Debt Policy Page Three Current Policy
Policy Statement 5. The MDTA Consolidated Transportation Program (CTP) will be funded through a combination of cash reserves, revenues and appropriate levels of debt in accordance with affordability guidelines. i.To provide adequate liquidity, MDTA will maintain unrestricted cash balances at the end of each fiscal year of at least $400 million. ii. Unrestricted cash shall include funds on deposit in the following MDTA trust accounts: Operating (reserve portion), Capital (cash funded), General, and the Maintenance and Operating (M&O) Reserve. Proposed Policy Policy Statement 5. The MDTA Consolidated Transportation Program (CTP) will be funded through a combination of cash reserves, revenues and appropriate levels of debt in accordance with affordability guidelines. i. To provide adequate liquidity, MDTA will maintain unrestricted cash balances at the end of each fiscal year equal to the next fiscal year’s Operating Budget, excluding Police Reimbursables 3 and Extraordinary One-Time Expenses 4 . ii. For financial forecast purposes, unrestricted cash will be modeled to equal approves the increase in the minimum unrestricted cash target annually with the adoption of the Financial Forecast and Operating Budget. iii. Credit rating agencies gauge a Toll Sector issuer’s ability to manage unforeseen revenue disruptions or higher expenses as a function of the annual Operating Budget, less Police Reimbursables and Extraordinary One-Time Expenses. The MDTA Board effectively unrestricted cash. The Days Cash on Hand 5 ratio should approximate 400 days to support the highest possible credit ratings in conformance with Policy Statement 33. iv. Unrestricted cash shall include funds on deposit in the following MDTA trust accounts: Operating, Capital (cash funded), General, and the Maintenance and Operating (M&O) Reserve. Net Cost of Carry and Financing Rate Considerations The relationship between the net carrying cost of the cash reserve and the extra interest expense on lower rated debt provides a helpful decision rule. If the net carrying cost of cash is less than the extra interest expense, then it is economic for the MDTA to increase the cash reserve. In the long-term, the interest savings on future financings will exceed the net carrying cost of the extra financed cash. (Net Carry on Financed Cash < Extra Interest Expense on Lower Rated Debt)
3 Police Reimbursables – MDTA Police provide law enforcement services on a reimbursable basis to the Maryland Aviation and Maryland Port Administration.. 4 Extraordinary One-Time Expenses – Operating Expenses not expected to occur annually. 5 Days Cash on Hand – Unrestricted Cash Reserves divided by Average Daily Operating Expenses.
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