DALLAS - A collapse of oil prices to nearly a six-year low has had a positive effect on states because the resulting increase in gas tax collections allows them greater capacity to issue additional debt for capital needs, according to Moody's Investors Service.
"Increased gas tax collections create more headroom to issue bonds under indentures with leverage constraints and give states more capacity to fund infrastructure needs," according to the April 14 report by Moody's analysts John Lombardi, Emily Raimes, and Nicholas Samuels.
"The ability to issue more highway bonds has increased for many states since 2011, with capacity for new debt growing from approximately $46.7 billion to at least $56.2 billion in 2014, or 20.5%, under bond programs paid specifically from gas and highway-related taxes," they noted. "However, many states have curbed highway projects as concerns continue over the federal Highway Trust Fund."
Highway infrastructure needs were generally neglected for more than a decade as gas tax revenues ran dry, according to the report.
States spent 15% or $16 billion less on transportation in 2012 than they did in 2002, adjusted for inflation, according to Pew Charitable Trusts. Transportation infrastructure spending declined every year during that period as state fuel taxes and federal funding stagnated, except for an increase from 2011 to 2012.
"States have also limited borrowing post-recession with dedicated highway revenue bonds outstanding stalled at between $37 and $38 billion since 2010," the Moody's report said. "This reflects a shift from the trend in the mid-2000s when new debt was being issued annually, with debt outstanding under this subset of bond programs increasing to $38 billion in 2010 from $23 billion in 2006."
The U.S. Department of Transportation estimates an $808 billion backlog of investment needs for highways and bridges. The Congressional Budget Office estimates that states need to spend at least $13 billion more each year to maintain current transportation system performance.
The lower state spending trend reflects several factors, Moody's said.
High oil prices made driving more expensive while the recession slowed traffic further and vehicles continued to become more fuel efficient, stalling state motor fuel tax collections. Additionally, the weaker condition of the federal Highway Trust Fund - a key revenue source for state transportation funding - and uncertainty about long-term federal transportation finance policy held state spending back.
Most federal transportation funding to states is on a reimbursement basis and uncertainty regarding federal funds has made states wary that they would have to pay the full costs of reimbursement-eligible projects, the analysts said.
According to the American Road & Transportation Builders Association, the pending May 31 expiration of the latest funding authorization for the Highway Trust Fund has already caused $800 million of highway projects in four states to be canceled or deferred, and placed $1.8 billion of projects in another nine states into question.
About 52% of all state highway and bridge capital investments receive funding from the HTF.
"As the authorization deadline gets closer we expect the deferral of more state projects," the analysts predicted.
Generally speaking, lower prices at the pump have spurred an increase in fuel consumption and vehicle miles traveled, leading to higher gas tax collections.
"We expect the trend to continue over the near-term," the analysts said. "However, some states may view the increase in gas tax collections as temporary and choose to fund capital projects on a pay-go basis instead of accelerating spending by issuing debt."
Lower gas prices have bolstered consumer budgets and confidence, leading to more driving, increased vehicle sales and more spending on fuel, Moody's confirmed. Driving was up 6% in January compared to the same period last year as gas prices remained low.
