Fitch Rates MDOT’s $628M Consolidated Transportation Bonds AA+, Outlook Stable

Fitch Ratings has assigned an AA+ rating to the following Maryland Department of Transportation (MDOT) consolidated transportation bonds:

  • $295 million series 2021A
  • $138 million refunding series 2021B
  • $52 million refunding series 2022A (forward delivery)
  • $143 million refunding series 2022B (forward delivery)

The bonds will be offered by competitive sale later this month.

Additionally, Fitch affirmed the following ratings:

  • Outstanding MDOT consolidated transportation bonds at AA+
  • Outstanding MDOT county transportation bonds issued on behalf of Baltimore City at AA+

The Rating Outlook is Stable.

According to Fitch Ratings:

The ‘AA+’ ratings on MDOT’s consolidated transportation and county transportation bonds reflect limited growth prospects for the various dedicated taxes and robust resilience of the structure to economic declines.

Consolidated transportation bonds are payable from a portion of taxes collected in the state’s transportation trust fund (TTF), following specific statutory allocations (collectively, pledged tax revenues), and prior to being available for other uses by MDOT.

County transportation bonds are paid from an allocation of highway user revenues (HUR), which are capital grants paid to Baltimore City, counties, and municipalities from all revenues of the TTF, but subordinate to the pledge for the consolidated transportation bonds and certain other MDOT expenses.

Highway User Revenues

Highway User Revenue (HUR) is the share of State motor fuel and vehicle taxes distributed to local governments for their own road and bridge maintenance.

Like most states, Maryland has no local gas taxes – the State levies all these revenues. However, unlike most states, local governments actually maintain most roads (about 5 of every 6 road miles) in Maryland. Recognizing this, the State has historically shared a portion of these revenues, through a formula, to counties, municipalities, and Baltimore City to maintain their own roads and bridges.

The State created the HUR formula in 1968. For more than forty years afterward, local governments had received at least 30 percent of transportation revenues — mostly motor fuel tax and vehicle registration fees — to fund their roads and bridges.

The Great Recession forced cuts to this area deeper than those in any other component of the state budget. Twenty-three counties’ share of funds plummeted from nearly $300 million in 2007 to only $40 million in 2018: an 87 percent decimation. In 2018, Baltimore City alone received nearly $100 million less than it did before the cuts.

A 2018 MACo Legislative Initiative increased the county share of HUR for five years, from FY 2020 through 2024, from 1.5% to 3.2%, with additional funding also supporting Baltimore City and municipal governments.

“Cliff effect” on the Horizon

Following a multi-year advance in local funding, beginning in fiscal 2025, state funding for local roads and bridges reverts to the totals in place before the enactment of Chapters 330 and 331 of 2018.

In recent years, MACo has supported legislation to extend and revive the local distribution of transportation revenues, but to no avail. As it stands, state funding for local roads and bridges will plummet by $76.8 million in fiscal 2025.

MACo, the Maryland Municipal League (MML), and other key stakeholders will continue efforts to avoid this dramatic “cliff effect” in state funding — and advocate for the full restoration of local transportation funding.

Stay tuned to Conduit Street for more information.