The New York State Thruway Authority, faced with refinancing $868 million of short-term debt next month and a declining debt-service coverage ratio, is taking steps toward future toll hikes.
On Wednesday the agency’s board approved authorization for executive director Thomas Madison to proceed with “necessary actions to implement toll-rate adjustments.”
At 570 miles, the Thruway is the longest continuous toll road system in the world.
The proposed toll schedule would increase by as much as 45% but would only affect large commercial truckers.
“Commercial vehicles and overweight trucks represent the single greatest demand on highway and bridge infrastructure from both an engineering and financial standpoint,” said a report from Jacobs Civil Consultants, an independent engineering consultant.
The report, required under New York’s public authorities law prior to any toll increase, explained that heavier trucks cause more damage to the roads than the average passenger vehicle.
The current toll rate for a Class 5H vehicle — a large commercial truck with five axles — for a trip from Woodbury to Newburgh, for example, is $7.10. Under the proposed hike, it would go up to $10.30.
The board’s decision comes after two separate reports — one from Jacobs and one from Navigant Capital Advisors — recommended toll hikes to address the authority’s “urgent financial need,” which is largely driven by its amount of debt amid funding shortages.
“The board approved a series of opaque and potentially risky, short-term [bond anticipation notes] in the amounts of $681 [million] in 2009, then increased to $868 [million] and extended in 2011,” the Navigant report said.
Issuing short-term debt allowed the agency to avoid significantly weaker debt-coverage levels at the time.
However, if the authority does not take action to increase its revenue, by 2016 its coverage level could drop to as low as 0.97 times, according to the Jacobs report. The Thruway’s bond resolution requires coverage of at least 1.2 times and the authority’s fiscal management guidelines require 1.5 times.
As the Bans must be refinanced by early July, the agency is facing an “urgent financial need,” the Navigant report said.
“While certain-cost containment initiatives are underway, without decisive action, current capital structure and debt service coverage will unlikely absorb the refunding of Bans with long-term debt,” the report found.
The agency is planning to take out the notes during the week of June 18 or the week of June 25 with an estimated $1.12 billion of general revenue bonds.
In addition to retiring the Bans, proceeds from the bond sale will also fund a portion of the cost of the authority’s multi-year capital plan.
Citi will be lead underwriter. Bond counsel will be Hawkins Delafield & Wood LLP and financial advisor will be Public Resources Advisor Group.
The new bonds have not been rated yet, but the agency’s outstanding general revenue bonds are rated A1 by Moody’s Investors Service and A-plus by Standard & Poor’s. This will be the authority’s first sale of general revenue bonds since 2007, when Moody’s rated the debt Aa3. In 2008, it downgraded the rating to A1.
Moody’s cited narrowing debt-service coverage ratios due to escalating debt-service costs and slow revenue growth as reasons for the downgrade.
The Navigant report also said the agency’s “passive” management in previous years contributed to the financial problems.
Thruway chairman Howard Milstein agreed, saying the administration failed to take action to address the agency’s structural issues.
“Prior management and the board tolerated ballooning deficits, electing to 'kick the financial can’ for decades,” he said in a letter to board members.
The decision to increase tolls comes weeks after the agency’s announcement of plans to finance the construction of a new Tappan Zee Bridge, mostly through debt. The total cost is estimated at $6 billion.
“These financial issues are completely unrelated to, and do not impact, the financing plan for the Tappan Zee Bridge replacement, which will be addressed with separate financing,” Milstein said.
The Thruway increased tolls in 2005 by 25% for passenger vehicles and 35% for commercial customers. In 2008, tolls increased another 10% for both types of vehicles, which took effect in 2009 and 2010.
The total toll revenue for 2011 was $634 million. The Jacobs report estimates that with the proposed toll hike, toll revenue for 2012 would total $664 million for 2012 and $731 million for 2013.
