Methods of Federal Funding > Alternative Financing > What is Alternative Financing?

What is Alternative Financing?

In light of the continuing pressure on the Federal budget, it is likely that funds provided through the regular Federal appropriations process will be insufficient to meet the infrastructure and other needs of communities all across America.

In light of this situation, Members of Congress have been working with their constituents to identify innovative methods of financing that would supplement the funding provided through the normal Federal appropriations process.

One approach that is receiving more and more attention is the expanded use of direct Federal loans and Federal loan guarantees as a way of leveraging limited Federal funds.  If the right financing were available, many communities would be able to undertake infrastructure improvements themselves rather than relying on direct Federal funding.  However, often times, resources available through the private sector are not sufficient to make the financing of those improvements affordable.  When the Federal government guarantees those loans, however, interest rates are lowered and the projects become viable.

Another concept being considered for the financing of infrastructure improvements is the use of tax credit bonds. Tax credit bonds are bonds on which the Federal government pays “interest” in the form of credits against federal income tax liability.  Carefully designed tax-credit bonds could cost the Federal government less per dollar of assistance than the Federal tax exemption now accorded municipal bonds issued by state and local governments.