WASHINGTON — Transportation Secretary Ray LaHood is making clear the Obama administration is committed to funding and promoting the use of ports, which credit rating analysts said have the potential to improve the financial strength of port bond issuers that are under pressure amid the economic downturn.
About 17 bond issues totaling $1.54 billion have been sold for port facilities so far this year. Nearly 200 issues totaling $12.5 billion have been sold for port facilities since 2004.
LaHood has not detailed the administration’s plans for ports, but he has stressed they are vital to the national transportation system and to U.S. commerce.
The transportation secretary toured the Port of Oakland last week and floated the possibility of creating a “port czar” position. He said seaports account for $2 trillion of the U.S. economy and predicted that freight movement through ports will grow by more than half over the next decade, while international container traffic will more than double.
President Obama “is committed to investing in our maritime ports to modernize their infrastructure, keep goods flowing freely and efficiently, and keep jobs in this sector going strong,” LaHood announced in a statement after the tour.
The secretary said he wants freight shipping moved off highways and onto waterways, which could increase port traffic.
LaHood has frequently touted the administration’s requests for funding for freight rail, trucking, and intermodal purposes — including $1.5 billion of stimulus act discretionary grants that ports are eligible to receive — that would help improve the infrastructure that is connected with ports.
He told the American Association of Port Authorities in March that port-related projects would receive “a fair portion” of those funds, and that federal highway funds also provided by the stimulus act have been used for port projects already.
But the discretionary grants constitute a “small amount” of financial assistance compared with the overall capital needs of ports, according to Seth Lehman, a senior director at Fitch Ratings.
The port association does not believe the federal government is currently keeping pace with ports on their infrastructure funding. The port authorities are providing most of the funding right now, said Aaron Ellis, communications director for the group.
“With multimillion-dollar projects underway at U.S. seaports around the country, our port authorities have done a lot to stimulate the economy in recent months — and the transportation infrastructure investments they are making [are] working,” he said.
Funding and policies to help ports “should be included in a long-term, national transportation plan that addresses freight mobility, congestion, and productivity,” Ellis said. “Without such a plan — and the necessary investment to support it — America will be less competitive, we as consumers will pay higher prices for the things we need, and economies will suffer at the national, state, and local levels.”
Historically, ports have not relied substantially on federal funding for operating or capital expenses, said Baye B. Larsen, analyst and assistant vice president for Moody’s Investors Service. Moody’s lowered the U.S. port sector’s outlook to negative from stable last week, citing drops in revenue from weakened consumer demand and global trade. The agency expects that trend to continue into 2010.
However, actions by the federal government — such as an extension of the temporary alternative minimum tax exemption that was implemented for all bonds under the stimulus law — would “definitely” help ports, Larsen said.
“It obviously would lower their capital costs for those projects and broaden the market for interested investors,” she said. Ports have refunded AMT debt into less-expensive non-AMT debt since the stimulus provisions were enacted, she said, and they “would continue to benefit” from a longer-term AMT waiver.
Ports whose projects aren’t ready to move forward within the two-year time frame of the stimulus law could take advantage of the AMT exemption if it were extended, said Jesse Ortega, an associate director at Fitch.
Federal grants to ports could help lift some capital burden off the shoulders of ports simply by decreasing the amount of debt they have to issue to complete projects, or they could prompt new debt issuance by filling a funding gap for projects that wouldn’t otherwise move forward, analysts said.
“Whether that has a direct credit implication or not really depends on how that federal funding is benefiting one port in comparison to another,” Larsen said.
Lehman pointed out that federal funding in other transportation sectors — such as the highway infrastructure that connects ports with commercial customers — can play a part in port financial health.
But “most ports have good financial health and are managing their debt well,” he said.
