A series of toll rate reductions and discounts announced by the Maryland Transportation Authority on May 7 are a credit negative for the agency's revenue bonds, according to Moody's Investors Service.

Moody's analyst Jennifer M. Chang said in a May 11 report that Maryland Transportation Authority's toll reduction moves that take effect July 1 will reduce revenue by $53.4 million for the 2016 fiscal year. This equates to 8.5% of the Maryland Transportation Authority's fiscal 2014 toll revenues of $622 million and "also signifies the state's departure from non-intervention in toll rate setting", according to Chang.

However, she added, given recent toll rate increases for construction projects in major capital programs that were recently completed, Moody's does not expect the toll cuts to have a "significant negative impact on the authority.

"The rate reduction offsets only a fraction of a 37% toll rate increase that took effect in July 2013," said Chang. "It follows an MTA study of how to best meet Maryland Governor Larry Hogan's request for toll cutbacks, while still maintaining sound financial metrics."

Moody's rates the Maryland Transportation Authority Aa3 with a stable outlook. Among cuts the authority is planning is an up-to-33% reduction in toll cash transactions at the Chesapeake Bay Bridge, elimination of the monthly maintenance fee for E-Z Pass account holders and increasing or establishing 15%-30% discounts for E-Z Pass customers. The authority's revised projections show toll revenues for fiscal years 2016-20 averaging 4.5% lower than the $653 million in toll revenues it forecasted for 2015.

Chang said to offset lower expected revenues, the authority is planning revisions to its operating budget and small capital program reductions for fiscal years 2016-21.It is also considering postponing some previously planned debt refunding. Capital program adjustments will mainly involve postponing ongoing projects such as repaving and signage replacements, but will not include project cancelations, according to Chang.

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