Rising gasoline prices may curtail the recovery of leisure traffic from the pandemic, which may impact toll road revenues that back some municipal bonds.
High gas prices usually have the biggest effect on leisure travel, Fitch Ratings noted in a report released Monday, because drivers take fewer or shorter trips. The agency also noted it could push back a recovery in commuter traffic, which is still below pre-pandemic levels.
According to the American Automobile Association, the average U.S. regular gasoline price rose past $4 per gallon in March for the first time since 2008. On Wednesday AAA said the
Fitch noted that any reduction in leisure travel was likely to be modest.
“We’ve seen historically that when there’s a large spike in gas prices this typically results in a pullback in vehicle miles traveled,” Anne Tricerri, director of infrastructure and project finance at Fitch, told The Bond Buyer.
Fitch's report cited the Mid-Bay Bridge and Rickenbacker Causeway as two rated projects in Florida with significant leisure traffic exposure that could see reductions in travel if gas prices remain elevated.
For both the Mid-Bay Bridge in the Florida panhandle and Rickenbacker, a causeway in Miami, traffic in 2021 surpassed pre-pandemic levels.
“In 2021, both these facilities did really well and outperformed our expectations because typically with leisure traffic, when there’s some kind of disruptive economic event like the pandemic, it is the most volatile,” Tricerri said. “But we saw the opposite — where these facilities actually recovered more quickly than other toll roads where there’s a lot of commuter traffic because people are still working from home.”
She noted both routes led to beach destinations — a desirable place for people to go during a pandemic, where there are a lot of outdoor activities in a warm-weather climate.
In August 2021, Fitch affirmed the BBB-plus rating for the Mid-Bay Bridge Authority’s $231 million of Series 2015A and Series 2015B first senior lien bonds and the BBB rating on the $31 million of Series 2015C second senior lien bonds. Fitch revised the outlook for the bonds to stable from negative.
Fitch said the outlook revision on the Mid-Bay bonds reflected growth in traffic and revenue beyond pre-pandemic levels and improved financial metrics.
In September 2020, Fitch affirmed the BBB-plus rating on the $28.8 million of Miami-Dade County’s Series 2014 revenue bonds issued for the Rickenbacker Causeway. The outlook is stable.
Tricerri said that even if gas prices remain high for a longer time, Fitch doesn't expect that to have an outsized effect on the bonds.
“Overall these credits are solid, we have them on stable,” she said. “Clearly, the leisure component is part of the existing rating already and we think they have enough liquidity to sustain themselves even if there’s a moderate decline in travel,” Tricerri said.
“In this situation with the COVID-19 pandemic it’s been a little bit different because typically leisure traffic would be the most volatile — and if it’s discretionary, then people choose not to take a vacation or maybe drive a shorter distance versus if people need to commute to work as they don’t have much of an option to drive less,” she said.
Tricerri noted there was demand for leisure travel because after people stayed at home for one or even two years because of the virus, now they want to go on vacation.
“As a result, we feel there is still a pent-up demand, where people may take shorter trips,” she said, “but we still think that people will try and go on vacation so there could be a moderate effect of a little bit less in terms of toll road traffic, but we think it will be manageable.”
Toll roads with substantial leisure traffic outperformed expectations in 2021, with traffic in some cases surpassing 2019 levels, as many travelers drove to avoid air travel during the pandemic. While leisure air travel has rebounded with the decline in coronavirus cases, high fuel prices are making both flights and car trips more expensive.
U.S. commercial truck traffic has surpassed pre-pandemic levels due to strong consumer buying of goods over the last year. However, Fitch warned rising inflation could lead to a decrease in personal spending and thus to a reduction in commercial traffic.
Passenger traffic for toll roads mostly used by commuters
Fitch said while some states have suspended or plan to suspend state gas taxes temporarily, the savings for consumers will be relatively small and probably won't affect commuter or travel decisions significantly.
S&P said these temporary state gas tax suspensions are unlikely to lead to rating changes.
“We don't expect state gas tax suspensions will have a significant impact on general obligation bond ratings, which are usually paid from state general funds, and not the dedicated state transportation funds that pay highway user tax-secured debt," S&P said. "We also expect state general fund reimbursements to a transportation fund for lost tax revenues, if any, will be relatively small compared with overall general fund revenue, and have a limited effect on GO credit quality.”
Wells Fargo Securities said while oil prices have fallen from the highs that were hit right after Russia's invasion of Ukraine, gasoline prices are still more than a dollar per gallon higher than last year and that the outlook for oil remains uncertain.
“As painful as it seems at the pump, rising oil prices are not the economic death sentence they once were for the United States,” Wells Fargo Senior Economist Mark Vitner and Economic Analyst Nicole Cervi wrote in the March 24 report. “The U.S. has become one of the world's largest energy producers and is more self-sufficient than the last time the global economy faced an energy shock.”
The impact of higher gasoline prices varies across different states, the report said.
Wells Fargo said that to control for regional variations in consumption, it measured gasoline expenditure as a percentage of disposable personal income for each state.
Results show residents in the South and parts of New England were most heavily affected by rising gasoline prices. People living in Mississippi and Alabama spent the largest portion of their after-tax income on gasoline, followed by South Carolina and Maine.
Florida, Virginia and Georgia were standouts in the South due to large urban populations.
Florida residents spent just 4% of their after-tax income on gasoline, which is roughly even with the national rate.
“Florida's surprising resilience is due to its mostly urban and fairly wealthy population. Over 90% of Florida's 23 million residents live in a metro area,” the authors wrote.
Gasoline prices in the Sunshine State are about even with the national average.
Still, incomes vary considerably within Florida, with workers in the tourism and hospitality industry earning relatively low wages, which makes the sector vulnerable to higher energy prices, the report said.
“Florida saw a solid increase in tourism this past year, with roughly 122 million tourists visiting the state. Historically, about two-thirds of Florida's tourists arrive by automobile,” Vitner and Cervi wrote. “Higher gasoline prices have not proven to be a roadblock for tourists in the past, although tourists tend to spend slightly less than they would otherwise.”
Virginians spent just 4.2% of their after-tax income on gasoline, the second-lowest share of any Southern state.
Virginia's population has become increasingly urban due to the rapid growth of the Washington, D.C., suburbs.
Georgia also has a large urban area and its residents spent 4.6% of their after-tax income on gas. The Atlanta area accounts for 65% of the state's population while 18% live in 14 other metros.
However, city residents have a long commute to work. The Atlanta Metropolitan Statistical Area is 145 miles long from North to South and 140 miles wide from East to West. Given the size of the area, commute times are some of the longest in the nation.
S&P Global Ratings said in a Tuesday report the temporary measures taken by a few states to suspend state gas taxes are unlikely to cause rating changes on highway user tax-supported debt.
“To date, only three states with gas tax-supported bonds outstanding — Connecticut, Maryland and New York — have suspended collection of their gas taxes, each for a limited time period,” S&P said. “None of the states anticipates a drop in debt service coverage compared with originally budgeted projections.”
