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N.Y. MTA Could Sell $30 Billion

New York's Metropolitan Transportation Authority could issue as much as $30 billion of bonds over five years under a new credit backed by a payroll tax, according to a proposal released yesterday by a state commission.

This proposal and others released in a report yesterday by the commission, headed by former MTA chairman Richard Ravitch require state legislative approval. The panel's report called for a 0.33% payroll tax on employers in the twelve New York counties served by the authority.

The "mobility tax" would be controlled by a newly created subsidiary called the MTA Capital Finance Authority through which bonds would be issued. That segregated revenue stream would generate a projected $1.5 billion annually that would back all new borrowing and pay as you go financing for the 2010-2014 capital program, which is expected to cost between $30 billion to $35 billion, the report said.

"We're going to have to make the tough choices," Gov. David Paterson said. "It's either going to be one source of pain or another. There are going to be no quick fixes."

The commission also proposed tolling city-owned bridges on the currently free East and Harlem River Bridges. The tolls would generate an estimated $1 billion annual revenue. After expenses of tolling and maintaining the bridges which would be acquired by the MTA, that would leave about $600 million of net revenue that would be used to fund transit operations and a new bus rapid transit system.

The system would be operated by another MTA subsidiary to be called the Regional Bus Authority, under the proposal. Ravitch told The Bond Buyer that it wasn't clear at this time whether such an authority would issue debt.

The new revenue sources would allow the MTA to reduce proposed fare and toll increases to an 8% yield in 2009 as opposed to a 23% yield that was proposed by the authority last month. The commission also proposed that the mobility tax revenue be used in 2009 to scrap proposed "draconian" service cuts. The cuts and fare and toll increases were proposed to close a projected $1.2 billion budget gap in 2009.

"With close to $26 billion outstanding on our existing credits, it's a positive development to have a new credit to show to the market, especially one with a quality source," said MTA board member Doreen Frasca. She said she hoped the recommendations would be swiftly adopted "because the alternatives of fare increases and service cuts are intolerable."

If the new credit is "structured similarly like the other MTA credits with a gross pledge it could be something that would be attractive [to investors]," said Scott Trommer, senior managing consultant at Public Financial Management. "What they're thinking of is something that segregates revenues and provides security that bond holders would be looking for."

The MTA currently sells debt on four credits: transportation revenue bonds, Triborough Bridge and Tunnel Authority senior and subordinate resolutions, dedicated tax fund and state service contract bonds.

An industry source estimated the $1.5 billion of annual revenue generated by the payroll tax could support roughly $20 billion of 30-year bonds at 6%. Ravitch said that a 6% rate was conservative and that an improved market in the future could support a lower interest rate and more debt.

The new revenue stream would create "a very good credit because coverage will be terrific," he said. "This economy is going to recover. It's reasonable to assume you can borrow $30 billion."

In recent years, dedicated real estate taxes fueled by a booming real estate market created surpluses at the MTA, but those revenues have fallen sharply over the past year and, along with other rising costs like debt service, contributed to large outyear budget gaps.

While gas, sales, income, and real estate taxes are subject to economic fluctuations, real estate taxes, "because they are transaction oriented, are probably the most sensitive," Trommer said. "Obviously a payroll tax is sensitive to employment but they may not all necessarily perform at the same cycles," he said.

New York City Mayor Michael Bloomberg expressed support for the recommendations. "We can't afford to kick these problems down the road any further," he said.

Paterson created the commission in April following the failure of the state Assembly to act on a congestion pricing proposal that would have generated revenue by charging fees to cars traveling within much of Manhattan to back $4.5 billion of bonds.

The governor's office is drafting implementing legislation based on the report which the Legislature could take up next month when it is back in session.

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