The full board of New York’s Metropolitan Transportation Authority on Wednesday will consider a six-year, $573.5 million contract to install a state-of-the-art fare payment system to replace MetroCards.

The board’s finance committee unanimously approved the design-build agreement with Cubic Transportation Systems Inc. of San Diego on Monday. The deal includes options that could push the final bill above $1 billion over 13 years.

MetroCard for New York City Transit, subway, Metropolitan Transportation Authority fares
New York's Metropolitan Transportation Authority plans to replace its MetroCard fare system.

Cubic introduced the MetroCard in 1993, which replaced the New York system's longstanding tokens. It is also the vendor for Transport for London's Oyster Card.

According to MTA officials, the new system would be an account-based, open payment system that would enable riders to pay through several diverse options, including mobile apps, digital wallets, contactless bank cards and MTA-issued contactless transit cards.

The network would integrate “disparate legacy systems” in use by New York City Transit, buses, and Metro-North and Long Island railroads – all MTA units.

According to Alan Putre, the MTA’s head of fare payment programs, the authority will implement the project in phases with MetroCards remaining in effect during a transitional period.

Board member Neal Zuckerman asked Putre about possible delays and cost overruns over such a long period.

“Projects of this scope and magnitude typically fall into a couple of rabbit holes,” said Putre. Scope change, he said, ultimately inflates the price. “We’ve done a lot of work to avoid that,” he said. “The technology we procure should be the latest and greatest because we didn’t spec it out five years ago.

“Projects like this tend to incur delays. The back end is sometimes an issue you want to focus on, so that's why we'll have a phased approach."

The MTA last week competitively bid out $1 billion of transportation revenue bond anticipation notes to finance approved transit and commuter projects.

“The yield curve provided very strong results,” said finance director Patrick McCoy. The authority, he said, achieved an all-in true interest cost of 1.15% for the notes, which it sold in two tranches. According to McCoy, the authority received 166 bids from 13 different bidders.

Nixon Peabody LLP and D. Seaton and Associates were co-bond counsel while Public Resources Advisory Group and Rockfleet Financial Services were co-financial advisors.

The MTA, said McCoy, is also working on a $165 million remarketing of transportation revenue variable rate refunding bonds because its current interest rate period is set to expire. Morgan Stanley is senior manager.

“We’ll be looking to put these in the [floating rate note] market, hopefully with the same success as prior transactions.” Morgan Stanley is senior manager.

In his annual report to the board on derivatives, McCoy said the authority's synthetic fixed-rate portfolio remains low cost.

According to McCoy, the MTA manages interest rate exposure through low-cost synthetic fixed-rate, fixed-rate portfolio management through refundings and a reasonable level of floating rate debt.

Traditional fixed-rate debt accounts for $30.1 billion, or 86.6% of the authority's debt portfolio as of Sept. 30. Synthetic fixed-rate and unhedged variable rate each account for just under $2.4 billion.

"The MTA's debt portfolio is designed to manage budget volatility whileis maintaining a low cost of capital," he said. "MTA continues to seek novation opportunities to increase counterparty credit strength and-or improve economic and credit terms."

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