Local Transportation Aid: The Source May Matter

The Maryland Department of Transportation (MDOT) continues to reserve funds in its Transportation Trust Fund forecasts to phase in an increase in highway user revenues, reports the Department of Legislative Services (DLS) – an action it finds will negatively impact MDOT’s capacity to issue additional bonds. According to a new report issued by DLS, however, MDOT potentially could increase capital-only local transportation aid without adversely affecting its debt service coverage ratio. This would not have the full flexibility of traditional highway user revenues, as it would not be eligible for routine maintenance, project oversight, and the like.

As previously reported in Conduit Street, DLS reported to the Spending Affordability Committee last November that it finds MDOT’s Trust Fund revenue forecasts overly optimistic by approximately $221 million over a period of six years. An even larger differential appears in bond proceeds and premiums – totaling an additional $930 million difference.

DLS had noted the following in its report made to the Spending Affordability Committee:

Bond issuances in the DLS forecast are $930 million less than in the MDOT forecast. The reduction is necessary to maintain the net income to debt service coverage ratio of 2.5 that MDOT has adopted as its administrative policy (bond covenants require a minimum of 2.0 coverage.) If legislation is enacted increasing the amount of Highway User Revenues going to local governments, additional reductions to planned bond issuances will need to be made in order to maintain the minimum debt service coverage ratio.

In its latest report,  Issue Papers: 2017 Legislative Session, dated December 2016, DLS states the following on this issue:

The MDOT TTF forecast continues to reserve funds to phase in an increase in highway user revenues (HUR) provided to county and municipal governments. Over the forecast period, a total of $761 million is set aside in the MDOT forecast. Should legislation be enacted increasing the share of HUR going to local governments, the revenues available to support debt service would be decreased and result in the need to further reduce bond issuances in order to maintain minimum coverage levels. If the additional funds are provided as capital grants, however, there would be no impact on the debt service coverage ratios as the funds would first accrue to the TTF and be allocated through the capital program.

[Emphasis added.]

In his proposed budget last year, Governor Larry Hogan included $53.6 million in “capital transportation grants” to counties and municipalities, which if enacted would have increased total funding for local transportation by about 18 percent over the prior year. (While the proposal was originally approved by both chambers, Senate and House fiscal leaders, working as a conference committee to resolve details of the state budget plan, ultimately decided to cut all new local transportation funding and instead flat-line levels from the prior year.) Governor Hogan has not yet released details regarding whether increased local transportation funding is included in his proposed fiscal 2018 budget.

MACo continues to prioritize reinvestment in local infrastructure and highway user revenue restoration through its 2017 initiative calling for a Local Infrastructure Fast Track, or #LIFT4MD. MACo calls on state leaders to provide a #LIFT4MD in 2017:

  • Approve meaningful new FY 2018 funding for restoring highway user revenues – using the fair, statewide formula used for decades;
  • Enact a phased-in restoration of the historic 30 percent local share of state transportation revenues – enhancing safety and road quality for motorists everywhere; and
  • Document and assess the state of public infrastructure across Maryland – assessing the needs and reliable revenue sources targeted for each area of service.

Click here to see how #LIFT4MD has taken off – and why cuts to local transportation aid are not just water under the bridge.

Prior to each session, the DLS Office of Policy Analysis issues an information report on major policy issues. Issue Papers: 2017 Legislative Session is available here.