DALLAS – After approving a plan to finance $70 billion of projects over the next decade, the Texas Transportation Commission will issue $712 million of bonds in September to take care of current needs.
The upcoming deal includes more than $613 million of Series A first-tier revenue bonds backed by the State Highway Fund and $98.8 million of Series B refunding put bonds, all rated triple-A.
"It is anticipated to be set for some time next month," said Texas Department of Transportation spokesman Mark Cross. "We will make a public announcement about the sale prior to it taking place."
Proceeds of the Series A bonds will finance TxDOT's current highway capital program, while the Series B bonds will refund 2006 variable rate demand bonds. The Series B bonds will initially be offered in fixed-rate mode, with a five-year put option on Oct. 1, 2021.
The bonds are issued in the name of the Texas Transportation Commission, a five-member body appointed by the governor. It supervises TxDOT, the state's largest issuer of general obligation and revenue bonds.
After ranking as the top debt issuer in the Southwest region for the past two years, the TTC is taking something of a breather. TTC's previous issue this year raised $624 million. In 2015, TTC issued $3.3 billion, including refunding.
Despite weakening oil and gas revenue, all ratings agencies have a stable outlook on the state, particularly the transportation bonds.
"A combination of state and federal revenues provide strong coverage of peak debt service, supported by the healthy economic fundamentals of the State of Texas (Aaa stable) and the essentiality of the state highway system," Moody's analyst Nicholas Samuels wrote.
After this issue, the commission will have about $4.6 billion of first-tier obligations outstanding, exhausting the remaining authorization.
Additional debt backed by the State Highway Fund is unlikely through 2019, according to S&P Global Ratings.
But the SHF will receive $2.5 billion annually from the state's sales tax revenue under a constitutional amendment passed by voters last November. Although the $2.5 billion approved under Proposition 7 will be available to finance transportation projects, these amounts will be segregated from existing pledged revenue.
The money will likely not be available until the 2018 fiscal year.
Texas' continued growth, despite the weakened energy sector, is generally seen as the largest source of financial pressure.
The state motor fuel tax of 20 cents per gallon on gasoline and diesel can be adjusted by the state legislature, but has not changed since 1991. Fuel taxes account for 34% of deposits into the fund and have grown nearly 12% since fiscal 2011.
"In our view, the stability of fuel tax revenue, which totaled $2.5 billion in fiscal 2015, supports the rating," S&P analyst Nora Wittstruck wrote in affirming the AAA rating.
Vehicle registration fees, the fund's other large revenue source, increased about 22% over five years to $1.4 billion in fiscal year 2015. That made up about 19% of SHF deposits.
While lawmakers have been unwilling to raise the fuel tax, they have passed legislation that diverted tax revenue from sales and energy production to transportation.
Under Proposition 7, the Texas Department of Transportation would gain access to the sales tax funds only if total sales tax revenues for the year exceed $28 billion.
In 2014, voters approved Proposition 1, a measure that diverts a portion of oil and gas severance tax revenue from the rainy day fund to highway projects. The Texas Comptroller of Public Accounts certified that $1.74 billion was available for transfer to the State Highway Fund for the last fiscal year.
With that additional funding available, the TTC on Aug. 25 approved the largest transportation plan in the state's history.
Under the 10-year Unified Transportation Program, the TTC outlined $70 billion of projects.
The plan targets congestion in the state's most populated areas and aims to improve connections between the major interstates in rural areas with local roads and highways. The program calls for completing interstate highways, improving access for the oil and gas industry and hurricane evacuation routes.
"The actions today by the Texas Transportation Commission represent a historic investment in our state's infrastructure," said Texas Gov. Greg Abbott after the plan was approved. "Texans have sent a loud and clear message that they are tired of sitting in traffic, and this funding plan will significantly address safety, maintenance, connectivity and congestion on our crowded highways."
TTC's previous plan included about $33 billion of projects. The bulk of the additional funding will come from legislative- and voter-approved initiatives to allocate portions of oil and gas taxes, sales taxes and other taxes to the state highway fund, officials said.
"Ending the practice of appropriating state highway funds to agencies other than TxDOT and the passage of long-term federal transportation legislation also contributed to the additional funding," according to the TTC.
Ratings analysts note that lawmakers can still tinker with the funding, which is seen as a possible risk.
House Bill 2202, passed in the 2013 legislative session, diverts $104 million annually from the SHF to the state general fund in fiscal years 2014 through 2018.
"The diversions are offset by a corresponding reduction in appropriations to the Department of Motor Vehicles from the SHF, and therefore we do not anticipate a material impact on coverage," Wittstruck wrote.
On the larger scale, "volatility in the energy sector presents a potential downside risk to Texas' economy, and an extended contraction in oil prices could have a significant impact on employment and other areas of economic growth in the state," Wittstruck wrote.
"Furthermore, a continued decline in exports as a result of the strong dollar and weak demand could have a negative impact overall on the state's employment base and economic performance," she wrote. "However, we also believe that the growing diversity of Texas' economy will help mitigate the impact of a decline in energy prices, although additional drops could increase the negative economic impact."
