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April 11, 2013 | By | Posted in WatchBlog

WATCHBLOG: Moody’s downgrades turnpike debt; calls traffic, revenue forecasts too optimistic

By Melissa Daniels | PA Independent

GOING DOWN Moody's downgraded the Pennsylvania Turnpike Commission's bond rating.

GOING DOWN Moody’s downgraded the Pennsylvania Turnpike Commission’s bond rating.

HARRISBURG – Lower-than-expected usage and a steady stream of debt caused Moody’s Investors Services to downgrade the bond rating for the Pennsylvania Turnpike Commission.

Announced Wednesday, Moody’s downgraded the rating to A1 from Aa3 on approximately $3.1 billion worth of revenue bonds.

The rationale for the rating was that traffic and revenue forecasts were too optimistic, with lower usage and higher toll rates expected to bring lower revenues over the next 10 years.

Tolls on the turnpike have increased for five consecutive years and are expected to increase annually for at least the next decade, according to state projections.  Despite those increases, state officials have maintained that the turnpike has a sustainable level of debt and will not lose customers due to higher tolls.

Moody’s appears to disagree.  The rating agency concluded that commercial users sensitive to higher tolls will use alterative free routes.

Combined with Pennsylvania’s demographic shifts of an aging population and weak growth, Moody’s concluded “flat to minimal traffic growth can be expected for some time.”

Moody’s also said it expects the turnpike to continue its annual toll hikes in order to keep up with its debt service ratios.

Chief among the challenges facing the turnpike is Act 44, the 2007 state law requiring the turnpike to pay $450 million to the Pennsylvania Department of Transportation annually. Moody’s listed Act 44 as a challenge because the payment is inflexible regardless of how much the turnpike earns.

If there is a silver lining in the report, this is it:  the agency declared the turnpike has “a long history of well-managed financial operation,” and that it has “demonstrated willingness to raise toll rates evidenced by annual toll rate increases since 2009.”

Auditor General Eugene DePasquale issued a statement following the downgrade announcement, saying it is no surprise.

“Previous audits from this department repeatedly raised concerns about the commissions’ debt and borrowing practices brought on by Act 44 obligations,” DePasquale’s statement said. “Today’s bond rating downgrade is further proof that fixing Act 44 and implementing a comprehensive transportation funding solution should be a top priority in Pennsylvania.”

Gov. Tom Corbett’s proposed 2013-2014 budget includes a long-term phase-out of Act 44.

Contact Melissa Daniels at melissa@paindependent.com

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Melissa Daniels is a reporter for PA Independent. She can be reached at 717-350-0962 or Melissa@PAIndependent.com

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