KTC-04-16 / TA 5-03-1F
"Debt Capacity and Debt Limits: A State Road Fund Perspective", M. Hackbart, S. Sapp, Y. Hur
ABSTRACT
State
governments are facing major transportation infrastructure financing
challenges as highway or Road Fund revenue growth has slowed and
resistance to tax increases has strengthened. As a result, state
transportation officials have turned to other financing methods
to maintain momentum in meeting highway construction and maintenance
needs. Among the financing methods being considered is the expansion
of bond or debt financing. Changes in federal legislation that
permits states to “pre-obligate” future federal funds, among other
considerations, has made debt financing an attractive alternative
for the states. As states consider the expanded use of this financing
strategy, several financial management questions arise including
the appropriate role of debt financing, debt capacity and whether
to establish limits on their use of debt financing. Unfortunately,
limited research has been carried out to address these issues as
the state debt financing literature has focused on state General
Fund debt management issues. This study focused on the debt management
issues associated with the use of state highway or Road Fund revenues
as the source of debt service support for new bond issues. Among
the issues assessed (through a national survey) were whether states
have developed separate debt policies or limits for highway or
Road Funds, the ratios of debt service payments to total state
Road Fund revenues and other debt management issues. The study
results suggest that the states have begun to focus on these issues
and are actively setting and managing debt policies for their Road
Funds and are including debt financing as part of their overall
state highway financing strategies.