The Idaho Housing and Finance Association will deplete the $300 million state lawmakers authorized for its Garvee program when it issues bonds next week.
Leading an eight-bank syndicate, Citi will price on Thursday $170.1 million in tax exempt, non-AMT grant and revenue anticipation bonds for IHFA, the conduit issuer for the Idaho Transportation Department’s grant anticipation revenue vehicle bond program.
Garvees are a bond financing tool in which states leverage future funding they expect from the federal Highway Trust Fund, allowing them to build projects upfront with federal aid that comes in later.
The Idaho Garvee Transportation Program began in 2005, when the Legislature approved up to $998 million in debt issuance to fund 13 projects throughout the state, said Dave Tolman, controller of the Idaho Transportation Department.
The original 2005 program was enacted to deal with increasing highway demand and to perform road realignments to improve safety, Tolman said. Growth in the state continued to mushroom as the initial projects were completed, and the state needed to design projects to alleviate congestion, he said.
Idaho has been among the fastest growing states in the country for the past few years.
Idaho and Arizona were deemed the fastest growing states with population growth of 2.12% and 1.78% from July 2019 to July 2020, according to the U.S. Census Bureau.
The state’s population grew by 219,408 people or by 14% to 1.7 million by July 1, 2019 compared to a decade earlier, according to the U.S. Census Bureau.
“The Legislature authorized additional bonds in 2017,” Tolman said. “We had completed the initial work required by the original bond authorization.”
The $300 million authorized by lawmakers in April 2017 enabled the state to complete additional projects like replacing the interchanges on the freeway in Nampa and Caldwell, and expanding the roads from two to three lanes in each direction. It also allowed for bridge replacements and new irrigation structures.
The lion’s share of the work from the 2017 authorization targets the Boise metropolitan region’s Treasure Valley, on U.S. 95 south of Coeur d’Alene in northern Idaho and in south-eastern Idaho on projects like the U.S. 30 truck route that connects I-80 to Wyoming.
“The majority of the money has been spent in the Treasure Valley, because that is where the majority of the growth is,” Tolman said.
More than $25 billion in Garvees had been issued by 25 states, two territories and the District of Columbia, the U.S. Department of Transportation
All the state Garvees Fitch rates that solely depend on funding from the federal trust fund to pay the debt receive an A-plus rating, said Scott Zuchorski, a Fitch managing director. States with a double-barreled approach that contribute some other source of state funding have ratings pegged more to the state’s credit strength, Zuchorski said.
Moody's Investors Service affirmed an A2 rating ahead of the deal. Both rating agencies assigned stable outlooks.
In an analysis of the Highway Trust Fund and the Fixing America's Surface Transportation Act, Fitch said expenditures have exceeded revenues over the past decade.
The fund has experienced a history of last-minute short-term fixes, budget battles and debt ceiling debates that have raised doubts about future distributions from the federal Highway Trust Fund.
The longer-term structural imbalance of the HTF was not addressed by the FAST Act passed in early 2015, instead relying on annual transfers from the federal budget to keep the program afloat through fiscal year 2020, Fitch analysts Zuchorski, Seth Lehman and Victoria Babcock wrote in the ratings report.
Congress reached an agreement on a continuing resolution on Sept. 30, 2020 that extends the FAST Act program until September, but the extension does not address the longer-term shortfall, the analysts wrote.
“It is Fitch’s view that significant changes are needed either on the expenditure side or the revenue side (potentially through an increase in the motor fuel tax, additional tax revenues or surcharges at federal and state levels, increased toll usage, expanded user fees, or some other alternative revenue source), to put the program on a sustainable trajectory,” Fitch wrote.
The Biden Administration’s $2 trillion infrastructure plan doesn’t address the issues with the Highway Trust Fund and the annual reauthorizations, Zuchorski said.
“It is interesting that it is not in the transportation plan that came out a couple of weeks ago,” Zuchorski said.
It would now have to be separate legislation to reauthorize it when it expires in September, he said.
“There has been a history of reauthorizations,” Zuchorski said. “But that is the risk of the transaction and the program, that it has been subject to reauthorizations.”
In order to rate the Idaho Garvees or any other states higher, Fitch would have to see a longer, more sustainable program, Zuchorski said.
The Idaho bonds are fixed-rate serial bonds with the new money maturing in nine to 18 years and the current refunding bonds maturing in eight years, according to the bond documents.
The legal team is Skinner Fawcett as bond counsel, Orrick, Herrington & Sutcliffe as underwriter’s counsel, Gilmore & Bell as disclosure counsel, Skinner Fawcett LLP as issuer’s counsel and Idaho Deputy Attorney General Renee Hollander-Vogelpohl as the transportation department’s counsel.
Bonds are issued on an as-needed basis to ensure that funds are available for the duration of the contract while limiting interest costs, and with consideration of the bond market, interest rates and draw-down periods, Tolman said.
ITD, in partnership with the Idaho Housing and Finance Association, has issued eight bond series and refinanced three of those, with a weighted average interest rate of 3.75%, according to the bond documents.
Annual debt service on the total program is $64.7 million, 23% of ITD’s anticipated federal funds, which is less than the 30% cap established in Idaho Code.
The end of the state’s Garvee program doesn’t necessarily mean an end to bond-funded highway projects, however.
To deal with the growth, lawmakers introduced a bill on Tuesday to expand the transfer of the 1% portion of the sales tax that goes to the Transportation Expansion and Mitigation, roughly $18 million annually, for further highway projects to deal with congestion, Tolman said.
ITD expects to see robust interest for its bonds as it has in the past.
The bonds have been two and four times oversubscribed depending on maturities when they have come to market previously, Tolman said.
Though the rating agencies are concerned about the risks involving the Highway Trust Fund, and Congress’ failure to fully fund it, investors have recognized that Congress has continued to provide money to the states, Tolman said.
With rates where they are in the market, the ratings the bonds received and the acceptance in the market for Idaho paper, Tolman expects to see the lowest interest rates the state has experienced on a new money sale.
He hopes to see interest rates less than 1.5% on the refunding, because the maturities aren't being extended.
