Fitch: Political Risks Loom for Transportation in 2017

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DALLAS -- Political risks are the biggest cloud that could dim the transportation sector's otherwise stable horizon in 2017, Fitch Ratings warned in an outlook sector report Monday.

A modest growth of transportation infrastructure next year will be driven by a stable economy and low fuel prices, which will especially buoy toll road traffic, wrote Fitch analyst Tanya Langman. Airports will also benefit from a 3% growth in airline passenger loads, she said.

"Congestion relief and infrastructure renewal needs will continue to necessitate debt borrowing and investing by large transportation enterprises," she added.

President-elect Donald Trump's still-vague plans for $1 trillion of infrastructure spending and growing opposition to highway tolling in some states are the biggest political uncertainties facing transportation infrastructure in the new year, said Langman and senior infrastructure director Seth Lehman in the sector outlook report.

The incoming president has talked about his plans for significant infrastructure investments without providing much information about the proposed funding, Langman and Lehman said.

"A detailed plan for infrastructure spending from the new administration, coupled with concrete legislative proposals, could provide longer-term clarity," they said.

The proposal released in late October by the Trump campaign is based on $137 billion of tax credits that the plan's authors said could be used to leverage up to $1 trillion of private investments in public infrastructure over 10 years.

The Trump plan's reliance on public-private partnerships to finance large transportation projects that have a dedicated revenue stream will likely be insufficient to meet the demand for infrastructure, Fitch said.

Passage of the five-year Fixing America's Surface Transportation Act in late 2015 was positive for the sector but did nothing to resolve the structural imbalance between Highway Trust Fund expenditures and revenue, Langman and Lehman said.

"Expanded use of tolling and other user fees like vehicle-miles-traveled fees could be part of the solution, but will certainly not satisfy the overall need," the analysts said. "A coordinated strategy of tax revenues and surcharges at the state and federal level will remain critical to a viable and sustainable long-term infrastructure policy."

The tolling of managed lines will likely dominate next year's toll road market, the two said. Toll revenues are up 7% so far in 2016, outpacing a 6.3% increase in traffic, and those trends are expected by Fitch to continue in 2017.

Moody's Investor's Services also sees a positive outlook for toll roads in 2017, according to senior vice president Maria Matesanz.

Traffic and revenue growth in 2016 have exceeded expectations, she said.

"We expect this to continue in 2017 based on economic growth and relatively low gasoline prices," Matesanz said.

Median traffic growth among the 48 toll roads rated by Moody's should range from 3% to 4% in 2017 with toll revenue up 5% to 6%, she said.

Public expenditures on transportation fell in 2016 with another decline expected next year, said Alison Black, chief economist at the American Road & Transportation Builders Association.

Spending on highways and streets by state and local governments fell nearly 2% in 2016 with another 1% decline seen for 2017, she said.

The overall funding outlook grew brighter with the success of transportation initiatives at the November election, Black said.

"Voters in 24 states approved 267 ballot measures in 2016, which will support $207 billion in highway, bridge, port, and transit spending over the next 40 years," she said. "Public-private partnerships will continue to be important to state and local markets that have revenue streams to support these projects."

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