New York's reopening casts glare on city and MTA

The turnstiles at the Bowling Green subway station should turn more often as New York City begins its Phase 1 emergence from coronavirus-driven lockdown.
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Monday’s planned Phase I reopening of New York City will put the city and the transit system that serves it — the Metropolitan Transportation Authority — in a national spotlight.

Their fortunes have long interwoven.

The state-run MTA, which intends to restore full service on Monday, has been operating with skeletal ridership since the COVID-19 pandemic surfaced in March.

Concerns as riders return will range from virus spread to safety in the wake of the widespread protests of the police killing of George Floyd in Minneapolis.

Up to 400,000 people could be returning to work in the city.

“Without earning passenger trust, it will be much more difficult to get places like New York City up and running,” said Tom Kozlik, head of municipal strategy and credit at Hilltop Securities. “It is not an overstatement to highlight that mass transportation providers are the backbone to a normally functioning financial landscape.”

Without those providers operating near peak capacity, normalcy could be further off, Kozlik added.

The MTA projects a loss of up to $8.5 billion this year, based on a report by consulting firm McKinsey & Co. It is one of the largest municipal bond issuers with nearly $46 billion in debt including special credits. Year over year, ridership has declined upwards of 90% on its subways and buses since the pandemic hit, while revenue from dedicated taxes has also plummeted.

MTA Chairman Patrick Foye has asked Congress for an additional $3.9 billion in rescue ad to match what it received under the federal CARES Act that passed in late March.

MTA officials received some encouraging news on Thursday: New York State designated the authority an eligible issuer in the Federal Reserve’s $500 billion Municipal Liquidity Facility lending program. Foye welcomed the news.

New York commuters wear masks and distance themselves on subway train.

“It’s always good to have more options,” said Howard Cure, director of municipal bond research for Evercore Wealth Management. “The MTA has already been able to tap into the capital markets to take out bond anticipation notes.”

The Fed launched the program as part of the federal CARES Act that passed in late April. Rates are steep. Wobbly Illinois, which pays the highest yield among the states and is one notch above junk, was the first to test the facility. It intends to sell $1.2 billion of one-year general obligation certificates directly to the MLF at a rate of 3.82%, based on the Fed's formula.

“They’re not cheap,” Cure said of the liquidity facility. “The Fed has designated it as a lender of last resort. It makes sense for a state like Illinois, which is struggling.”

The Fed's adjustment of guidelines on Wednesday helped the MTA. States can now designate transit agencies, airports and utilities to borrow under the program. According to BofA Global Research, an additional 34 smaller local governments in 20 states are now eligible, as are 101 revenue bond issuers from the 50 states and District of Columbia.

“It speaks well of the Fed to fine-tune its rules and regulations, enabling those other than states and cities to qualify,” Cure said.

The program can provide a loan of up to 20% of “general revenue from own sources” from fiscal 2017 for states, counties and cities, and fiscal 2019 for authorities. While the MTA’s fare and toll revenue is obviously own-source revenue, whether dedicated taxes count — which could mean greater borrowing capacity — is uncertain for now.

Podcast: Rachael Fauss from Reinvent Albany talks with The Bond Buyer's Paul Burton about the Fed and MTA bonds

“It may come up, because mass transit is the most severely affected as an enterprise system,” Cure added.

According to Cure, the MTA’s size and longstanding reputation as a high-rated municipal issuer — despite a wave of rating downgrades and warnings during the pandemic — is a huge plus.

“A big advantage for the MTA is their banking relationships. They’re able to draw on a banking facility.”

According to data on the Municipal Securities Rulemaking Board's EMMA website, a block of Series 2015B transportation revenue bonds maturing in 2055 that originally priced at 112.117 cents on the dollar and a 5.25% coupon sold to a customer Friday at a price of 108.993 cents and a 3.546% yield.

COVID-19 has killed 18,194 people in New York City since March, according to state Department of Health data.

But the city reached a positive milestone Thursday, recording no confirmed deaths from the virus for the first time since March 13, according to the city health department.

In advance of Monday’s reopening, state, city and MTA officials have been hashing out details regarding additional policing, mask providing and enforcing of social-distancing protocols that involve seating and markings on platforms.

While the state and the city have promised 1 million face masks each, MTA officials have asked Mayor Bill de Blasio to provide 3,000 volunteers to ease the transition.

The economic impact on New York resonates nationwide, according to Ali Chaudry, senior vice president and chief development officer at infrastructure firm Aecom and a former deputy secretary for transportation under Gov. Andrew Cuomo.

“We need all these systems to come back to life, so we people can return back to life. The housing market depends on it, manufacturing depends on it,” Chaudry said on a Regional Plan Association webcast.

MTA New York City Transit interim president Sarah Feinberg on Thursday asked de Blasio for 60 additional miles of bus lanes, or up 42% from the existing 144.

More bus lanes are “long past time,” said Lisa Daglian, executive director of the watchdog Permanent Citizens Advisory Committee to the MTA.

“Dedicated bus lanes can increase capacity and reduce crowding by allowing more buses to run,” she said. “With increasing traffic it’s more important than ever that buses get riders to their destinations more quickly and efficiently.”

Transit systems are also looking to technology to reinvent themselves and mollify skittish riders. “We’re trying a lot of things right now,” said Sarah Meyer, the MTA’s chief customer officer.

The MTA, collaborating with Columbia University’s Irving Medical Center, has begun a pilot program using ultraviolet light to kill the coronavirus.

Foye called the project “extraordinarily important.”

“We’re taking technology that’s decades and decades old, ultraviolet light, which is a proven technology and used extensively in hospital and emergency room, operating room environments, and applying it to transit,” he told reporters after a recent board meeting. “Part of its effectiveness is killing viruses, that it will eradicate the COVID-19 virus.”

“Without earning passenger trust, it will be much more difficult to get places like New York City up and running,” said Tom Kozlik of Hilltop Securities.

The crisis could not have come at a worse time for older transit systems that had been trying to balance modernization projects while catching up with deferred maintenance.

“There are so many opportunities to improve where we are now and yet, with the COVID crisis and the impact that has had on revenue lines, we’re in danger of going exactly the other way,” said Port Authority Executive Director Rick Cotton.

A federal, transit-centric infrastructure bill is essential, he added.

“You can look back at the New Deal, the depression of almost 100 years ago, and what came out of it, which was an extraordinary rebuilding of infrastructure, and have an ambition and replicate that but in a 21st-century setting."

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