Fitch Affirms Dallas Area Rapid Transit's Sr. Lien Sales Tax Revs at 'AA-'; Outlook Stable.
The 'AA-' rating reflects the economic strength and diversity of the area served by DART, the gross pledge of sales tax revenues which comprise about 60% of total revenues and contributions, and the vulnerability of sales tax revenue to economic cycles. The rating also addresses the ongoing rapid escalation in debt issuance as a result of DART's $3.4 billion 5-year capital plan. The rating also reflects strong bondholder protections in the form of a 2.0 times (x) additional bonds test on senior lien debt and DART's member unit withdrawal provisions, which require the continued collection of sales and use taxes until an amount equal to that unit's financial obligation to DART, present and future, has been collected and paid to DART. In Fitch's view the scalability of DART's capital program to allow construction of light rail infrastructure in a segmented approach provides adequate flexibility for build-out plans to correspond with anticipated resources at the current rating level. Rating stability will largely be driven by management's ability to balance the public's demand for expanded transit service with construction and operating expense growth and the state of good repair efforts in the context of a sales tax revenue stream that is subject to fluctuation. In addition, as DART's debt levels climb, the ability of the pledged sales tax revenues to generate consistent, healthy growth over the current 20-year planning horizon will be an important credit factor, especially given the anticipated 55% increase in debt service between 2025 and 2028.
To help fund its more than $10 billion 20-year capital plan, DART expects to issue an additional $1.4 billion in senior lien debt over the next decade. The current plan estimates that gross debt service coverage will drop from an estimated 3.19x for fiscal 2009 to a low of about 2.19x by 2013 but will increase to 2.55x by fiscal 2019 and 2.28x at the culmination of the 20-year financial plan. The coverage levels through 2019 are a result of increases in sales tax revenues of between 5.5%-7.3%, compared to the five-year average annual growth rate of 5.8%. Coverage of total obligations, including pay-as-you-go capital expenses is projected to dip slightly below 1.0x from fiscal 2010 to fiscal 2013, reflecting a drawdown in cash balances during this phase of LRT construction. The plan also assumes that DART maintains solid cash balances in the later years of the plan, with a minimum of approximately $157 million in net available cash in fiscal 2019.
As with many other areas of the country, DART's service area has been negatively impacted by the national economic downturn that began in 2007. Sales tax revenues, which had shown steady growth from fiscal 2004-2008, are projected to register a roughly 7.5% decline in fiscal 2009. Revenues had increased 6.2% in fiscal 2008 and had registered an average annual growth rate of 5.8% for the past five fiscal years. DART had originally forecasted sales tax revenue growth of 3.6% for fiscal 2009. In addition, DART had implemented its last fare increase of approximately 17% in 2007 ($0.71 per ride) and was expecting to implement fare increases every five years, beginning in fiscal 2013. However, to compensate for lower sales tax revenues, the DART board in May 2009 approved a fare increase that takes effect in fall 2009. Among other adjustments, the change increases the local single ride fare for bus and light rail from $1.50 to $1.75.
Not surprisingly, employment in the Dallas-Fort Worth metropolitan statistical area (MSA) has dipped in recent months due to the recession, but the rate of decline is slower than in many other parts of the U.S. June 2009 employment was down just over 1% from the same period last year, compared to a 4% decline for the U.S. as a whole. At 8.2%, the June 2009 unemployment rate for the MSA was up sharply from 5.1% last year but still trailed the U.S. average for the month (9.7%).
DART is a subregional transportation authority with a mandate to provide public and general transportation services to 13 municipalities pursuant to the passage of a referendum on Aug. 13, 1983. A 1% sales tax is imposed on certain retail sales within the territories of the participating municipalities which include Dallas, Irving, Plano, Carrollton, Garland, Richardson, University Park, Highland Park, Farmers Branch, Addison, Rowlett, Glenn Heights, and Cockrell Hill. DART's mass transit services include regular route buses, light rail, commuter rail, paratransit for the mobility impaired, HOV lanes, and rideshare matching. DART is governed by a 15-member board. Appointments to the board are made by municipalities based on the ratio of their population to that of the service area. Municipalities with fractions of an appointment may join together and make a full appointment. No municipality may appoint more than 65% of the board. Board members serve staggered two-year terms.
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|Date:||Aug 7, 2009|
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