The Missouri Highways and Transportation Commission will issue $609 million of Series 2026A third lien state road bonds in a competitive deal set to price on Tuesday.
The deal marks the first time the state has gone to market since it
The bonds are rated Aa1 with a negative outlook by Moody's, AAA with a stable outlook by Fitch Ratings and AA-plus with a stable outlook by S&P Global Ratings.
The deal will close June 16, according to the
"The proceeds will be used as a resource for our statewide transportation improvement program," a five-year rolling construction program, said Brenda Morris, chief financial officer for the Missouri Department of Transportation.
The bonds are known as Amendment 3 bonds, after a state constitutional amendment approved in November 2004, she said. That amendment created the state road bond fund for debt service and redirected revenue into the fund.
The state's large budget deficit played a role in the negative outlook from Moody's, which assigns the state government its Aaa issuer rating.
Missouri is looking at drawing down about $2 billion in fund balances, said Dan Kowalski, assistant vice president on the Moody's states team, which will drag it below Aaa-rated peers.
"The reasons (for the large deficit) are various," Kowalski said. "Part of it is spending pressures for core areas like K-12 education. Part of it is incremental tax cuts over the last several years that have limited general revenue growth. And then some of it is federal funding shifts, especially related to Medicaid and the Supplemental Nutrition Assistance Program that, over time, will have a more negative impact on Missouri than on some other states."
The state tax cuts include gradual reductions in the individual income tax rate and, more recently, the elimination of taxes on capital gains and Social Security.
Officials reportedly hope to restore structural balance by fiscal year 2028 through spending cuts in next year's legislative session.
"Missouri continues to maintain its standing as a highly fiscally sound state, supported by a broader credit profile that reflects strong budgetary reserves and disciplined financial management," Shayne Martin, public information officer for Missouri's Office of Administration, which oversees Missouri Budget and Planning, said by email.
"Maintaining this trajectory will require heightened budgetary precision in the upcoming years to balance essential services with proposed tax reform," Martin added. "By ensuring that state spending remains strictly aligned with recurring revenue, Missouri intends to preserve its financial stability."
The state has more legal flexibility on the spending side than on the revenue side, Moody's' Kowalski said.
"Missouri has pretty limited revenue flexibility, from a constitutional perspective," he said. "They require voter approval to raise taxes. So they'll be going to voters this November with a referendum that would mandate the legislature eliminate the income tax over time, but also allow the legislature to expand the sales tax.
"This would be revenue neutral," he said, and thus "probably won't be the solution to reduce fiscal imbalance."
In its rating report on the road bonds, Moody's noted that Missouri's leverage is "already elevated relative to peers" but said the state has limited plans for additional debt issuance.
While Missouri is "roughly in line" with the median measure of leverage for all U.S. states, it is above the median for Aaa-rated states, Kowalski said.
As of fiscal 2025, Missouri's total leverage from debt, pensions and other post-employment benefits put it at number 22 among states, around the middle, with 96% of governmental revenue in leverage.
"Compared to the AAA rated states generally, it's double our median for triple-A-rated states, which is 41% of revenue in leverage," Kowalski said.
Missouri's state road fund bonds are backed by a pledge of statewide motor fuel taxes, motor vehicle fees, sales taxes on motor vehicles and general fund transfers, net of pension and law enforcement costs, local government distributions and cost of collection, Moody's said.
It rates the third-lien road bonds one notch below the state's Aaa issuer rating, "reflecting the state's annual appropriation pledge as the primary payment source along with the more essential nature of the highway project."
The revenues supporting the bonds "are generally growing though expected to slow after fiscal year 2026, the final year of a five-year phase-in of motor fuel tax hikes," Moody's said.
The bonds will amortize quickly, with a final maturity in 2033. PFM is municipal advisor for the deal. Gilmore Bell is bond counsel.
The road fund is not subject to legislative appropriation — a relative strength, Kowalski said. While that's a common feature for transportation bonds, "Missouri's constitutional separation of the road fund is a bit stronger than most other states, and it was reinforced by some recent court cases in Missouri; it's pretty strongly separated," he said.
In its rating report, Fitch, which rates the third-lien bonds AAA, noted the resilient security structure on the bonds and improving debt service coverage tempered by reduced growth prospects.
Moody's said the state's Aaa-rated first lien state road bonds, which mature this month, and its Aa1-rated third lien road bonds have maximum annual debt service coverage equal to about 10x and 4.3x, respectively.
The third lien bonds, special obligations of the MHTC, have a first lien on state road fund and state road bond fund revenues, Fitch said, adding that it expects coverage to "remain strong under stress scenarios."
Fitch praised "the ability and willingness of Missouri to actively manage factors that directly affect pledged revenue performance," naming by way of example the motor fuel tax increases that took effect over five consecutive years, which "suggest a lower level of credit risk," it said.
"Fitch believes similar action would be repeated in the future to offset revenue volatility," the rating report noted.
But Fitch also stressed the state's limited growth prospects, calling the state's revenue history "stagnant" and predicting future revenue growth will remain flat.
On the environment, social and governance front, S&P said in its rating report that Missouri "does not face above-average exposure to physical risk relative to the U.S.," and social factors were neutral in its credit analysis.
It praised the state's governance, citing strong financial resources, a robust regulatory and policy framework and regular infrastructure investments.
"The stable outlook (on the road bonds) reflects our view of MoDOT's stability in pledged revenue trends, manageable additional debt issuance over the next several years, and debt policy that requires maintenance of (debt service coverage) stronger than the bond indenture," S&P said.
The rating agency could raise its rating on the third lien bonds if pledged revenue strengthens substantially and leads to "extraordinarily strong DSC above the ABT established under the bond indenture," S&P said.
It could lower the state's ratings if it sees a significant decline in pledged revenue due to new debt issuance or an economic downturn, S&P said.
