Moody’s: U.S. toll roads likely to fund infrastructure backlog

New York — In light of stagnant federal funding and limited capacity for states to increase spending, toll roads will play an increasing role in addressing the funding gap for road and bridge infrastructure needs in the U.S., according to a new report from Moody’s Investors Service. Based on historical trends, Moody’s projects more toll roads and increased tolling in areas with existing traffic congestion and growing economies, population and per capita income.

The 2017 Infrastructure Report Card by the American Society of Civil Engineers cites an $836 billion backlog of road and bridge infrastructure capital needs to maintain and improve current conditions and alleviate traffic congestion. But despite separate $1 trillion infrastructure funding plans pitched by the Trump Administration and Senate Democrats, Moody’s expects little progress at the federal level.

“We expect no significant increase in federal funding given the recent lack of political will and the depleted state of the Federal Highway Trust Fund,” says Maria Matesanz, a senior vice president at Moody’s.

States have already taken on a larger share of the infrastructure burden and are allocating more of their total budgets to roads and bridges. Forty states have increased their gas taxes since 1993, the last time that federal gas rates went up.

More recently, toll revenues have increased faster than state fuel taxes or motor vehicle fees as a source of transportation funding. In fiscal 2015, toll road operating revenues increased by 8.5% compared to fiscal 2014, while state fuel taxes and motor vehicles increased by 6.4% over the same time period.

High growth, high income regions will see an uptick in tolling since these areas typically experience more traffic congestion and tolling growth has been more robust.

“Most of the new toll roads built since 2005 have been in areas with rapid population and employment growth where congestion already exists,” says Matesanz. “For Moody’s rated toll roads, Southern and Western states account for nearly 81 percent of the total new toll road mileage built since 2005.”

While greater use of public-private partnerships (P3s) could serve as an additional tool for funding infrastructure, a dedicated revenue stream would still be needed to encourage and support private investment.

For toll roads, the credit impact of added debt would vary depending on the funding approach, and whether the debt is offset by traffic and revenue growth.

Moody’s rates roughly $120 billion of debt among 52 U.S. toll roads, including privately managed toll roads and projects.

The report, “Infrastructure and Project Finance — U.S.: Toll Roads a Likely Source of Funding for U.S. Transportation Backlog,” is available to Moody’s subscribers at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1063477.