Research - APRIL 24, 2014

U.S. state governments may need to bridge infrastructure gap

by Drew Campbell

Moody’s Investors Service notes that the United States’ sizable ongoing infrastructure needs, coupled with stagnant federal and state gas tax revenues, threaten to put negative pressure on future state government budgets or trigger increased borrowing. The U.S. Department of Transportation recently reported that U.S. highways and transit systems will need up to $171 billion annually for maintenance and improvements, which is $54 billion more than what is currently being spent.

“Federal support for infrastructure will likely be constrained in future years because a revenue fix to the imbalance in the federal Highway Trust Fund — a major source of funding for both highways and transit — has been elusive,” Moody’s notes. “At the same time, state gas tax revenues have stagnated because car travel has never fully recovered from the last recession and better fuel efficiency means less revenue per vehicle in the future.”

States could bridge the gap between stagnant revenues and growing investment needs in several ways — including issuing bonds and highway-related taxes to fund highway construction — but transit systems will have fewer options. “Transit agencies have less revenue flexibility because they do not generate sufficient fare revenues to pay for operations and are highly dependent on government subsidies,” Moody’s notes, adding that this fiscal pressure increases the risks of state governments needing to further leverage existing bond programs and stretch budgets.

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