OREANDA-NEWS. Fitch Ratings has affirmed the ratings for the following standalone grant anticipation revenue vehicle (GARVEE) bonds:

--Alaska Railroad Corp. at 'BBB';

--Chicago Transit Authority at 'BBB';

--Georgia State Road & Tollway Authority at 'A+';

--Idaho Housing and Finance Association at 'A+';

--Kentucky Asset Liability Commission at 'A+';

--Maine Municipal Bond Bank at 'A+';

--Oklahoma Department of Transportation at 'A+';

--State of California at 'A+';

--State of Michigan at 'A+';

--State of North Carolina at 'A+';

--State of Ohio at 'A+'.

The Outlook on all bonds above is Stable.

RATING RATIONALE

Ratings for standalone GARVEE bonds are derived in large part from the relative strength of the federal transportation funding program. While there is a shortfall in the current revenue generating ability of the program when compared to projected outlays, there has traditionally been a short - to medium-term legislative solution to meet funding expectations. The program has proven to be an essential investment for the federal government with funding disseminated in a formulaic nature across all 50 states. The ratings further reflect the broad revenue pledge of all of the Dept. of Transportation (DOT)/Transit Agency's federal receipts and leverage covenants that help to mitigate the risk of diminished federal transportation receipts. In addition, the ratings incorporate the liquidity offered by the other resources available to DOT/Transit Agencies which provide financial cushion to the extent there is a delay in federal funding.

KEY RATING DRIVERS

Strength of the Federal Program: Midrange

Continued Dependence on General Fund Transfers: In Fitch's view, what was once a formula-driven program funded on a multiyear basis has now morphed into a program where future policy is less certain, and funding levels are less predictable. Although the recently passed Fixing America's Surface Transportation (FAST) Act establishes transportation funding through fiscal 2020, in part relying upon transfers, it did not address the long-term mismatch between revenues and expenditures. The essential nature of the investment in addition to the reliable formulaic distribution of funds underpins the ratings on GARVEE bonds backed by future federal receipts from the Highway Trust Fund (HTF).

Structural Features: Stronger (Highway GARVEEs)

Highway GARVEEs Maintain Significant Flexibility: The standalone GARVEE bonds in Fitch's portfolio benefit from a first lien on all legally available federal transportation funding. In the case of reimbursement GARVEE bonds, this is accomplished by a pledge of all legally available federal transportation funds set aside on a monthly basis. Alternatively, in the case of direct-pay GARVEEs the broad pledge is accomplished through a covenant to de-obligate and redirect federal funds. In addition, state highway GARVEE bonds benefit from leverage limitations of at least 3x which provides the ability to retain sufficient flexibility at the 'A+' level even with a decline in federal revenues.

Structural Features: Weaker (Transit GARVEEs)

Transit GARVEEs Limited by Leverage Tests Provisions: The Transit GARVEEs in Fitch's portfolio benefit from a broad pledge of federal transportation funding. However, in contrast to highway GARVEEs, the transit GARVEEs rated by Fitch have materially lower leverage limitations of 1.5x or below and would thus have much less flexibility to protect against declines in federal program revenues.

Resources of DOT and Transit Agency Provide Liquidity:

In the event of a funding shortfall or a delay in federal funding due to a lapse in authorization the financial resources of the DOT and Transit Agency can provide financial cushion to meet GARVEE payment obligations. Fitch's assessment of the resources available is derived from several factors including the DOT/Transit Agency's amount of working capital, size of their capital program, and their sources of funding. Assessments of this for credits in the portfolio range from stronger, midrange, to weaker; however, it is not the main driver of standalone GARVEE ratings.

Peers: Fitch's standalone highway GARVEE bonds, all of which are rated 'A+', tend to have strong additional leverage limitations of at least 3x current receipts to pay debt service. In contrast, standalone transit GARVEE bonds have materially lower leverage limitations of 1.5x, giving them less financial flexibility to protect against declines in federal program revenues, and are thus rated 'BBB'.

RATING SENSITIVITIES

Negative/Positive - A material change in Fitch's view of the strength of the federal program to weak or strong from midrange.

SUMMARY OF CREDIT

HTF's expenditures have been exceeding revenues over the past decade. The longer-term structural imbalance of the HTF was not addressed by the FAST Act passed in early December 2015. Recent legislation relies on approximately $78 billion in general fund and Federal Reserve transfers to keep the program afloat through federal fiscal year 2020. While the continued fund transfers have underscored the relative importance of transportation funding within the federal budget, they do not guarantee future commitments. Future funding levels beyond fiscal 2021 will be hard to predict; however, it is Fitch's view that significant changes are needed either on the expenditure side or on the revenue side, through either an increase in the gas tax or the identification of an alternative revenue source, to put the program on a sustainable trajectory. In addition, the increase in corporate average fuel economy standards (CAFE) approved in August 2012 is likely to adversely impact gas tax revenues which support the HTF going forward. In Fitch's view the more unsustainable the program becomes, the greater the possibility of policy changes that could have an adverse affect on bondholders.

Fitch has performed an analysis of the federal grant program that assumes the CBO projection for outlays, translating into a 2.1% compound annual growth rate (CAGR) in HTF spending. In addition, Fitch estimates a negative CAGR of 0.3% in HTF receipts through 2025 based on a fuel consumption forecast for passenger cars run by the Environmental Protection Agency (EPA) given revised CAFE standards. Under such a scenario, the annual gap between HTF spending and receipts could be on average $21 billion from 2021 - 2025, meaning that by 2021 nearly half of the funding for HTF outlays would need to come from the general fund.

Under the scenario above, the Federal Highway Administration (FHWA) would have to cut outlays to the states on average by 34% from fiscal 2021 through fiscal 2025 in order to match the receipts coming into the HTF. Because highway GARVEEs maintain such robust additional leveraging provisions, a haircut at this level in 2021 would still result in maximum annual debt service (MADS) coverage across the board in excess of 2x. However, the same reduction for transit GARVEEs would result in coverage levels in the mid-1x range, approaching the lower additional bonds test (ABT) covenants.

Assuming state DOTs and transit agencies fully leverage their GARVEE programs up to their ABT, debt service coverage ratios on standalone highway GARVEEs could drop to approximately 2x by 2025. Coverage ratios on standalone transit GARVEEs would fall to a much lower approximately 1x, thereby rendering the transit GARVEEs more susceptible to significant declines in federal funding.