U.S. fund for roads is crucial, state says
Posted on Monday, September 15, 2008
URL: http://www.nwanews.com/adg/News/237450/
Arkansas highway officials keep enough money around to make the annual payment due on the bond debt accrued by the state’s $ 1 billion interstate repair program in case of the unexpected.
The unexpected almost happened last week.
U. S. Transportation Secretary Mary Peters, declaring that the federal Highway Trust Fund was running on empty, said she would delay and even cut back federal disbursements to the states for road and bridge projects.
The money to pay off $ 575 million in bonds and their interest comes from those federal disbursements, which was a selling point in using the Grant Anticipation Revenue Vehicle, an innovative financing program known as GARVEE, to finance the interstate repair program more than eight years ago.
“We haven’t missed a payment from the feds since the trust fund was created,” in 1956, said Randy Ort, a state Highway and Transportation Department spokesman. “It was considered a dependable source. We hope it still is a dependable source.”
Congress, after months of intransigence, shifted $ 8 billion into the Highway Trust Fund this week, averting the crisis. The trust fund collects the revenue from the federal taxes on motor fuels. Those collections have dropped significantly in recent months as motorists, in the face of high gas prices, have cut back on their driving. Given the history of the fund, though, it was difficult for many to imagine it running dry. Peters planned to only pay a portion of the bills due from the states based on how much money came into the trust fund in a given week.
“If you can’t count on the federal government, then you are in bad shape,” said Jonathan Barnett of Siloam Springs, the chairman of the Arkansas Highway Commission.
Still, Peters’ warning was enough for some states, including Arkansas, to cut back on their projects after Peters’ announcement and before Congress acted.
The Oklahoma Transportation Commission delayed awarding 32 projects worth $ 80 million on which it opened bids last month. The Oklahoma Department of Transportation also warned it could cancel this month’s bid letting, delay work orders on projects already awarded, suspend acquiring rights of way and look for ways to stop construction on existing projects while maintaining public safety. In Arizona, six projects worth at least $ 158 million were put on hold.
Arkansas dropped one major project on its interstate system from a list of dozen projects that were opened for bids on Tuesday. Money for that project — a redesign of an Interstate 40 / Interstate 55 interchange in West Memphis — was supposed to come from the interstate maintenance account, the same account the state uses to pay down the bond debt.
The state keeps about $ 58 million in the account, which was enough to pay for both the interstate project and for the bond payment due in February but decided out of an abundance of caution to withdraw the project until the federal financial picture came into better focus, said Scott Bennett, the department’s assistant chief engineer for planning.
The bonds grew out of a federal financing program from the 1990 s. It allowed states to issue the bonds and have a pot of money up front to pay for expensive projects without raising taxes. The bonds and interest were to be paid from future federal payments to the states.
During the past decade, the amount of money tied to Grant Anticipation Revenue Vehicle bond issues has grown from about $ 1 billion to roughly $ 18 billion, according to Jack Basso, chief operating officer of the American Association of State Highway and Transportation Officials. Today, 21 states and the Virgin Islands are using Grant Anticipation Revenue Vehicle bonds to finance projects, according to the Federal Highway Administration.
The federal government, though, has never guaranteed the bonds. Instead, bondholders have purchased them with the assumption that states can rely on annual grants from Washington.
Arkansas’ Grant Anticipation Revenue Vehicle bonds were the centerpiece of the financing that voters approved to improve Arkansas’ interstate system, at the time ranked among the worst in the nation. The program eventually overhauled more than 350 miles of interstate spread among 54 projects.
In addition to the bond issue, the program was funded by proceeds from a 4-cent increase in the tax on diesel fuel and federal money set aside for interstate maintenance that is matched by the state.
The department pays $ 73. 5 million annually on the bond debt in two separate installments. The last installment was due in August; the next one is due in February. About $ 58 million of the payment is federal money; money from the diesel tax increase — about $ 16 million annually — pays for remaining state match. Overall, the state receives about $ 505 million annually in federal highway funding.
Making the bond payment was never in doubt.
“We were very conservative with these bond issues,” Ort said. “We didn’t pledge all of our federal interstate maintenance money. We pledged a portion of it. We feel like that would’ve been enough to support our debt service.”
Though Barnett said Arkansas highway officials, it turned out, were prudent to make sure they kept some money back for any eventuality, the episode has been instructive, Barnett said.
“It’ll help us make better decisions on a future bond issue and helps us understand we’ll have to make some allowances,” he said. The uncertainty of federal funding “will be part of the equation.” Information for this article was contributed by The Associated Press.