Grant Anticipation Revenue Vehicle (GARVEE) Bonds
The New Jersey Department of Transportation (NJDOT) and the New Jersey Transportation Trust Fund Authority from time to time face a critical need to fund high cost road and bridge
replacement projects over a span of several years. Most of these projects cost more than $100 million and are
eligible for federal aid, but the costs consume a major portion of the federal capital program in the year they are
ready for contract award.
Furthermore, all federal aid projects must be budgeted and approved by the three metropolitan planning organizations
(MPOs) that cover the state. These "mega-projects" are likely to exceed the budget of the MPO where the project is
located. If the project is financed in a traditional manner, the other MPOs would have to agree to release funding for
their projects to cover it.
The Federal Highway Administration (FHWA) provides various types of innovative financing techniques to address this type of problem. One popular
option used in a number of states across the country is through the use of Direct Grant Anticipation Revenue Vehicle (Direct GARVEE) bonds. Under this mechanism, FHWA authorizes a project
agreement that reimburses the state for annual project debt service over a number of years rather than construction outlays. Charging only project
debt service costs against the annual federal appropriation allows the high cost projects to advance without negatively impacting all the other
critical projects that are ready for delivery and without requiring major reallocations of federal funding between MPOs.
Under the GARVEE program, a state agency issues the GARVEE bonds that provide the funds to cover initial construction outlays. Future federal
appropriations are pledged to pay debt service on the GARVEE bonds. The state can decide whether additional revenues beyond federal appropriations
will be pledged to provide security to the GARVEE bond holders. GARVEE bond maturities are flexible.
Another option under the GARVEE program is through the use of Indirect Grant Anticipation Revenue Vehicle (Indirect GARVEE) bonds. For Indirect Garvees, the state agency issuer submits eligible project expenses to the Federal Highway Administration (FHWA) for reimbursement, and a portion of such reimbursements is used to pay the resulting debt service on the Indirect Garvees. Indirect GARVEE bonds are typically used to finance a series of future projects, the exact details of which have yet to be determined.
On October 26, 2016, TTFA issued approximately $2.7 billion in Indirect GARVEE notes (2016 Series A) which were publicly offered and $.5 billion in Indirect GARVEE notes (2016 Series B) which Series B Notes evidenced a term loan made to the Authority. These resources were expected to pay for project expenses for FY 2017 through FY 2018.
On July 25, 2018 the Authority refunded $1.3 billion of 2016 Series A Indirect Garvee notes, which yielded approximately $124 million in net present value debt service savings.