WASHINGTON – The Federal Transit Administration estimates that more than $131 billion will be needed for transit systems in poor and marginal condition, including almost $86 billion to replace infrastructure that has already exceeded its useful life, Moody's Investment Service said in a report issued on Thursday.
"U.S. transit agencies will face increased capital investment needs and operational funding challenges in the next five to 10 years by aging infrastructure, increased ridership and lagging growth in governmental financial assistance," Moody's analysts wrote.
"Some transit issuers can leverage strong credit fundamentals to sufficiently finance their needs, while others have more constrained operating and revenue environments and will struggle to keep pace," they wrote.
Ongoing support from federal, state and local governments will be important for transit systems to meet increasing passenger demand, the report said, adding that there was record ridership in 2014.
According to Moody's, millennials, particularly in urban areas, are using more mass transit. Flexible work hours and an increase in part-time employment, which are 11% above pre-recession levels, are boosting ridership, especially during off-peak hours.
Transit system ridership in major Western systems has exceeded national levels since 2011, Moody's said. Expansion plans for these systems will likely spur bond issuance, it added.
But the mass transit sector has a lot of aging infrastructure, the result of years of deferred maintenance and shelved capital plans, according to Moody's. As of 2010, 80% of the transit industry's replacement of infrastructure was rail-related and 64% of that portion was heavy rail, which is primarily located in eastern U.S. cities with some of the oldest and largest systems such as Boston and New York City, the report said.
"We view deferrals of capital maintenance costs as a potential credit challenge because delays lead to cumulative asset deterioration, exacerbating future costs and likely straining future financial positions or requiring significant borrowing," Moody's wrote.
New mandated safety improvements will also lead to additional costs for transit systems, the rating agency said.
Despite the need, federal funding has been relatively stagnant in recent years. The federal government contributed about 41.6% to mass transit as of 2013, Moody's said. But growth in FTA transit grants has slowed to a mere 1.42% compounded average growth rate between federal fiscal years 2010-2014 and is down from 5.95% in the previous five-year period.
Stronger financial assistance will be needed from all levels of governments, Moody's analysts said.
The report contains 56 separate transit credits Moody's rates, including multiple ones for single issuers, as well as the key factors it takes into account in determining ratings for each of them.
"The credit risk is higher for transits that issue debt secured by general enterprise revenues because they are directly tied to general operating and financial performance, the analysts wrote, adding "This contrasts with sales tax backed transit credits, where dedicated tax pledges are not dependent on operational performance."
