TECM, GARVEE Bonds and the Strategic Initiatives Fund

When someone at a public meeting says "the state cut a billion dollars from roads," or "TECM is bonding us into debt," or "the Legislature took the money back," each claim points at a different pot of money with its own law, its own history and its own decision makers. This lesson sorts them out. It covers Idaho's two highway bond programs (GARVEE and TECM), the Strategic Initiatives Program that once received the state's year-end surplus, and the 2026 budget decision that left the Strategic Initiatives fund empty for fiscal 2027. It ends with a set of how-tos for checking claims about road money and following a bonded project from the statute to the pavement.

Facts in this lesson are current as of October 2026, based on the sources linked in the text. Bond sizes, interest rates and fund balances change every year. Where a number could move, the text tells you where to check it.

If you have not read Lesson 2 on where road money comes from and Lesson 3 on the constitution's highway fund rules, skim them first. This lesson assumes you know what the Highway Distribution Account is and why fuel tax money is legally fenced.

Why a state borrows to build roads

Highway projects are expensive and lumpy. An interchange rebuild can cost more than an entire year of a district's construction budget. A state has two basic ways to pay for something like that. It can save up and pay cash as it goes, which is called pay-as-you-go. Or it can borrow the money now, build now, and repay the loan over 20 or 25 years from a revenue stream it pledges to the lenders.

The case for borrowing rests on three arguments. First, construction costs tend to rise over time, so a project built ten years earlier may cost less in total even after interest. Second, a road that relieves congestion or fixes a dangerous corridor produces benefits (fewer crashes, less delay) every year it exists, so building it sooner has value. Third, the people who will use a road for 25 years help pay for it over those 25 years, instead of today's taxpayers paying the whole bill up front.

The case against borrowing is just as concrete. Interest is real money that buys no asphalt. A pledged revenue stream is committed to bondholders first, which leaves less flexibility if priorities change or revenue drops. And debt makes it easier to start expansion projects whose maintenance costs will land on future budgets. Both arguments come up every time the Idaho Transportation Board considers a bond sale, and both appear in the public record of the board's meetings.

Idaho does not issue general obligation bonds for highways. Its highway bonds are revenue bonds issued by the Idaho Housing and Finance Association (IHFA) on behalf of the Idaho Transportation Department (ITD). They are repaid only from a specific pledged source: federal highway aid for GARVEE bonds and state sales tax for TECM bonds. That structure matters for one practical reason: no property tax backs these bonds, and they do not go to a statewide public vote.

GARVEE: Idaho's first big highway borrowing

GARVEE stands for Grant Anticipation Revenue Vehicle. It is a bond repaid from future federal highway aid. The governor proposed Idaho's program in 2005 under the name "Connecting Idaho," and the Legislature wrote it into Idaho Code 40-315 that year (2005 session laws, chapter 378). The statute lists the corridors eligible for GARVEE financing, lets the Idaho Transportation Board alone allocate bond proceeds among those projects, and requires the Legislature to set the amount of bonds each year.

The statute also contains a safety valve. Annual GARVEE debt service may not exceed a set share of Idaho's annual federal-aid highway apportionment. The cap was 20 percent for fiscal years 2007 through 2010 and 30 percent starting in fiscal 2011. Going above 30 percent takes a joint action of both houses and the governor's approval. That cap exists because every federal dollar spent on GARVEE debt is a federal dollar not spent on pavement or bridge work that year.

The Federal Highway Administration's Idaho GARVEE report gives the year-by-year legislative authorizations shown in Figure 1. In total, $857.6 million was bonded ($840 million in authorizations plus $17.6 million in interest earnings) across six bond series. The report gives a program-wide weighted average interest rate of 4.41 percent and says the last debt service payment is due in July 2031. It estimated annual debt service at about $57.3 million to $57.4 million, about 20.5 percent of anticipated federal apportionment, under the 30 percent statutory limit.

The original plan concentrated the money on six corridors: US-95 Garwood to Sagle, US-95 Worley to Setters, Idaho 16 from I-84 to South Emmett, I-84 Caldwell to Meridian, I-84 Orchard to Isaacs Canyon, and US-30 McCammon to Soda Springs. Former ITD Director Brian Ness, writing in Equipment World in July 2016, described 59 GARVEE projects, almost 120 miles added to the state system, 15 new bridges and five new interchanges, and argued that pay-as-you-go financing would have taken an estimated 30 years. Those figures are the department's own account of its program. A reporter should treat them as claims to test against project records, not as independent findings.

GARVEE did not end in 2011. Senate Bill 1206 (2017) authorized another $300 million in GARVEE bonding, according to its statement of purpose, and amended 40-315. ITD's TECM FAQ (June 2025) describes GARVEE as having bonded $1.2 billion in federal dollars overall. IHFA's community report gives a figure of almost $1.4 billion "including refunding," which counts refinanced bonds as well as new money. Those numbers measure different things. When you see a GARVEE total, ask whether it includes refunding bonds.

The approved fiscal 2027 to 2033 Idaho Transportation Investment Program (ITIP) shows a "formula debt service" line of $65.0 million in fiscal 2027. The ITIP summary page does not label that line GARVEE. If you are reporting on federal-aid debt service, confirm with ITD's financial staff which bonds that line covers and what the remaining payment schedule is.

The surplus eliminator and the Strategic Initiatives Program

The second piece of the story started in 2015. That year's transportation package (House Bill 312 of 2015, per the Local Highway Technical Assistance Council) created what lawmakers called the "surplus eliminator." When the state ended a fiscal year with General Fund money left over, part of the surplus went to the Budget Stabilization Fund (the rainy-day fund) and part went to transportation. The 2017 statement of purpose for S1206 says past surplus eliminator amounts had ranged from $21.9 million to $108.3 million, split equally between the rainy-day fund and the Strategic Initiatives fund.

The transportation half goes to the Strategic Initiatives Program in Idaho Code 40-719. The statute requires ITD to run a statewide competition in which projects compete on return on investment across six categories: safety, mobility, economic opportunity, bridge repair and maintenance, purchase of public rights-of-way, and child pedestrian safety. Unless a law says otherwise, money in the fund is split 60 percent to projects proposed by ITD's six districts and 40 percent to local units of government, with the local share administered by LHTAC.

House Bill 132 (2023) amended 40-719 to add a separate Strategic Initiatives Grant Program, also run by LHTAC, to help local governments deal with the effects of state highway projects on local roads or to fund economically significant local projects. That program splits its money 50 percent to urban areas over 50,000 people and 50 percent to rural and small urban areas, and large urban recipients put up a 20 percent match. The bill text set aside the first $36 million for local roads affected by new connections between state highways and interstates.

Over time the Strategic Initiatives fund stopped depending only on year-end surplus. In recent years the Legislature appropriated General Fund cash into it directly. ITD staff told the Transportation Board in June 2026 that Strategic Initiatives Program funding was $182 million in fiscal 2025 and was reduced by a holdback to $140 million in fiscal 2026. That pattern (large, irregular, dependent on the state's General Fund) is why the fund turned out to be the most vulnerable piece of road money when state revenue tightened.

TECM: from 1 percent of sales tax to a fixed stream

TECM stands for Transportation Expansion and Congestion Mitigation. It was created in 2017 by Senate Bill 1206, which became law on April 11, 2017, without the governor's signature (session laws chapter 322). The Senate passed it 19-16 and the House 51-19. The bill created the TECM fund in Idaho Code 40-720, directed 1 percent of sales tax revenue to it (about $15 million in 2018, according to the statement of purpose), extended the surplus eliminator for two years with a 60/40 state and local split, and added GARVEE authority. Some summaries say TECM was created by "House Bill 312 of 2017." That is not correct: 2017's H312 was a $90,200 appropriation to the State Independent Living Council. The 2015 transportation bill was numbered H312, which may be the source of the mix-up.

Bonding came two years later. Senate Bill 1065 (2019, session laws chapter 307) added Idaho Code 40-721, which created a TECM capital project fund to hold bond proceeds and a TECM debt service fund to pay bondholders. ITD's TECM page says bonding authority was added in 2019.

The big change came in 2021. House Bill 362 (session laws chapter 339, signed May 10, 2021; House 59-11, Senate 29-6) raised transportation's share of sales tax from 1 percent to 4.5 percent. Its statement of purpose says $80 million a year would go to ITD for large state highway projects and anything above $80 million would go to local governments for roads and bridges. The sponsors estimated that the $80 million could support roughly $1.6 billion of bonding over 20 years.

The last change before the 2026 session came from House Bill 25 (2025, session laws chapter 250), which passed the House 70-0 and the Senate 34-0 and was signed April 1, 2025. It replaced the percentage with fixed dollar amounts that grow for three years. The current text of Idaho Code 63-3638(16) reads this way:

Period	Total sales tax to transportation	TECM fund (state)	Local units of government
Before July 1, 2025	4.5 percent of revenue, not less than $80 million or more than $140 million	$80 million	Anything above $80 million
Fiscal 2026 (July 2025 to June 2026)	$145 million	$100 million	$45 million
Fiscal 2027 (July 2026 to June 2027)	$165 million	$120 million	$45 million
Fiscal 2028 and every year after	$185 million	$140 million	$45 million

The local share is divided using the same percentages as the local share of the Highway Distribution Account under Idaho Code 40-709, and local units may pool their allocations. Section 40-720(8) limits how local units may spend this sales tax money: road and bridge maintenance, adding travel lanes, and congestion mitigation that primarily benefits motor vehicles and improves traffic flow. That restriction is narrower than the general rules on local highway money, and it is one place where a local budget can be checked against the statute line by line.

ITD's TECM FAQ describes the 2025 change as adding $20 million per year in fiscal 2026, 2027 and 2028, bringing the state amount to $140 million for debt service on future bonds. The H25 fiscal note estimated a General Fund revenue reduction of $23 million in fiscal 2026 and $20 million in each of fiscal 2027 and 2028 compared with prior law. The fiscal note's description of the local share under prior law ("up to $60 million") and its $42 million estimate for fiscal 2026 do not line up exactly with the $45 million in the enacted text. The statute controls.

What TECM money may be spent on

Section 40-720 says the fund pays for projects that expand the state highway system to reduce congestion. ITD evaluates candidate projects and the Transportation Board selects them under a board policy that may consider travel times, traffic flow and congestion. One line in the statute directs the board to treat congestion relief at the state campus at 11311 West Chinden Boulevard in Boise as a priority. When you read a TECM project list, that is the statutory reason Chinden (US-20/26) corridor work keeps appearing.

ITD's June 2025 FAQ lists eleven corridors with designated TECM funding: I-90 from the Washington line to Coeur d'Alene; the US-95 and US-12 Clearwater River crossings; SH-16 from I-84 to Emmett; I-84 from Canyon County to Mountain Home; US-20/26 from I-84 to Star Road; SH-55 from Sunnyslope to Nampa; SH-75 from Timmerman Junction to Ketchum; I-84 from Jerome to Twin Falls; the I-84 Burley and Heyburn interchanges; I-15 from Pocatello to Idaho Falls; and US-20 from Arco to the Montana line. The same FAQ lists two corridors not receiving TECM funds at that time: US-95 from Coeur d'Alene to Sandpoint and SH-44 from I-84 to Star.

How a TECM bond works

The mechanics are set out in sections 40-720 and 40-721. Figure 3 traces the path.

Step by step: the State Tax Commission distributes the sales tax amounts in 63-3638(16). The state share lands in the TECM fund. When the Transportation Board adopts a resolution, IHFA may issue bonds secured by unobligated TECM money. Section 40-720 allows a bond issue only if enough unobligated money exists to pay the debt, the proceeds are spent under federal tax rules that keep the bonds tax-exempt (unless tax-exempt bonds are unavailable), and the bonds carry prevailing market interest rates. Proceeds go into the capital project fund and are paid out for approved projects. Each year, money in the TECM fund is continuously appropriated first to the debt service fund, in the amount IHFA certifies, capped by what the fund receives under 63-3638(16). Anything left over can pay for projects directly, which ITD calls pay-as-you-go.

The bond record so far, from sources this lesson could verify:

• The first TECM sale was $184.6 million, rated Aa1 by Moody's and AA+ by Fitch, according to The Bond Buyer. An earlier ITD news release, "ITD's first TECM bonds rated exceptionally high," described a planned $325 million sale with the same ratings; the amount actually sold in that first deal was smaller.
• IHFA reports a second round in April 2023 of $349.7 million, for a total of $534.3 million through two sales.
• ITD's June 2025 FAQ says four TECM bond series have been issued at an average interest rate of 3.89 percent, each with a 25-year term and roughly level annual debt service. The sizes of the third and fourth series were not in the sources reviewed for this lesson. Check IHFA disclosures on the MSRB's EMMA system or ask ITD's controller.
• The approved fiscal 2027 to 2033 ITIP lists TECM debt service payments of $81.0 million in every year of the program.
• ITD says bond proceeds plus direct-pay funds are expected to provide "more than $2 billion in state funds" over the life of the program.

What borrowing costs: a worked calculation

You can check the cost of a bond with a standard loan formula. Take a hypothetical $100 million TECM-style bond repaid in level annual payments over 25 years. At the 3.89 percent average rate ITD reports, the annual payment is about $6.33 million. Over 25 years the state pays about $158.2 million, of which about $58.2 million is interest. If rates were 5 percent instead, the payment would be about $7.10 million a year and total repayment about $177.4 million. Figure 4 shows the comparison. These are illustrations computed for this lesson, not figures from any actual bond issue; real bonds have serial maturities, premiums and fees.

Now run the calculation the other way. If $80 million a year is pledged to debt service for 25 years at 3.89 percent, the present value of that stream is about $1.26 billion. Over 20 years it is about $1.10 billion. The 2021 sponsors' estimate of "roughly $1.6 billion" in bonding capacity therefore assumed either lower rates, longer terms or growth in the pledged amount. That is not a criticism of the estimate; it shows how sensitive bonding capacity is to interest rates. A rise of one percentage point in rates can remove hundreds of millions of dollars of capacity from the same revenue stream.

Whether the interest is worth paying depends on a comparison the bond math alone cannot settle: how fast construction costs rise, how much the delay costs in crashes and lost time, and what else the pledged money could have done. Supporters of bonding point to construction inflation and to safety gains on the GARVEE corridors. Skeptics point to interest costs, to the loss of flexibility once a revenue stream is pledged, and to the maintenance bill that every new lane adds. ITD's own June 2026 staff presentation recommended using TECM money as pay-as-you-go for projects rather than issuing new bonds for now, while saying the department remained open to bonding.

The 2023 stress test: when a tax bill collided with the bond pledge

A bond pledge is a promise to investors. In 2023 the Legislature learned what happens when another bill seems to threaten it. House Bill 292 (2023) created a Homeowner Property Tax Relief Account and a School District Facilities Fund, both financed from sales tax. According to The Bond Buyer, the bill reordered the priority of statutory sales tax claims in a way that put property tax relief ahead of TECM and removed minimum guarantees for TECM debt service.

Gov. Brad Little vetoed H292 on March 27, 2023. His veto statement, as quoted by The Bond Buyer, said the bill "forced a pause of the TECM bonds that were scheduled for sale this week." IHFA President Gerald Hunter's letter attached to the veto said bond counsel believed the bill would result in "an impairment" of the first TECM deal and warned of "damage claims from bondholders." The legislative record shows the House overrode the veto 58-12 on March 28 and the Senate 28-7 on March 29, 2023. Legislators also passed a trailer bill, House Bill 376, which The Bond Buyer reported prioritized $80 million of sales tax for transportation bonds ahead of the new property tax relief and school facilities accounts. IHFA reports the second TECM sale closed in April 2023.

The episode is a useful teaching case for two reasons. It shows that once revenue is pledged to bondholders, later legislatures face legal and market limits on redirecting it. And it shows the order of claims inside 63-3638 is not trivia: the sequence of distributions decides who gets paid first when sales tax falls short.

The Strategic Initiatives Fund and the 2026 budget decision

To understand the 2026 decision, start with the 2025 one. The first fiscal 2026 ITD budget bill, Senate Bill 1205, included General Fund transfers of $165 million to the Strategic Initiatives Program fund and $110 million to the Local Highway Distribution Fund. It also contained intent language directing at least $8 million and at least $19.2 million of local distributions to specific projects in a countywide highway district. On April 1, 2025, the Senate killed S1205 by a vote of 3-31. The Idaho Capital Sun reported that Majority Leader Lori Den Hartog argued the project-specific language could violate Article III, Section 19 of the Idaho Constitution, which bars certain local or special laws; BoiseDev reported the language concerned ACHD and the widening of Linder Road. Lesson 3 covers the constitutional arguments.

Within days the Legislature passed a replacement (the Senate on April 3 and the House on April 4, 2025), Senate Bill 1218 (Senate 25-8, House 46-21, signed April 14, 2025, session laws chapter 337). The bill text kept the two General Fund transfers ($165 million in section 6 and $110 million in section 7) and dropped the project-specific language. Section 8 required the full $110 million to go out with the first distribution from the Highway Distribution Account, which means the local money flowed by formula to counties, cities and highway districts rather than through the competitive Local Strategic Initiatives program.

For fiscal 2027 the picture changed. Gov. Little's fiscal 2027 budget highlights (January 2026) proposed removing $275 million from ITD's Strategic Initiatives fund, including $110 million for local highway districts, and called it "a one-time reduction in transportation investments." The document said the pause would let ITD and local districts use recent state investments, which it put at more than $1.8 billion over six years, to work through a backlog of projects. The Idaho Capital Sun reported the proposal as one of several cuts and transfers aimed at projected shortfalls.

The Legislature followed that approach. ITD's fiscal 2027 budget was built in two parts: a maintenance budget and an enhancement bill, Senate Bill 1426. S1426 passed the Senate 30-4-1 and the House 50-18-2 and was signed March 31, 2026 (session laws chapter 257). Its fiscal note puts the total fiscal 2027 ITD budget at $1,037,023,900, with $0 from the General Fund in every line, and S1426 itself contains no transfer to the Strategic Initiatives fund. (The fiscal note refers to the maintenance budget as both Senate Bill 1331 and S1373; check the bill list on the Legislature's site for the correct number before citing it.) News coverage has linked the $275 million reduction to S1426. More precisely, the reduction is the absence of any fiscal 2027 General Fund transfer like the ones in S1218, not a provision in S1426 that repeals something.

ITD's staff told the board in June 2026 that the Strategic Initiatives Program fund would be at zero starting in fiscal 2027 and that this had the largest impact on the seven-year program. The Idaho Statesman, republished by East Idaho News on July 5, 2026, reported that the draft plan moved nearly $1.3 billion of highway work (68 projects) into an "unfunded" category, that another $1.5 billion of congestion projects (12 more TECM projects) would not advance to bonding, that the Strategic Initiatives fund made up roughly 18 percent of ITD's 2025 revenue, and that ITD assumes the fund stays at zero through 2033. Lesson 5 walks through that plan and the projects affected.

Who decides what

Each pot of money has a different chain of decision makers. Knowing which body controls which decision tells you where to show up and whom to ask.

Decision	Who makes it	Where to find the record
How much sales tax goes to TECM and locals	Legislature and governor, by amending 63-3638	Bill pages and session laws on legislature.idaho.gov
Whether to transfer General Fund cash to the Strategic Initiatives or local funds	Legislature (JFAC drafts the budget bills), governor proposes and signs	ITD budget bills, statements of purpose, JFAC minutes
Annual GARVEE bond amount	Legislature, under 40-315	ITD appropriation bills
Which projects get TECM, GARVEE and Strategic Initiatives money	Idaho Transportation Board	Board agendas, packets, minutes and resolutions; the ITIP
Whether and when to issue bonds	Transportation Board resolution; IHFA issues	Board resolutions; IHFA official statements on EMMA
Local share of Strategic Initiatives (when funded)	LHTAC, under 40-719	LHTAC rankings and council minutes
How a highway district spends its TECM local share	Highway district commissioners, within 40-720(8)	District budget and minutes (see Lesson 6)

Where this fits in the rest of the course

This lesson connects the revenue streams in Lesson 2 and the constitutional limits in Lesson 3 to the project list in Lesson 5, where you will see which projects moved to the unfunded list. Lesson 6 shows how a highway district budgets its share of TECM sales tax, and Lesson 7 covers the federal aid that repays GARVEE bonds. Lesson 10 shows how to follow a bonded project's contracts and change orders. To find who maintains a particular road, go back to Lesson 1.

Related courses: how a bill becomes law in Idaho is covered in Laws and Rules, lesson 2, and testifying on a bill in lesson 9 and in Testifying and Public Comment. Local bonds and levies, which work differently from state revenue bonds, are covered in Local Government, lesson 6, and the budget cycle in lesson 2. To request bond documents or board records, see Idaho Public Records Requests. Elected officials can review Budgets and Fiscal Duty. For the state constitution's text and structure, see the Idaho Constitution course, and for working with the numbers in this lesson, Data and Statistics.