WASHINGTON - Debt service coverage on highway user revenue fund bonds should remain more than sufficient, and the ratings of those bonds should remain stable, even as gasoline prices have spiked to record highs, causing people to drive fewer miles over the past year, a Standard & Poor's report said.
Highway user revenue fund bonds, or HURF bonds, are supported by diverse highway user taxes, which include fuel taxes, vehicle registration fees, license fees, and other motor vehicle-related fees. The rating agency rates about $33 billion of gasoline tax and highway user tax-related debt.
"Generally, highway user tax-supported debt is of high quality, reflecting the large statewide economic bases generating most of the pledged taxes, high debt service coverage, and strong additional bonds coverage tests," the report said.
Of the 68 separately rated liens secured by highway user tax revenues, Standard and Poor's gives 19% a AAA, 50% are rated in the AA category, and 31% fall into the A-rated category.
Standard and Poor's said it expects debt service coverage for most highway user tax funds is more than sufficient to cover "historical swings in revenues as the result of either economic recession or fuel price increases."
The report also said ratings should remain stable because a significant share of revenues pledged to HURF bonds are often derived from sources other than gasoline sales. Motor registration fees represent a steady annual source of income for HURFs. For example, 44.9% of Arizona's HURF revenue in fiscal 2008 came from motor vehicle license and registration fees, a source relatively unaffected by gasoline demand, while 52.1% came from motor fuel-derived taxes, the agency said.
Despite those strengths, the report warned that because states historically raise gasoline tax rates when revenues become soft, it is unclear given the current price levels whether they will continue at the same pace. And even if states increase gas taxes, federal projections show that there are major capital needs for roads, and state and local issuers will be pressured to issue more bonds.
"Any increase in tax rates may still be offset by the need to sell more gasoline tax-backed debt - particularly if federal highway trust fund grants, funded by federal gasoline taxes, begin to dry up as nationwide gasoline sales decline," Standard & Poor's said.
