States have been gradually increasing their reliance on debt financing to meet their transportation funding needs. Increased reliance on debt financing has been driven by the slow growth of highway and Road Fund revenue sources, resistance to tax expenditures, and restrictions placed on the use of General Fund revenue, in many states, for transportation projects. In light of states’ increasing reliance on debt financing for transportation, state officials and policy makers have shown greater interest debt management practices. One dominant practice across the states is the use of debt limitations. Debt limit policies vary widely from state to state. There are differences in the origin, scope, and coverage of state debt policies. The present study is an extension of the research originally done by the University of Kentucky Transportation Center exploring the debt limits and debt capacity using the Road Fund. The original study yielded an unexpected result related to the level of debt service to total revenue. States with debt limitation polices had, on average, higher ratios of debt service to total revenue than states without debt limitation policies. This study presents two statistical tests that confirm the previous graphical result from the original study. Using a simple t-test, the group of states with a Road Fund debt limit had a ratio of debt service to revenue that was, on average, 7.4% higher than the group of states without a Road Fund debt limit. Using multivariate regression analysis, states with a Road Fund debt limit had ratios of Road Fund debt service to Road Fund revenue that were 9.6% higher than states without Road Fund debt limits.

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The contents of this report reflect the views of the authors, who are responsible for the facts and accuracy of the data presented herein. The contents do not necessarily reflect the official views or policies of the University of Kentucky, the Kentucky Transportation Cabinet, nor the Federal Highway Administration. This report does not constitute a standard, specification, or regulation.