DALLAS - The ratings of state highway bonds supported by federal transportation grants should be able to withstand the pressure from funding cuts as expenditures from the Highway Trust Fund outpace federal gasoline tax revenues, Standard & Poor's said in a recent report.
The conservative financial structures of state-issued grant anticipation revenue notes or vehicles will mitigate any risks from delays by Congress in reauthorizing the two-year Moving Ahead For Progress in the 21st Century (MAP-21)funding bill that expires on Sept. 30, the rating agency analysts said.
"While reauthorization risk cannot be completely eliminated, it has been minimized through conservative financial structures inherent in all rated Garvee transactions, which have resulted in the relatively high ratings on these transactions" the report said. The favorable Garvee structures cited by the rating agency include the use of back-up credit support, debt service reserves, robust debt service coverage levels, shorter final maturities, and restrictive additional debt provisions.
Nothing has changed since the report was issued Feb. 3 to change any outlooks in the report, chief author Mary Ellen Wriedt said Thursday.
"Given the recent history, we believe short continuing reauthorizations are more likely," said Wriedt, an analyst in the rating agency's San Francisco office. "The gasoline tax will remain as the main support."
A complete cutoff of federal highway grant funding in fiscal 2015 due to the demise of MAP-21 is unlikely, Standard & Poor's said, but the grants could be limited to the $39 billion of revenue generated annually by the federal tax on gasoline and diesel fuel.
"Should the gas tax remain the funding source, and should Congress continue to focus on austerity and debt reduction, we believe that general fund transfers to support transportation funding could be less likely to gain bipartisan support, potentially limiting the size of the next surface bill to just what the gas tax can support," the report said.
MAP-21 authorized a total of $105 billion of spending over its 27-month span, but that required a transfer of almost $21 billion from the general fund.
"Federal general fund transfers supporting the Highway Trust Fund are subject to sequestration, and there is little support for raising the federal gas tax, the proceeds of which provide most of the program's funding," the rating agency said.
A vote on a six-year highway funding bill is expected in the Senate Environment and Public Works Committee. Chairman Barbara Boxer, D-Calif., said Wednesday she will work with Senate Finance Committee chairman Sen. Ron Wyden, D-Ore., and ranking Republican member Sen. Orrin Hatch of Utah to find additional revenue to fund the highway aid program.
Delays and uncertainties over reauthorizing the federal program that support the 27 Garvee bonds rated by Standard & Poor's is a "key credit weakness" of the debts, the report said.
Idaho transportation officials took steps to lower the risk for purchasers of $587 million of state Garvees that priced in mid-January. The state had $584.6 million of outstanding Garvee bonds before the January sale.
"We have looked at and modeled the bonds based on what would happen if the federal trust fund were to change drastically," said Dave Tollman, controller of the Idaho Transportation Department. "Everyone knows the fund has been subsidized by funding from the [federal government's] general fund for the last five or six years."
Moody's Investors Service lowered the ratings of 27 Garvee issues by one notch in November 2012 and revised the outlooks to negative over concerns about short-term reauthorizations would reduce the available funds and the structural imbalance of the HTF. The move affected 20 ratings supported solely by a pledge of federal highway aid and seven ratings of mass transit Garvees.
