Citing uncertainties about the health of the federal Highway Trust Fund, Fitch has cut its ratings on state highway bonds in several states from AA- to A+. The bonds being cut are “grant anticipation revenue” or GARVEE bonds, which are supposed to be repaid out of federal grants.
In recent years, Congressional overspending of the Highway Trust Fund has required Congress to periodically appropriate general funds to transportation. Fitch is worried that Congress may fail to provide such funds, and is also concerned that recent passage of a two-year (instead of the traditional six-year) reauthorization of federal transportation programs creates uncertainties about those programs.
Certain transit agencies also saw their ratings cut from A- to BBB+. These include the Chicago Transit Authority, New Jersey Transit, and the Alaska Railroad, all of which receive federal transit funds out of the Highway Trust Fund. The Congressional Budget Office projects that the highway portion of the Highway Trust Fund will run out of money in 2014 and the transit portion will run out in 2015.