As discussed, Road Fund resources primarily finance capital expenditures for the construction and maintenance of a state’s highway and road system.
Therefore, it is likely (as suggested by the conventional wisdom of public finance) that debt service payments would constitute a higher percent of that state’s Road Fund expenditures than they would for that state’s General Fund. This difference would be expected as General Fund expenditures are primarily made for operating programs and activities. Furthermore, the legal structure of the road fund in most states provides more ‘‘political’’
protection.
Table 12.5 Road Fund Debt Service as a Percent of Fund Revenue from 1980–2000
Number of States Mean Min. Max.
1980 11 11.63 0.00 27.94
1981 13 12.37 0.00 27.37
1982 14 13.14 1.35 49.98
1983 15 13.78 3.12 36.58
1984 18 10.55 1.32 28.69
1985 19 11.85 1.43 44.54
1986 20 11.18 1.16 33.08
1987 20 10.39 0.53 33.17
1988 21 11.52 1.77 33.37
1989 21 11.65 1.38 39.05
1990 23 9.50 0.07 22.03
1991 24 9.12 0.22 27.69
1992 24 8.49 0.28 23.25
1993 24 9.32 0.58 35.30
1994 26 8.20 0.46 35.25
1995 26 9.67 0.00 34.90
1996 27 10.26 0.00 52.99
1997 27 10.21 0.00 54.05
1998 27 9.45 0.00 54.22
1999 28 8.93 0.00 37.35
2000 28 8.66 0.00 38.03
Note: 40 states responded to the Road Fund survey. However, the number of states providing expenditure data varied during the 20-year period as indicated in column 1 of this table. Source: Calculated from data provided by respondents to University of Kentucky Transportation Center 2003 Survey.
State Debt Capacity and Debt Limits: Theory and Practice g 331
The survey results indicate a pattern of debt service to total expenditure ratios for the Road and General Funds that is consistent with these assumptions (see Figure 12.2).
As indicated, the General Fund debt service to total revenue ratios were reported to be in the 3 to 4 percent range and the Road Fund debt service to total revenue ratios varied from 7 to 11 percent for the same period. While the Road Fund ratios were higher, they also displayed greater variability for the period. Furthermore, the survey results indicate that state debt financing policies, as revealed by the commitment of Road Fund revenues for debt service varies among the states. In Figure 12.3, the 23 responding states’ mean debt service to Road Fund revenue ratios were graphed for the low, middle and high quantiles. The mean ratios of debt service to total Road Fund revenue for the period 1990 to 2000 varied from the 1.6 to 3.2 percent range for the lowest third of the reporting states to approximately 5.8 to 8.1 percent range for the mid-level states.
Figure 12.3 State Road Fund debt service as a percent of Road Fund revenues by sub-group: 1990–2000. Source: Calculated from University of Kentucky Transportation Center Survey Data.
Figure 12.2 Comparison of debt service as a percent of Road and General Fund revenues: 1980–2000. Source: Calculated from 2003 University of Kentucky Transportation Center Survey Data.
The highest third of the survey states indicated mean debt service to Road Fund revenue ratios in, approximately, the 16.7 to 21.6 percent range.
An additional comparison of Road Fund and General Fund debt service to total revenue ratios was undertaken for the states, indicating that they had debt limits relative to those states that indicated no debt limits for the 1990 to 2000 period. The results provide an interesting and unex- pected result. As shown in Figure 12.4, the states with debt limits reported higher debt service to total Road Fund revenues for the 10-year period.
The reason for the ratio divergence is not immediately obvious.
The pattern of higher debt service to total revenue ratios for debt limit states, observed for the Road Fund, was also observed for the General Fund as displayed in Figure 12.5. The debt limit state ratios tended to vary from 2 to 3 percent while the non-debt limit states had ratios in the 4 to 5 percent range. Again, the reason or reasons for this pattern are not obvious. However, the establishment and use of debt limits by the higher ratio states might reflect concern about the potential bond rating impact that could occur if they did not effectively indicate to the bond rating agencies and others that they were managing their debt position by establishing debt limits or other measures. Alternatively, it might indicate that the states that are more aggressively using debt financing are also devoting more attention to the management of their debt issuance and debt outstanding.
Conversely, the lower ratio states might observe that their debt posi- tion, relative to their peers, is low and, therefore, the establishment of
Figure 12.4 Comparison of debt service as a percent of Road Fund revenues for states with and without debt limits: 1990–2000. Source: Calculated from 2003 University of Kentucky Transportation Center survey data. For this period, eight states with debt limits responded to the survey while fifteen states without debt limits responded.
State Debt Capacity and Debt Limits: Theory and Practice g 333
debt limit policies is not as critical for them as it is for the states that are using debt financing in a more aggressive manner.