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The Utah Transit Authority board on Wednesday approved borrowing $100 million to keep its current light rail and commuter rail construction projects on track but had its credit downgraded by a major rating agency because of relatively high debt and decreased sales tax revenues amid the bad economy.
Fitch Ratings announced it would rate the $100 million in sales tax anticipation bonds at an A+, down from AA- ratings it had given for similar UTA bonds recently.
The UTA board said the borrowing is needed to maintain construction schedules next year for TRAX extensions to Salt Lake City International Airport and to Draper, and for extension of the FrontRunner commuter rail from Salt Lake City to Provo.
Ken Montague, UTA chief financial officer, said the downgrade may cost the agency more in interest. But he said the bonds are being structured in a way so that they are also being backed by a letter of credit "with a substantial bank, with whom we are still negotiating" so that the bonds "will trade in the market based on both entities' credit."
He said the daily variable rate bonds will have interest rates that reset on a daily basis. "We expect them to still be very competitive."
Fitch Ratings said UTA's "debt profile is somewhat weak" because of relatively heavy debt where "rising debt service has been shrinking revenues available for operations" and could hurt operations unless sales taxes pick up significantly next year.
Also it said the downgrade was based, in part, on "the historical volatility of the pledged sales tax revenues since fiscal 2008."
UTA spokesman Gerry Carpenter said the recession has decreased sales tax revenues far below projections made when UTA began the TRAX and FrontRunner extensions including the new West Valley City and Mid-Jordan lines completed this year.
"Sales tax revenues this year are $70 million below what was projected prior to the beginning of the projects," he said. "Looking forward to 2015, they are projected to be $100 million below original projections."
Fitch noted that sales tax revenue growth this year has been good, rising 5.4 percent. "This marks a significant improvement from the last three fiscal years' performance, when sale tax revenue declined a cumulative total of 8.8 percent," the Fitch analysis said.
About 80 percent of UTA revenues come from sales tax, and only about 20 percent come from fares.