DOT Defaulting - what if?

[noelbotevera]

I've never heard of DOTs ever going bankrupt. While I've heard of government defaults (there's a whole page dedicated to it on Wikipedia) or even US state defaults, I'm unaware of departments or ministries defaulting.

And of course, toll roads or turnpikes can default. Many went out of business in the 19th century and lost their toll road status. Technically the PTC is deep in debt but isn't declaring bankruptcy?

So what would a DOT default look like? Mad Max?

[oscar]

DOTs are fiscally part of their state governments. They could not default unless their state governments went into default.

Toll road authorities usually are fiscally separate from their DOTs, and could default without dragging down the DOTs or the rest of their state governments.

[kphoger]

Then their projects would be put on hold till a better budget came along.  Realistically, if you didn't see the headline, you'd never know anything happened.

[Max Rockatansky]

The California Division of Highway's budget and cost overruns played a big part in why it got consolidated into Caltrans. 

[jmacswimmer]

If a DOT was ever cash-strapped to the point that day-to-day operations couldn't even be met, then I imagine the government would either divert funding from another department or dip into their rainy-day fund or something along those lines.  Being a government agency, it would never go under and cease to exist.  [/uninformed guess]

Re: OP's point about PTC, we shall see....2021 is the last year of $450 million to PennDOT before it drops to $50 million next year, but the damage is already done with how far Act 44/89 has plunged them into debt (since they've had no choice but to float bonds to make all those payments).  So those annual toll increases won't be stopping anytime soon

[noelbotevera]

That's...kinda disappointing, actually. Usually bankruptcies are spectacular and everything collapses.

Apparently the last state to default was Arkansas in 1933, ironically over transportation bonds. Since that was during the Great Depression, I don't think life in Arkansas was any harder than life in the other states.

[kphoger]

If a DOT was ever cash-strapped to the point that day-to-day operations couldn't even be met, then I imagine the government would either divert funding from another department or dip into their rainy-day fund or something along those lines.

The petty cash drawer.

[kalvado]

Not a true default - but along the lines of:
https://www.timesunion.com/local/article/DOT-contract-flip-flop-leaves-landscaping-650682.php

[vdeane]

Re: OP's point about PTC, we shall see....2021 is the last year of $450 million to PennDOT before it drops to $50 million next year, but the damage is already done with how far Act 44/89 has plunged them into debt (since they've had no choice but to float bonds to make all those payments).  So those annual toll increases won't be stopping anytime soon

If they aren't making additional bonds for $450 million payments, wouldn't they amount they're paying to pay off the existing bonds be constant, and therefore not a driver of annual increases?  Or will even the $50 million payments need more bonds?

[kalvado]

Re: OP's point about PTC, we shall see....2021 is the last year of $450 million to PennDOT before it drops to $50 million next year, but the damage is already done with how far Act 44/89 has plunged them into debt (since they've had no choice but to float bonds to make all those payments).  So those annual toll increases won't be stopping anytime soon

If they aren't making additional bonds for $450 million payments, wouldn't they amount they're paying to pay off the existing bonds be constant, and therefore not a driver of annual increases?  Or will even the $50 million payments need more bonds?

Looking at their financial statement, they have pretty limited maintenance spending and still fall short by more than $450M a year.

[jeffandnicole]

That's...kinda disappointing, actually. Usually bankruptcies are spectacular and everything collapses.

Actually, most bankruptcies are very subdued, and most people wouldn't even know about them if they didn't read about them. Most stores and businesses stay open, especially with a Chapter 13 bankruptcy.

[kphoger]

That's...kinda disappointing, actually. Usually bankruptcies are spectacular and everything collapses.

Actually, most bankruptcies are very subdued, and most people wouldn't even know about them if they didn't read about them. Most stores and businesses stay open, especially with a Chapter 13 bankruptcy.

I think he meant all the buildings immediately fall down.  I mean, have you even seen a K-Mart store?   

[Scott5114]

There was some kind of budget crisis here a couple of years back where ODOT essentially was going to have no money to pay its contractors, which meant that all of the equipment would be pulled from work zones and the dirt work would be sodded over until such time that ODOT was able to renew (or possibly re-let) the contract. Then equipment would have to be brought back in and the brand new sod torn up to resume work. Obviously this would have been a huge waste of money, but I think the legislature struck some deal to avoid it.

[hbelkins]

Kentucky has done a couple of "on-hold" things in recent years when road budgets looked lean.

[MCRoads]

There was some kind of budget crisis here a couple of years back where ODOT essentially was going to have no money to pay its contractors, which meant that all of the equipment would be pulled from work zones and the dirt work would be sodded over until such time that ODOT was able to renew (or possibly re-let) the contract. Then equipment would have to be brought back in and the brand new sod torn up to resume work. Obviously this would have been a huge waste of money, but I think the legislature struck some deal to avoid it.

And that is how education funding in Oklahoma got cut. Because screw education, they don't need money!

[Scott5114]

There was some kind of budget crisis here a couple of years back where ODOT essentially was going to have no money to pay its contractors, which meant that all of the equipment would be pulled from work zones and the dirt work would be sodded over until such time that ODOT was able to renew (or possibly re-let) the contract. Then equipment would have to be brought back in and the brand new sod torn up to resume work. Obviously this would have been a huge waste of money, but I think the legislature struck some deal to avoid it.

And that is how education funding in Oklahoma got cut. Because screw education, they don't need money!

I don't think there was a causal relationship between one or the other; if I remember correctly the education crisis was happening in parallel. "Screw government, they don't need money" is the real culprit here.

[Dirt Roads]

Nobody has mentioned NCDOT's current financial woes.  They got sued in several different parts of the state over the policy to limit cost escalation for eminent domain property values as of the date the specific project's Environmental Impact Study (EIS) submits a preferred alternative.  Almost every NCDOT project has been significantly delayed since the State Supreme Court judgment was placed in June 2016.  By May 2020, NCDOT had settled 448 lawsuits going back to the mid-1990s, with $750M for additional land acquisition costs for 3,637 parcels plus legal costs of about $296M.  If the state hadn't been in a strong financial position from business growth, it certainly would have been on the brink. 

[Mccojm]

New York was on verge of financial insolvency a few months ago. The main talks was cutting state workforce by tens of thousands as if we caused the economic disaster in this state. Other rumors occurring were contract lettings being delayed, change orders not being approved, cutting current contracts short as allocated funds run dry, row acquisition put on hold, hire/ promotion/ transfer freeze statewide despite record low staffing levels for DOT, etc. We’re “okay” for now due to fed bailout but nys spending is completely unsustainable esp since most residents are maxed out tax wise and looking to flee south to cheaper states. The future doesn’t look good for nys and it’s agencies as far funding for projects and maintenance and proper staffing/ pay/ benefits. I’m only in 6.75 total years.. need 3.25 for vesting for retirements and have 32 years to go til retirement - I’m sure this is only the beginning  of my experiences with the stress of facing budget disasters and potential layoffs. I have a strong feeling nys will face bankruptcy in the not too far distant future.

[Occidental Tourist]

So what would a DOT default look like? Mad Max?

As everyone else has suggested, the DOT would only "default"  as part of the state being insolvent.  Highway projects would stop, contractors would bring actions to get paid.  Depending on whether the federal government allowed the default would dictate whether and in what forum those contractors got paid.

A sign of a state being a couple of steps away from default and having trouble paying bills might manifest itself through highway projects.  For example, a state in trouble might lease a publicly-owned tollway to a private entity for a quick cash infusion.

[Rothman]

New York was on verge of financial insolvency a few months ago. The main talks was cutting state workforce by tens of thousands as if we caused the economic disaster in this state. Other rumors occurring were contract lettings being delayed, change orders not being approved, cutting current contracts short as allocated funds run dry, row acquisition put on hold, hire/ promotion/ transfer freeze statewide despite record low staffing levels for DOT, etc. We're "okay"  for now due to fed bailout but nys spending is completely unsustainable esp since most residents are maxed out tax wise and looking to flee south to cheaper states. The future doesn't look good for nys and it's agencies as far funding for projects and maintenance and proper staffing/ pay/ benefits. I'm only in 6.75 total years.. need 3.25 for vesting for retirements and have 32 years to go til retirement - I'm sure this is only the beginning  of my experiences with the stress of facing budget disasters and potential layoffs. I have a strong feeling nys will face bankruptcy in the not too far distant future.

You're listening to the wrong people.  This was all hype, what you've listed here.  One rule at NYSDOT:  Whole lot of people that say they know what's going on when they don't.  If you're not on the 6th floor of the MO, you're in the dark.

[Mccojm]

New York was on verge of financial insolvency a few months ago. The main talks was cutting state workforce by tens of thousands as if we caused the economic disaster in this state. Other rumors occurring were contract lettings being delayed, change orders not being approved, cutting current contracts short as allocated funds run dry, row acquisition put on hold, hire/ promotion/ transfer freeze statewide despite record low staffing levels for DOT, etc. We're "okay"  for now due to fed bailout but nys spending is completely unsustainable esp since most residents are maxed out tax wise and looking to flee south to cheaper states. The future doesn't look good for nys and it's agencies as far funding for projects and maintenance and proper staffing/ pay/ benefits. I'm only in 6.75 total years.. need 3.25 for vesting for retirements and have 32 years to go til retirement - I'm sure this is only the beginning  of my experiences with the stress of facing budget disasters and potential layoffs. I have a strong feeling nys will face bankruptcy in the not too far distant future.

You're listening to the wrong people.  This was all hype, what you've listed here.  One rule at NYSDOT:  Whole lot of people that say they know what's going on when they don't.  If you're not on the 6th floor of the MO, you're in the dark.

You can say that again, we're in the dark in region 10, all we got was crickets and PC answers  from union reps and personnel office  as governor kept mentioning layoffs layoffs layoffs in every news interview and article. All we can do is keep going to work until we're told we can't anymore.

[oscar]

New York was on verge of financial insolvency a few months ago.

That seems to use an incredibly strict test for "financial insolvency" or risk of default. New York state's general obligation bond ratings are in the "investment-grade" range, just one or two steps below the highest AAA rating, and nowhere near "junk bond" level (usually defined as below the lowest B ratings) which is when you start worrying about genuine defaults. Some other states are in worse shape, though none are in "junk" territory.

That's not to say that a state won't be squeezing money, including by actual or threatened layoffs, out of DOT or other department budgets, to help maintain or improve the state's overall credit rating. Even states or other jurisdictions with excellent credit ratings will do that, using chasing the perfect credit rating as an excuse for cost-cutting. But that is nowhere near "insolvency" or "default" territory.

[Roadgeekteen]

What if a DOT got liquidated? Would all the roads be demolished?

[oscar]

What if a DOT got liquidated? Would all the roads be demolished?

Depends on the terms of that incredibly hypothetical liquidation. But even in actual liquidations of private corporations, their useful assets normally are acquired by other companies and remain in operation.

[Scott5114]

What if a DOT got liquidated? Would all the roads be demolished?

Depends on the terms of that incredibly hypothetical liquidation. But even in actual liquidations of private corporations, their useful assets normally are acquired by other companies and remain in operation.

I would imagine that the roads that would be attractive to operate as toll roads would be sold off to private companies, and the remaining roads might be transferred to another, more solvent state agency or downloaded to the counties. More likely, though, the federal government would  step in and bail out the state before that happened.