New York’s Metropolitan Transportation Authority is prepared to adjust to any recession, said Chairman Joe Lhota.
“Good management requires that we be prepared to react quickly and swiftly in the event that there is any kind of an economic downturn,” Lhota told reporters after Wednesday board meeting in lower Manhattan.
Bond rating agencies have fired warning shots of late.
S&P Global Ratings on March 12 downgraded the authority to A-plus from AA-minus, citing a spike in operating expenses and debt service requirements without matching revenue growth. The next day, Moody’s Investors Service questioned how the authority would fare in the next recession.
S&P's downgrade brought its rating of MTA in line with the A1 of Moody's. Fitch Ratings assigns its AA-minus rating to the MTA's workhorse revenue bond credit, and Kroll Bond Rating Agency rates them AA-plus.
The state-run MTA operates New York City’s subways and buses, the Metro-North and Long Island commuter railroads, and several intraborough bridges and tunnels. It is one of the largest municipal issuers with roughly $38 billion of debt.
Signal malfunctions, breakdowns and delays on the subways and buses have triggered discussions about the authority's debt and lack of a recurring revenue stream.
Moody’s, in its special report on the MTA, cited the authority balancing its revenue gap with operating efficiencies, reduced contributions to reserves, and short-term use of reserves.
“However, with weaker revenues, rising competition and urgent capital needs, how will the system’s finances fare in the next recession?” wrote Moody’s. “Economically sensitive” dedicated taxes represent 35% of MTA’s total revenue, according to Moody’s, which makes the authority particularly vulnerable to an economic downturn.
“A downturn similar in size to the severe 2007-09 recession could cut revenue by $1.4 billion and create a $2.1 billion budget gap. At 12% of total expenditures, this size gap is similar to the last recession and would put credit negative pressure on MTA's budget,” Moody’s added.
This time, said Moody’s, the MTA is operating in a more competitive operating environment and amid declining ridership, and less flexibility to defer capital and maintenance spending because of heightened public scrutiny.
According to Lhota, Moody’s was citing a worst-case scenario.
“If you talked to me in 2007, or anybody who was at this podium at that time, in 2007, would they have expected a recession as deep and as far as what happened in 2008 and 2009, which then caused radical decisions [that needed] to be made at the MTA?” he told reporters.
“I don’t expect a recession like that, I don’t think anyone does, but we will be prepared to deal with if it happens,” Lhota added. “But to speculate that it’s going to happen, it would just engender fear into people, and I don’t think that’s necessary.
“As Moody’s wrote … be prepared, and we are.”
Funding from the state and city is an open question. Congestion pricing, which many transit advocates and a panel appointed by Gov. Andrew Cuomo support, is highly unlikely to clear the legislature this year.
Meanwhile, Mayor Bill de Blasio has opposed funding beyond the city’s $2.5 billion to the MTA’s five-year capital program. Cuomo has asked the city to contribute half of a planned $836 million triage phase of a subway improvement plan.
City Council speaker Corey Johnson favors the allocation provided stringent monitoring is in place.