The most favorable condition for credit financing is that of a truly accelerated program contemplating a relatively short period of abnormally high capital outlay, during which the highway plant progresses rapidly toward a condition of adequacy. A subsequent lull in construction activity, during which the need for replacements accumulates very slowly, provides the opportunity for retirement of the bonds.
Conditions following the end of the war were ripe for such a program. The need for greatly increased expenditures to permit reaching a standard of adequacy was recognized in most States. The demands for highway capital funds for financing particular urgently needed facilities or statewide “catch-up” programs encouraged the circumvention of constitutional barriers to State-created debt, either by the more direct but less frequent method of amendment or referendum or by the speedier and, hence, more popular device of the nonguaranteed bond that does not have recourse to the full taxing power of the issuing government and does not require approval of the electorate.
Because they command higher interest rates, non-guaranteed bonds almost always carry with them a higher cost to the public. But the additional cost may be a justifiable premium to pay for avoiding the consequences and delays of seeking voter approval.
During the 5-year period 1946–1950, the States, including special State authorities and commissions, issued over $1 billion in highway bonds (not including refunding issues); the counties and other rural local units issued $429 million; and the cities and other incorporated places issued $635 million. The combined total was $2.2 billion of a total outstanding debt at the end of 1950 of about $4.5 billion.
The debt issued during this period tended to be concentrated along the Eastern Seaboard, where so much of the population, industry, and heavy traffic volume were also concentrated. These States accounted for 80 percent of the total.
The toll road movement was the most dramatic development in highway financing, particularly in credit financing, in the years immediately following World War II. The success of the Pennsylvania Turnpike with the public, despite its war-induced financial difficulties, stimulated a boom in toll road construction. These roads proved to be feasible where the traffic potential was high and where the parallel free roads were either in poor condition as to grades, curves, or surfaces or where they were inadequate to serve the traffic in the corridor.
The growth in toll road bond financing in the period 1946–1951 was striking. To the $54 million of toll road bonds outstanding at the beginning of the period, issues totaling $449 million were added. Redemptions during the period were a slim $12 million, leaving $491 million outstanding at the end of 1951.
The postwar period was one of variety and experimentation in the credit financing of highways, and by no means all of the toll roads were financed by the issue of revenue bonds payable solely from the earnings of the facility. The first fully self-supporting issue of toll road revenue bonds was marketed in 1946 by the Maine Turnpike Authority. Elsewhere, general obligation bonds were sometimes issued, and the building of the 15-mile New Hampshire Turnpike was financed from the proceeds of 90-day renewable notes purchased by Boston banks. By this device of short-term financing, not extensively employed by the States in financing highway capital expenditures, the State of New Hampshire was able to save in interest expense by drawing down funds only as needed.
Bridge Tolls
In general, the Federal Government continued to look upon toll financing with disfavor. In the late 1940’s, a Federal statute was enacted to encourage the removal of bridge tolls. The General Bridge Act of 1946 required that, within 20 years of construction or acquisition, tolls be removed from all bridges subject to the Act (i.e., interstate bridges). Bridges wholly inside a State or those between the United States and foreign countries were not covered by this legislation.
In 1948 the Act was amended to extend the period for removing tolls to 30 years. Meantime, the 1937 law authorizing the use of Federal funds to free toll bridges on the Federal-aid system expired. During the time it was in force (1937–1947), nearly $9 million had been spent to free 30 bridges in five States.
While the number of toll facilities owned by counties and local governments is relatively small, in the 1940’s toll charges provided a greater portion of the income from county and local imposts upon highway users than any other single impost. Most of the income derived from these toll charges was spent for highway purposes, chiefly maintenance and operation of the facilities and retirement of the debt incurred when they were built.
The Federal Role in Borrowing
In the wake of the rapid development of toll roads, the Federal Government had not abandoned its belief in toll-free highways. Accordingly, a section of the Federal Aid Highway Act of 1950 (section 122, title 23, U.S. Code) provided that any State or local government that issued bonds and used the proceeds to accelerate construction of toll-free facilities on the Federal-aid Interstate or Primary Systems or on extensions of Federal-aid systems within urban areas might apply authorized Federal funds to retire such bonds. Federal funds might not be claimed for the Federal-Aid Secondary System, either in reimbursement of interest payments or for bond proceeds expended on that system.
The Act made the following stipulations:
- The proceeds of the bonds qualifying under the law must have actually been expended in the construction of Federal-aid systems.
- The construction must have been completed in accordance with plans and specifications approved in advance by the Bureau of Public Roads.
- Payments could not exceed the pro rata Federal share specified by law.
- Payments must be made from funds authorized by the Congress.
That this provision was useful to the States in accelerating highway programs was shown by the fact that at the end of December 1961 bond-financed programs totaled nearly $395 million, of which the Federal-fund share was more than $253 million.
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