A major rating agency has downgraded the ratings it gives to the state’s highway revenue bonds because state lawmakers and the governor keep raiding the source of dollars to repay the debt.
And the fallout could be increased borrowing costs, meaning the state will be able to afford fewer roads than before.
In a formal announcement, Moody’s Investors Service said the Arizona Constitution requires that proceeds from gasoline taxes and vehicle registration fees go into the Highway User Revenue Fund to be used for transportation related purposes. Part of the HURF proceeds are, in turn, pledged to repay outstanding debt when the state borrows money up front to jump start major construction projects.
But company analysts said the state has developed a habit of finding ways to legally divert some of those dollars for purposes other than road construction and maintenance — and paying off the debt for major projects — including running the Motor Vehicle Division and paying the salaries of Highway Patrol officers.
Complicating matters is that overall gasoline tax revenues have been weak during the recession. The result, the analysts said, is that the amount of money coming in to repay any borrowing is not as high as they would like — at least not to maintain the Aaa bond rating for nearly $1.3 billion in highway revenue bonds. The result is a downgrade to Aa1 for the senior lien bonds, the ones with the highest priority for repayment.
Moody’s also dropped its rating for the state’s $330 million in subordinated lien bonds one step, to Aa2.
Gubernatorial press aide Matthew Benson said the move “was not unexpected.”
The state has used HURF dollars for DPS expenses for years. But Benson said the governor presumed there would be some kickback from the investment community when just this past year it also took $80 million out of HURF for MVD, freeing up what had been general tax revenues to run the agency to instead pay for other basic government programs.
Benson said Brewer does not believe the move was a mistake.
“It was among many of the difficult decisions the state had to take,” he said.
Benson also said that Brewer believes the concerns raised by Moody’s can be addressed by “restructuring” the HURF fund. He refused to explain exactly what that might entail.
The downgrade has alarmed some in the business community who make a living building roads and other major projects.
“The action by Moody’s should send a strong message to the Arizona Legislature that continual raids of transportation funding have serious consequences,” said Gary Haydon, president of a contracting firm that bears his name, in a prepared statement. Haydon, part of a coalition of contractors and suppliers organized as We Build Arizona, pegged total diversions for the past 11 years at $1.4 billion, a figure the coalition said “equates to well over 42,000 jobs in the construction industry that could have been created or maintained.”
The Moody’s report was not entirely negative. The rating agency said it anticipates no further downgrades as the there should be “steady growth” in the tax revenues and vehicle registration fees that fuel HURF as the economy recovers.
Benson also said that Standard and Poor’s, the other major rating agency, has not disturbed its AAA rating of the state’s highway bonds.