To help stretch federal and state funds, the Department of Transportation is conducting a pilot program for "state infrastructure banks."

Created in April, the pilot banks in 10 states may be capitalized with up to 10% of their state's federal transportation funds and additional state funds. For instance, the Texas infrastructure bank has $160 million in capital, $80 million from Uncle Sam and $80 million from the state.

Excited about the banks' potential for funding highways, bridges, tunnels, and other infrastructure projects, Congress committed an additional $150 million in September and opened participation in the program to all states.

Once capitalized, the infrastructure banks may offer a range of loans and credit options, including low-interest loans, loan guarantees, or loans with delayed repayment of principal. As loans are repaid, the fund is replenished, and ready to finance new projects.

Allowing these infrastructure banks to provide loan guarantees to investors also helps leverage government money by attracting private-sector capital to infrastructure projects.

"One of the main points of this (program) is to attract the private sector," said Gary Jones, an assistant director at the General Accounting Office.

James H. Chessen, chief economist at the American Bankers Association, questioned the need for such financing services by government-created banks.

"Why create a government bureaucracy, which could potentially be costly, when the private banking industry is capable of meeting these needs," he said. "Once these programs are created, they can be difficult to dismantle even if they prove not to be cost-effective."

But Bill Campbell, a director at the Texas Department of Transportation, said these infrastructure banks are not competing with commercial banks.

"The word 'banks' is just a title and shouldn't be confused with the role played by commercial banks," he said. "We are not competing with banks in any sense of the word, since we don't share the same customers."

The GAO recently tried to evaluate the infrastructure banks operating in 10 states today, but concluded it is too early to analyze their financial condition. The congressional watchdog agency recommended that a review of the program scheduled for March 1997 be delayed to give the banks a chance to mature.

The 10 states participating in the pilot program are: Arizona, California, Florida, Missouri, Ohio, Oklahoma, Oregon, South Carolina, Texas, and Virginia.

In Texas, which like most big states is particularly strapped for cash, current state and federal funding can cover only about 40% of requested projects. State transportation officials are hoping that the banks will fill the financing gap. They also anticipate that the funds will speed projects along, because contractors won't have to wait for annual appropriations from the government.

Public spending on highways and bridges totaled $40 billion in 1993, the most recent year data were available. The Transportation Department estimates another $16 billion a year is needed just to maintain the condition of the nation's highways, according to the GAO report.

Traditionally, cities and counties pick up much of the cost of transportation projects and finance them through bond issues and local tax increases. The infrastructure banks were created because such measures increasingly have become unpopular with voters.

Ms. Trower writes for the Medill News Service.

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