WASHINGTON — Sen. Ron Wyden has introduced a bill to create tax-credit bonds for transportation projects, hoping the program will navigate the political and economic realities that have challenged previous attempts at federal financing tools for state and local governments.

The proposal comes after the Oregon Democrat spent months negotiating with investors, lawmakers and other experts to win support for the Transportation and Infrastructure Project, or TRIP, bonds. Now, with at least one Republican senator endorsing the legislation, Wyden is hoping to fill part of the void left from the expiration of the Build America Bond program.

Still, the measure faces a difficult road ahead as some investors remain skeptical about tax-credit bonds, while the bill may run out of steam in Congress.

The legislation authorizes state infrastructure banks to issue up to $50 billion of TRIP bonds over six years: $5 billion in 2011 and 2012 and $10 billion for 2013 through 2016. Each state would get at least $1 billion of TRIP bonds. The proceeds can be used for up to 80% of a project’s cost. The state must come up with the other 20%.

“TRIP bonds will build on recent experience with tax-credit bonds and leverage private funding” while saving taxpayer dollars, Wyden said in a statement Thursday.

To introduce the bill with bipartisan support, Wyden needed to keep the cost to the federal government down. The program does not include a federal transportation financing corporation to issue the bonds. That idea was initially floated by Wyden in April, but was scrapped in the introduced version because it added costs.

The program’s only federal cost is the revenue lost from the tax credits. Over 10 years, the program is estimated to cost $12.3 billion, according to an estimate from the Joint Committee on Taxation.

Wyden’s bill is co-sponsored by Republican North Dakota Sen. John Hoeven, who said he will work to ensure the bill advances “so that it doesn’t contribute to the deficit,” he said in a statement. Mark Begich, D-Alaska., has also co-sponsored the bill.

Wyden has spent weeks shopping his program around in the investor community. Tax-credit bonds have been criticized previously by market participants and have not caught fire with investors, especially in light of the success of the taxable BAB program. BABs received a direct federal interest subsidy.

Wyden is hoping investors will turn to tax-credit bonds as the best alternative given that the BAB program has expired.

Additionally, the TRIP program includes two features that could bolster its success. First, the tax credits can be stripped from the underlying debt and sold separately to investors. But the tax-credit “stripping” process gets into a murky legal arena.

The Internal Revenue Service has issued guidance for stripping existing tax-credit bonds. But questions remain over what happens to the tax credit if the issuer defaults on the underlying debt.

That concern may be partially offset by the second investor incentive for TRIPs: they would be federally backed by U.S. customs fees. The legislation calls for about $900 million to be collected from fees and put in a sinking fund to guarantee TRIP bond principal.

The federal backing homogenizes TRIP bonds so that the principal is not solely reliant on project or state revenue, sources said Thursday. The federal support may also provide more flexibility for stripping the bonds, sources said.

Stripping “is a pretty critical part” of the TRIP program, according to Jack Basso, director of program finance with the American Road and Transportation Builders Association, which endorsed Wyden’s bill.

Pension funds and international investors, which have no tax exposure and no need for tax credits, would find federally backed TRIP discount bonds appealing,  Basso said.

Critics of Wyden’s plan said the federal backing for the  bonds means the securities are essentially federal debt passed through the state infrastructure banks.

Joseph McLiney, president of McLiney and Co. in Kansas City, said the TRIP bonds are “totally inefficient,” and that it would be cheaper for the federal government to allocate money for the transportation projects.

The measure’s legislative future remains uncertain. Sources on Thursday said that it is unclear what response the proposal will get from Republicans on the Senate Finance Committee, where Wyden is a member.

A spokesman for the minority ranking member of the committee, Republican Sen. Orrin Hatch of Utah, did not immediately return requests for comment on Thursday.

The road through the House is no clearer for TRIP bonds.

Transportation Committee chairman John Mica, R-Fla., has hinted that a bonding provision could be included in his transportation reauthorization plan, but no specifics have been disclosed yet. A spokesperson for Mica could not be reached Thursday.

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