Funding and Financing U.S. Infrastructure

Guest Author

4 days ago

In the 2025 Report Card, the American Society for Civil Engineers (ASCE) estimates a $3.7 trillion investment gap for U.S infrastructure to reach a state of good repair, assuming Congress continues recent funding levels. As such, sponsors of infrastructure projects will need to innovate and look to diversify funding and financing sources beyond federal spending to close this investment gap. A typical capital stack for an infrastructure project includes different types of funding and financing to fund project’s development, construction, and operations. As shown in the illustrative capital stack figure, federal and state government contributions provide project funding and help to attract investment to projects but typically cannot provide the sole source of financing. State funding and municipal bonds constitute another major part of the infrastructure capital stack. For instance, in 2021, state and local spending on highways and roads was three times that of federal spending. States are increasingly exploring other financing mechanisms to fund infrastructure within their jurisdictions, such as new financing vehicles and loan programs. To diversify funding and financing sources across the capital stack, project sponsors can leverage different mechanisms and programs such as these state financing vehicles, as well as through public private partnerships (P3s) and value capture opportunities.

States may consider developing their own loan (senior debt) and grant (government contributions) programs to fund state-specific infrastructure projects. States may develop low-interest loan programs to encourage the construction of infrastructure within their states, which could also attract and leverage other forms of financing from the capital stack through the reduction of project risk having a state government-backed loan with a lower cost of financing. Various states also have state infrastructure banks that provide low-interest loans to borrowers, such as the Georgia Transportation Infrastructure Bank administered by the State Road and Tollway Authority (SRTA).

Infrastructure projects can also consider P3s to help address investment gaps. A P3 is a long-term contractual relationship between a public sponsor (e.g., the government) and a private entity to provide a defined list of services on behalf of the public sponsor. In a P3 arrangement, the public sponsor transfers risks and responsibilities to the private partner in exchange for either a recurring payment (e.g., availability payment for a utility system) or the right to collect revenues from the public (e.g., toll roads or energy user fees). In a P3, the public sponsor retains strategic control over the asset and service delivery. Adoption of a P3 can provide an option for the public sector to accelerate delivery of infrastructure ahead of budgeting cycles and free up limited public resources for other strategic initiatives. Contingent on the structure of the agreement, P3s may also public debt concerns by leveraging private financing (debt, equity) in lieu of traditional public bonds. In certain cases, the contract structure could also include an upfront payment (based on calculations of leveraged efficiencies from the private sector) which provides a public sponsor with a cash influx to address short-term funding gaps for other initiatives and projects. Pennsylvania’s Department of Transportation (PennDOT) developed their Rapid Bridge Replacement program as a P3 and serves as an example of leveraging private sector efficiency. The P3 program repaired 558 bridges in four years, which might have taken more than a decade to repair otherwise.

Value capture is another option for financing infrastructure. Value capture is the concept that infrastructure improvements create economic value that both the public and private sectors can “capture” from new infrastructure projects. Typical direct value capture methods transfer economic value from users of the asset/service to the operating entity (user fees, fuel tax, transportation network fees). Indirect value capture methods are financial agreements and mechanisms that allow sponsors to capture future economic value generated indirectly by an asset (tax increment financing, sales taxes, special assessments, etc.). For example, The City of Atlanta (Atlanta) financed multimodal infrastructure improvements by leveraging value capture instruments such as defining a special assessment district and using transportation special-purpose local option sales tax revenues. The figure below highlights the value that new infrastructure projects can create, which can be “captured” and monetized.

Opportunities for Value Capture from Private and Public Infrastructure Sponsors

In the years to come, diverse funding sources and innovative financing strategies have the potential to play a crucial role in bridging the investment gap and supporting the sustainable and continued development of infrastructure projects across the US. Project developers and government can consider the approaches outlined above to leverage additional funding and financing opportunities in the future. For more information on Deloitte’s Infrastructure advisory services, please visit:

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