CHICAGO — Facing a funding crisis, the Missouri Highways and Transportation Commission has adopted a five-year budget plan that eliminates more than 1,000 positions and shutters facilities to save $500 million for project funding as the agency recedes from the ranks of frequent issuers.
Under the dramatic restructuring, the Missouri Department of Transportation will close 130 facilities, sell more than 740 pieces of equipment, eliminate 1,200 positions through a combination of attrition, transfers, and layoffs, and enact other management efficiencies. MDOT has a total staff of about 6,300.
The commission expects to save about $512 million through 2015 and then $117 million in ongoing annual savings on operations. The funds will instead go to pay for road and bridge projects. Transportation director Kevin Keith unveiled the austere plan earlier this year, warning that it was needed in order to raise the money needed to keep projects alive and provide the state match to federal funds.
The agency is grappling with stagnant federal funding, the end to stimulus funds, and its exhaustion of available revenue streams to leverage for continued borrowing. “This is a big deal for us,” said the department’s chief financial officer, Roberta Broeker. “This is what you have to do to manage through tough times. It’s incumbent upon us to save on the operating side.”
The agency returned to the ranks of frequent borrowers in 2000 with a $200 million sale, its first issuance of road revenue bonds since 1927. The issue marked the first installment of debt to finance a then five-year capital program that the General Assembly approved $2 billion of new debt issuance to support.
Voters in 2004 then bolstered the commission’s borrowing capacity by approving Amendment 3. The constitutional amendment allowed the commission to accelerate road projects by ending the diversion of some road-related taxes to the general fund.
The commission exhausted the Amendment 3 bonding capacity to fund a $2.2 billion, five-year capital program in 2009. It also has leveraged its federal grants but it has tapped that capacity under the high internal-coverage limits it abides by. The agency has $928 million of outstanding grant anticipation bonds.
The commission has issued a total of $4.3 billion of new-money and refunding bonds in 18 issues since 2000, according to Thomson Reuters. Broeker said public finance bankers continue to submit refunding proposals but none so far this year has met the agency’s internal policies on structure and savings.
Uncertainty over federal transportation funding levels adds to the agency’s woes, given Congress’ failure to pass a multi-year surface transportation reauthorization bill since the previous one expired in September 2009. The short-term extensions don’t provide the long-term certainty to plan. “That’s the huge question for us,” Broeker said.
Ahead of a refunding last year, all three rating agencies affirmed the commission’s existing ratings. About $625 million of senior-lien road bonds carry top marks from the trio. The senior-lien indenture was closed in 2005 to all but refunding issues.
Fitch Ratings rates $929 million of first-lien road bonds AAA, $512 million of second-lien bonds AA-plus, and $359 million of third-lien bonds AA. Standard & Poor’s rates the first- and second-lien bonds AAA and the third-lien bonds AA-plus. Moody’s Investors Service rates the first-lien bonds Aaa, the second-lien bonds Aa1, and the third-lien bonds Aa2.
The commission’s road bonds are special revenue obligations of the commission, payable from revenue from various highway user fees as well as motor fuel and other transportation taxes that have historically provided a stable revenue stream, even though they declined in 2009.
Based on a no-growth forecast, the road fund revenues should provide at least 8.6 times coverage of senior-lien debt service.
