U.S. highway user tax bonds supported by favorable gas tax trends despite longer-term funding shifts

S&P Global Ratings expects stable U.S. highway user tax credit quality, according to "U.S. Highway User Tax Bond Report Card: Favorable Gas Tax Trends Provide Stability Despite Longer-Term Funding Shifts."

In our view, active management by states in raising tax rates and fees when necessary, and efforts to diversify the mix of pledged revenue sources beyond fuel taxes, will support very strong debt service coverage for revenue bonds.

Our analysis of the most recent net pledged revenue data indicates relatively strong growth over the past three years, including only positive rating changes since January 2024, primarily driven by linkage to states' general creditworthiness.

As drivers slowly transition to electric, plug-in hybrid, and hybrid vehicles, many states have increased transportation-related fees, such as motor vehicle registration fees or fees on electric vehicles, to replace the corresponding motor fuel tax revenue loss.

A few states have also implemented (Hawaii) or are considering (Oregon) the adoption of road usage charges as an alternative funding option for state transportation infrastructure needs.

If motor fuel tax revenue losses become significant, we believe states will be motivated to consider transportation-related revenue alternatives, but to date these industry shifts have not affected our ratings.

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