Federal Reimbursement Anticipation Notes (FRANs) have been a Virginia transportation program financing staple since $1.2 billion in revolving debt was authorized by the Virginia Transportation Act of 2000. Since then the Commonwealth Transportation Board (CTB) has authorized three series of FRANS ($1.1 billion), of which $176 million remains outstanding and will be paid off by 2016.

Virginia chose to repay FRANs by using state tax revenues insurance companies pay on automobile insurance premiums, not federal revenue. Until 2010, major FRANS repayment obligations precluded sale of the Capital Project Revenue (CPR) bonds authorized by the Virginia General Assembly in 2007 as part of HB 3202. With declining FRANS obligation levels, insurance premium tax revenues are now adequate to fund the CPR bonds, the sale of which was accelerated in Governor McDonnell's 2011 Omnibus Transportation Funding Bill.

Grant Anticipation Revenue Vehicles (GARVEEs) are secured by future federal highway reimbursements. GARVEEs will use the same $1.2 billion revolving revenue stream authorized for FRANs, which will no longer be issued.

Unlike FRANs, which can be used as part of the overall transportation fund, GARVEES must be invested in specific projects. The first sale ($350) is expected to occur early next year, involve a 15-year period and be used to subsidize tolls for the Downtown Tunnel/Martin Luther King Expressway project in Hampton Roads. I-95 HOT Lanes and the Route 460 alternative could be recipients of future sales.

Estimated annual debt service for the first issue is expected to be $30 million. Actual FY 2010 federal reimbursements totaled $975 million and this debt service approximates 3% of anticipated federal revenue.

While bond rates continue to be favorable, major bond rating agency's (Fitch, Moody's, and Standard & Poor's) have issued warnings as to the long term viability of GARVEEs due to uncertainties surrounding the future federal role in transportation, including "political unwillingness to raise the gas tax."

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