Ratings Agency Sees Credit Risk from Congress Not Passing Highway Bill

Apr 5, 2012

Ratings agency Standard and Poor’s warned that there is the risk of a credit crisis if Congress doesn’t pass a long-term highway bill. The Fiscal Times reports:

In a new report, the major credit rating agency, which called highway, bridge and other transportation projects “the backbone of the U.S. economy,” raised concern that Congress has yet to pass a permanent extension of the U.S. highway spending bill. The latest continuing resolution, the 9th temporary extension, was approved by Congress on March 29 before lawmakers adjourned.

While the three-month extension will provide short-term spending for states and localities as they prepare for the summer construction season, many state officials remain concerned about the fate of long- term projects and planning. The federal government supplies states with about 45 percent of their funding for roads and bridges, according to the American Association of State Highway and Transportation Officials.

“The combination of reduced or unpredictable federal support and lower demand could result in deferred maintenance projects that would keep our nation’s transportation infrastructure in good repair,” the S&P report stated. “Such deferrals could hurt an entity’s credit if capital costs escalate over time, putting the system at risk.”

State governments finance major highway and bridge projects with revenue-backed bonds, or so-called GARVEE debt-financing instruments backed by a pledge of future federal aid for debt service. But if the federal revenue stream is uncertain or disrupted, state governments may have trouble marketing those bonds or need to pay a higher interest rate. “The political gridlock in Washington, D.C., and the doubt surrounding federal funding are making it difficult for issuers throughout the infrastructure sector to define long-term plans for funding necessary capital projects,” the S&P  report states.

The U.S. Chamber's Janet Kavinoky told The Fiscal Times that states need certainty on highway funding, “Infrastructure is a long-term proposition. It’s not a cheap date.” It’s more like a marriage. States are doing sprints when they should be doing marathons.”

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