New York's Metropolitan Transportation Authority is no longer on watch list for a possible downgrade of its transportation revenue bonds, Moody's Investors Service said yesterday. The rating agency affirmed the credit's A2 rating and said its outlook was stable.

"The stable outlook reflects Moody's expectation that the MTA will take actions, as it has in the past, to address budget shortfalls that may emerge and balance its operations," Moody's said in a press release. "Near-term challenges include forecast risks due to uncertainty regarding the timing and strength of the region's economic recovery, which could directly affect dedicated revenues as well as operating income generated by system utilization."

The MTA relies heavily on transportation revenue bonds: $12.46 billion of its $28.65 billion of outstanding debt is on the credit.

Moody's put the credit on watch list in March as the state Legislature debated a bailout plan for the mass transit agency. The economic downturn has taken a toll on the MTA, which relies on dedicated taxes that have taken a beating, particularly real estate transaction taxes.

The Legislature approved a rescue plan in May that created new revenue streams, primarily a payroll tax in the 12 counties the agency serves, against which the MTA can issue debt. The payroll tax is expected to generate $1.5 billion in 2010 and the authority plans to sell $6 billion of bonds backed by the tax, according to its draft five-year capital plan it released last week. The legislative action obviated steep service cuts and reduced fare hikes, but did not solve the MTA's long-term financial needs. The proposed $28.08 billion capital plan is short by nearly $10 billion and assumes that federal and state funding for the agency will increase.

On Monday, Standard & Poor's said in a report that the MTA has faced challenges but that its latest financial plan was better than it was in February and that it did not expect any rating changes for now. The July plan shows positive cash balances through 2011, with a $352 million operating deficit projected in 2012.

"We believe MTA management continues to face key decisions on how to balance additional revenue generation against maintaining services levels, and conserving its limited debt capacity to ensure needed system maintenance while continuing to fund expansion projects," said Standard & Poor's analyst Laura Macdonald in a press release. "If the authority's assumed funding sources don't come through, we believe those decisions will become a lot tougher."

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

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