Congress approved a bill to provide $10.8 billion in short-term funding to address the dwindling balance in the Highway Trust Fund (HTF), and President Obama has indicated that he will sign the bill. If no action had been taken, funding for states and other transportation agencies would have been curtailed by 28% as of Aug. 1, and the HTF would have run out of money that was promised to states for highway and transit programs by September 2014. However, this patch provides only enough money to sustain the highway and transit programs through May 2015. Congress is continuing to seek a long-term funding solution.
Standard & Poor’s Ratings Services rates 26 issuers in the grant anticipation revenue vehicle (GARVEE) sector, and our ratings are based on the issuer’s pledge of the HTF grants. While Standard & Poor’s believes this congressional action at the 11th hour alleviates the immediate pressure on GARVEE issuers, the delay and uncertainty regarding renewal authorizations to the surface transportation bill (most recently, the Moving Ahead for Progress in the 21st Century Act, or MAP-21) highlight the key credit weakness of GARVEE ratings. Although the likelihood that future federal transportation funding would be discontinued is remote, in our view, we carefully evaluate the risks to state programs that leverage these funds, including the timing of receipts, level of funding, and future erosion in dollars either due to lower authorized or appropriated levels or programmatic changes that negatively affect recipients. In our opinion, both the history of the program and its vital role in preserving and expanding the national highway system, as well as the significant funding needs facing surface transportation and the lack of resources to fund those needs, support continued reauthorization of the program for the foreseeable future. We will closely monitor the sector both during and after reauthorization in order to evaluate how each individual state’s debt plans may be adjusted. Due to Congress’ approval of the bill, Standard & Poor’s is taking no rating or outlook actions in the sector at this time.