Key Takeaways
- S&P Global Ratings expects that U.S. highway user tax credit quality will remain stable as a result of strong debt service coverage (DSC), active management by states in raising tax rates and fees when necessary, and a mix of pledged stable revenue sources beyond fuel taxes, such as license and registration fees.
- We also expect that pledged revenues for state highway user tax revenue bonds will recognize shifts in revenue composition over the long term as drivers continue transitioning to more fuel-efficient vehicles and electric vehicles (EVs), and that overall, the sector will remain resilient in the face of this modernization.
- Our analysis of the most recent net pledged revenue data indicates relatively strong growth over the last three years, and only positive rating changes have taken place since January 2022, driven by linkage to state general creditworthiness.
Overview
S&P Global Ratings maintains ratings on a variety of U.S. highway user tax bonds, which are secured by transportation-related taxes and fees such as motor fuel taxes and motor vehicle registration fees. Most of these bonds are highly rated, reflecting generally high DSC and stable pledged revenues.
Overall, the outlook for highway user tax debt is stable. State highway user revenues have continued to grow following a slight dip due to the COVID-19 pandemic. As more drivers transition to EVs, plug-in hybrid electric vehicles (PHEVs), and hybrid electric vehicles (HEVs), some states have increased transportation-related fees, such as motor vehicle registration fees or fees on EVs, to replace the corresponding motor fuel tax revenue loss. If motor fuel tax revenue losses become significant, we believe states will be motivated to consider transportation-related revenue alternatives, but to date these industry shifts have not affected our ratings.
We apply our priority-lien criteria to evaluate highway user tax revenue bonds, examining both the ability of the pledged gross revenue to cover debt service and the creditworthiness of the obligor issuing the bonds. In most cases, the criteria limit these ratings to no more than one notch above the state's general obligation (GO) rating. As a result of this linkage, two highway user tax bond ratings and two outlooks have changed since Jan. 1, 2022, reflecting state GO rating changes. Highway user tax revenue bonds in Connecticut and Massachusetts have been upgraded, and similar obligations in Kansas and Louisiana have positive outlooks.
Credit stability expected, with an eye on the tank
S&P Global Ratings expects that highway user tax-supported credits will remain stable, given states' recent robust revenue performance and active management of revenue effects related to more fuel-efficient vehicles and drivers' increasing transition to EVs. As EV adoption increases over the longer term as a result of state mandates, federal incentives, and consumer trends, alternative transportation revenue-raising mechanisms or motor fuel tax rate adjustments will become more imperative. We expect that pledged revenues for state highway user tax revenue bonds will recognize shifts in revenue reliance over the long term, but we believe the overall sector will remain resilient in the face of this modernization. We further believe that states' creditworthiness is strengthened by the flexibility to adjust tax rates and fees or limit expenditures in the wake of these types of long-term revenue risks.
Based on our analysis, the average maximum annual DSC was over 8x, based on the latest net pledged revenue data, which we view as very strong. Also, pledged revenue over the last three years grew by an average of 10%, reflecting the continued rebound after the pandemic's social distancing measures were lifted and state tax rate changes. (For more information on pledged revenue growth, see the report card table in this commentary.) Lastly, overall fuel consumption has tended to increase over time, signaling an increase in vehicle miles traveled. These factors strengthen credit profiles and signal the underlying stability of these revenues as well as the resilience of the statewide tax base on which these taxes and fees are levied.
Chart 1
Near-term additional highway user tax debt plans vary across states. Some are cash-funding projects since liquidity positions are strong as a result of robust state revenue growth in recent years, while others have multiyear bonding plans over the medium term. Overall, we believe this portfolio's very strong debt coverage will provide some cushion for future issuances.
State transportation revenue continues to grow post-pandemic
During the pandemic, aggregate transportation-related taxes and fees decreased slightly, the result of lower license fee collections as statewide social distancing restrictions led to some department of motor vehicle (DMV) office closures and fewer licenses being issued within states. However, these revenues strongly rebounded in 2021, and motor fuel tax revenue increases led to another large increase on an aggregate basis in 2022. From a credit perspective, this has resulted in generally strong growth in pledged revenues over the last two years and resulted in strong coverage metrics.
Chart 2
A stabilizing factor for these revenues is that they are not predominantly influenced by discretionary consumer habits, but are expenditures essential to operating vehicles on the road. In our view, motor vehicle and gas tax-related revenues' volatility on a macro level tends to be low, meaning that they have experienced little variance over multiple economic cycles. In addition, motor vehicle registration and license renewal fees represent a significant share of pledged revenue, which we view as a stabilizing factor, as annual national vehicle registrations have only fallen three times between 1960-2021, according to the Federal Highway Administration. The combined low volatility, strong-to-very strong coverage, and broad and diverse base on which these taxes and fees are levied contribute to the overall stability exhibited throughout this sector.
State motor fuel tax structures
While the federal government has not increased the gas tax since 1993, states have been more proactive in response to rising transportation costs. Motor fuel taxes in most states are charged on a fixed per-gallon basis rather than as a percentage of sales price, which tends to reduce revenue fluctuation since the volume of fuel sold has been more stable than fuel prices. However, some states have enacted tax structures in which rates automatically change based on specific variables, such as inflation, gas prices, highway construction costs, or revenue collections. According to the National Conference of State Legislatures, 23 states have variable-rate gas taxes. We view active management of both expenditure and revenue risks as a credit strength and a key factor contributing to rating stability.
Chart 3
Electric vehicles and the future of highway user revenues
A large portion of state transportation infrastructure funding comes from motor fuel taxes, which rely on gasoline consumption. As vehicles become more gas-efficient and an increasing number of drivers transition to EVs, PHEVs, and HEVs, these revenues are not expected to keep up with rising transportation costs. This has led to debates over how to alter revenue structures to better encompass modern vehicles and road usage to address transportation funding gaps. Several states have tackled this through increasing registration fees or optional vehicle miles traveled (VMT) taxes. However, finding a permanent solution is becoming more pressing because of state mandates that are being phased in over the next decade. California is spearheading this trend, with the governor's executive order requiring 100% of all new vehicles and light trucks sold in the state to be zero-emission by 2035, and several other states have followed suit, which over the long term will decrease motor fuel consumption in their respective states. For more information on EV mandates, please see "U.S. States Jump Start Electric Vehicle Charging Infrastructure," published Sept. 21, 2023, on RatingsDirect.
These mandates have expedited the expected longer-term drop in motor fuel tax revenues, but still appear to be manageable over the next decade. Following its adoption of this mandate, Oregon is projecting only an 8% decline in motor fuel tax revenues from fiscal 2025 through fiscal 2031, and anticipates that potential outyear revenue decreases will be somewhat offset by an increase in DMV revenues as a result of higher registration fees collected from EVs. S&P Global Ratings believes that as pressures resulting from decreases in motor fuel tax revenue become more substantial, states will identify alternative sources of transportation-related revenue to fund vital transportation infrastructure. States also have the flexibility to adjust rates and potentially expand revenue pledges in new issuances if decreases in motor fuel tax revenues significantly affect DSC for these bonds. In some cases, pledged revenues, such as motor vehicle registration fees growing as a percentage of pledged revenues, have begun to shift, leading to an overall credit neutral impact.
| Select state highway user tax revenue bonds | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Issuer | Highway user tax revenue bond rating | State GO rating/ICR | Most recent net pledged revenue ('000s) | Revenue growth over last three years | MADS Coverage | Additional bonds test (x) | ||||||||
| Arizona Transp Brd, senior lien | AA+, Stable | AA, Stable | 820,170 | 20.2% | 6.1 | 4.00 | ||||||||
| The Arizona Transportation Board's bonds, issued for the Arizona Department of Transportation, are secured by some allocations of fuel taxes, vehicle registration fees, 45% of motor vehicle license in-lieu-of taxes collected by the state, commercial motor carrier, license, and other fees levied by the state. The state's economy has recognized notable population growth and supports our view of an overall broad and diverse revenue base on which the pledged revenues are levied. The revenue volatility is low, in our opinion, and pledged revenues have grown nearly 25% over the last three audited years, which we believe is driven by the state’s population growth. However, we note that the state can divert some highway user tax revenues before depositing them into the pledged highway fund to provide general fund relief. We view coverage and liquidity as very strong based on MADS coverage of over 6x. Arizona Transportation Board's additional bonds test (ABT) provisions are very strong. From fiscal 2025 through fiscal 2028, ADOT plans to issue about $1.65 billion in additional HURF bonds, but future planned issuances will ultimately depend on cash flow needs. Despite these additional debt plans, we anticipate MADS coverage will remain very strong based on its ABT provisions, and the state’s growing population will drive steady pledged revenue growth in the near term. | ||||||||||||||
| Colorado Bridge Enterprise | AA, Stable | AA, Stable | 109,644 | 2.5% | 3.6 | 2.00 | ||||||||
| Colorado Bridge Enterprise’s bonds are secured by a first claim on bridge surcharge fees, which is a fixed surcharge on cars or other vehicles registered in the state of Colorado, and certain federal funds allocated to the enterprise. The credit is supported by very strong economic fundamentals, driven by diverse statewide economic base of 5.8 million people generating the pledged revenues, below-average unemployment, and above-average wealth and income figures. We consider revenue volatility to be low-to-very low based on the history of stable and growing bridge surcharge fee revenues, primarily driven by population growth within the state supporting increasing vehicle registrations. The surcharge fee is fixed for each category of vehicle and does not depend on the age, value of the vehicle, or consumption of fuel making it less volatile than traditional motor vehicle fees or gas tax revenues. The pledged revenues (excluding federal revenues and Build America Bonds interest subsidy) have grown over the last three audited fiscal years and produced very strong MADS coverage in fiscal 2022. The ABT provisions are strong, requiring pledged revenues during any 12 consecutive-month period out of the 15-month period ending at calendar year-end provide 2.0x MADS coverage, although in calculating federal fund transfers from CDOT, the ABT uses the average from the previous three years, weakening our view of the ABT. Given the continued population growth, we anticipate the credit will maintain strong MADS coverage in the near term. | ||||||||||||||
| Connecticut first lien spl tax obl bnds | AA, Stable | AA-, Stable | 1,985,000 | 31.8% | 2.4 | 2.00 | ||||||||
| The Connecticut Special Transportation Obligation (STO) bonds are secured by a diverse set of statewide revenue streams, including motor fuels taxes, sales and use taxes, an oil companies’ tax, and other revenue sources primarily related to motor vehicle registrations, fees, and taxes. In fiscal 2022, 60% of pledged revenues came from the fund's portion of sales and use taxes and motor fuels taxes. The credit maintains very strong economic fundamentals, supported by the statewide tax base and very high per capita income. Revenue volatility, in our view, is low to very low, with strong statutory covenants. Since fiscal 2020, MADS coverage has grown from 2.1x to 2.4x. ABT provisions are very strong at 2x MADS. Through 2028, the state anticipates approximately 50% of its transportation infrastructure projects will be financed with STO bonds, which could decrease MADS coverage closer to the ABT. | ||||||||||||||
| Delaware Trans. Auth. First lien | AA+, Stable | AAA, Stable | 370,841 | 7.3% | 3.2 | 2.00 | ||||||||
| The Delaware Transportation Authority is secured by a range of motor vehicle taxes and fees, including motor fuel taxes, motor vehicle registration fees, motor vehicle document fees, motor carrier registration fees, operator license fees, titling fees, division of motor vehicles record sales, vanity tag fees, and other miscellaneous transportation fees, which represent 73% of pledged revenue in fiscal 2022. Total pledged revenues, including Delaware Turnpike tolls and concession comprising the remaining 27% of 2022 collections, grew 5% and almost 3% year over year in fiscal 2021 and 2022, respectively. Total pledged revenue, excluding the Delaware Turnpike tolls and concession, increased moderately over the last three years. Fiscal 2022 pledged revenues have exceeded fiscal 2019 levels, and volumes on the roadways have also nearly fully rebounded. We calculate very strong MADS coverage by fiscal 2022 pledged motor vehicle taxes and fees in the transportation trust fund (TTF), although the 2x ABT incorporates all pledged revenues, including relatively volatile toll revenue. With the declining debt service structure, coverage is expected to strengthen each year in the capital plan forecast through 2028. The authority maintains a clearly articulated transportation capital financing plan that reflects increasing debt service coverage (DSC) in the next six years as well as a policy of funding at least 50% of state capital projects with pay-as-you-go financing, which has limited historical leverage of the TTF. | ||||||||||||||
| Florida | ||||||||||||||
| Wholesale excise tax | AA, Stable | AAA, Stable | 236,015 | 10.0% | 38.8 | 2.50 | ||||||||
| The Florida wholesale excise tax revenue bonds are secured by service contract payments paid from a wholesale excise tax on motor fuels, as well as aviation fuels from the Department of Environmental Protection to the Inland Protection Company, levied on a per-barrel basis. The credit is supported by very strong economic fundamentals, driven by a statewide economic base of almost 22 million generating the pledged revenues. Revenue volatility is moderate, in our view, mainly due to taxpayer concentration, as the top 10 customers account for 76% of total tax revenues in fiscal 2022. The pledged revenues have grown by approximately 10% over the last three audited fiscal years. We calculate very strong DSC over the last three years, ranging from 28x to 39x. The senior-lien ABT requires historical tax revenues for 12 consecutive months out of the previous 24 months to equal to 2.5x MADS on debt outstanding and proposed debt. Given continued population and revenue growth in the State of Florida, we anticipate coverage will continue to be maintained at levels well above the historical 2.5x MADS ABT. | ||||||||||||||
| Dept. of Transportation Sea Investment Program | AA+, Stable | AAA, Stable | 268,735 | 16.0% | 34.3 | 1.50 | ||||||||
| The State of Florida's Department of Transportation's (DOT) revenue bonds (Seaport Investment Program) are secured by the first $10 million allocated annually to the Florida DOT State Transportation Trust Fund (STTF).The amount is derived from $47 out of the $70 motor vehicle title fee levied statewide on the issuance of each original or duplicate certificate of title, up to $200 million annually. The credit is supported by very strong economic fundamentals, driven by very strong statewide economic base of about 22 million people generating the pledged revenue. The revenue volatility is low to moderate, in our opinion, and pledged revenues have grown around 16% over the last three audited years. We calculate that DSC was very strong over the last three years, ranging from 27x to 31x. Current legislative authorization limits the allocation to $10 million annually, but it would only require legislative action to increase that limit. The bonds are subject to an ABT of 1.5x MADS by the $200 million allocation; however, there is no current legislative approval for additional debt. Given the stable revenue performance, we anticipate the credit will maintain very strong coverage in the near term. | ||||||||||||||
| Hawaii DOT State Highway Fund | AA+, Stable | AA+, Stable | 299,252 | 7.7% | 5.7 | 2.00 | ||||||||
| Hawaii's senior liens are secured by the pledged revenues, consisting of fuel taxes, vehicle weight taxes, rental/tour vehicle surcharges, registration fees, other miscellaneous sources, and interest earnings, which are deposited into the highway fund. While Hawaii has experienced recent declines in population and sluggish post-pandemic economic recovery compared with the U.S. that could slow growth of highway pledged revenues, we believe its well-diversified revenue stream and a state covenant to impose additional user taxes to keep the department self-sustaining should allow Hawaii to navigate potential economic uncertainty and keep overall credit metrics relatively strong. Revenue volatility is low, in our opinion, and pledged revenues have grown 8% over the last three audited years. Over the last two audited years, the highway fund has maintained very strong annual DSC above 5x. Legal protections are very strong, with a 2.0x MADS senior-lien ABT calculated on historical pledged revenues of 12 consecutive months of the previous 18-month period. Given stable revenue performance, we anticipate the credit will maintain very strong coverage in the near term, absent any revenue pressure. | ||||||||||||||
| Kansas DOT State Highway Fund | AA, Positive | AA-, Positive | 1,786,136 | 16.8% | 8.4 | 3.00 | ||||||||
| Kansas Department of Transportation's highway revenue bonds are secured by a first lien on money allocated under state statute to Kansas' highway revenue fund and federal Build America Bond (BAB) interest subsidies for eligible bonds. KDOT has a diverse set of transportation-related revenues in the pledged revenue stream, composed of motor fuel taxes, registration and license fees, certain state sales taxes, and federal reimbursements. The credit is supported by very strong economic fundamentals, driven by statewide large taxing base population of almost 2.9 million generating the pledged revenues. Revenue volatility is low to very low due to historically favorable pledge revenue performance, with pledged revenues growing approximately 17% over the last three audited fiscal years. We calculate very strong DSC over the last three years, ranging from 7.2x to 8.4x. The senior-lien ABT requires historical tax revenues for 12 consecutive months out of the previous 18 months to equal 3x MADS on debt outstanding and proposed debt. The debt service reserve (DSR) includes a springing reserve that does not need to be funded unless DSC falls below 3x. Given the continued population and revenue growth in the State of Kansas, we expect coverage to be maintained at very strong levels. The positive outlook incorporates the outlook on the state, which currently limits the gas tax bond rating, and reflects that we could raise the ratings if we believe the state can maintain its recent healthy fund balance levels and structural balances and make continued progress on pension funding. | ||||||||||||||
| Louisiana | ||||||||||||||
| First lien gas and fuel tax | AA-, Positive | AA-, Positive | 621,166 | 6.9% | 4.3 | Closed | ||||||||
| Louisiana’s gas tax bonds are secured by a pledge of the state’s 20-cent-per-gallon gasoline and motor fuel and special fuel tax (gas tax), which consists of four cents (authorized by Act 16) and 16 cents (levied before the enactment of Act 16) deposited into the transportation trust fund (TTF). The four-cent gas tax flows directly to a debt service fund pledged solely to the gas tax bonds. The 16-cent tax flows through the state’s bond security and redemption fund from which Louisiana’s full faith and credit obligations (GO bonds) are paid, and receipts are then deposited into the TTF. The credit is supported by very strong economic fundamentals, driven by a large and diverse statewide economic base with a population of 4.6 million. Revenue volatility is low, with pledged revenue growing about 7% over the past three years, to $621 million in fiscal 2022. We calculate that DSC was very strong over the last three years, ranging between 5.7x and 6.4x. The senior lien is closed; hence, we assess the coverage and liquidity based on MADS coverage of 4.3x based on fiscal 2022 revenues. The positive outlook incorporates the outlook on the state, which currently limits the gas tax bond rating, and reflects our view of the state’s significantly improved reserve balance, including funding a new reserve account coupled with improved pension funding discipline. | ||||||||||||||
| Junior lien gas and fuel tax | AA-, Positive | AA-, Positive | 621,166 | 6.9% | 2.9 | 2.00 | ||||||||
| Louisiana's gas tax bonds are secured by a pledge of the state's 20-cent per gallon gasoline and motor fuel and special fuel tax (gas tax), which consists of four cents (authorized by Act 16) and 16 cents (levied before the enactment of Act 16) deposited into the transportation trust fund (TTF). The four-cent gas tax flows directly to a debt service fund pledged solely to the gas tax bonds. The 16-cent tax flows through the state's bond security and redemption fund from which Louisiana's full faith and credit obligations (GO bonds) are paid, and receipts are then deposited into the TTF. The credit is supported by very strong economic fundamentals, driven by a large and diverse statewide economic base with a population of 4.6 million. Revenue volatility is low, with pledged revenue growing about 7% over the past three years, to $621 million in fiscal 2022. We calculate that DSC was very strong over the last three years, ranging between 3.9x and 4.4x. Current legislation limits additional issuance of parity second-lien gas tax bonds. There is also an ABT in the second-lien resolution that requires at least 2x MADS coverage by average pledged revenue in the previous two years or projected annual pledged revenues of at least 2x annual aggregate debt service. The positive outlook incorporates the outlook on the state, which currently limits the gas tax bond rating, and reflects our view of the state's significantly improved reserve balance, including funding a new reserve account along with improved pension funding discipline. | ||||||||||||||
| Highway improvement bonds | AA, Stable | AA-, Positive | 62,227 | -4.4% | 3.0 | 2.00 | ||||||||
| Louisiana's highway improvement revenue bonds are secured by the state's registration fees, license fees, and taxes collected on trucks and trailers in certain parishes, including commercial trucks and trailers engaged in interstate commerce. The credit is supported by very strong economic fundamentals, driven by a large and diverse statewide economic base with a population of 4.6 million. Revenue volatility is low. Pledged revenues have decreased by approximately 4.4% over the last three audited years; however, collections in 2020 (base year) were unusually strong and pledged revenue trends have generally remained stable. DSC has remained strong over the same period, and pledged revenue produced very strong coverage in fiscal 2022. ABT provisions are strong, requiring the pledged tax revenue in any 12 consecutive months within the 18 months immediately preceding the issuance of additional bonds to cover total MADS by 2x. | ||||||||||||||
| Maine Bond Bank (Transcap Program) | AA, Stable | AA, Stable | 40,200 | -1.4% | 2.1 | 2.00 | ||||||||
| Maine Municipality Bond Bank senior bonds are secured by state's Maine Department of Transportation (MDOT) pledged revenues, consisting of a portion of the excise tax on gasoline (7.5% of motor fuel tax revenues), including 30 cents per gallon (gasoline) and 31.2 cents per gallon (diesel), special license fees and certain money transferred from the Highway Fund (currently equal to 11% of the Bureau of State Police funding). The rating is supported by a very strong tax base we consider broad and diverse. Revenue volatility is low and pledged revenues have been essentially flat since 2019 with 2022 ($40.2 million) and 2021 ($40.1 million) about 3% lower than 2019 ($41.4 million). However, the coverage remains strong at over 2x, with registration fees providing a stable, albeit smaller, portion of pledged revenues. ABT provisions are also very strong, requiring a minimum 2x MADS coverage. We do not anticipate additional debt given current DSC levels and the requirement for authorizing legislation. | ||||||||||||||
| Maryland DOT | AAA, Stable | AAA, Stable | 2,450,024 | 15.5% | 5.1 | 2.00 | ||||||||
| The Maryland Department of Transportation (MDOT) consolidated transportation bonds are secured primarily by a gross pledge of a portion of MDOT's motor vehicle fuel tax, excise taxes on motor vehicle sales titling tax, a portion of the corporate income tax, and a sales and use tax applied to short-term vehicle rentals. The credit is supported by very strong economic fundamentals given the diverse nature of the state's economy, with above-average wealth and income levels and serving a population of more than 6 million. The revenue volatility is low, in our opinion, and pledged revenue have grown around 16% over the last three audited years. We calculate very strong DSC over the last three years, ranging from 5.4x to 5.9x. The ABT requires that both pledged taxes and net revenue for the past fiscal year provide 2x MADS coverage each. Given the stable revenue performance, we anticipate the credit will maintain very strong coverage. | ||||||||||||||
| Massachusetts Commonwealth Transp. Fund | AAA, Stable | AA+, Stable | 1,320,143 | 4.1% | 5.8 | 4.00 | ||||||||
| Massachusetts commonwealth transportation fund (CTF) revenue bonds are secured by pledged revenues that include motor fuel and gasoline taxes and motor vehicle registration fees levied statewide. The commonwealth also issued special obligation gas tax bonds, which were secured by a first lien on 6.86 cents of the state-levied gas tax. The credit is supported by very strong economic fundamentals, driven by a very strong and diverse economy of 7 million people generating pledged revenues. Revenue volatility is low, with pledged revenue growing about 4% over the past three years to $1.32 billion in fiscal 2022. Coverage of MADS was very strong over the last three years, ranging between 5.6x and 6.0x. Also providing credit strength are very strong bond covenants, including a CTF ABT requiring 4x coverage of MADS by historical pledged revenues and a covenant not to allow changes in the rate of motor fuels tax or registry fees unless pledged revenues equal at least 4x MADS. The revenue bonds’ very strong DSC mitigates the lack of a debt service reserve. | ||||||||||||||
| Michigan | ||||||||||||||
| Comprehensive transp fund | AA+, Stable | AA, Stable | 396,100 | 19.9% | 27.7 | 2.00 | ||||||||
| Michigan's Comprehensive Transportation Authority (CTF) bonds are secured by a pledge of, and first lien on, funds deposited in Michigan's CTF that are derived from a portion of the sales tax on motor vehicle fuels, motor vehicles, and motor vehicle parts, and from a portion of state per-volume motor vehicle fuel taxes, vehicle registration fees, and related miscellaneous fees. Pledged revenues increased by 15.9% in fiscal 2022 to $396.1 million from $341.7 billion in fiscal 2021. MADS coverage in fiscal 2022 remained very strong, up from 23.9x in fiscal 2021. Estimated CTF revenue, as appropriated in the fiscal 2022-23 transportation budget, totals $373.9 million. Michigan has a policy of 4x ABT above the 2x ABT per the indenture. We expect coverage to remain very strong. Effective 2022, the gas tax rate automatically increases with inflation (capped at 5% increase) with no further legislation required. However, we note pledged revenues are exposed to the state's operating risk, given the legislature's ability to alter the allocation formulas of pledged revenues. | ||||||||||||||
| Trunk line fund | AA+, Stable | AA, Stable | 1,062,400 | 0.5% | 5.3 | 2.00 | ||||||||
| The Michigan State Trunk Line Fund is secured by a first lien on funds deposited in the STLF, which are derived from the proceeds of motor fuel taxes and taxes on registered motor vehicles. Pledged revenues increased by 2.6% in fiscal 2022 to $1.06 billion from $1.03 billion in fiscal 2021. Michigan has policy of 4x ABT above the 2x ABT per the indenture. We expect coverage to remain very strong, supported by stable pledged revenues from a very large and diverse statewide economic base. About half of pledged revenues come from the motor fuel tax, which is taxed per gallon, making it relatively more stable than taxation based on price. Furthermore, beginning Jan. 1, 2022, the Michigan State Legislature increased the Michigan gasoline tax to 26.3 cents per gallon and adopted automatic annual inflationary adjustments with a cap of 5%. Actual fuel taxes increased by 0.9 cents to 27.2 cents per gallon for both gas and diesel on Jan. 1, 2022, after the first indexing. Following an issuance in 2022, there is no remaining gas tax bonding authorization, supporting very strong MADS coverage. | ||||||||||||||
| Missouri Hwy and Transp Comm | ||||||||||||||
| 1st lien | AAA, Stable | AAA, Stable | 828,394 | 11.1% | 6.7 | 4.00 | ||||||||
| The Missouri Highway and Transportation Commission bonds are secured by an open first-lien pledge from available pledged revenues after payment of senior-lien debt consisting of taxes levied and collected by the state on all motor fuel, designated motor vehicle fees, and a portion of sales tax receipts on motor vehicles sales. The rating is supported by a broad, statewide collection of these taxes. Going forward, we think pledged revenue will show annual growth based on regular state motor fuel tax increases of 2.5 cents annually until reaching a total increase of 12.5 cents. These annual increases occur each July 1 through July 1, 2025, following the initial 2.5-cent increase in October 2021. This lien historically has very strong coverage and a strong ABT of 4x. | ||||||||||||||
| 2nd lien | AAA, Stable | AAA, Stable | 828,394 | 11.1% | 6.4 | 3.00 | ||||||||
| The Missouri Highway and Transportation Commission bonds are secured by an open second-lien pledge from available pledged revenues after payment of senior-lien debt consisting of taxes levied and collected by the state on all motor fuel sales, designated motor vehicle fees, and a portion of sales tax receipts on motor vehicles sales. The rating is supported by a broad, statewide collection of these taxes. Going forward, we think pledged revenue will show annual growth based on regular state motor fuel tax increases of 2.5 cents annually until reaching a total increase of 12.5 cents. These annual increases occur each July 1 through July 1, 2025, following the initial 2.5-cent increase in October 2021.This lien historically has very strong coverage and a strong ABT of 3x. | ||||||||||||||
| 3rd lien | AA+, Stable | AAA, Stable | 828,394 | 11.1% | 3.3 | 2.00 | ||||||||
| The Missouri Highway and Transportation Commission bonds are secured by an open third-lien pledge from available pledged revenues after payment of senior-lien debt consisting of taxes levied and collected by the state on all motor fuel sales, designated motor vehicle fees, and a portion of sales tax receipts on motor vehicles sales. The rating is supported by a broad, statewide collection of these taxes. Going forward, we think pledged revenue will show annual growth based on regular state motor fuel tax increases of 2.5 cents annually until reaching a total increase of 12.5 cents. These annual increases occur each July 1 through July 1, 2025, following the initial 2.5-cent increase in October 2021.This lien historically has very strong coverage but will likely decline closer to 2x, as it remains the primary working lien and we expect additional debt issuance. | ||||||||||||||
| Nevada highway improvement bonds | AAA, Stable | AA+, Stable | 323,105 | 9.0% | 4.6 | 3.00 | ||||||||
| Nevada's highway improvement revenue bonds are secured by a statewide gas and special fuel tax, net of indexed taxes. Although the state's economy is disproportionally dependent on the leisure and hospitality industry, we view the state's continued population growth, growth in GSP and the statewide tax base as consistent with very strong economic fundamentals. Revenue volatility, in our view, is low, with pledged revenue growing 5.3% and 3.5% in fiscal 2022 and 2021, respectively. MADS coverage over the last three fiscal years has been greater than 3.8x, with fiscal 2022 MADS coverage calculated at 4.6x. The ABT provisions are very strong, requiring a minimum MADS coverage of 3x, not including federal revenues that are pledged. | ||||||||||||||
| New Mexico State Transp Comm | ||||||||||||||
| Senior lien | AA+, Stable | AA, Stable | 1,105,220 | 29.6% | 9.2 | 3.50 | ||||||||
| The senior-lien transportation revenue bonds are secured by a first-lien pledge of various taxes and fees required to be paid into the state road fund, certain federal transportation revenue, and taxes and fees that must be deposited into the highway infrastructure fund. We view the large statewide economic base generating pledged revenues as very strong, and we believe the pledged revenues exhibit moderately low volatility, given that the federal pledged revenue has exhibited year-to-year volatility. Over the last three years, revenues have slightly grown by 30% and MADS coverage on the senior bonds was very strong at over 9x. We view the 3.0x MADS ABT by pledged state taxes alone as very strong, as well as the 3.5x combined state taxes and pledged federal revenue. | ||||||||||||||
| Subordinate lien | AA, Stable | AA, Stable | 1,105,220 | 29.6% | 5.7 | 3.00 | ||||||||
| The subordinate-lien transportation revenue bonds are secured by a first-lien pledge of various taxes and fees required to be paid into the state road fund, as well as certain federal transportation revenue and taxes and fees that must be deposited into the highway infrastructure fund. We view the large statewide economic base generating pledged revenues as very strong, and we believe the pledged revenues exhibit moderately low volatility, given that the federal pledged revenue has exhibited year-to-year volatility. Over the last three years, revenues have slightly grown, by 30%. We view the 3.0x MADS ABT by combined senior and subordinate debt, inclusive of state and federal revenues, as strong, but note that our view is somewhat weakened by the inclusion of federal revenues. | ||||||||||||||
| New York | ||||||||||||||
| Thruwy Auth. Hwy & bridge trust fund | AA+, Stable | AA+, Stable | 2,009,500 | -8.6% | 17.3 | 2.00 | ||||||||
| The New York State Thruway Authority's second general trust fund bonds are secured by a pledge of a cooperative agreement payments to be made by the state to the authority in the Dedicated Highway and Bridge Trust Fund, which includes excise and business privilege taxes and fees imposed by the state on mostly petroleum businesses, motor fuel, highway use, motor vehicles, and auto rentals. The rating is supported by very strong economic fundamentals driven by the diverse nature of the state's economy of 19.4 million people. The revenue volatility is low, in our opinion, and even though the pledged revenues have decreased by around 9% over the last three audited years, the calculated DSC was very strong over the last three years, with fiscal 2022 MADS coverage at 17.3x. The ABT requires historical tax revenues for 12 consecutive months out of the previous 18 months to equal to 2x MADS on debt outstanding and proposed debt. Given there are no additional debt plans, we anticipate the credit will maintain very strong coverage in the near term, mitigating any potential revenue pressure. | ||||||||||||||
| Met Transp Auth dedicated tax transp fund | AA, Stable | AA+, Stable | 3,182,200 | 31.3% | 7.3 | 1.35 | ||||||||
| Metropolitan Transportation Authority (MTA) bonds are secured by a lien on dedicated transportation-related taxes and fees that are levied statewide or on the vast and diverse MTA system and appropriated by the state to the Dedicated Transportation Fund (DTF). State appropriations to the DTF are statutorily distributed from two transportation-dedicated tax sources: dedicated state mass transportation trust fund (MTTF) receipts, used by the MTA primarily for capital funding; and metropolitan mass transit operating assistance fund (MMTOAF) receipts, which it uses primarily for operations. State MTTF and MMTOAF tax revenues are not themselves specifically pledged for debt service, only the amounts that New York State annually appropriates from them to the MTA. The credit is supported by very strong economic fundamentals, driven by the diverse nature of the state's economy of 19.4 million people. Revenue volatility has been generally low, in our opinion. Pledged revenues, however, did increase about 31% over the last three fiscal years, which is predominantly attributed to increased support for the MTA and increases in dedicated receipts collections, producing continued very strong MADS coverage. The bonds have a strong two-tier ABT in which the revenues from the MTTF must cover MADS by 1.35x and combined revenues from the MTTF and the MMTOAF must cover MADS by 2.50x. Given our expectation of generally stable to favorable revenue performance, we anticipate coverage will be maintained at a very strong level. | ||||||||||||||
| Ohio highway cap imp bonds | AAA, Stable | AA+, Stable | 3,898,030 | 9.4% | 24.7 | $1.2B limit | ||||||||
| Ohio’s Highway User Receipts (HURs) include any fees, excises, and license taxes for the registration, operation, or use of vehicles, along with fuel. The credit is supported by very strong economic fundamentals, driven by a diverse statewide economic base, with a population of 11.7 million generating pledged revenues. Ohio experienced relatively weak compounded annual population growth over the past decade, averaging only 0.16% growth annually, below the U.S. average of 0.59%. Nonetheless, pledged revenues have grown by nearly 9.4% over the last three audited years. We calculate very strong DSC from fiscals 2020 to 2022, ranging from 22.7x to 24.7x. We consider revenue volatility low, given stable and consistent performance of pledged revenues, which is in line with nationwide gas taxes and motor vehicle registration and license fees. While there is no ABT, we believe the lack of an ABT is mitigated by the state's constitutional protections of user receipts and limitations on the issuance of debt. Section 2m Article VIII of the Ohio Constitution states that no more than $220 million in principal may be issued within the fiscal year and the total outstanding obligations cannot exceed $1.2 billion. Because of this restriction and HUR growth, we do not anticipate dilution of coverage due to additional debt issuance. Coverage has been very strong historically, and we expect this to continue. | ||||||||||||||
| Oregon Dept of Transp | ||||||||||||||
| Senior lien | AAA, Stable | AA+, Stable | 800,862 | 12.9% | 5.4 | 3.00 | ||||||||
| Oregon's senior liens are secured by the state's first lien on the Oregon Department of Transportation's (ODOT) pledged revenue, which consists of motor carrier revenue, fuel tax revenue, and DMV revenues. The state has recognized population and GSP growth over the last decade, supporting our view of an overall broad and diverse revenue base on which the pledged revenues are levied. The revenue volatility is low, in our opinion. Pledged revenue increases in recent years have largely been driven by the state's enactment in 2017 of HB 2017, known as Keep Oregon Moving. The legislation established a set of revenue enhancements, most notably a four-cent-per-gallon increase in motor fuel taxes implemented on Jan. 1, 2018, followed by two-cent-per-gallon increases on Jan. 1, 2020, and Jan. 1, 2022, respectively. The remaining motor fuel increase of two cents is expected to take effect on Jan. 1, 2024. Registration and title fees were also raised in 2018, 2020, and 2022, and vary across estimated fuel-efficiency categories, with total fees progressively higher for more efficient vehicles. In our view, these adjustments to fees were prudent, given the state's adoption of the Advanced Clean Cars II (ACC II) rules, requiring all new vehicles for sale to be zero-emission (electric and plug-in electric hybrid vehicles) by 2035. ODOT's ABT provisions are very strong, requiring minimum MADS coverage of 2x for combined senior and subordinate debt service and a 3x MADS ABT for the senior lien. ODOT is contemplating a potential issuance at the end of the 2023-25 biennium, but legislatively authority is required. | ||||||||||||||
| Subordinate lien | AA+, Stable | AA+, Stable | 800,862 | 12.9% | 3.6 | 2.00 | ||||||||
| Oregon's subordinate liens are secured by the state's second lien on Oregon Department of Transportation's (ODOT) pledged revenue, which consists of motor carrier revenue, fuel tax revenue, and DMV revenues. The state has recognized population and GSP growth over the last decade, supporting our view of an overall broad and diverse revenue base on which the pledged revenues are levied. The revenue volatility is low, in our opinion. Pledged revenue increases in recent years have largely been driven by the state's enactment in 2017 of HB 2017, known as Keep Oregon Moving. The legislation established a set of revenue enhancements, most notably a four-cent-per-gallon increase in motor fuel taxes implemented on Jan. 1, 2018, followed by two-cent-per-gallon increases on Jan. 1, 2020, and Jan. 1, 2022, respectively. The remaining motor fuel increase of two cents is expected to take effect on Jan. 1, 2024. Registration and title fees were also raised in 2018, 2020, and 2022, and vary across estimated fuel-efficiency categories, with total fees progressively higher for more efficient vehicles. In our view, these adjustments to fees were prudent, given the state's adoption of the ACC II rules, requiring all new vehicles for sale to be zero-emission (electric and plug-in electric hybrid vehicles) by 2035. Over the last two audited years, ODOT has maintained very strong annual DSC above 4x for the combined senior and subordinate liens. ODOT's ABT provisions are very strong, requiring a minimum MADS coverage of 2x for combined senior and subordinate debt service and a 3x MADS ABT for the senior lien. ODOT is contemplating a potential issuance at the end of the 2023-25 biennium, but legislatively authority is required. | ||||||||||||||
| Pennsylvania | ||||||||||||||
| Tpk Comm senior lien oil franchise tax | AA-, Stable | A+, Positive | 136,522 | -3.6% | 3.1 | 2.00 | ||||||||
| The Pennsylvania Turnpike Commission's senior-lien bonds are secured by the state's 14% allocation to the commission of 55 mills of the total 208.5 mills of oil franchise tax, which is a per-gallon tax imposed on taxable liquid fuels. The rating is supported by strong economic fundamentals, largely due to its statewide tax base. In fiscal 2021, pledged revenues fell 19.4% due to the pandemic, but returned to 96% of pre-pandemic levels in fiscal 2022. Aside from that swing, revenue volatility, in our view, is low. Although revenue dipped in 2021, MADS coverage has remained very strong, at 2.75x-3.5x over the last three years. The commission's additional bonds provisions for its senior-lien debt are very strong, requiring a minimum MADS coverage of 2x, which relies on historical pledged revenues of 12 consecutive months of the previous 24-month period. This is somewhat offset by exposure to variable-rate debt. | ||||||||||||||
| Tpk Comm subordinate lien oil franchise tax | A, Stable | A+, Positive | 136,522 | -3.6% | 1.8 | 1.15 | ||||||||
| The Pennsylvania Turnpike Commission's subordinate-lien bonds are secured by the state's 14% allocation to the commission of 55 mills of the total 208.5 mills of oil franchise tax, which is a per-gallon tax imposed on taxable liquid fuels. The rating is supported by strong economic fundamentals, largely due to its statewide tax base. In fiscal 2021, pledged revenues fell by 19.4% due to the pandemic, but returned to 96% of pre-pandemic levels in fiscal 2022. Aside from that swing, revenue volatility, in our view, is low. MADS coverage has remained strong, between 1.5x and 2x over the last three years. The commission's additional bonds provisions for its subordinate-lien debt are adequate, requiring a minimum MADS coverage of 1.15x, which relies on historical pledged revenues of 12 consecutive months of the previous 24-month period. Our assessment of coverage is worsened by exposure to variable-rate debt. | ||||||||||||||
| Rhode Island | ||||||||||||||
| Dept of Transp | A+, Stable | AA, Stable | 8,606 | 4.1% | 1.6 | 1.25 | ||||||||
| The Rhode Island Department of Transportation senior-lien bonds are secured by pledged revenues derived from a $.02 per gallon of the $.33 per gallon motor fuel tax imposed by the Motor Fuel Tax Act. The rating is supported by very strong economic fundamentals with a taxing base that is considered broad and diverse. Pledged revenues increased 4% from fiscals 2020 to 2022 following a recovery in gas tax revenues as pandemic restrictions eased. Consequently, MADS coverage increased to 1.6x in fiscal 2022, up from 1.5x in fiscal 2020. The revenue volatility is low-to-very low, and from a law enacted in July 2015 and every other year after, the gas tax must be adjusted by the percentage of increase in the consumer price index (CPI-U) for all urban customers. The ABT requires 1.25x MADS coverage by historical revenues in 12 consecutive months out of the previous 18 months. | ||||||||||||||
| Tpk and Bridge motor fuel tax | A+, Stable | AA, Stable | 15,032 | 3.9% | 1.4 | 1.25 | ||||||||
| The Rhode Island Turnpike and Bridge (RITBA) senior-lien bonds are secured by pledged revenues derived from a $0.035 per gallon of motor fuel tax receipts. The rating is supported by very strong economic fundamentals with a taxing base that is considered broad and diverse. Pledged revenues increased 4% from fiscals 2020 to 2022 following a recovery in gas tax revenues as pandemic restrictions eased. During the same period, MADS coverage improved to 1.4x from 1.3x. The revenue volatility is low-to-very low, and from a law enacted in July 2015 and every other year after, the gas tax must be adjusted by the percentage of increase in the consumer price index (CPI-U) for all urban consumers. RITBA’s ABT requires 1.25x MADS coverage by historical revenues in 12 consecutive months out of the previous 18 months. | ||||||||||||||
| Texas Transp Comm state highway fund | AAA, Stable | AAA, Stable | 4,671,300 | 13.2% | 11.0 | 4.00 | ||||||||
| The Texas Transportation Commission's State Highway Fund (SHF) first-tier variable-rate revenue bonds are secured by the pledged revenues, which include state motor fuel taxes (based on a per-gallon tax), state motor vehicle registration fees, reimbursements from federal funds, and other miscellaneous state revenue sources. Deposits into the SHF pursuant to the electorally approved Propositions 1 and 7 are not pledged revenues. The credit is supported by very strong economic fundamentals, including a broad and diverse revenue stream of several highway user taxes levied on a very strong and growing tax base. Revenue volatility is low, in our opinion, and pledged revenues have grown around 13% over the last three audited years. In our view, DSC remains very strong over the last three years, ranging from 9.8x to 11.0x. There are no additional debt authorization provisions; however, subsequent issuances (if authorized) would require 4x MADS coverage under the existing resolution. Given the stable revenue performance, we anticipate the commission's bonds will maintain very strong credit fundamentals in the near term. | ||||||||||||||
| Wisconsin Dept of Transp transp rev bonds | AAA, Stable | AA+, Stable | 915,290 | 7.1% | 4.3 | 2.25 | ||||||||
| Wisconsin's transportation revenue bonds are secured by a first-claim pledge of program income, which consists primarily of vehicle registration fees and other vehicle registration-related fees, including vehicle title transaction fees, registration and title counter service fees, and personalized license plate issuance and renewal fees. Pledged revenues decreased by 0.7% in fiscal 2022, due to what we view as a modest and temporary decline in vehicle title registrations. However, unaudited state estimates project a return to growth in pledged revenues for fiscal 2023, totaling $924.1 million, or a 1.0% increase compared with 2022. The bonds’ already very strong MADS coverage could improve to 4.4x based on fiscal 2023 year-end revenues, further reinforcing our expectation that MADS coverage will remain very strong. Wisconsin Department of Transportation (DOT)'s long-term forecast projects a relatively modest average annual revenue growth rate of 1.3% between fiscal years 2023 and 2032, which we view as conservative compared with the state's recent economic forecast and historical performance. Based on this projection, total program income is estimated to reach a high point of nearly $1.04 billion in fiscal year 2032. We expect that the state will continue its practice of timely revenue adjustments to sustain very strong DSC. | ||||||||||||||
| Note: Pledged revenue data reflects 2022, with the exception of MTA reflecting 2023. | ||||||||||||||
Justin Pogrebinsky and Brenea Gordon contributed research to this report.
This report does not constitute a rating action.
| Primary Credit Analyst: | Savannah Gilmore, Englewood + 1 (303) 721 4132; savannah.gilmore2@spglobal.com |
| Secondary Contacts: | Sussan S Corson, New York + 1 (212) 438 2014; sussan.corson@spglobal.com |
| Geoffrey E Buswick, Boston + 1 (617) 530 8311; geoffrey.buswick@spglobal.com | |
| Kurt E Forsgren, Boston + 1 (617) 530 8308; kurt.forsgren@spglobal.com | |
| Rob M Marker, Englewood + 1 (303) 721 4264; Rob.Marker@spglobal.com | |
| Kenneth P Biddison, Englewood + 1 (303) 721 4321; kenneth.biddison@spglobal.com | |
| Andrew J Stafford, New York + 212-438-1937; andrew.stafford1@spglobal.com | |
| Oscar Padilla, Dallas + 1 (214) 871 1405; oscar.padilla@spglobal.com | |
| Ladunni M Okolo, Dallas + 1 (212) 438 1208; ladunni.okolo@spglobal.com | |
| Joseph J Pezzimenti, New York + 1 (212) 438 2038; joseph.pezzimenti@spglobal.com | |
| Nora G Wittstruck, New York + (212) 438-8589; nora.wittstruck@spglobal.com | |
| Scott Shad, Englewood (1) 303-721-4941; scott.shad@spglobal.com | |
| Thomas J Zemetis, New York + 1 (212) 4381172; thomas.zemetis@spglobal.com | |
| Kayla Smith, Englewood + 1 (303) 721 4450; kayla.smith@spglobal.com | |
| Research Contributors: | Nisha Gujaran, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
| Ritesh Bagmar, CRISIL Global Analytical Center, an S&P affiliate, Pune | |
| Romi Pandey, CRISIL Global Analytical Center, an S&P affiliate, Pune | |
| Vikram Sawant, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai |
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