WASHINGTON — Virginia on Wednesday expects to competitively price $492.7 million of transportation bonds — the state’s first bond offering from a $3 billion debt program approved in 2007.
Investors will be able to bid on the Virginia Department of Transportation bonds as either tax-exempt or Build America Bonds. Maturities will range from one to 25 years.
The bonds are being issued two years later than intended because legal and economic challenges held up the transaction. In addition, the recession threatened part of the revenue stream supporting the bonds.
The deal will fulfill the 20% state matching for federal transportation funds that Virginia hopes to receive.
The combined state and federal money will help finance hundreds of road, rail, and bridge projects in the state, said Reta Busher, VDOT’s chief financial officer.
The bonds are rated Aa1 by Moody’s Investors Service and AA-plus by Standard & Poor’s and Fitch Ratings. McGuireWoods LLP is bond counsel and Public Resources Advisory Group is financial adviser.
Separately yesterday, Gov. Robert McDonnell moved to generate more funds for transportation needs by filing an application with the U.S. Department of Transportation to toll Interstate 95 near the North Carolina border. McDonnell estimated that a $1 to $2 toll could generate $30 million to $60 million annually.
The security for the bond issue origniated three years ago when lawmakers were trying to fund the state’s growing transportation needs without raising taxes. They ultimately agreed to use one-third of the tax receipts collected on auto insurance premiums as the revenue stream to back the bonds.
That revenue “was pulled out of the general fund budget and dedicated as the revenue stream for paying debt service on these bonds,” said Jeffrey Southard, executive vice president at the Virginia Transportation Construction Alliance and a former VDOT assistant commissioner.
The insurance tax comprises 85% of revenues in the state’s Priority Transportation Fund, which supports the bonds and also includes motor fuel taxes and investment income.
But legal and economic challenges delayed the bonds’ issuance for two years. First, the Virginia Supreme Court ruled in March 2008 that non-elected regional authorities could not levy taxes. The ruling prevented the Northern Virginia Transportation Authority from collecting taxes and fees to fund bond-financed projects. The NVTA had intended to collect $440 million to back the bonds in the transportation package.
Then the recession hit state tax receipts. Revenue collected on auto insurance premiums fell 1.6% in fiscal 2009 and is forecast to fall 2.4% in fiscal 2010, according to Moody’s. But the pledged tax revenue will cover annual debt-service needs of the new bond program 1.2 times, Moody’s said.
The state’s transportation trust fund and general fund can also support the bonds with lawmakers’ approval.
“The overall security of the transportation trust fund provided pretty strong coverage levels,” said Nicole Ridberg, the lead analyst for Standard & Poor’s. The General Assembly has a strong record of supporting appropriations for debt, she said.
Issuance under the bond package is capped at $300 million a year, but funds can be carried over from previous years, which allows VDOT to issue the $492.7 million of debt.
Declines in the tax revenue supporting the bonds do not mean the $3 billion grand total will shrink, according to Busher. Instead, VDOT will spread the program out over a longer period of time. The department expects to issue $300 million next year under the program, but will then scale back bond issuance.
“We’re just trying to be conservative with the revenues,” the CFO said.
