CHICAGO – The Illinois State Toll Highway Authority passed a $1.45 billion spending plan for 2018 that relies on $300 million of borrowing to support the seventh year of the agency’s $14 billion, 15-year capital program known as Move Illinois.
“This budget represents our best efforts to deliver strategic infrastructure investments, while also offering economic opportunities for workers, businesses and the communities throughout Northern Illinois,” the authority’s executive director Greg Bedalov said after the budget passed Thursday.
The budget allocates $353 million to fund maintenance and operations, $413 million for debt service transfers, and puts $684 million toward a $1.2 billion capital program that also relies on $300 million of new-money, toll-backed revenue borrowing. Most of the authority’s revenues come from tolls with a small piece generated by concessions and investment income.
Overall, revenues are expected to rise by $60 million from 2017 due to projected increases in toll transactions, the addition of the new Illinois Route 390 Tollway, and a 1.8% increase in truck toll rates. The rate hike reflects an increase in the consumer price index as previously approved by the tollway board in 2008.
The 2018 capital program provides $376 million to continue planning and advance work for the new Interstate 490 Tollway and the new Interstate 490 interchange, $213 million to continue design for reconstruction of the Interstate 294 Central Tri-State Tollway, and $175 million for roadway improvements on the Interstate 88 Reagan Memorial Tollway.
The authority last sold debt in November when it priced a $300 million deal. The authority paid the limited market pricing penalty that’s imposed on Illinois-based governments whether they have exposure to the state’s fiscal struggles or not.
The 11-year bond in the deal landed at a 25 basis point spread to the Municipal Market Data AAA benchmark and five points over the AA benchmark. The yield on the 25-year bond landed at a 50 basis point spread to the AAA and 29 basis points over the AA.
The authority’s bonds are rated at AA-minus by both Fitch Ratings and S&P Global Ratings and Aa3 by Moody’s Investor’s Service, ratings affirmed before the November deal.
Spread penalties had come down since the state broke a two-year-old budget impasse over the summer.
The authority’s board is appointed by the governor but it operates as an independent agency that relies mostly on toll collections.
“As an independent authority, ISTHA's credit strength is not directly connected to that of the State of Illinois,” Moody’s said in its most recent rating report. “ISTHA's strong financial metrics, autonomy to set its toll rates to recover costs, and both the statutory and bond indenture requirement that excess revenues in the system reserve account may be used only for reasonable and necessary tollway system purposes currently support a strong distinction in credit strength.”
Moody’s rates Illinois at the lowest investment grade level, Baa3.
"The ratings reflect our view of the system's essentiality and strong financial profile," said S&P analyst Kevin Archer.
Significant additional borrowing of $2.9 billion over the next six years for the capital program will drag down liquidity levels but they should remain at a level consistent with the rating, S&P said. The authority has issued $2.8 billion so far to support the program.
“We expect the authority will issue additional senior revenue bonds of approximately $700 million of bonds in 2018 and 2019, approximately $1.0 billion from 2020-2022 and approximately $1.2 billion from 2023-2025,” S&P said.
Maximum annual debt service is expected to rise from $466 million in 2034 to about $657 million after all MOVE Illinois borrowing is taken into account.
Fitch said it views the authority’s “debt management as prudent even with a major capital program underway, as illustrated by its strong historical and projected debt service coverage ratios.” Toll transactions have grown nearly every year since 1974 with the five-year compound annual growth rate at 2.3%.
Fitch said the credit benefits from a reduction in recent years of variable-rate exposure to about 20% of aggregate debt that is fully hedged through swaps with multiple financial counterparties with all but one – Deutsche Bank – rated at the A level.
The capital program seeks to reduce congestion and pollution, expand the more than 50-year-old 294-mile system, improve roads, and create jobs and economic development. To support the program, the board adopted a one-time 87% increase in passenger tolls and is phasing in a 60% increase in commercial vehicle tolls that will also be adjusted annually based on inflation beginning next year.
