Absent swift action by Congress, state departments of transportation will begin to have cash flow problems that could delay payments to vendors and slow projects. Without action by the fall, new projects may have to be shelved until Congress can resolve the funding crisis that confronts the Highway Trust Fund.
For many years, the U.S. Department of Transportation has insisted it must keep a cash cushion of $4 billion in the highway portion of the Highway Trust Fund and $1 billion in the transit portion. This July, absent action to stem the negative cash flow, the highway fund will dip below the minimum in July; the transit fund will succumb in August.
This is not unprecedented. A similar situation occurred in 2008, but it was brief dip below the minimum balance and involved only the highway account.
As in 2008, the Federal Highway Administration, the agency in charge of highway spending, is expected to begin delaying reimbursements to states. Some expect reimbursements will occur only once every two or four weeks, instead of the current practice of daily payments. Without additional funding, no new surface transportation projects would be funded by the HTF in 2015.
Reflecting the uncertainty of funding, Moody's Investors Service in February downgraded the ratings of 16 GARVEE bond issues tied to U.S. road money. The rating agency said it had decided to cut the scores from A1 to Aa3 for those GARVEEs that rely solely on federal monies and lack cash-funded debt reserves or other structural protections against possible interruption to the flow of federal money. The bonds were issued by agencies in California, Georgia, Idaho, Kentucky, Maine, Michigan, Montana, New Hampshire, North Carolina, Oklahoma, Rhode Island, Washington, West Virginia and Washington, D.C. It also cut the ratings of GARVEEs issued by Michigan and New Jersey agencies from A1 to A2.
Since 2008, revenues from motor fuels taxes into the Highway Trust Fund have dropped. In response, Congress has transferred $53 billion into the fund from the government’s general fund. DOT Acting Undersecretary for Policy Peter Rogoff told a House committee March 12 that when balances fall below the minimum this summer, the department will have to implement emergency measures to maintain a positive balance. The measures will cause cash flow problems for state transportation agencies that pay contractors for highway and transit capital projects.
The current surface transportation authorization expires September 30, 2014. Congress will need to find an additional $16 billion per year to maintain current Highway Trust Fund spending levels, leading many to anticipate that this year’s bill will be more about revenue than about policy. In order to avoid massive layoffs mere months before the November congressional elections, Congress may have to enact a short-term revenue bill this summer to temporarily maintain the program while working towards an end-of-the-year long-term solution.
Disclaimer: The views and opinions expressed in this post are those of the author and do not necessarily reflect those of Nossaman LLP.
