WASHINGTON — Fitch Ratings has downgraded 11 grant anticipation revenue bond issues because of uncertainty about federal transportation funding policy, the rating agency announced Wednesday.
It downgraded to BBB from A Garvees issued for or by the Alaska Railroad Corp., the Chicago Transit Authority, and the New Jersey Transit Corp.
The rating agency moved to A-plus from AA-minus Garvees of the Georgia State Road & Tollway Authority, the Kentucky Asset Liability Commission, the Maine Municipal Bond Bank, the Oklahoma Department of Transportation, the Rhode Island Economic Development Corp., California, North Carolina, and Ohio.
Fitch revised the outlook on all bonds to stable from negative.
“Fitch’s assessment of the strength of the federal program has been revised to midrange from strong, a direct result of the increased uncertainty around federal policy,” the agency said. “As this attribute is a key driver for Garvee bond ratings, it is the agency’s view that the increased uncertainty is not consistent with ratings in the ‘AA’ category.”
Fitch cited the heavy reliance of the highway law enacted earlier this year on using transfers from the U.S. Treasury general fund to prop up the highway trust fund through 2014. A recent Congressional Budget Office Report projected that the highway trust fund would become insolvent sometime in 2015 under current policy.
“While the continued general fund transfers have underscored the relative importance of transportation funding within the federal budget to this point, they do not guarantee future commitments,” Fitch said in its announcement.
Another point of concern for the agency is the new federal fuel efficiency standards, adopted by the Environmental Protection Agency in August, which call for corporate average fuel economy standards to rise to 54.5 miles per gallon from the current 29 miles per gallon by 2025.
“Such a standard would put further pressure on [highway trust fund] receipts from taxes imposed on passenger cars, leading to an estimated 13% reduction from today’s levels by 2032, requiring even larger general fund subsidies to maintain the status quo,” said Fitch.
Under one scenario the company simulated, general fund revenues would represent half the highway trust fund by 2032.
“In Fitch’s view the more unsustainable the program becomes, the greater the possibility of policy changes that could adversely impact bondholders,” the analysts conclude.
The agency upgraded the Michigan’s Garvee bonds to A+ from A and affirmed the A+ rating on the Idaho Housing and Finance Association’s outstanding Garvee bonds. Those issuers have some structural protections in place for their bonds, Fitch analysts said.