NEW YORK - For some financially struggling state and local governments, US toll roads represent an enticing source of incremental revenue for public treasuries, increasing the need for higher toll rates, says Moody's Investors Service in a new report.

"Absent timely rate increases, toll roads will see declines in their liquidity reserves, key financial metrics will fall, and ratings will be downgraded," said Moody's Senior Vice President Maria Mantesanz, author of the report. "Lower ratings will, in turn, contribute to higher borrowing costs, creating a need for more toll rate increases and accelerating a negative credit spiral."

Toll roads have faced a sustained period of high capital expenditure levels in which debt outstanding grew 24% from 2005 to 2010, requiring a steady stream of toll rate increases, which will not be popular given the struggling economy.

Toll roads that have transfers or outflows to local and state governments have materially weaker financial profiles. On average, based on a sampling of rated toll roads, Moody's reports higher debt ratios (108% for toll roads with outflows compared to 45% for toll roads without) and higher debt per toll transaction ($15 compared to $6).

The Moody's report highlights the credit profiles of a group of toll roads that are experiencing external transfer pressure, including the New Jersey Turnpike, the Pennsylvania Turnpike Commission, New York's Triborough Bridge and Tunnel Authority, and the Harris County Toll Road Authority in Texas. These are compared with some that have not faced transfer pressure thus far, including the turnpikes in Ohio, Oklahoma, and Kansas and the Orlando-Orange County Expressway Authority in Florida.

"In general, US toll roads are highly rated, usually in the Aa to A range because of their unique revenue structure," said Matesanz. "Rates are unregulated and are assured to rise sufficiently to cover costs, investments, and still maintain a margin above annual debt service costs."

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