Chart 1

What's Behind Our Sector View

Estimated 2% annual U.S. real GDP growth for 2025 and 2026 should provide a foundation for stable performance.  Our 2025 sector view is supported by our U.S. economic outlook and GDP forecasts, as overall transportation industry performance measures and infrastructure usage are more broadly linked to economic activity that spurs travel, spending, and demand for goods and services. We expect the U.S. economy will expand 2.0% in both 2025 and 2026, up 1.8% (2025) and 1.9% (2026) from our previous economic forecast, although below the expected 2.7% growth in 2024. With inflation likely to remain above the Federal Reserve's 2% long-term target in the near term, the Fed may elect to implement fewer, or no interest rate cuts in 2025.

Risks to our baseline U.S. economic forecast come from policy directives of the new presidential administration that if implemented as touted, could further add to inflationary pressures and dent GDP growth relative to our baseline outlook. (See "Economic Research: Economic Outlook U.S. Q1 2025: Steady Growth, Significant Policy Uncertainty," published Nov. 26, 2024, on RatingsDirect.)

Changes in federal trade policies (i.e., tariffs) will likely affect U.S. port operators.   Transportation policy was not a focus of president-elect Trump and S&P Global Ratings does not expect major shifts affecting the credit quality of not-for-profit infrastructure operators, although a degree of policy uncertainty lies ahead with the possibility of trade tariffs adding an element of risk.

In our view, U.S. port operators and the logistics value chain are most exposed; they include air cargo, commercial trucking, and rail. However, the degree and duration of the impact, as well as any potential credit implications, are difficult to precisely measure. Tonnage and container volumes are likely to fall, with impacts somewhat mitigated where shipping lines are required to pay landlord port operators minimum annual guarantees. U.S. port operators are inherently exposed to volatility due to normal business and economic cycles, shifting trade patterns and supply chains, drastic fluctuations in commodity prices, and changes in bilateral and multilateral trade policies. Despite these factors, many of the U.S. not-for-profit ports rated by S&P Global Ratings have very strong market positions due to their critical role in supporting various industries, local and regional economies, and the overall health of the U.S. economy. While there could be some short-term disruptions, we believe port operators have the long-term credit strengths to absorb near-term volatility.

Steady growth in GDP-linked activity metrics across transportation asset classes.  In our view, 2024 was the year of normalization of demand or activity-based volume measures for transportation infrastructure operators and the return to more typical, GDP-linked baseline growth rates that we expect will continue at lower levels in 2025, influenced by asset class-specific factors.

To benchmark and evaluate management-provided projections, S&P Global Ratings has updated its activity estimates for 2025-2027. Overall, our 2025 activity estimates show positive trends continuing across the asset classes. We believe activity levels across most modes of transportation will continue to steadily increase from 2025-2027 with average annual growth rates of 2.8% for enplanements, 6.3% for transit ridership, 1% for port containers, and 1.5% for vehicular traffic.

We still expect the recovery in public transit will lag that in all other transportation modes, with ridership recovering to only about 90% of pre-pandemic levels by 2027, while all other asset classes will see activity measures at 105%-115% of 2019 levels by then. (See "2025 U.S. Transportation Infrastructure Activity Estimates: Generally Steady Demand And Growth," published Jan. 9, 2025.)

We expect continued significant capital spending to replace aging facilities, fund capacity enhancement projects to address higher anticipated demand, and permanently higher construction costs.  In late 2023, infrastructure spending resumed to maintain transportation assets or expand long-term capacity; this spending is now in full swing and is reflected in larger, more expensive, capital programs. Municipal market data shows rising issuance volumes and higher par values per issuance (see charts 2a, 2b, and 2c).

Charts 2a

Chart 2b

Charts 2c

Growth in capital programs has been spurred in part by increases in construction costs; we expect these costs will moderate in 2025 and likely remain permanently higher. Specifically, in 2024 the Producer Price Index for nonresidential construction slowed; construction input costs stabilized 35%-40% higher than in 2019 with labor costs still rising at 4% annually (see chart 3). For bridge and road works, a more complete measure of cost increases is the National Highway Construction Cost Index, which gauges the percentage change in prices for 29 primary construction inputs, including labor, asphalt, steel, and roadway lighting. Again, the increase in recent months has been moderate but prices remain 69% higher than in third-quarter 2020. However, tariffs are a wildcard here as higher costs of construction-related imports, such as steel and electrical components, could result in further cost escalations to already inflated capital programs. (See "Record U.S. Infrastructure Spending Is Colliding With Higher Construction Costs And Other Hurdles," published May 14, 2024.)

Chart 3

Implementation of the Bipartisan Infrastructure Law is ongoing, with possible modifications from the incoming administration.  The historic federal investment in infrastructure under the Infrastructure Investment and Jobs Act (IIJA)/Bipartisan Infrastructure Law (BIL), should continue, although there will likely be modifications in the implementation and/or changes in the future. Of the $840 billion in the five-year IIJA/BIL, the federal government directed most of it to capital investments (see chart 4). However, the IIJA/BIL created and reauthorized some programs without the accompanying appropriations funding. Zero funding, reduced funding, or rescission of funding for these programs could occur during the executive budgeting or Congressional appropriations process. This could result in outcomes that more closely align with policy objectives of the new administration and Congress, including cutting spending or shifting the focus away from the current emphasis on climate and carbon emission-reduction goals as well as rail projects.

Chart 4

We don't expect the federal formula funding for the GARVEE sector to change significantly.  Our view is that the federal formula funding that secures grant anticipation revenue vehicle (GARVEE) bonds and other transportation grant-secured financing won't be materially altered in the forthcoming Congressional authorization/appropriations, assuming a federal budget agreement is negotiated and that broad political support will continue. That said, we anticipate more muted support for transit, perhaps in the form of fewer discretionary grants, lower funding, or both, given the composition of Congress and incoming administration. And, of importance, with the current surface transportation bill set to expire in 2026, president-elect Trump will have a direct influence on the next infrastructure bill beginning in federal fiscal 2027. (See "U.S. Transportation GARVEEs Are Stable, Much Like Sector Funding," published June 6, 2024.)

Sector Top Trends

Ports and maritime.   U.S. ports will face the greatest uncertainty due to likely tariff increases and the anticipated retaliatory measures affecting both imports and exports. Volume measures (tonnage and containers) in 2024 demonstrated year-over-year growth, aided by shipping companies trying to get ahead of possible tariff increases. On Jan. 8, the International Longshoremen's Association, which represents 45,000 U.S. East and Gulf Coast dock workers, announced a new tentative six-year agreement with the United States Maritime Alliance averting a potential strike, with wider impacts set for Jan. 15. Resolved, at least for the next six years, are work rules regarding the use of automation, semiautonomous rail-mounted gantry cranes by the shipping carriers and other new technologies. (See "U.S. And Canadian Public Port Facilities Ratings And Outlooks As Of Oct. 1, 2024," published Oct. 2, 2024 and "U.S. East Coast Port Operators’ Financial Strength Should Help Weather Longshoremen’s Strike," published Oct. 2, 2024.)

Airports and related special facilities.  Apart from some large hub exceptions where regional business travel has not returned, airports have fully recovered from pandemic-related passenger declines, aided by a shift in consumer preferences for experiences (instead of goods). Annual 2025 passenger growth is likely to slow as airlines pull back on domestic overcapacity, as the weakness of ultra-low-cost carriers (for example, the recent bankruptcy filing of Spirit Airlines), well-documented new aircraft manufacturer delivery delays (such as the Boeing 737 Max), and engine reliability issues (such as the Pratt & Whitney PW1100G geared turbofan) hamper airline operations. Credit quality of consolidated rental car special facilities at airports has fully recovered and we anticipate generally strong financial performance will continue. (See "U.S. Transportation Infrastructure Airport Update: Air Travel Rides The Jetstream, For Now," published June 18, 2024, and "U.S. Transportation Infrastructure Consolidated Rental Car Facility Report Card: Rebound Complete, Airport Rental Car Sector Credit Quality Remains Stable," published Nov. 26, 2024).

Toll roads and bridges.   We expect U.S. not-for-profit toll road and bridge revenue growth accompanied by steady operations and maintenance expenses, as well as capital spending for capacity expansions and express lane buildouts. Issuers with tolling policies linked to the CPI or other inflation-linked measures will likely report higher revenue growth in 2025. Lost revenue from toll evasion is an ongoing issue for most toll facility operators, especially those reliant on all-electronic toll collection; however, this has not become a material credit risk because collection of late fees and violation fees has largely offset any lost revenues. All eyes will be on the implementation of congestion pricing in New York City that, after many political and legal battles, began on Jan. 5, 2025. How the transportation network changes (such as regional bridge and tunnel volumes, transit ridership, traffic patterns in Manhattan and in the region, etc.) as well as the performance of congestion charge revenue will be of great interest to a large group of stakeholders.

Public mass transit.  In September 2024, we revised our sector view to stable from negative for U.S. public mass transit operators due to stabilizing credit fundamentals from dedicated tax revenue growth often outpacing fare revenue decreases, recovering-but-still-weaker ridership, and operators' ability to adjust service levels and expenses to restore fiscal structural operating fund balance. Taxes and political support have been key to this developing credit story--either due to revenue growth or interim and longer-term financial commitments from state lawmakers and regional stakeholders. (See "U.S. Transportation Infrastructure Transit Update: Sector View Now Stable As Dedicated Tax Growth Mitigates Lower Ridership Revenue," published Sept. 11, 2024, and "U.S. Not-For-Profit Transportation Issuers Strengthen On Tax Revenue Growth And Support; Priority Lien Ratings Unchanged," published Nov. 22, 2024.)

Rating Performance

As of Jan. 1, 2025, S&P Global Ratings has ratings on 255 U.S. TIEs and ratings on 27 federal transportation grant-secured debt issues. The median rating in the TIE sector has risen to 'A+' from 'A' since Jan. 1, 2020, reflecting several factors, including completion of large capital projects that expanded capacity and activity for certain entities beyond pre-pandemic demand recovery, demonstrated financial resilience through the pandemic, and improved financial metrics, often because of significant state, local, and federal support and favorable performance of pledged tax revenue streams. These trends are detailed in our annual median report, "U.S. Not-For-Profit Transportation Infrastructure 2023 Medians: Demand And Revenue Growth Improved Financial Medians To Post-Pandemic Highs," published Nov. 12, 2024.

In 2024, we raised 43 issue ratings and lowered none (see chart 5). We raised 14 ratings in the toll road asset class and 16 in airports. Robust user traffic and air travel demand have allowed issuers in those two sectors to increase tolls and rates and charges, respectively, with minimal impact on demand, strengthening financial margins. Rating trends across all asset classes have been largely favorable (see chart 6).

Chart 5

Chart 6

Stable rating outlooks remain prevalent, with 96 % of TIE ratings having a stable outlook, up from 94% at the beginning of 2024 (see charts 7 and 8). For historical context, on Jan. 1, 2020 (pre-pandemic), 90% of TIE ratings had a stable outlook. On Jan. 1, 2021, only 11% of ratings had a stable outlook, increasing to 76% in 2022, and 84% in 2023 as issuers generally demonstrated an ability to effectively manage their finances and operations as activity levels recovered from pandemic-induced declines (see chart 9). The median rating in 2024 was 'A+', unchanged from 2023 but up from 'A' in 2022.

Chart 7

Chart 8

Chart 9

Chart 10 provides the current and historical rating distribution for all transportation infrastructure and grant-secured issue ratings. Chart 11 illustrates the current distribution of outlooks by rating category.

Chart 10

Chart 11