Downgrading GARVEE

Shortly before the President’s recent speech on transportation funding, the Moody’s rating agency announced that it was downgrading the GARVEE bond programs at Georgia’s State Road and Tollway Authority and sixteen other transportation agencies around the country.  GARVEE (Grant Anticipation Revenue Vehicles) bonds are debt instruments backed by expected future revenues, primarily federal transportation funds. These bonds allow projects to be built today and their bonds repaid with federal transportation funds received over the years to come.

Moody’s downgraded SRTA’s GARVEE bond rating from Aa3 to A1, explaining that:

The downgrades reflect changes in federal liquidity management which increase the risk of interruption of timely payments of federal transportation aid due to states and transit entities. These include the government’s recurring episodes of threatened debt ceiling expirations, government  shutdowns, and the threat of depletion of the highway trust fund  balance later this year due to the fund’s persistent structural imbalance.

The downgrades affect GARVEE bonds that are “standalone” (those  without additional pledged revenues securing the bonds) and lack traditional structural protections against liquidity risk, such as cash-funded  debt service reserve funds, or legal covenants to set aside debt service payments well in advance of payment dates. No action has been taken on GARVEE bonds with pledged revenues in addition to the federal revenues or standalone GARVEE bonds with legal structural protections against liquidity risk.

This downgrade is primarily a function of the uncertainty around future federal transportation funding.  But SRTA was identified because its GARVEE bonds lack protections to address interruptions in the federal funding stream, such as “funded debt service reserve funds or legal covenants to set aside debt service payments well in advance of payment dates.”

GARVEE bonds will remain a tool in Georgia’s funding toolkit, but in light of the on-going uncertainty in Washington we should consider how much to rely on bonds backed by future federal transportation funds.  These bonds assume that federal transportation funding will continue unabated, an expectation that seems increasingly uncertain. As investment advisors like to say, past performance is not an indicator of future results.


The Least Bang for the Buck

The Atlanta Regional Commission has released a proposed list of projects to be funded with Congestion Mitigation and Air Quality (CMAQ) funds over the coming years, and the recommendation is poised to put the most money behind one of the least effective projects.

The CMAQ program was created to help reduce transportation-related air pollution by “realign[ing] the focus of transportation planning toward a more inclusive, environmentally sensitive, and multimodal approach to addressing transportation problems.”  CMAQ funds are allocated by the federal government to areas with air quality problems and can only be used for projects that improve air quality or congestion.

A decade ago, metro Atlanta struggled mightily to reduce its air pollution from vehicles and comply with the Clean Air Act’s air quality standards. The region’s air quality has improved since that time, but the standard for ozone pollution was reduced in 2008 and is likely to be reduced again in the near future.  The prospect of these tighter standards means we need to make sound air quality decisions now, and ARC’s recommendation misses the mark.

ARC’s recommendation suggests spending $44 million dollars to help fund the extension of the HOT lanes on I-85.  This grant would be 39% of all available CMAQ funds and several times larger than any other project on the list. (The project ID number used for the HOT lane project is GDOT-02.)

Funding Amount

Given this heavy investment in a single project, you might assume that the HOT lane project is particularly effective at improving the region’s air quality.  You’d be wrong.  ARC’s modeling reveals the HOT lane project to be among the least effective of the recommended projects at reducing air pollution. The graph below, for example, compares the recommended projects on their NOx reduction per dollar. (NOx is a precursor to ozone pollution.)

NOx Reduction Per Dollar

The HOT lane project would have among the smallest air pollution reduction per dollar of any recommended project. (Can’t find GDOT-02?  It is the vanishingly small bar on the far right of the graph.). The HOT lane project is similarly ineffective at reducing particulate matter and greenhouse gases.  And lest you think that the project is justified based on its congestion reduction, the ARC recommendation was unable to model the HOT lane’s congestion benefits.

Granting such a large percentage of CMAQ funds to one of the worst performing projects is particularly perplexing because better-performing projects were considered and excluded from the recommendation.  Sixteen intersection operations, signal timing, and transit projects were considered by ARC but not recommended for funding.  Shifting a portion of the HOT lane funds to these projects would provide greater air quality benefits than the HOT lane project.

Total Pollution

And because the alternate projects are less expensive than the HOT lanes, they are an even better deal on a per-dollar basis.

NAAQS Reduction Comparison

ARC has the difficult task of sorting through the region’s long list of transportation needs and deciding which projects will be funded.  This decision requires the agency to balance different competing objectives: providing transportation options, improving safety, reducing air pollution, alleviating congestion, etc. Managed lanes may be a focus of the region’s transportation plans, but that doesn’t justify so large a CMAQ investment in a project that does so little for air quality.

CMAQ was created to help regions like metro Atlanta address air pollution from vehicles.  Repurposing these funds to meet other goals is shortsighted, and may be a decision we come to regret when facing tighter air quality standards in the future.

SELC’s complete comment letter on the CMAQ funding recommendation can be found here.

(Update: In a point/counterpoint on the AJC, the Reason Foundation praises the use of  CMAQ funds for the HOT lane project as “worthwhile” but fails to address the project’s minimal air quality improvement.)


From the Classroom to the Real World

U.S. PIRG released a new report on efforts by colleges and universities around the country to reduce the driving of their students. The benefits of such programs are multifold: they are popular with students, they reduce the need for schools to pay for more parking and they help ensure reliable commutes for students and faculty alike.  The report details a suite of strategies institutions of higher learning have used to reduce driving:

  • Free or discounted access to transit services. Universities often provide students unlimited access to local transit services with a Universal Transit Pass, offer their own free shuttle services, or even support the local transit agency in providing fare-free service.

  • Programs to promote bicycle use. Many colleges subsidize membership in existing bicycle sharing schemes in the community and some create their own sharing programs on campus. Many also provide on-campus resources like free or at-cost bike repairs and ample bike racks.

  • Building new biking and walking paths. Universities invest in infrastructure like bike lanes and pedestrian underpasses under traffic-heavy streets, making it safer and more convenient to leave the car at home.

  • Ridesharing initiatives. Colleges encourage carpooling with incentive programs and through partnerships with online ridesharing services that connect drivers with others who would like a ride in their car. Some provide a guaranteed ride home, whereby universities pick up the tab for a taxi should an emergency require the student or employee to leave campus suddenly, making carpooling and other forms of ridesharing more attractive.

  • Carsharing programs. Carsharing allows users to access cars located in their vicinity without having to bear the burden of owning one. Universities offer discounted memberships in carsharing programs, allowing students to make the most of transportation alternatives while maintaining access to a car when necessary.

  • Distance learning and online resources. Some colleges are beginning to conceive of distance learning – taking classes with at least some online component that limits the need for students to physically travel to campus – as part of their parking and transportation strategy.

Many of metro Atlanta’s colleges and universities are already using programs such as these.  Emory, Georgia Tech and Georgia State operate their own shuttle services.  MARTA’s university pass program covers over a dozen schools.  Zipcar can be found at Agnes Scott, Clark Atlanta and other campuses.  But given the enormous concentration of colleges and universities in the region and the omnipresent transportation challenges, metro Atlanta should be on the cutting edge for such driving reduction programs.

Two of the report’s policy proposals are particularly timely. First, given its proximity to campus and student housing, working out low or no-cost travel for Georgia State students on the Downtown Streetcar is a no-brainer.  Second, the City of Atlanta’s bikeshare program will provide an important new transportation option for Georgia State, Georgia Tech and Atlanta University Center. If the program is extended to cover Decatur, as the feasibility study envisioned, Emory, Agnes Scott and others will benefit as well.

Atlanta’s colleges and universities can’t be content to study driving reduction strategies, they need to lead the way in implementing them.