Funding uncertainty puts N.Y. MTA in market's glare
Funding uncertainty surrounds New York’s Metropolitan Transportation Authority as its board reconvenes Tuesday and Thursday in lower Manhattan.
Full funding for short-term costs of an emergency subway action plan, an unknown future for federal support of the authority’s five-year capital plan and the complexities of a new tax law challenge the authority, even beyond long-running problems like high capital costs and city-state political bickering.
The MTA is one of the largest municipal issuers with roughly $38.6 billion in debt as of Feb. 2.
According to Gurtin Municipal Bond Management, inaction, significant new debt and failure to control labor costs and other expense drivers could pose major risks to bondholders.
"The agency’s credit risks could compound an absence of prudent government in the coming years,” said Gurtin’s Tom Schuette and John Humphrey.
Gurtin retains a “buy” appraisal on MTA-issued bonds.
“However, given the agency’s daunting task of finding new funding streams to support and ambitious and complex capital plan needed to refurbish the aging infrastructure, we are monitoring the situation closely,” said Gurtin.
In June 2017, Gov. Andrew Cuomo declared a state of emergency for the authority, prompting MTA Chairman Joe Lhota to release an action plan, with the first-phase triage of which to cost $836 million. Cuomo has promised to pay half that cost and has asked the city to contribute the other half.
Mayor Bill de Blasio has resisted, saying the state should reimburse the MTA for roughly $400 million in transfers from transit accounts over several years. The mayor favors a millionaire’s tax to help fund transit, although that proposal appears dead on arrival in Albany, given the expected pushback on higher taxes after the new federal tax law imposed limits on state and local tax deductions.
Federal funds accounted for 36% of the MTA’s capital program from 2005 to 2009.
“It is highly uncertain whether the agency, and the region as a whole, can count on similar federal support in the future,” said Gurtin.
Separately, a congestion-pricing proposal is before state lawmakers in Albany.
Political complexities have followed the MTA – a state-run agency but essentially city-centric -- since Gov. Nelson Rockefeller created it in 1968. Its very creation assured that political risk was a near-certainty, said Gurtin.
According to Gurtin, competition among public agencies, such as the Port Authority of New York and New Jersey, for resources and political attention creates another challenging dynamic.
“After all,” said Gurtin, “MTA’s needs should not be viewed in isolation, but rather in the context of a wide variety of state, city and metropolitan agencies all vying for funding for complex infrastructure projects that are needed.”
They include the Gateway project, a planned $12.7 billion dual-track rail tunnel linking New York City and New Jersey, which got short shrift in President Trump’s $1.5 trillion infrastructure proposal. Additionally, the Port Authority has several projects pending, including rehabilitation of the George Washington Bridge and Lincoln Tunnel and the overhauls of La Guardia and John F. Kennedy airports.
The MTA’s ongoing megaprojects include the East Side Access project and other Long Island Rail Road-centric improvements, and future phases of the Second Avenue Subway expansion.
In addition, the authority is working on contingencies for its planned shutdown of the L subway line from Eighth Avenue and 14th Street in Manhattan to Bedford Avenue in Brooklyn for three months, starting in April 2019. The tunnel sustained widespread damage during Hurricane Sandy.
The L, one of only three crosstown subway lines in Manhattan, extends from Eighth Avenue and 14th Street in Manhattan to Rockaway Parkway in Brooklyn.
Transportation advocates say alternatives such as bicycles, bus rapid transit and ferries could open new options for capital spending for the outer boroughs. The authority intends to run stopgap ferry service from North Williamsburg in Brooklyn to Stuyvesant Cove in Manhattan during the shutdown.