New York MTA’s woes include soaring debt, state comptroller says

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The effects of COVID-19, an uncertain economy and steep debt all pose major problems for New York’s Metropolitan Transportation Authority, according to a report by state Comptroller Thomas DiNapoli.

“The [MTA] is facing the greatest challenge in its history,” DiNapoli said Tuesday.

“Interest rates on MTA bonds have begun to rise since the pandemic, and the cost of borrowing may continue to be more expensive than in the past,” state Comptroller Thomas DiNapoli said.

Citing MTA documents, DiNapoli projected overall debt service rising to $50.4 billion by 2024 amid uncertainty about revenue, which has taken a hit since the coronavirus pandemic escalated.

Annual debt service could spike to $4 billion by 2024, or up 55% since 2019. This, DiNapoli said, means debt service payments would be nearly 24% of its total revenues, up from 12% in 2004.

The debt includes bonds the MTA issued to fulfill the state’s commitment to the 2015 to 2019 capital program and MTA bonds backed by revenue from the capital lockbox.

“The report provides an important summary of the MTA’s increasing debt load,” said Rachael Fauss, senior research analyst for the good-government organization Reinvent Albany.

The state-run MTA operates New York City’s subways and buses, Long Island and Metro-North commuter railroads, and several interborough bridges and tunnels.

Social-distancing measures and business restrictions that have kept people out of Manhattan resulted in severe ridership drops. Based on the MTA’s latest daily data, average ridership in September dropped by 69% for subways, 50% for buses, 70% for the Long Island Rail Road and 73% for Metro-North year-over-year.

The four bond rating agencies have downgraded the MTA since the pandemic escalated in March. The latest came last week when Kroll Bond Rating Agency downgraded the MTA’s primary transportation revenue bond credit to AA from AA-plus.

In addition, the state and city received downgrades for the first time in three decades.

“Interest rates on MTA bonds have begun to rise since the pandemic, and the cost of borrowing may continue to be more expensive than in the past,” DiNapoli said.

This context is important, Fauss said, as the MTA considers borrowing nearly $3 billion for its operating deficit through the Federal Reserve’s Municipal Liquidity Facility Program, which the board discussed at its September meeting.

According to data on the Municipal Securities Rulemaking Board's EMMA website, a block of Series 2012H transportation revenue bonds maturing in 2034 that originally priced at 105.05 cents on the dollar and a 4% coupon, sold to a customer Tuesday at a price of 93.176 cents and a 4.666% yield.

The pandemic came at an already difficult time for the MTA, DiNapoli added.

Right before the shutdown, the MTA released a financial plan covering calendar years 2020 through 2023 that projected cash deficits of $416 million in 2020, rising to $1.7 billion in 2023.

Only after assuming biennial fare and toll increases of 4% beginning in 2021 and the successful implementation of the MTA’s transformation plan, was the MTA able to balance its financial plan through 2022 and forecast a $130 million deficit in 2023.

“The operating outlook for many municipal transit systems is negative right now and the projected course of the pandemic so uncertain but this has not removed the pressure off transit agencies who by their nature develop long-range plans for long-lived assets,” municipal bond analyst Joseph Krist said.

Fauss said DiNapoli’s report flagged the crucial need for further federal aid.

The MTA in late March received nearly $4 billion under the federal CARES Act rescue package, and Chairman Patrick Foye has requested $12 billion further to cover an operating gap through next year.

DiNapoli’s report noted that the MTA may again use the Municipal Liquidity Facility if it continues to provide better rates than the market.

In August it sold $450 million of transportation revenue bond anticipation notes to the Fed at 1.93%, after rejecting bids from banks in the open market. MTA officials said the move saved the authority $12 million.

Reinvent Albany supports extending the Fed’s program through 2022, lowering its interest rates to “not penalize agencies with lower credit ratings like the MTA,” and ensuring the MTA can access loans for a longer period of five years.

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