Moody’s raises red flag on Maine bonds secured by federal transportation funding

Posted Feb. 19, 2014, at 10:46 a.m.
Last modified Feb. 19, 2014, at 11:24 a.m.

Moody’s Investor Services has downgraded some of Maine’s transportation bonds because of uncertainty surrounding the future reliability of federal transportation funding.

Maine’s bonds are Grant Anticipation Revenue Vehicles, or GARVEEs, and are among those from 16 states that Moody’s on Tuesday downgraded and ascribed a negative outlook. Moody’s lowered its rating of Maine’s GARVEEs from A1 to Aa3.

In plain terms, a GARVEE is a bond issued by a state to pay upfront costs of transportation infrastructure improvements that is secured by the future promise of federal transportation funding. The Maine GARVEEs affected by the ratings action equal nearly $82.4 million, according to Michael Goodwin, executive director of the Maine Municipal Bond Bank.

Goodwin told the Bangor Daily News on Wednesday morning that Moody’s downgrade of Maine’s GARVEEs is a reflection of uncertainty created in Washington, not of anything going on in Maine.

“It has nothing to do with how we’re operating our program or using our funds,” Goodwin said. “It has to do solely with federal funds used to pay those bonds.”

The report from Moody’s says the uncertainty of future federal transportation funding — and increased risk of interruption in timely payments to states — has been caused by the federal government’s “recurring episodes of threatened debt ceiling expirations, government shutdowns, and the threat of depletion of the highway trust fund balance later this year due to the fund’s persistent structural imbalance.”

Despite the dire warnings, Goodwin said the downgrade is not a serious cause for concern. He said the rating agency has a responsibility to express concerns if it sees something that could raise the risk associated with these types of transportation bonds, which are traded among investors on the open bond market.

As for its impact on Maine, Goodwin said the only effect Moody’s action could have is in increasing the interest rate Maine receives on future transportation bonds secured by the promise of federal transportation funding. So, he said, “it’s certainly possible” this downgrade could cost Maine more money in the long run.

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