Debt Policy Page Two BACKGROUND
Toll Sector ratings methodologies typically require unrestricted cash to approximate the annual operating budget. This liquidity metric is termed the Days Cash on Hand 2 ratio and is a critical credit strength measure, along with the Debt Service Coverage ratio, in maintaining credit ratings in the double-A ratings category and access to the capital markets at the lowest possible financing rates. For historical perspective, the MDTA’s liquidity target has been raised intermittently to keep pace with the Operating Budget and inflation, most recently in 2023, rising to $400 million from $350 million. The Debt Policy unrestricted cash target of $400 million has been adequate in intervening years to meet rating agencies’ liquidity standards. ANALYSIS Management, through consultation with credit rating agencies and its Municipal Advisor, recommends a formulaic change in its unrestricted cash reserve to support prudent liquidity and meet Toll Sector ratings methodologies. While unrestricted cash is adequate to meet the Days Cash on Hand metric for the ratings category in the current fiscal year, the cash reserve will need to rise during the six-year capital planning period to maintain relative size to the operating budget. An increased cash reserve will have minimal short-term impact on debt service coverage, debt limit, and funds available for capital spending. In the long-term, the financing savings as a higher rated borrower will result in higher debt service coverage and lower debt outstanding.
2026
2027
2028
2029
462.2 471.6
497.8 515.0
Operating Budget
(40.1)
(40.5)
(42.1)
(43.8)
MDOT Police Reimbursables
422.1 431.2
455.7 471.2
Operating Budget (MDTA Adjusted for MDOT Expenses)
548.6 455.7
471.2 490.1
Unencumbered Cash Reserves
33.1
33.1
33.1
33.1
Operating Cash
581.7 488.8
504.3 523.2
Unencumbered Reserves and Operating Cash
503.0 413.8
403.9 405.2
Days Cash on Hand (Adjusted)
2 Days Cash on Hand – Unrestricted Cash Reserves divided by Average Daily Operating Expenses.
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