States, agencies pull back on infrastructure funding worth over $10 billion

Bonds

Without direct federal aid, state and local governments are struggling to invest in infrastructure as 18 states and 25 local transportation agencies have canceled and delayed projects worth more than $10.9 billion due to exonomic losses caused by the COVID-19 pandemic.

Alison Premo Black, senior vice president and chief economist for the American Road & Transportation Builders Association, shared those figures with fellow Volcker Alliance panelists during a webinar Thursday.

“What we found over the summer, the amount of construction work did continue, but we have definitely seen signs of distress and growing concern over the revenue situation for state and local governments,” she said.

North Carolina was one of the hardest-hit states, said Alison Black, senior vice president and chief economist for the American Road & Transportation Builders Association.

As of Sept. 15, at least 49 states, transportation authorities and local governments have publicly projected declining revenues due to the pandemic, according to ARTBA.

Black said Iowa was recently added to that list, but a dollar amount for the state has not been determined so far.

North Carolina was one of the hardest-hit states, with a $300 million shortfall for its fiscal year ending June 30.

“Revenues on the transportation side are falling short obviously of what had been forecasts and expected,” Black said. “That gap is probably about $35 billion to $40 billion is what we estimate right now.”

Some states will rely on bonding, dip into reserves or pull back from infrastructure projects, Black said.

The municipal market’s reaction to infrastructure has been muted, said Howard Cure, director of municipal bond research at Evercore Wealth Management. Cure said the market recognizes the importance of public transit systems, like the New York Metropolitan Transportation Authority, remaining viable entities.

“In some ways, the MTA is a victim of its own success,” Cure said. “It has one of the highest farebox recovery ratios — how much people are paying in fares to cover their operating expenses — of any mass transit system in the country. No mass transit system is self-supporting where they can cover their own operating expenses.”

Large cities can’t function without transit, he said. New York state has added fees or taxes to help support its revenues over the years.

New York issued $2.2 billion dollars in personal income tax revenue bonds, some of which went to help the MTA through the pandemic in July.

“The expectation is that the state of New York can and will support the MTA if additional federal monies aren’t forthcoming,” Cure said.

However, if the MTA was in a weaker state like Illinois, investors would not be as sanguine, Cure said.

The panelists also discussed other ways to pay for infrastructure such as public-private partnerships. Private activity bonds, as well as the Transportation Infrastructure Finance Innovation Act, could be expanded under either a Biden or Trump administration, said Robert Poole, director of transportation policy at the right-leaning Reason Foundation.

TIFIA provides long-term, low-interest loans and other types of credit assistance for municipalities to build surface transportation projects.

Poole is confident that Congress will act on an infrastructure bill next year.

The Senate Environment and Public Works Committee passed an infrastructure bill in July 2019 that would be a five-year surface transportation reauthorization, and would provide an increase of 27% over current funding levels in the current law. It still does not have a financing package.

That Senate bill could serve as a baseline for an infrastructure bill next year, Black said.

The Fixing America’s Surface Transportation Act was extended earlier this month for one year, providing some more certainty for state and local governments, though they are still looking for a long-term bill.

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