Federal Approval For Transportation Funding Has Historically BeenBi-Partisan, But Funding Risks Remain
While Standard & Poor's views favorably all proposals that would extend the funding period of MAP-21 or introduce anew surface transportation funding bill, the delay and uncertainty regarding renewal authorizations highlight the keycredit weakness of GARVEE ratings. Although we consider an interruption in future federal transportation funding to be remote, the risk to state programs that leverage these funds are not significant, including the timing of receipts andfuture erosion in dollars either due to lower authorized or appropriated levels or programmatic changes that negativelyaffect recipients. However, Standard & Poor's consider both the history of the program and its vital role in preservingand expanding the national highway system, as well as the significant funding needs facing surface transportation andthe lack of resources to fund those needs, as considerations supporting continued reauthorization of the program forthe foreseeable future. Standard & Poor's will closely monitor the sector both during and after reauthorization in orderto evaluate and monitor how each individual state's debt plans may be adjusted or changed.We believe the transportation sector continues to face economic and financial risks associated with the consequencesof Congress' recent efforts to reduce the federal deficit. The federal gas tax provides the bulk of the program's funding but is not indexed to inflation and has not increased since 1993. As such, the gas tax has not been able to fully fund theappropriation for the past few surface transportation bills. At $19 billion for federal fiscal 2014, general fund transferssupporting the HTF come from the general treasury and, thus, is subject to sequestration or other Congressionalactions. We believe the requirement for a general treasury transfer to make the HTF whole introduces credit risk giventhat there is little support for raising the federal gas tax. In light of the plateau in national vehicle miles traveled (atabout three trillion miles per year), growth in electric vehicles, and increased corporate average fuel economystandards, holding the gas tax as is will continue to erode the tax's purchasing power, especially as material and laborcosts for road construction are increasing. It is with this funding question in mind that MAP-21 was approved with justa 27-month term (which states' department of transportation officials have said is too short to allow for meaningfulplanning for necessary large projects). Nevertheless, the sector's high credit quality and strong coverage provide acushion against the need for frequent reauthorizations and any rating or outlook actions, in our opinion.
The Reauthorization Risk For MAP-21
U.S. Transportation Secretary Anthony Foxx has stated that a priority will be "working on bipartisan solutions tosurface transportation that put us on a long-term sustainable path." Congressman Blumenauer and Chairman Camp, aswell as senators Boxer, Baucus, and Mikulski are working on proposals to fund transportation. Ray LaHood, the formertransportation secretary, has stated that he wants Congress to pass a six-year surface transportation bill with at least$500 million in funding for transportation infrastructure. Standard & Poor's believes that it is more likely that Congresswill continue to fund the future surface transportation bill using primarily the gas tax, but as MAP-21's expirationquickly approaches, Standard & Poor's will be watching to see whether Congress will approve any replacementfunding for the gas tax. Should the gas tax remain the funding source, and should Congress continue to focus onausterity and debt reduction, we believe that general-fund transfers to support transportation funding could be lesslikely to gain bipartisan support, potentially limiting the size of the next surface bill to just what the gas tax can
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Report Card: GARVEE Transaction Structures Provide Smooth Rating Ride Despite Dips In Federal Funding