Contractors on large Department of Transportation (DOT) projects could face credit complications in the foreseeable future in connection to minimal state revenue growth and federal funding, Fitch Ratings reported on April 13.
State-level funding was often provided for such projects but
has declined over the past few years, leaving contractors to seek other sources.
One example is bridge financing, which Fitch said allows contractors to enter
into low-cost contracts that they then increase by order changes or dispute
resolutions. Although these excess costs might get repaid, contractors’ credit
is affected because of the ramifications on their “near-term liquidity and
“The National Association of State Budget Officers reported
that 22 states made midyear budget cuts in fiscal 2017,” Fitch said, “and
midyear budget reports and executive budget proposals released to date indicate
some will report deficits for current and upcoming fiscal years.”
Fitch also noted how the U.S. administration’s
infrastructure proposal relies heavily on state budgets; therefore, federal
funding probably won’t come to pass. The majority of the plan revolves around
roughly $200 billion in federal funding in the next decade, but it’s
specifically geared toward transportation programs that are underway.
“States and local governments are asked to provide up to an
80% match for competitive grants and loans for $120 billion of the $200 billion
in total funding,” Fitch added.
-Andrew Michaels, editorial associate