Ratings agency downgrades Maine transportation bonds

Posted July 15, 2013, at 6:05 p.m.

NEW YORK — Fitch Ratings has downgraded some of Maine’s transportation bonds, citing a “sluggish” economy among other factors in its decision.

The rating agency on Friday downgraded the Maine Municipal Bond Bank’s $208.9 million transportation infrastructure revenue bonds from AA to AA-, according to a news release.

The agency claimed in its statement that “the downgrade reflects the state’s sluggish economic performance in the recovery, weak demographic trends, and a statutory change in the fuel taxes that makes collections more sensitive to shifts in fuel consumption.”

The bonds in question are part of what is known as the TransCap Program. They are revenue bonds, meaning there are revenue sources pledged to repay the bonds. In the case of the TransCap bonds, the revenue sources include various motor vehicle fees and excise taxes, including Maine’s fuel tax.

The “statutory change” referenced in the Fitch report is a decision to repeal the indexing of motor fuels tax rates on Jan. 1, 2012, meaning the fuel excise tax rates from July 1, 2011, remain in effect. That, along with the economic recovery, has reduced the fuel tax revenue, according to Fitch.

The Maine Revenue Forecasting Commission forecast a decline in the fuel tax revenue of 1.6 percent in 2013, the first full year without indexing, and that “per-gallon fuel tax revenues will decline at an average annual rate of 0.7 percent between fiscal 2013 and 2017 as the economy continues a sluggish recovery,” according to the release.

The downgrade is a “non-event” in the short term because the existing $208.9 million in bonds have a fixed rate, said Michael Goodwin, executive director of the Maine Municipal Bond Bank. “But future issuances would certainly be affected by a lower rating. The lower the rating, the higher the interest rate.”

However, the change in rating from AA to AA- is “marginal,” Goodwin said. He estimated such a downgrade may result in an increase of 0.1 percent in the interest rate the state could get for future TransCap bonds.

“But you really don’t know what it’s going to be unless you try to price a bond in a particular market,” Goodwin said, adding that there are no current plans for future issuances.

The bond bank is an independent agency that serves the state and municipalities that need financing programs.

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