Introduction

How Will This Help?

• Reduces upfront costs for the public agency. Pass-through financing allows a partner to pay the initial costs of the project and be reimbursed by the agency.
• Is not affected by increased fuel efficiency. Fuel tax revenues will likely decrease over time. The expected growth in future population means more people traveling on the roadways and using more fuel. However, today’s more fuel-efficient cars and trucks pay lower fuel tax per mile than when the tax rates were last set 20 years ago. As vehicles become more fuel efficient and alternative-fuel vehicles become more common, the number of gallons needed to go the same distance will decrease. Benefits such as less pollution and the ability to travel farther per gallon are gained. However, the resulting decrease in fuel use means less gas and diesel tax revenue to cover rising transportation needs. Creative financing strategies will help slow the effects of decreasing fuel tax revenues.
• Offers many sources for repayment. Payments can be made from multiple sources. No single revenue is dedicated to the expense.
• Reduces toll collection costs by eliminating the need for toll collection facilities.

Implementation Examples

FM 1488 in Montgomery County, TX
The improvement of FM 1488 in Montgomery County, from FM 2978 to IH 45, is considered the first pass-through financing project let in Texas. This project involved widening a two-lane rural roadway to a four-lane roadway with a continuous turn lane for a total length of 7 miles. Montgomery County agreed to pay for this widening project and will be reimbursed by the state based on the number of motorists that travel on the improved highway.

El Paso, TX
TxDOT will reimburse a private contractor a fixed dollar amount per vehicle that drives on Spur 601, a 7.4-mile roadway upgrade between US 54 and Loop 375.

Weatherford, TX
TxDOT will reimburse the City of Weatherford through an agreed-upon per-vehicle fee to design, build, and inspect nine separate highway segments, totaling 7.5 miles.

Issues

• Permitted uses of the revenue and the authority responsible for oversight may vary from county to county depending on the enabling legislation.
• This method shifts roadway construction costs to a later year; it is not a method for increasing revenue for transportation. TxDOT would still have to provide funds to make the payment.
• The state reimburses the funding partner as travelers use the facility. The speed of this repayment can vary from project to project depending on the number of travelers using the facility. Repayment is quicker with higher use.
• Little evidence suggests that these payments are cheaper than traditional state funding. Direct government financing is considered more efficient because governments can borrow at much lower rates and do not have to provide shareholder profits.

For More Information