The rising debt of New York’s Metropolitan Transportation Authority is “an absolute ticking time bomb,” its finance committee chairman said Wednesday.
Andrew Saul, also the board’s vice chairman and a general partner at investment firm Saul Partners LP, said increased borrowing for capital projects — which the MTA introduced as part of its preliminary budget for fiscal 2012 and four-year financial plan — could leave the authority with up to $36 billion worth of debt by 2015.
“It won’t be on anyone but the shoulders of riders’ backs,” Saul said.
The MTA plans to borrow about $7 billion over the next eight years to cover a $9 billion hole in its $24.2 billion capital plan.
The authority has applied for a $2.2 billion loan under the federal Railroad Rehabilitation and Improvement Financing program that benefits from low Treasury rates — 100 basis points lower than current MTA rates — and uses longer maturity bonds and flexible terms. The program is suited for new infrastructure projects.
The MTA plans to complement that with $4.7 billion in revenue bonds, supported by dedicated taxes. It said it would cover the rest of the capital gap through several means, including contributions from the city and state, real estate sales, and a sale-leaseback program with the Port Authority of New York and New Jersey.
After a board meeting in which he said the MTA’s finances are in “fragile stability,” chairman Jay Walder defended the borrowing as necessary to continue two major projects — the Second Avenue subway line on Manhattan’s Upper East Side and East Side Access, which will integrate the Long Island Rail Road into Grand Central Terminal — while not compromising existing service.
“We have a plan and let’s bring that plan to fruition,” said Walder, who held his first board meeting after announcing he would leave the MTA in late October to become chief executive of MTR Inc. of Hong Kong, which operates rail systems in Asia and Europe.
The MTA said pay-as-you-go, or “paygo” funds from existing dedicated taxes are positioned to pay the new debt, while still leaving $640 million in the paygo account. The authority said it would repay $6.2 billion of existing debt during the new debt period. “We would have a manageable plan that avoids a crisis and maintains a reasonable financial position,” said chief financial officer Robert Foran.
“There would be no additional burden on the operating budget, $6.2 billion of existing debt would be repaid, and $640 million would still be invested as paygo.”
Saul, though, remained skeptical.
“You cite historically low rates. What happens when the rates go up? And they will go up — 17 to 20% of the operating budget will be in debt service. We need to watch this,” he said.
The MTA, while saying it will implement no service cuts or fare increases next year in its $12.7 billion preliminary budget for 2012, proposes raising fares and bridge tolls by 7.5% in 2013 and 2015. It also increased fares from 2008 through 2010. The board must approve those increases.
Also on tap for 2013 is a $1 fee for new MetroCards used on subways and buses.
The authority said it will continue to focus on cost-cutting and ask employees to go without pay raises for three straight years. Walder last week said the agency doubled capital program savings to $4 billion through a 15% cut in administrative workforce and such measures as track-work overhauls.
Variables, however, could affect the MTA’s finances.
The three-year wage freeze, to which Gov. Andrew Cuomo and major unions agreed, is tentative, and a transit-lockbox bill that would prohibit Albany from tapping transit-dedicated funds — which it has the past two years to the tune of about $260 million to balance the state’s budget — sits on Cuomo’s desk.
The authority prepares financial plans in February, July and November, and votes on the budget every December.