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Albany to the Rescue?

While Albany lawmakers continue to debate a financial rescue plan for New York's Metropolitan Transportation Authority, agency officials yesterday announced an additional $621 million shortfall for fiscal 2009, bringing the deficit to $1.8 billion.

The MTA also estimates a $1 billion deficit for fiscal 2010 and will offer its plans to address the growing shortfall at its board meeting on Wednesday. Fares are set to increase on May 31 unless the state Legislature passes a bailout plan to help generate additional revenue and ease the fare hikes.

Meanwhile, the MTA released a review of its outstanding variable-rate debt and determined that it will continue to issue unhedged floating-rate bonds as long as such obligations do not exceed 25% of its total outstanding debt.

Officials claim the authority can realize savings through issuing variable-rate debt that is not swapped out to fixed-rate mode. The MTA saved $70 million on unhedged variable-rate interest in 2008 and $26 million in the first quarter of 2009, according to authority documents.

The current rescue proposal on the table is a $1.76 billion plan crafted by Senate Majority Leader Malcolm Smith, D-Queens. The Senate is set to vote Wednesday on the bill, yet MTA executive director and chief executive officer Elliot Sander said the authority is hoping for the best but preparing for the worst. Smith is scheduled to travel to Puerto Rico on Thursday.

"The state of our finances are dire," Sander told reporters yesterday after an MTA finance committee meeting. "When you're looking at a $621 million deficit, they are dire particularly on top of the cuts we've taken and what we've been asking the public, the service reductions we're doing. We need Albany again to come to the rescue and we are not in a good place. We are worse than we were before and we'll have more to talk about, what actions we'll have to take, and the timeline on Wednesday."

Smith's $1.76 billion rescue bill includes a payroll tax, a $1 per ride fee on taxi rides, and a $25 million increase on motor vehicle registration charges, and helps finance transportation needs in upstate New York and Long Island. It is smaller than an earlier plan based off of suggestions made by a special commission led by former MTA chairman Richard Ravitch that would generate roughly $2.2 billion.

Even if lawmakers pass Smith's bailout bill, the authority would need to impose addition fare hikes and-or service cuts to address the new $621 million shortfall.

"If the rescue from Albany does not occur, or if it does not take into account these impacts, then we are looking at fare increases and service reductions and reducing our expenditures," Sander said. "Those are the only tools that we have to deal with this."

MTA officials estimate that real estate taxes and state dedicated taxes will come in at $336 million and $113 million, respectively, below prior projections for fiscal 2009. Property tax revenue may drop by an additional $280 million next fiscal year and state dedicated taxes could decrease by $69 million.

In addition, ridership is down, with officials now anticipating a drop of $221 million in fare revenue this year and $334 million less fare revenue in fiscal 2010. As the region's employment figures drop, the number of riders commuting to work decreases as well, according to MTA chief financial officer Gary Dellaverson.

For example, in comparing ridership in February 2009 to the same month in 2008, the MTA had 21,000 fewer subway riders per day, while ridership on the Long Island Railroad and the Metro North line dropped by 300,000 and 100,000, respectively, for the entire month.

Moody's Investors Service analyst Nicole Johnson said her agency will continue to monitor the MTA and any long-term financing plans or bailout measures that officials may implement. On April 10, Moody's placed the authority's farebox-backed transportation revenue bonds, which it rates A2, on watch for a downgrade, citing fiscal strain and the lack of legislative action to find a long-term funding solution.

"We'll continue to focus on those kinds of things," Johnson said. "Clearly it's a little tighter than it was even when we took that action."

Fitch Ratings and Standard & Poor's rate the MTA's transportation revenue bonds A.

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