Capital Underfunding Could Push MTA to Borrow More

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Winding down his final speech as a Metropolitan Transportation Authority board member, Allen Cappelli issued a dire warning for the agency that runs New York City subway, buses and commuter train lines.

"We need to stop borrowing money," he said Wednesday. "Andrew Saul was right when he said that it's a ticking time bomb some years ago."

Saul, the board's finance committee chairman, uttered those words in mid-2011.

The MTA's $32 billion proposed five-year capital program, with its $14 billion funding hole, is in limbo in Albany. The state legislature is winding down a session known more for the scandal-driven resignations of two of the "three men in a room" leadership triumvirate -- House Speaker Sheldon Silver and Senate Majority Leader Dean Skelos -- than any significant policy actions.

The third member of the troika, Gov. Andrew Cuomo, has said little publicly about the MTA other than an offhand remark last fall that the capital proposal might just be another bloated initial request. A state review panel in October rejected the capital plan without prejudice.

"My God, the capital plan we're asking for is not enough," said Cappelli, who served for seven years until Cuomo replaced him earlier this month. "The city and the state have to come up with a better way for us to go forward."

MTA Chairman Thomas Prendergast acknowledged this week that lengthy funding delays could imperil some contracts for the East Side Access project to bring Long Island Rail Road trains to Grand Central Terminal, as well as consumer-oriented initiatives such as countdown clocks to let subway riders know when to expect the next train.

He remains confident in getting adequate funding, though he expects no movement during this session.

The state Senate on Wednesday approved Cuomo's appointment of Prendergast to a six-year term. Prendergast for two years had been filling out the term of Joseph Lhota, who ran for New York mayor in 2013. His pending trip to Albany prompted a reporter to ask him at MTA headquarters: "Why do you want to keep your job?"

The MTA is one of the largest municipal issuers, carrying about $35.6 billion of debt according to authority documents.

For now, the rating agencies are confident in the MTA's ability to manage debt. Last month, Kroll Bond Rating Agency assigned its AA-plus rating to the authority's workhorse credit, its transportation revenue bonds backed by bridge and tunnel toll revenues. Moody's Investors Service rates the bonds A2. Fitch Ratings and Standard & Poor's rate them A and AA-minus, respectively.

The possibility of an underfunded capital plan begs the question of whether the MTA will have to borrow even more. "If interest rates rise, we're going to choke on the costs associated with that," said Cappelli.

Joshua Schank, president and chief executive of the Eno Center for Transportation think tank in Washington, said the consistency of fare revenues provides a temptation to borrow ad infinitum.

"There is a limit, and the truth is that if you keep borrowing, you're putting your system in a more and more precarious financial position and you're making it challenging to do the innovative stuff you should be doing and the expansions that you should be doing," said Schank.

Schank said capital funding for state of good repair -- transit-speak for basic maintenance -- should be automatic. "If you want to bond against future revenues, it should be for expansion, not preserving the existing system. So I think we we've got it a little bit backwards if we keep borrowing indefinitely to try to pay for it."

Prendergast's pleas for capital funding repeatedly have referenced the dark days of the early 1980s, when high crime and service disruptions were rampant. While acknowledging some discomfort with the high debt, he considers it the lesser of the evils.

"There isn't a board member at the MTA that wants to go back to that level of 1982," he said at a transportation conference at Baruch College in lower Manhattan.

According to Prendergast, roughly $20 billion of the proposed capital plan is for state of good repair. About $4 billion to $5 billion is for ridership enhancements such as countdown clocks, with the balance for expansion.

Behind-the-scenes maneuvering in Albany could include a package funding deal that includes the state, New York City and some suburban counties within the MTA's sphere.

"I have the clear impression that is in the request of the plan of the governor," board member Charles Moerdler said at Wednesday's monthly meeting.

According to Moerdler, the Silver and Skelos resignations propelled the dysfunction well beyond normal Albany levels and put the MTA's needs on the back burner.

"It is not often you have both the speaker of the House and the Senate majority leader replaced, let alone indicted," said Moerdler. "Trying to bobble that kind of a ball is something that no governor has ever been faced with, and hope none will ever be faced with in the future."

Prendergast said a solution should come from the state, federal and local governments as well as "those who benefit from the system," such as private developers.

New York Mayor Bill de Blasio increased the city's annual contribution to the MTA's capital plan to $125 million in his executive budget, up from $100 million. Prendergast asked the city to triple the amount to $300 million and also wants an additional $1 billion for the long-delayed Second Avenue subway line over the five years of the plan.

According to the Independent Budget Office watchdog organization, had the city merely kept pace with inflation since its $136 million annual contribution to the MTA's first plan in 1982-1986, its contribution would now be $363 million per year, providing $1.8 billion to the capital plan.

The city, state and neighboring counties should contribute "with equal force," according to Moerdler.

"It seems to me that at some early date, people are going to have to recognize that if we want finally to do things like taking the Second Avenue subway to Harlem, which is where it should have been in the first place, they're going to have to come to the table with the money to do that," said Moerdler, voice rising.

The first phase of the Second Avenue subway line -- another MTA megaproject -- ends at 96th Street in the north, the traditional demarcation between Manhattan's Upper East Side and East Harlem. It's officially projected to open in December 2016.

A second phase, with no target date yet, would run the line to 125th Street, a major Harlem hub yet still with a limited reach into that neighborhood and well below the East Bronx, a projected growth area targeted for four new Metro-North Railroad commuter rail stations.

"Its real virtue would have come if you extended the line to the East Bronx," said former MTA chairman Richard Ravitch. "If you opened up the East Bronx, you would have massive development up there."

Future capital plans must factor in outer-borough growth. Hot spots include Brooklyn, where shifting housing patterns reflect the effects of gentrification, and the North Shore of Staten Island, where a tourist Ferris wheel and outlet mall adjacent to the ferry terminal could heavily strain local infrastructure.

Outer-borough needs go beyond service. In Queens, state Rep. Philip Goldfeder has called for beefed-up security after theft of copper wiring disabled an A train near the Howard Beach station. He also said the proximity of that station to John F. Kennedy International Airport could make it a terrorist target.

The funding logjam has spawned a raft of creative proposals, notably the toll-swap and congestion pricing proposal by former city transportation commissioner "Gridlock Sam" Schwartz to more far-flung ideas such as trams to Manhattan from Brooklyn and Staten Island and even a marijuana tax, should the state ever legalize the substance.

The Schwartz proposal, which appears to have stalled in Albany for the second time in seven years, would electronically toll vehicles entering Manhattan south of 60th Street on now-free East River bridges while lessening tolls on other bridges that connect the city's outer boroughs.

Schwartz has said the move could bring in about $1.5 billion annually, with $1.1 billion for mass transit and the balance for bridges and roads.

 

 

 

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