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Fitch Reports on Public Transit's New Opportunities and Enduring Challenges

Posted on: Tuesday, 4 April 2006, 12:00 CDT

In a newly released report, Fitch Ratings states that strategies to expand public transit services and operate them more efficiently are increasingly being implemented throughout the U.S.

The report notes the demand for effective service is rising due to transit's broad public policy goals of providing a practical alternative to congested highway networks, creating access to employment opportunities and a broader work force base, facilitating economic development, and enhancing overall mobility. Additionally, the recent spike in gas prices has also contributed to increased demand as commuters seek an alternative to automobile travel.

'Although recent funding initiatives and ridership gains demonstrate increased support, the sector continues to face a financially constrained operating environment,' said Scott Trommer, Senior Director, Fitch Ratings. 'As more regions implement new systems and expand existing networks, there is increasing competition for federal transportation resources.'

The report notes that given longstanding public policy for transit to set fares and service levels to both provide a financial incentive for commuters to use transit and facilitate access for fixed and lower income individuals, dedicated tax revenues and grants are funding a growing amount of operating expenses not covered by fare revenues. In addition, rising pension and health benefit costs are weighing on transit agency operating budgets and have been key labor contract negotiating points. While higher fuel prices are contributing to ridership gains, the price spike is also affecting transit systems' operating budgets. At the same time, transit agencies are contending with higher project costs due to rising commodity prices and right-of-way expenses and some commuter rail operators may face additional cost pressures as Amtrak seeks a higher level of compensation for operating and support services it provides to these agencies.

Despite these challenges, Fitch expects credit quality in this sector to remain stable given the expected growing long-term demand for public transportation services, the gross lien on one or more dedicated tax sources that typically secure transit agency debt, and these systems' track record of carefully managing their financial operations. While transit agencies are expected to continue to pursue traditional financial management measures, some may seek alternative financing strategies featuring flexible repayment provisions that better accommodate periodic financial stresses than typical fixed amortization structures. In addition, Trommer notes that 'private sector participation in the delivery of some transit services could prove advantageous by facilitating service expansions within existing government tax revenues and subsidies.'

The full report 'Public Transit's New Opportunities and Enduring Challenges,' dated April 4, 2006, can be found on the Fitch Ratings web site at www.fitchratings.com under the 'U.S. Public Finance' tab and 'Special Reports'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Source: Business Wire

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