Local Taxes and Investors Fund Transportation During COVID-19

State and municipal transportation agencies are not waiting on federal aid before securing other sources of financing.

[5 minute read]

As Capitol Hill continues to haggle over the final form of federal aid in the next stimulus bill – state and municipal transportation agencies are taking matters into their own hands to meet the significant budget shortfalls they’re potentially bracing for 2020 and 2021.


State DOTs have prepared budget revisions or draft requests that reflect cuts to capital investment plans where appropriate. Municipal and transit agencies facing sharper revenue declines have implemented furloughs or voluntary buyouts to more aggressively cut costs.

While politically and financially difficult to pass everywhere during a public health crisis, some regions are raising local taxes or putting tax measures up for vote on the November ballot to plug revenue shortfalls.  


In San Francisco, city supervisors just passed a $40 million sales tax measure to help shore up the battered regional commuter train Caltrans’ finances, where ridership dropped 97% as a result of COVID-19.

In a bolder move, the Portland Metro Council unanimously voted in July to refer a historic $5 billion tax measure to the November ballot that would make significant investments in regional transportation infrastructure for roads and transit routes.    


Some agencies are finding that voters may be not be the only ones willing to invest in transportation. One unexpected bright spot lately in government financing has been tapping the capital markets at relatively affordable rates to sell transportation bonds.

Investment managers responsible for leading taxable municipal bond sales have reported strong demand from investors for the foreseeable future. Transportation bonds still present a value buy for many yield-starved investors, compared to other more expensive government debt with higher risk profile.

Strong investor appetite thus far has ensured that newly issued transportation debt from state or local agencies are purchased quickly. The broader market rally driven by the enormous financial support from the Federal Reserve since March has benefited government-backed bonds as well– providing a much-needed source of financing for transportation and transit agencies.

In the next several weeks, more than $14 billion in municipal bonds are expected to be sold. These include the Texas Transportation Commissions’s ~$1 billion taxable general obligation bonds, the Michigan Department of Transportation’s $3.5 billion bond for road repairs, and Alaska’s $88.9 million bond for highway and rail line projects.

Some state legislatures see not only the need to support transportation infrastructure, but also the job creation benefit of transportation investments during an economic recovery. The Massachusetts Senate recently approved a $17 billion transportation bond bill to invest in major infrastructure projects including construction, regional initiatives, traffic congestion and transportation network company data sharing. Connecticut approved $650 million in state borrowing for transportation improvements among other aid initiatives.

While broad-based investor enthusiasm continues for the foreseeable future, state and local transportation agencies vested with borrowing authorities should quickly take advantage of low borrowing rates by selling new bonds. As second waves of COVID-19 potentially threaten nascent economic re-opening in certain regions, it is prudent for agencies to secure capital while it is abundantly available to future-proof against the uncertainties of fighting COVID-19, or fickle investor sentiment.

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