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Build America Transportation Investment Center (BATIC) Institute: An AASHTO Center for Excellence
Build America Transportation Investment Center (BATIC) Institute: An AASHTO Center for Excellence


A final update to this content was completed in March 2022.

Bonding and Debt Instruments

Municipal/Public Bond Issues

Grant Anticipation Notes (GANS)

Like highway agencies that utilize GARVEEs, transit agencies can also borrow against future Federal-aid funding. While transit bonding is quite similar to highway bonding, the transit bonds are referred to as GANs. A transit agency issues bonds secured with a pledge of Federal-aid assistance, thus amassing up-front capital, and pays down the bonds over a period of time as the Federal funds are received.

Although interest costs for transit revenue bonds had been eligible for Federal reimbursement since Federal authorization legislation enacted in 1982, it was not until the provisions of TEA-21 in 1998 that permitted an agency to issue bonds backed solely or primarily by anticipated Federal formula reimbursements. Firewall provisions established by TEA-21 that separate transportation funding from appropriations for other domestic purposes and simplified interest reimbursement provisions help make it possible for transit agencies to pledge Federal aid as the sole source of repayment, without having to encumber other transit revenue sources. The interest rate allowed in TEA-21, for all capital programs, is the best rate reasonably available at the time of financing.

Federal transit capital funding is apportioned by formula (referred to as "formula funds") or allocated on a discretionary basis ("discretionary funds") by Congress and FTA.

The Federal Transit Administration provides further information on sources of Federal funding for transit programs.


Transit GANS Backed By Formula Funds vs. Discretionary Grants

Formula grant programs allocate funding to states based on population, ridership, and system extent (e.g. route miles, vehicle revenue miles, and passenger miles). FTA's primary discretionary grant program for funding major transit capital investments, including rapid rail, light rail, bus rapid transit, commuter rail, and ferries is the Fixed Guideway Capital Investment Grants (CIG) program.

Within the CIG program's New Starts category (project cost is $300 million or more or total funding sought is $100 million or more) for projects that are offered more than one year's worth of funding, FTA is required to enter into multi-year agreements known as Full Funding Grant Agreements (FFGAs). FFGAs indicate FTA's intention to support a project, up to a specified level of funding. An FFGA will typically specify the maximum level of Federal participation and the schedule of funding for the project (e.g., $400 million, at $50 million per year for eight years). However, FFGAs are subject to appropriation (fulfillment of Federal requirements) and FTA priorities. Each fiscal year, FTA makes recommendations on which projects will receive funding and publishes a notice in the Federal Register indicating the level of funding provided to each project.

While transit agencies may use the discretionary funds provided through FFGAs to repay debt, these funds are not guaranteed to arrive on schedule because they are subject to annual appropriations. Because discretionary funds provided under an FFGA are project-specific, there is limited ability to shift funds between projects in the event of a shortfall.

Thus, the credit risks for a transit GAN backed by a discretionary FFGA may be higher than for a transit GAN backed by formula funding at an equivalent coverage level. A grantee can increase coverage levels by borrowing less than the FFGA amount (essentially providing the coverage required for a good rating opinion) so that even if Congress appropriates significantly less than the budget request, there is likely to be enough of an appropriation to at least cover required debt service.


An example of a past transaction that has explicitly relied on a pledge of future FFGA funding is the Hudson-Bergen Light Rail project in New Jersey. It was supported primarily by a transit GAN, issued against anticipated discretionary funding. As a secondary pledge, the financing was also backed by a pledge from the state's transportation trust fund, in the event that FFGA funds were not forthcoming.