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What are GARVEE Bonds?

What are GARVEE Bonds?


GARVEE bonds (Grant Anticipation Revenue Vehicles) allow state and local agencies to issue debt for transportation projects backed solely by future federal highway appropriation funds and qualify for federal matching for parts of the project that do not meet federal requirements.

Understanding GARVEE Bonds

GARVEE bonds were created under the National Highway System Designation Act of 1995 for municipalities to fund transportation projects.

The federal government appropriates funds for federal-aid transportation projects each year, including funds that back GARVEE bonds. If a municipal issuer securitizes a bond issue by backing the bond repayments with future GARVEE grant revenues, the debt is solely backed by that future GARVEE cash flow and not by any other revenues.

Borrowers might be required to make matching cash flow payments when GARVEE payments finance a project. The Federal Highway Administration (FHWA) approves the project to be debt financed in order to receive debt service reimbursements. It does not approve the actual bond issue, which falls under the state's authority. 

In some cases, GARVEE bonds have been used to refinance tax-exempt bonds.


A county wishes to fund a highway project and applies to be approved for GARVEE funding by the Federal Highway Administration. The highway project must meet federal requirements and be eligible under state law for the bond issuance. 

Eligible project costs can include principal, interest, and bond issuance costs. 

What’s important here?

GARVEE bonds are bonds backed by future GARVEE grant revenues. From a federal perspective, an entity must execute a project agreement with FHWA, approve a project for federal-aid reimbursement of debt service or advance construction, and agree to a pro-forma debt service schedule to issue a GARVEE bond. The issuer’s state must then approve the bond financing.