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In This List

U.S. Transportation Infrastructure 2020 Outlook: Toll And Airport Sectors Positive, Port And Transit Sectors Negative


Cyber Risk In A New Era: Disruptions And Distractions Increase Challenges For U.S. Public Finance Issuers


U.S. Public Finance Report Card: The Not-So-Secret Sauce In State Housing Finance Agency Programs' Stability


U.S. Higher Education Rating Actions, Third Quarter 2020


Pension Spotlight: Massachusetts

U.S. Transportation Infrastructure 2020 Outlook: Toll And Airport Sectors Positive, Port And Transit Sectors Negative


Overall, our 2020 outlook includes some familiar themes from previous years. We anticipate positive volume growth will continue across most sectors––air passengers, toll transactions, vehicle miles traveled--but at lower levels (see charts 1-4). We believe final cargo tonnage and public transit ridership data for 2019 will likely to show continued weakness. In particular, the last several months of 2019 showed notable, year-over-year declines for both U.S. import and export volume, which we expect to burden ports' container traffic. The growing focus on climate resiliency and the role the broader transportation sector plays in greenhouse gas (GHG) emissions (chart 5) will be a reccurring theme going forward and adding to issuer's capital and operational requirements.

We also continue to monitor the credit cycle to gauge how an economic downturn would ripple down to transportation infrastructure providers. S&P Global Economics now sees 2020 real GDP growth at 1.9%, up from 1.7% in our September 2019 forecast--and near our 1.8% estimate of the potential growth rate. Our estimate of the risk of recession in the next 12 months has been lowered to 25%-30%, from 30%-35% (see "Fewer Signs Of Scrooge-ing Up U.S. Growth In The New Year," published Dec. 4, 2019, on Ratings Direct). Not featured in our transportation outlook but always present are risks associated with oil price spikes, an unexpected sharp economic downturn, a marked increase in disruptive technologies, and shocks to demand from geopolitical events, pandemics, and terrorism.

Trends remain positive for the toll road sector because we anticipate that steady, albeit slower, traffic and toll operating revenue growth will outperform base-case GDP and as conversion to open-road and all-electronic tolling expands. Similarly, we have revised our airport sector outlook to positive due to in part to continued steady economic growth and strong operating performance along with credit stability in the airline industry. While airport debt and leverage is trending up due to terminal modernization or ongoing capacity-enhancing projects, so too is airline and activity-derived revenue performance. We believe these and other factors could provide some tailwinds, particularly if passenger growth exceeds forecasts and financial metrics hold steady or improve.

On the flip side, while the port sector's strong credit fundamentals provide cushion for normal business cycles and transitory trade disputes, we have modified our sector outlook to negative from stable due to the still unsettled U.S.-China trade policies and ongoing tariffs along with other potential longer-term shifts in trading patterns and supply chains. The mass transit sector remains on negative outlook due to continued weak ridership trends at many systems resulting in stagnant fare box collections combined with capital funding and operating pressures that could weigh on financial profiles of issuers, even those that depend on a variety of general taxes and federal sources of revenue.

Finally, the outlook on federal transportation grant-secured obligations (GARVEEs) is stable, reflecting our expectation of continued appropriations and consistent broad-based support among policymakers for infrastructure investment. This is despite a fall 2020 expiration of Fixing America's Surface Transportation Act (FAST Act),which authorized spending on federal highway and public transportation programs. A prolonged lapse in funding and substantial changes in surface transportation programmatic funding is a remote risk and we do not see any meaningful congressional action on this front until after the presidential election.

Chart 1


Chart 2


Chart 3


Chart 4


Chart 5


Rating Changes Across Transportation Infrastructure

We define U.S. transportation infrastructure as comprising seven subsectors. The three largest in descending order are airports; toll roads and bridges; and ports. Others include bonds secured by parking systems; transit systems; special facilities (like consolidated rental car facilities at airports); and bonds backed by direct federal payments for highway or transit programs (GARVEE bonds).

This transportation infrastructure outlook highlights broader economic and industry trends that could lead to changes to credit quality (ratings and outlooks) over the near-to-intermediate term ignoring changes in criteria. The modal U.S. transportation infrastructure ratings (including all senior and subordinate) is 'A' with outlooks overwhelmingly stable (charts 6A and 6B).

Chart 6A


Chart 6B


Key credit factors for the transportation sectors continue to be economic and demographic trends that influence the movement of people and goods, fuel prices, competitive factors that affect the business profiles of infrastructure providers, and federal transportation policies that facilitate and spur investment by state, regional, and local governments. A fundamental credit feature of most transportation issuers we rate is their ability to set fees and collect revenues from users largely without significant regulatory limitations or approvals.

In recent years, U.S. public transportation infrastructure sectors have benefited from the slow-but-steady economic growth. Combined with historically low fuel prices, greater certainty in federal funding, and benign global trade flows, the result has been generally positive demand across aviation, maritime, and roadway sectors and stable-to-positive financial performance at most of our rated transportation infrastructure providers.

Rating trends have been overwhelmingly positive both in 2019 (chart 7) and also when rewinding the count to March 12, 2018, (chart 8) incorporating all rating actions since implementation of updated criteria. We completed our review of 205 in-scope rated credits under updated criteria, "U.S. And Canadian Not-For-Profit Transportation Infrastructure Enterprises," (published Mar. 12, 2018) resulting in a largely positive effect on ratings: we affirmed 132 (64%), upgraded 52 (25%), revised our outlook on seven (4%), downgraded four (2%), and assigned new ratings to 10 (5%). An increased emphasis on an issuer's market position (including their role, importance and activity trends) along with financial performance (measured by debt service coverage) were contributing factors in these rating changes. (See "Credit FAQ: Final Update To S&P Global Ratings' U.S. And Canadian Not-For-Profit Transportation Infrastructure Enterprises Criteria Implementation," July 24, 2019).

Chart 7


Chart 8


What We're Watching In 2020

Airports: positive outlook

We are changing our airport sector outlook to positive from stable given forecasts of continued slow, steady economic growth, airline credit stability (due to better operational performances and prudent financial policy decisions) allowing for a more accommodative environment for increases in airport operating costs, and what we view as generally good management and conservative airport projections of demand. While some operators could see downward rating pressure if management is unable to maintain steady financial performance and debt capacity--especially if demand declines or leverage increases--the sector has demonstrated resilience through economic cycles, airline industry consolidation and system shocks with credit ratings largely intact or improved (see "When The Cycle Turns: U.S. Airport Balance Sheets--And Exposures--Increase With Traffic," July 9, 2019).

We expect U.S. large hub airports, in general, to maintain or possibly improve their credit standing due to their very strong or extremely strong market positions, skilled management teams, and cost-recovery financial structures, despite taking on more debt to fund sizable capital needs. Indeed, larger airport operators have responded to passenger growth with ambitious, multi-year capital programs totaling over $92 billion, overwhelmingly financing them with year-on-year of debt issuance (chart 9). Nonetheless, upward rating movement is possible for those airports that continue to exhibit steady financial results from generally favorable or higher-than-forecast activity level trends and effective financial management of higher debt loads (see "U.S. Transportation Infrastructure Sector Update And Medians: U.S. Large-Hub Airports," Dec. 23, 2019). What we're watching in 2020 for airports includes:

On time/on budget delivery of airport capital programs.  We have seen expanding capital improvement programs across nearly all subsectors, particularly in airports, where new or expanded terminal developments address capacity constraints or obsolescence. We have seen some escalation of project costs due to tight labor markets and scope creep on large programs that have yet to impact credit quality. However, building excess capacity in anticipation of higher volumes would raise credit exposure in a downturn beyond our current economic forecast period.

Possible weakness in passenger travel.  Global airline traffic expanded rapidly in recent years (7%-8% annual growth) buoyed by relatively healthy consumer spending in most major economies, manageable fuel prices, and the spread of low-fare, low-cost airlines. Higher growth could propel additional capital spending and more debt, while very weak growth or declines could pressure financial metrics. Most airport operators conservatively and prudently assume low-to-moderate increases of 1%-2.5% and to the extent actual traffic exceeds those levels boosting financial performance, financial metrics could improve.

Growing influence of ESG factors.   We anticipate wide-ranging environmental, social and demographic, and governance factors will continue to rise in prominence. When we view these considerations to be material and visible, we believe they can affect creditworthiness of public sector entities by influencing their capacity to serve the public (e.g., providing services, a public good, product, or infrastructure), or their long-term fiscal sustainability, physical resilience, responsiveness to public demands and market changes, or organizational effectiveness (see "When U.S. Public Finance Ratings Change, ESG Factors Are Often The Reason," March 28, 2019). For airports, this includes incorporating resiliency to climate risks into capital programs (13 of the 47 largest U.S. airports have at least one runway with an elevation within 12 feet of sea levels; see map) and, going forward, managing impacts associated with focus on stage 1, 2, and 3 GHG.


Possible changes in the federal caps on PFC levels.  Airport operators have long advocated for an increase in the passenger facility charge, a per-enplanement fee levied by most operators and dedicated to capital investment at the collecting airport. It has been set at a max of $4.50 since 2000. Congress is considering a bill to remove the cap but will require airport operators to return 100% of their allocated federal airport grant monies. However the airline industry opposes any increase under the belief it would negatively affect air travel. Any PFC increase would provide a boost to capital funding sources for large airports.

Impact of evolving ride-share technology and TNCs.  Airport management teams have so far effectively managed this risk to airport parking, rental car, and ground transportation revenue sources by instituting a variety of fees on transportation network companies or TNCs (e.g. Lyft and Uber). TNC fees that are too high or are raised too quickly by airport operators can risk reversal or reduction in such increases in response to widespread objection by users. TNCs are also affecting some short-term rental car rentals and slowing transaction growth at some consolidated rental car facilities, but with no material revenue or credit impacts to date. Growth in TNCs is requiring many airports to undertake roadway and curbside projects to address congestion issues and some airports have delayed or canceled parking garage expansions. The timing and evolution of driverless, electric vehicles in the still unprofitable TNCs' business models is still many years away, but it's clear airport access and congestion issues will rise along with long-term passenger forecasts and likely precipitate expensive infrastructure investments.

Chart 9


Toll road and bridge: positive outlook

We have maintained our positive outlook on the toll sector and anticipate increases in overall traffic levels (measured by the U.S. vehicle miles traveled (VMTs) that correlate to the economy) which along with metro region congestion will drive transaction and revenues on tolled alternatives. We believe credit quality could benefit from several ongoing trends: revenue growth greater than baseline U.S. GDP, expanded and improved tolling technology (allowing for easier toll increases and congestion pricing), better user data to reduce revenue leakage, supportive legal frameworks for capturing violation revenues and automatic inflation-adjusted toll increases. We also anticipate expanded express-lane tolled networks across different U.S. regions as measured in centerline miles with time-of-day pricing resulting in revenue growth. What we're watching in 2020 for toll road and bridge facilities include:

Toll road capital programs.  Many toll road operators--particularly those regional statewide tolling authorities--take on projects that might otherwise be under the purview of departments of transportations and funded from general fund revenues or financed with state general obligation bonds. To the extent new projects generate toll revenues in excess of capital and operating costs, the higher leverage does not affect credit quality. However, scope and mission creep is not uncommon in the toll sector, particularly as regional roadway infrastructure needs outstrip tax-funded resources. Additionally, many states are evaluating toll-financed projects to reconstruct portions of the interstate system; currently, unless it is being reconstructed or replaced, an existing toll-free federal-aid highway can only be tolled under a federal value pricing pilot program. But we expect states to continue to toll new infrastructure and to add tolls to currently untolled infrastructure.

Expansion of managed lanes.  In response to regional area congestion and the financial and operational success of single point-to-point managed lanes projects (variably priced vehicle lanes adjacent to toll-free general purpose lanes), the toll sector is likely to experience growth of connected networks of managed lanes (in Dallas, suburban Washington, D.C., Los Angeles, Atlanta, San Francisco Bay Area, portions of Florida's Turnpike), sometimes aided by conversion of underutilized high occupancy lanes. Though untested by an economic downturn, a properly leveraged managed lane network could add geographic and revenue diversity to existing toll networks possibly enhancing credit quality.

Continued conversion to AET and ORT.  Many toll operators are reducing or removing cash-collection systems (ramp and mainline toll booths) by implementing all electronic tolling (AET) with overhead gantries to read vehicle-mounted transponders with separate lanes for manual cash toll collection. Other operators are going full open road tolling (ORT) with no cash collection booths, relying on cameras to record license plates, a back office billing system, and enforcement mechanisms (see below) to maintain or improve revenues. Evolving technology and interoperability between different toll networks allows for more flexible toll setting, operational savings, improved safety and reduced emissions from idling traffic but also increase costs for information technology and post-transaction revenue collection. Some estimates show going cashless raises violations by 7% to 10% while increasing uncollectable revenues. To date, these conversions have been credit neutral with operational issues or revenue declines mitigated or favorably resolved over time. As this trend scales up, how tolling agencies implement and manage the impacts of the conversion will be telling.

Anti-toll/anti-fee sentiment and state or regional government limits on toll operator autonomy.  The move toward cashless toll collection and growing reliance on enforcement comes with an increased reliance on state departments of motor vehicle registration (to withhold registration for unpaid tolls), supportive judicial and legal framework, political bodies, system interoperability with regional tolling operators, and reciprocity agreements with other states. We have seen legislatures place limits on penalties, late charges, and other fees levied by tolling authorities that, on top of the actual toll not collected, have been a lucrative source of additional revenue. As tolling expands, the anti-toll sentiment is likely to also grow along with legal challenges at the state level (e.g. are tolls taxes?) and is worth watching. And while we consider the dispute over control of the Miami-Dade Expressway to reflect state and local politics, the fallout could complicate the credit picture in Florida. More broadly, this type of dispute could demonstrate inevitable conflicts arising as the reach of tolling authorities, their projects, and business model expands and becomes more transparent.

Ports: negative outlook

We have modified our port sector outlook to negative from stable due to the improved but still unsettled U.S.-China trade policies and tariffs along with other potential longer-term shifts in trading patterns and supply chains that could change the port landscape. Present U.S.-China tensions leads the risks to S&P Global Economics' baseline economic forecast and we continue to believe that the conflict is less about trade, and more about technology and managing a rising power. While a so-called phase one of a tariff deal is due to be signed on Jan. 15 and may provide some comfort, this preliminary step mainly involves a steep increase in Chinese purchases of American farm goods, essentially taking us back to square one of the trade war.

In the crossfire so far have been those U.S. ports that have varying degrees of exposure to container trade with China, many of which actually benefited from increased import/export volumes in 2018 as American businesses and consumers front-loaded purchases and stocked inventories in advance of the tariffs. For example, the combined Ports of Long Beach and Los Angeles have a very high exposure to trade with China. Measured by value, China accounts for 54% of total waterborne imports, 57% of containerized imports, and 17% of non-containerized imports--in fact, 67% of all twenty-foot equivalent units (TEUs) imports are from China. The Port of Long Beach first saw a meaningful same-month volume decline beginning in February 2019 and calendar 2019 was likely down 5%-6% from 2018. The Port of Los Angeles experienced its first large decline in October 2019 (down 19% from October 2018's inflated level) and will also likely end calendar 2019 with year-over-year declines.

In general, major U.S. container ports that we rate benefit from solid business positions serving regional markets, an operational model that transfers the risks of cyclicality in container flows to terminal operators, and strong management practices that buffer credit quality in times of business cycles and transitory trade disputes. However, we believe uncertain resolution of U.S.–China trade policy and tariffs disputes and shifting trade patterns could negatively affect demand and reduce revenue performance in the port sector. What we're watching in 2020 for ports include:

Growth in port capital programs.  The competitive nature of the port sector (larger ports vying for imports and to accommodate large vessels) has a tendency to result in lumpy increases in U.S. port capacity and debt in advance of actual volumes. Credit impacts for port operators have historically been neutral as trade has increased over time and most projects are constructed for existing shipping line tenants under agreements that provide for minimum annual guarantee revenues sufficient to support debt. However, if imports continue their shift away from the West Coast and other port operators look to construct additional facilities in anticipation of higher volumes, credit risks would increase in an economic downturn.

Shifts in trade flows to and among U.S. ports.  Outside of the trade tensions, some shipping container flows have shifted to East Coast ports from the West Coast, attributable to the widened Panama Canal and potential for higher costs as West Coast ports continue to implement environmental and traffic mitigation fees. Additionally, long-term shifts in supply chains from a prolonged trade conflict with China could result in some ports winning or losing container traffic. This is likely a longer term issue to monitor.

Growing influence of ESG factors.  By their very nature, ports are on the front lines of many climate risks including sea level rise. While they are designed to withstand extreme weather events, they are not invulnerable to them. We believe the growing frequency and magnitude of these events will continue to shift more attention to adaptation planning and sustainability reporting. Additionally, many ports--Los Angeles and Long Beach in particular--have made significant investments to reduce the GHGemissions of their shipping tenants which we expect will continue across the industry in response to state and local regulations and broader environmental concerns.

Transit: negative outlook

The mass transit sector remains on negative outlook due to the continued weak ridership trends at many large systems resulting in stagnant fare box revenues and combined with capital funding and operating pressures that could weigh on financial profiles of issuers. Public transit ridership has declined steadily since 2014 and current data suggest the slide may have flattened out in 2019 with ongoing weakness in the light-rail and bus modes. Reasons for the softness include eroded service levels from congestion (especially for bus-only systems), increased telecommuting and online shopping, low gas prices, increased car ownership by some segments of the population that may have previously used transit and competition with TNCs, which has eroded public transit's competitive advantages and called into question by some observers new, large scale public transportation projects. In some cases, poor quality of service and large-scale capital projects causing service disruptions or reductions are also the culprit.

Ratings continued to reflect transit operators' monopolistic business positions, diversity of revenue sources such as sales taxes and property taxes, and often very strong levels of debt service coverage. However, combined with growing maintenance, expansion and operating costs and demands on the variety of general taxes and federal sources of revenue, some operators could see financial pressures. What we're watching in 2020 for transit include:

Risks from disruptive technology and the TNC effect.  Uber and Lyft have altered the competitive landscape for infrastructure needs offered by public sector providers and while widespread adoption of autonomous vehicles may be decades away the inevitable movement toward this technology and its impact on surface transportation could affect long-term capital investment. To stem ridership losses, transit operators are improving fare-collection systems, pushing for dedicated bus-only lanes, priority traffic signaling, redesigning routes and, in some cities, teaming up with the TNCs to provide riders the option of last mile connections.

Increasing transit capital budgets.  Ridership declines often compound other problems transit operators face, including funding large capital programs and competing for resources to fund operations, because all systems require support from dedicated taxes and general government transfers. While monopoly positions provide support to the ratings in the sector, compounding operating pressures, erosion in fare box revenues (even if they sometimes a small share of total revenues) and potentially waning public support for investment could stress ratings for some transit operators if revenues don't keep pace to support growing debt service.

New revenue sources to support transit.  While declining ridership is fueling a debate over the value of large-scale investment in heavy and light rail, many voter-backed, locally derived revenues were approved for transit purposes, including tax increases in San Francisco (a 3.5% tax on TNCs rides) and Houston (a portion of a 1% sales tax). Alternatively, voters in Colorado and Washington rejected statewide funding of transportation, including placing a cap on vehicle registration fees that in part funded transit capital investment. All eyes will be on New York City and its plan to implement a congestion charge on cars and trucks entering Manhattan's central business district below 60th Street with proceeds mostly directed to mass transit capital spending. New taxes in some jurisdictions derived from the value transit brings to adjacent or nearby property could get traction in 2020. However, operation and maintenance now accounts for 60.5% of all U.S. public infrastructure spending and large legacy systems like New York's Metropolitan Transportation Authority epitomizes the need for sustainable revenue sources to support ongoing maintenance of these systems to preserve key credit metrics to maintain credit quality.

Growing influence of ESG factors.  Transit operators are adopting adaptation plans and enhancing the resiliency of their exposed infrastructure to extreme weather events while transitioning bus fleets to low emission or electric vehicles. Demographic and cultural changes along with maintaining affordability to dependent populations are social issues central to the very function and purpose of transit operators and we anticipate they will increasingly be a focus of the public transportation funding dialogue.

Federal Grant Anticipation-Secured Bonds: stable outlook

The outlook for bonds backed by federal payments for state highway programs and large regional transit providers--commonly known as GARVEE bonds--s stable. While the impending September 2020 expiration of the current surface transportation funding law (FAST Act) introduces an element of risk, history has demonstrated that Congress will pass extensions (it has done so 27 times since 1991) until a new multiyear authorization agreement is reached. Our grant-secured obligations ratings for roadway and transit projects are based on the assumption that the Highway Trust Fund (HTF) will remain solvent, from either federal gas and transportation taxes or transfers from the U.S. Treasury, and that federal reimbursements are received as anticipated (see "Sector Review: Despite The Risk Of Shutdowns, GARVEE Bonds Continue Benefiting From Government Support," Feb. 28, 2019). While a majority of states have passed higher motor fuel taxes, this funding source is not large enough to replace federal transportation grants (see "As U.S. State Debt Levels Moderate, Transportation Funding Takes Center Stage," June 11, 2019). Indeed, transportation investment enjoys broad support; the Eno Foundation reported in November 2019 that voters across 20 states decided over 100 of these measures, approving over $7 billion in new funding in addition to the $1 billion approved in elections earlier in the year. What we're watching in 2020 related to federal transportation grants include:

An extension to the current FAST Act.  As noted, we will be looking to for an extension to the FAST Act if a new surface transportation funding authorization is not passed into law.

Progress toward a new transportation reauthorization law.  In July 2019, the Senate Environment and Public Works Committee approved a five-year surface transportation reauthorization bill called America's Transportation Infrastructure Act, authorizing a $287 billion or 27% increase over FAST Act's levels. This is only a starting point as the Senate Finance Committee and relevant House committees have yet to meaningfully tackle the issue. But we will be watching for changes in total authorization levels or programmatic changes that could affect surface transportation funding.

Delays in projects due to FAST Act reauthorization delays.  While we expect decisions regarding a new federal transportation funding bill and any possible deliberations about reauthorization to stretch close to the expiration date, states may delay projects due to uncertainty about funding.

Alternative revenue sources for the HTF.   The source of federal funding is the HTF--which relies on a federal fuel tax of 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel fuel, levels that have not risen since 1993--and is forecast to be depleted in 2022. Oregon and California have undertaken pilot programs to charge vehicle owners based VMTs as an alternative to the more efficient (to collect) state gas tax. What form and method a long-term replacement for the federal gas tax takes will be something to watch for in 2020 as the debate intensifies.

Opportunities for increased public-private partnerships (P3s).  While we anticipate slow growth in public-private partnerships (P3s) in the transportation sectors more broadly, issuers in the surface transportation sector could benefit from different project delivery methods and shift funding risk and debt off their balance sheets. A replacement to the FAST Act could remove or increase the congressionally imposed $15 billion private activity bond cap and made applicable to P3s project sponsors.

Related Research

  • U.S. Transportation Infrastructure Sector Update And Medians: U.S. Large-Hub Airports, Dec. 23, 2019
  • Fewer Signs Of Scrooge-ing Up U.S. Growth In The New Year, Dec. 4, 2019
  • Deep-Seated U.S.-China Tensions Could Threaten Global Sovereign Ratings, Nov. 12, 2019
  • Credit FAQ: Final Update To S&P Global Ratings' U.S. And Canadian Not-For-Profit Transportation Infrastructure Enterprises Criteria Implementation, July 24, 2019
  • When The Cycle Turns: U.S. Airport Balance Sheets--And Exposures--Increase With Traffic, July 9, 2019
  • As U.S. State Debt Levels Moderate, Transportation Funding Takes Center Stage," June 11, 2019
  • When U.S. Public Finance Ratings Change, ESG Factors Are Often The Reason," March 28, 2019
  • Sector Review: Despite The Risk Of Shutdowns, GARVEE Bonds Continue Benefiting From Government Support," Feb. 28, 2019

This report does not constitute a rating action.

Primary Credit Analysts:Kurt E Forsgren, Boston (1) 617-530-8308;
Joseph J Pezzimenti, New York (1) 212-438-2038;
Todd R Spence, Farmers Branch (1) 214-871-1424;
Secondary Contacts:Kevin R Archer, San Francisco + 1 (415) 371 5031;
Kenneth P Biddison, Centennial + 1 (303) 721 4321;
Paul J Dyson, San Francisco (1) 415-371-5079;
Scott Shad, Centennial (1) 303-721-4941;
Kayla Smith, Centennial + 1 (303) 721 4450;
Taylor Hahn, Centennial;
Malik Jarvis, New York + 1 (212) 438 9024;

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