Rpt - Fitch affirms Colorado Dept. of Transportation TRANs
Oct 15 - Fitch Ratings affirms the 'AA' rating on the Colorado Department of Transportation's (CDOT) approximately $436 million outstanding transportation revenue anticipation notes (TRANs). CDOT also has $105 million outstanding series 2011 TRANs and $31 million in outstanding series 2013 TRANs which Fitch does not rate. The Rating Outlook is Stable. KEY RATING DRIVERS: DUAL PLEDGE MITIGATES FEDERAL CONCERN: The TRANs are secured by annual allocations from federal transportation funds and state match funds at the sole discretion of the Transportation Commission, which provides an offset to federal reauthorization risk. State matching funds are largely derived from the highway users tax fund (HUTF), which includes the state portion of the motor fuel tax and vehicle registration fees. Under certain conditions and limitations, CDOT is also entitled to receive up to 2% of gross general fund revenues. State appropriation is not necessary for federal revenues and HUTF that are constitutionally required to be used for highways. UNCERTAINTY OF FEDERAL PROGRAM: The federal program, which was once a formula-driven program funded on a multiyear basis, has now morphed into a program where future policy is less certain. This means funding levels are less predictable and the program is more dependent on frequent action to extend authorization and on general fund transfers that will likely need to be continued indefinitely barring an increase in the federal gas-tax or a significant reduction in spending. STRONG STRUCTURAL FEATURES: The voter-approved authorization limits note issuance to $1.7 billion, including a cap of $2.3 billion in total debt service, which was reached following issuance of the series 2004 notes. In addition, the indenture requires that at the date of issuance of additional TRANs, anticipated debt service in any fiscal year cannot exceed 50% of federal funding from prior year. RATING SENSITIVITIES: --Changes in state laws through legislation of voter initiatives that alter the availability of or leverage against the State match funds. SECURITY: The TRANs are special, limited obligations of CDOT payable solely from the trust estate, consisting of federal transportation and state matching funds. CREDIT SUMMARY: The highway trust fund's (HTF) expenditures have been exceeding revenues over the past several years. The most recent authorization, Moving Ahead for Progress in the 21st Century (MAP-21), provides funding certainty for the next two years but it does not address longer-term issues regarding the sustainability of the federal program or solvency of the HTF and relies on a total of $18.8 billion general fund transfers in 2013 and 2014. Funding levels have become less certain and difficult to predict beyond current authorization. In addition, the increase in corporate fuel economy standards approved in August 2012 would adversely impact gas tax revenues which support the HTF. In Fitch's view, the unsustainable trajectory of the HTF may lead to policy changes that could affect bondholders. CDOT's TRANs have a secondary pledge of state matching funds, derived from HUTF revenues and general fund transfers, which provides an offset to federal reauthorization risk. HUTF revenues are principally received from motor fuel taxes and vehicle registration fees, the majority of which are distributed to the CDOT, counties, and municipalities based on statutory formulas. However, the first distributions (or 'off-the-top' appropriations) are made to highway-related functions of the state (i.e., state patrol and ports of entry functions). By statute, these deductions may not increase by more than 6% annually. CDOT's dual pledge of federal reimbursements and state matching funds each provide coverage of 3.2x and 2.4x respectively in fiscal year 2013. In May 2009, SB 09-228 eliminated CDOT's initial pledge of its 10.34% sales and use tax transfer under SB 97-001 and the excess state revenues pledged under House Bill 02-1310. In exchange, SB 09-228 provided that up to 2% of gross general fund revenues may be transferred to the HUTF contingent upon the magnitude of annual statewide personal income growth and the level of Taxpayer Bill of Rights refunds as a percentage of general fund revenue. SB 09-228 requires personal income growth while maintaining low levels of TABOR refunds, which may not translate into incremental pledged revenue streams for CDOT. Management has indicated that it does not anticipate any future transfers under SB 09-228 (other general fund transfers) through the maturity of the bonds in 2017. The department has already obligated all the debt service payments for the TRANs through 2016. Delay in federal reimbursement would not impact repayment of bonds because of the forward delivery agreement which prefunded debt service with state funds. CDOT, which is an executive department of the state, plans, develops, and constructs highways and other parts of the state's transportation network. The executive director, who is appointed by the governor with the consent of the state senate, is responsible for the overall direction and management of CDOT. The transportation commission, consisting of 11 members appointed by the governor with the state senate's consent, formulates the state's general transportation policy for recommendation to the governor and legislature and is solely responsible for approval and allocation of more than 95% of CDOT's budget, with the balance appropriated by the state general assembly.
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