Florida Law Or­der­ing Toll Cuts Draws Ex­press­way Agency’s Ire

The Bond Buyer - - Front Page - By Shelly Sigo

A new law­suit says Florida state law­mak­ers im­paired a con­tract with bond­hold­ers when they passed laws or­der­ing a state-cre­ated road agency to re­duce its tolls.

The Mi­ami-Dade County Ex­press­way Author­ity said in a seven-count law­suit against the state that the laws will pre­vent it from ac­cess­ing the bond market.

The author­ity, also known as MDX, said the laws un­fairly tar­get it and are un­con­sti­tu­tional.

House Bill 1049 en­acted in 2017 and HB 141 passed ear­lier this year have al­ready cre­ated un­cer­tainty in the bond market, the MDX said in its com­plaint filed Thurs­day in the Leon County Cir­cuit Court.

“Bond coun­sel can no longer pro­vide an un­qual­i­fied opin­ion cer­ti­fy­ing to the fi­nan­cial mar­kets that MDX solely con­trols its fi­nances, ef­fec­tively end­ing MDX’s abil­ity to con­tinue to is­sue A-rated mu­nic­i­pal bonds to fi­nance con­struc­tion to im­prove and ex­pand the [ex­press­way] sys­tem,” the 266-page suit said.

The 2017 leg­is­la­tion amended the statute gov­ern­ing the author­ity and re­quired - “sub­ject to com­pli­ance with any covenants made with the hold­ers of any bonds” – that tolls be re­duced by at least 5% but not more than 10%. It also

or­dered the author­ity to ded­i­cate be­tween 20% and 50% of its sur­plus rev­enues to trans­porta­tion- and tran­sit-re­lated projects cho­sen by the lo­cal metropoli­tan plan­ning or­ga­ni­za­tion.

The author­ity didn’t lower tolls, ac­cord­ing to the law­suit, be­cause it be­lieved that a statu­tory ex­emp­tion per­mit­ted it to com­ply with covenants in fi­nanc­ing doc­u­ments.

Ear­lier this year, the Leg­is­la­ture passed HB 141 re­mov­ing the lan­guage about bond covenants and re­quir­ing the author­ity to sub­mit a re­port to the gov­er­nor show­ing that it re­duced tolls a min­i­mum of 5%. The bill would have re­quired the re­moval of the author­ity’s board mem­bers if they had failed to com­ply... Gov. Rick Scott signed the bill April 6.

To com­ply with the state man­date, the author­ity’s board rolled back rates by an av­er­age of 6% on its five ex­press­ways start­ing July 1.

The leg­is­la­tion led Fitch Rat­ings to re­vise the author­ity’s out­look to neg­a­tive from sta­ble in Au­gust, while af­firm­ing its A rat­ing on $1.5 bil­lion of out­stand­ing rev­enue bonds.

“The re­vi­sion of the out­look to neg­a­tive re­flects the un­prece­dented in­ter­ven­tion taken by the Florida state Leg­is­la­ture usurp­ing lo­cal au­ton­omy in or­der to lower toll rates and di­vert sur­plus rev­enues to other Mi­ami-Dade County project obli­ga­tions,” said Fitch an­a­lyst Stacey Maw­son.

Maw­son also said the out­look change re­flected un­cer­tainty about the long-term im­pact the state’s in­ter­ven­tion may have on the author­ity’s abil­ity to al­lo­cate funds for fu­ture cap­i­tal ex­pen­di­tures and is­sue ad­di­tional debt, as well as un­cer­tainty about fu­ture leg­isla­tive ac­tions that could im­pact MDX’s in­de­pen­dent rate mak­ing flex­i­bil­ity.

Moody’s In­vestors Ser­vice has not acted on the author­ity’s rat­ing since Scott signed the new, more re­stric­tive leg­is­la­tion.

In Fe­bru­ary, Moody’s up­graded MDX’s se­nior rat­ing to A1 from A2, and changed the out­look to sta­ble from pos­i­tive cit­ing the author­ity’s sta­bi­liz­ing traf­fic and rev­enue per­for­mance, strong fi­nan­cial met­rics and liq­uid­ity.

An­a­lyst Maria Mate­sanz said then that Moody’s ex­pected that the 2017 bill “di­rected at MDX will not have a sig­nif­i­cant neg­a­tive credit im­pact based on the stat­u­ary pro­hi­bi­tion against con­tract im­pair­ment in Florida.”

Scott, who is term-lim­ited out of of­fice this year, is run­ning against in­cum­bent U.S. Sen­a­tor Bill Nel­son, a Demo­crat who has held the seat since 2000.

S&P Global Rat­ings as­signs its A-plus rat­ing to MDX’s toll rev­enue bonds.

Ris­ing toll rates and the im­po­si­tion of new tolls in densely pop­u­lated south Florida set the stage for com­plaints that led law­mak­ers to im­pose toll rate re­duc­tions.

In meet­ings this year, MDX board mem­bers said many driv­ers are con­fused about to whom they pay tolls. The MDX col­lects about 48% of the tolls in Mi­ami-Dade County, they said. The Florida Depart­ment of Trans­porta­tion and the Turn­pike En­ter­prise col­lect the re­main­ing tolls, such as those on area ex­press lanes and the state turn­pike.

The Mi­ami-Dade Ex­press­way Author­ity was cre­ated as a state agency in 1994. It op­er­ates five ex­press­ways, cov­er­ing 33.6 miles: the Air­port Ex­press­way or State Road 112; Dol­phin Ex­press­way, SR 836; Don Shula Ex­press­way, SR 874; Snap­per Creek Ex­press­way, SR 878; and Gratigny Park­way, SR 924.

In 1996, the MDX pur­chased the rights, in­clud­ing the full ju­ris­dic­tion and con­trol of the op­er­a­tion, main­te­nance and fi­nances of all five ex­press­ways in Mi­ami-Dade County from the FDOT through a trans­fer agree­ment.

MDX paid FDOT $80 mil­lion to de­fease debt the state se­cured with sys­tem rev­enues and as­sumed li­a­bil­ity for an­other $11 mil­lion to pur­chase the ex­press­ways.

To pay for the trans­fer price, MDX is­sued bonds and se­cured the pay­ment with rights ob­tained un­der the trans­fer agree­ment.

MDX Gen­eral Coun­sel Car­los Zaldivar told his board in June that a le­gal anal­y­sis of the bills passed in 2017 and 2018 raised con­cerns about the abil­ity of the author­ity to con­tinue is­su­ing debt un­der its ex­ist­ing bond in­den­ture.

“The amend­ments en­acted in 2017 cre­ate un­cer­tainty as to the ex­tent of MDX’s con­trol of the op­er­a­tion, main­te­nance and fi­nances of the sys­tem,” Zaldivar said. “In broad terms, the mod­i­fied statutes can be con­strued to be a usurpa­tion by the Leg­is­la­ture of rights granted to MDX un­der the trans­fer agree­ment.”

Be­cause of this usurpa­tion and con­flict­ing lan­guage be­tween MDX’s amended statute and its bond in­den­ture, Zaldivar said bond coun­sel in­formed the agency that the con­flict must be in­cluded in a bond coun­sel opin­ion for any debt is­suance.

The con­flict also needed to be dis­closed to po­ten­tial bond in­vestors about “the risk of fu­ture usurpa­tions by the Leg­is­la­ture of the fi­nan­cial and op­er­a­tional pow­ers of the MDX board,” he said.

“Our fi­nan­cial ad­vi­sor has in­formed us that such a qual­i­fi­ca­tion in­cluded in the le­gal opin­ion could re­sult in MDX be­ing un­able to ob­tain se­nior debt fi­nanc­ing to fund its projects on the same terms as it has been able to do so in the past,” Zaldivar said.

The full author­ity to reg­u­late rolls is the “most fun­da­men­tal right” held by MDX, he said, adding that the op­er­a­tion of the sys­tem as well as the pay­ment of debt ser­vice de­pend on the author­ity of MDX to reg­u­late its toll sched­ule.

“If the power to reg­u­late tolls on the MDX sys­tem is sub­ject to leg­isla­tive fiat, then the abil­ity of MDX to op­er­ate, main­tain and ex­pand the sys­tem is also sub­ject to leg­isla­tive re­view and over­sight, as is the pay­ment of debt ser­vice on MDX bonds,” said Zaldivar.

He rec­om­mended a dual course of ac­tion - that the author­ity seek a declara­tory judg­ment in cir­cuit court in an at­tempt to in­val­i­date the Leg­is­la­ture’s amend­ments and to re­quest that law­mak­ers re­verse the statu­tory changes. Any new leg­is­la­tion prob­a­bly wouldn’t go into ef­fect un­til July 1, 2019, he said.

The author­ity’s com­plaint seeks sev­eral counts for declara­tory re­lief be­cause it says the 2017 and 2018 bills amend­ing the MDX statute vi­o­late the con­sti­tu­tional pro­hi­bi­tion against con­tract im­pair­ment, and the trans­fer agree­ment in which FDOT gave MDX full author­ity over the ex­press­way sys­tem.

In an­other re­quest for re­lief, the author­ity con­tends that the state vi­o­lated the statute gov­ern­ing the Mi­ami-Dade Ex­press­way Author­ity in which the state “prom­ises to any per­son ac­quir­ing MDX’s bonds that the state will not al­ter the rights vested in the author­ity un­til all the bonds are fully paid and dis­charged.”

The author­ity is also seek­ing an in­junc­tion against the en­force­ment of the amend­ments.

The ac­tions of the Leg­is­la­ture in chang­ing MDX’s rate-set­ting process sig­nify a fun­da­men­tal pol­icy shift that causes un­cer­tainty re­gard­ing the agency’s fu­ture in­de­pen­dent rate-set­ting abil­ity, said Fitch’s Maw­son.

“While man­age­ment stated MDX is ex­empt from the leg­is­la­tion re­lat­ing to the op­er­a­tional and fi­nan­cial con­trol given it is su­per­seded by bond doc­u­ment com­pli­ance and trans­fer agree­ment, it re­mains to be seen if the leg­is­la­ture will chal­lenge MDX’s rate-set­ting in­de­pen­dence again in the fu­ture,” Maw­son said. ◽

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