DALLAS — Dallas Area Rapid Transit plans a 16% increase in debt service as it continues to expand its light-rail system under the fiscal 2012 budget that begins Saturday.
In approving a $1.15 billion spending plan on Tuesday, the DART board included $433.5 million for operations, $572 million for capital improvements, and $147.7 million for debt service. The overall budget is 8% lower than the current year’s after cuts in jobs and services.
“The cost-reduction steps are a result of higher operating costs and lower long-term sales tax revenue projections,” the authority said in announcing the new budget.
The increase in debt service from $127.4 million in the current fiscal year that ends Friday was designed to take advantage of the low interest-rate environment in addition to committing more resources to the rapidly growing light-rail system, said chief financial officer David Leininger.
“We made a decision to commit $20 million more in debt service but it was much more cost effective given the interest rates,” he said.
To accommodate the light-rail expansion, DART decided to lower its internal coverage ratio for debt to less than one times, Leininger said. With growing sales tax revenue and cost-cutting, that ratio is expected to return to equilibrium after this year.
The internal coverage ratio is a planning device that excludes certain sources of income. When the ratio falls below one times, DART uses reserves, Leininger said. Cash reserves after Friday are $788 million, a 10% increase from last year’s $714 million.
The external coverage ratio that secures revenue bonds backed by sales taxes in the transportation district will be 2.77 times, Leininger said, well above the bond pledge of two times coverage.
In June, Fitch Ratings downgraded DART’s senior-lien revenue bonds to AA-minus from AA, citing a rapidly growing debt load resulting from the issuance of $2.8 billion in new-money bonds since fiscal 2007.
In September 2010, Standard & Poor’s lowered its rating and underlying rating on DART’s $2.6 billion of outstanding senior-lien sales tax revenue bonds to AA-plus from AAA, based on an acceleration in the bonding program. Along with declines in sales tax revenue, that reduced expected coverage levels, according to Standard & Poor’s.
The downgrade came in advance of about $830 million of Build America Bonds issued by DART in December.
Sales tax revenue bonds are secured by a pledge of a 1% sales tax collected across a broad area of the Dallas metro area, as well as by pledged farebox revenues.
Moody’s Investors Service rated the 2010 BABs Aa2 with a stable outlook.
The authority expects to receive construction bids for extending its new Orange Line light rail from Irving to Dallas-Fort Worth International Airport on Friday. But DART officials don’t plan any long-term debt issuance until 2014.