Delay in Passing Transport Funding Bill May Spark Credit-Rating Crisis, S&P Says

Standard & Poor’s is warning that Congress’ failure to pass a long-term transportation funding bill could provoke a credit-rating crisis similar to the one last summer when Congress balked at raising the nation’s debt ceiling.

Transportation infrastructure is the “backbone” of the U.S. economy, but with Congress’ focus on deficit reduction, funding for transportation projects “may be lower and erratic,” S&P, a credit-rating service, said in its April 2 report.

“As construction season begins in the northern half of the country, this continuing uncertainty in funding could force states to delay projects rather than risk funding changes or political gridlock come July,” S&P said in the report.

Last summer, S&P downgraded the U.S. credit rating to AA+ from AAA after the debt ceiling standoff between Congress and the White House was resolved.

S&P said at the time the “political brinksmanship” highlighted what it saw “as America’s governance and policymaking becoming less stable, less effective and less predictable than what we previously believed.”

However, the two other largest credit-rating services, Moody’s Investor Service and Fitch Ratings, did not lower their AAA ratings for the United Sates.

To prevent a shutdown of the transportation system, the House and Senate agreed on March 29 to pass another temporary funding extension, the ninth extension since September 2009, when the existing long-term reauthorization law expired. The latest extension expires June 30.

During March, the Senate approved a two-year transportation funding plan, but the House Republican leadership refused to allow a vote on the Senate bill.

Transportation Committee Chairman John Mica (R-Fla.) introduced a five-year transportation reauthorization bill earlier this year in the House, but it was pulled from the floor when Republicans failed to secure enough support for the measure.

The S&P report said that the concern over transportation funding was heightened in August when the Federal Aviation Administration was forced to shut down because the Senate and the House of Representatives could not agree on a short-term funding extension.

“Currently, the surface transportation bill remains mired in even greater uncertainty,” S&P said. “Holdups in funding reauthorizations and/or significant cuts in infrastructure programs are delaying some projects and forcing others to be scaled back,” S&P said.

Moreover, a delay in approving a transportation bill could affect bond programs, S&P said. Among these programs are GARVEE bonds, Grant Anticipation Revenue Vehicle bonds initiated in the National Highway System Designation Act of 1995.

Moody’s declined to comment on the risk to the economy posed by Congress’ failure to pass a long-term transportation bill.

However, the S&P report was the subject of an April 10 letter to House Speaker John Boehner (R-Ohio) from Sens. Barbara Boxer (D-Calif.), chairwoman of the Environment and Public Works Committee, and Tim Johnson (D-S.D.), chairman of the Committee on Banking, Housing and Urban Affairs.

“The warning by Standard & Poor’s underscores the serious risk posed by inaction and extensions to the nation’s transportation sector, and to the millions of jobs that rely upon it,” the Democratic senators said in the letter.

“Although the unemployment rate ticked down to 8.2% in March, the unemployment rate for construction workers stands at 17.2%, still more than double the national average,” the senators wrote in the letter urging Boehner to have the House pass the Senate’s version of the reauthorization bill.