Sales tax backup supports toll bonds for Illinois bridge

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CHICAGO — Kane County — one of Chicago’s five “collar” counties — will sell $26 million of double-barreled bonds to finance construction of a toll bridge over the Fox River to relieve congestion in the growing region.

The sales-tax supported toll bridge revenue bonds carry S&P Global Ratings' AA-plus rating. The bonds are scheduled to price Wednesday.

Proceeds will fund construction of the Longmeadow Parkway toll bridge that will span the Fox River as well as tolling facilities and capitalized interest during the construction period.

The parkway will be a four-lane bridge crossing and 5.6-mile, four-lane arterial roadway to ease congestion in the northern part of the county.

“The importance of the Longmeadow Parkway project to the county and region is demonstrated by the amount of cooperating planning and right of way acquisition that has taken place over the past decade, the approval of resolutions of support for the project by 11 local governments and the significant amount of federal, state, and local funding that has been committed,” according to an investor presentation that accompanies the offering statement.

Citi is the senior manager. Speer Financial Inc. is the financial advisor. Chapman and Cutler LLP is bond counsel. The bonds mature serially between 2022, when the bridge is expected to become operational, and 2038, with term bonds in 2043 and 2048.

CDM Smith Inc. provided a traffic and revenue study and Jacobs Engineering Group Inc. provided an operations and maintenance study.

The corridor project is being funded from a mix of local, state, and federal funds but county officials have said tolls are necessary to overcome funding obstacles. The county about 40 miles west of Chicago initially promoted the project as one that would not put rely on taxpayer dollars.

Toll bridge revenues are projected to cover the debt service at a more than 1 times ratio but the risk that estimates would not pan out and the lack of any historical data — the county has never built and operated a toll bridge — meant the bonds were unlikely to garner an investment grade rating, driving up the borrowing cost.

The county earlier this year decided to add the sales tax backup pledge, ensuring a strong rating and investor interest.

The move provided fuel for project opponents who warned that the project may not garner needed traffic numbers because of other free options for crossing the river. If tolls don't cover debt service, that will result in taxpayer subsidies from sales taxes that could be spent elsewhere.

The county outlined the risks in the offering statement, noting that’s why it decided to “enhance the security” with the sales tax pledge.

The addition of the county’s share of the Regional Transportation Authority’s sales tax as a backup pledge bolsters debt service coverage to a minimum of 13 times assuming a 3% annual growth rate in sales taxes. One-third of RTA sales tax collections go to the collar counties.

Under the indenture, the county is required to levy a toll sufficient to cover the debt service. The base toll rate is expected to be set initially at 95 cents for passenger vehicles. Total repayment costs with principal and interest is about $47 million.

Under an intergovernmental agreement with the Illinois State Toll Highway Authority, the electronic tolling device known as the I-Pass can be used.

The bonds are being issued under separate indentures governing the toll revenues and RTA sales tax revenues. If tolls fall short of debt service coming due on any principal or interest payment date, the toll trustee is required under the toll indenture to notify the sales tax trustee of the shortfall in advance of the payment date.

The sales tax trustee is then required to pay the toll bridge trustee the amount of the shortfall from RTA sales tax receipts collected separately in the sales tax fund. A sales tax certificate will be issued concurrently under the sales tax indenture, evidencing the right of the toll bridge trustee to be paid RTA sales tax revenues on deposit in the sales tax fund.

The offering statement reports no litigation that could interfere with the issuance or bond closing. In September, a federal judge dismissed litigation seeking to block the Longmeadow corridor project because of the allegation that federal authorities improperly granted environmental approval. The deadline for appealing the decision was Oct. 22, according to the offering document.

S&P rated the bonds based on its “priority lien” criteria that considers the strength and stability of the pledged sales tax revenue and the credit profile of the government entity collecting and pledging the taxes.

The analysis looked at both the county’s credit profile and the stronger of the revenues. “The rating is based on the RTA sales tax pledge, which we consider the stronger of the two pledges,” S&P said.

Primary strengths include the lack of significant volatility on sales tax collections; coverage of 9.9 times based on the 2017 RTA sales tax revenues and an additional bonds test that requires 2.5 times coverage to add debt; strong economic fundamentals in the region that benefits from a growing population and incomes above the national level; and the county’s “strong general creditworthiness.”

The AA-plus rated county has strong management and a stable, predictable operating budget that has mostly seen surpluses since the Great Recession and a general fund balance equal to about 75% of expenses at the end of fiscal 2017, according to S&P. The county debt profile has been strengthened by a recent history of debt restraint and paying down most of its direct debt burden over approximately the past 10 years.

No debt service reserve is being established, but S&P said “given the low revenue volatility and very strong coverage, we are not applying any downward adjustment from the very strong coverage score that would indicate liquidity pressures.”

While the borrowing will pay for the bridge, the overall road projects totals more than $100 million and includes a mix of state and federal funding.

Discussions over the need for additional bridges dates back to the 1960s. With more growth occurring west of the Fox River, in the 1990s officials began exploring prospective corridors to establish new bridges and roads.

An environmental impact study for three bridge crossings was completed in 2001 and the Federal Highway Administration issued a record of decision in 2002.

In 2007, local communities passed resolutions asking Kane County to consider tolls as a funding source. The new bridge will be the area's fifth.

Population in the county currently stands at more 500,000 after growing by 27% in both the 1990s and 2000s. While it’s tapered off, steady growth is still expected. Regional planners anticipate it will rise by 49% by 2050.

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Primary bond market Toll revenue bonds Sales tax Transportation industry Illinois