Moody’s Investors Service downgraded 27 grant anticipation revenue vehicle bonds, totaling about $10 billion in par value.
Moody’s action Wednesday affected 20 Garvees secured solely by a pledge of federal highway aid and seven mass transit Garvees.
Moody’s provided two main explanations for the downgrades.
First, it pointed to the relatively short duration of the current highway funding authorization. “For at least the past quarter-century federal highway spending has been guided by a series of authorizations that have governed the program for periods of typically five to six years,” wrote Moody’s lead analyst Marcia Van Wagner and backup analyst Julius Vizner.
The previous federal transportation authorization was given 10 short-term extensions. During one of those extensions, “Congress allowed authorization for another transportation program, the Federal Aviation Administration, to lapse as a result of a budget dispute,” they wrote.
The most recent federal transportation authorization was made law on July 7, 2012. It authorizes funding through Sept. 30, 2014 and the underlying fuel taxes through Sept. 30, 2016.
The most recent transportation authorization’s shorter funding period, “raises the risk that funding will be less reliable for the state Garvee programs, which have maturities generally between 12 and 18 years,” the analysts wrote.
The second reason Moody’s gave for the downgrades is the inadequacy of revenue for the federal highway trust fund, which back the highway Garvees. “Gas tax revenues have stagnated due to the recession and greater fuel efficiency,” affecting the revenue stream for the federal highway trust fund, they wrote.
Due to the inadequacy of gas tax revenues, the U.S. Congress has had to transfer tens of billions of dollars from the general fund over the last few years to bolster the trust fund.
“The need for general fund transfers to support the program during a period of fiscal retrenchment creates a risk that funding for the program may be cut back,” the analysts wrote.
Moody’s assigns negative outlooks to the bonds. This “reflects continuing uncertainty surrounding federal transportation funding,” the analysts wrote.
Fitch Ratings downgraded 11 Garvee bonds in September for reasons similar to those provided by Moody’s.
Moody’s took the following actions:
• Changed rating to Aa2 from Aa1: Ohio Department of Transportation (major new state infrastructure project revenue bonds).
• Changed rating to Aa3 from Aa2: Alabama Federal Aid Highway Finance Authority (federal highway grant anticipation refunding bonds), California Department of Transportation (federal highway grant anticipation bonds) , Delaware Transportation Authority (grant anticipation bonds), District of Columbia (federal highway grant anticipation revenue bonds), Georgia State Road and Tollway Authority (federal highway grant anticipation revenue bonds), Idaho Housing and Finance Association (grant and revenue anticipation bonds, Federal Highway Trust Fund), Kentucky Asset/Liability Commission (project notes, Federal Highway Trust Fund), Maine Municipal Bond Bank (grant anticipation bonds), Michigan (grant anticipation bonds - 2009 series), Montana Department of Transportation (grant anticipation notes), New Hampshire (federal highway grant anticipation bonds), North Carolina (grant anticipation revenue vehicle bonds), Oklahoma Department of Transportation (grant anticipation notes), Rhode Island Economic Development Corporation (grant anticipation bonds), Washington (grant anticipation revenue bonds), West Virginia Commissioner of Highways (surface transportation improvements special obligation notes).
• Changed rating to A1 from Aa3: Michigan (grant anticipation bonds - 2007 series), New Jersey Transportation Trust Fund Authority (grant anticipation bonds), New Jersey Transit Corporation (senior master lease certificates of participation).
• Changed rating to A2 from A1: Chicago Transit Authority (capital grant receipts revenue bonds - Section 5309 bonds), Chicago Transit Authority (capital grant receipts revenue bonds - Section 5307 bonds), New Jersey Transit Corporation (subordinate master lease certificates of participation), Puerto Rico Highway and Transportation Authority (grant anticipation revenue bonds), Southeastern Pennsylvania Transportation Authority (capital grants receipts bonds), Tri-County Metropolitan Transportation District, Ore. (capital grant receipt revenue bonds).
• Changed rating to A3 from A2: Alaska Railroad Corporation (capital grant receipts bonds).
• Affirmed the Aa2 rating of the Arizona Transportation Board’s grant anticipation note. Moody’s has a stable outlook on this rating.