DALLAS — For states planning cash flows over the next two years, passage of the federal Highway Bill creates a positive scenario for grant anticipation revenue vehicles, according to rating analysts.
"Despite federal budget pressures, the funding levels through federal fiscal 2014 will maintain programs at a level sufficient to preserve the credit quality of the sector," Standard & Poor's analysts Peter V Murphy and Todd R. Spence wrote in this week's report.
The use of Garvees allow states to accelerate construction of highway projects, obtaining lower finance costs and, in the current environment, taking advantage of cheaper construction costs.
New-money Garvee issuance hit a peak of $2.2 billion in 2009, falling to about $600 million last year. Through the first half of 2012, about $1.1 billion of the bonds have been issued, according to Thomson Reuters.
The highway trust fund is the main source of funding for Garvees, which are backed, at least in part, by direct federal payments for state and local highway and transit programs. Standard & Poor's rates 26 Garvee programs, with levels ranging from A-minus to AAA.
The 2012 legislation passed last week is known as the Moving Ahead for Progress in the 21st Century Act, or MAP-21. The bill will provide $120 billion of funding for transportation programs during the next 27 months.
Funds will mainly come from gasoline and diesel fuel taxes, but will also include $19 billion of transfers from the general treasury.
"The planned transfer of additional funds to the highway program from the general treasury mitigates the risks associated with diminishing gas tax collections seen in recent years," Murphy and Spence noted. "Finally, the extension of the program for 27 months provides relatively greater certainty, given that the previous authorization required extension nine times in less than three years, often at the 11th hour."
The highway bill was passed last week at literally the 11th hour, just as authorization of the federal fuel tax was about to expire.
Moody's Investors Service analyst Nicholas Samuels pointed out that while the 27-month extension of the highway bill is longer than any of the nine temporary extensions that came before amid political gridlock, it's much shorter than the previous six-year authorization periods that occurred before September 2009.
"Shorter authorization periods further funding uncertainty as it relies on Congress and the administration to pass another bill sooner," Samuels wrote. "Part of the federal government's challenge is that it needs to supplement gas tax revenues, which have been insufficient to pay for related outlays."
The Federal Highway Administration estimates that Highway Trust Fund receipts, which are mostly from the 18.4 cents per gallon federal gas tax, totaled $36.9 billion in fiscal 2011 but that outlays totaled $44.5 billion.
Trust fund balances were shored up by $35 billion of transfers from the U.S. general fund between fiscal years 2008 and 2010.
Amid budget cuts in January 2013, MAP-21 will transfer $6.2 billion to the Highway Account in fiscal 2013.
