Though the Port Authority of New York and New Jersey didn’t say so directly in its statement announcing stunningly high fare-hike proposals, the message was clear: the authority is worried about its bond rating.
On Friday, the Port Authority said it would seek toll and fare increases in two phases, starting in September, to fully fund a 10-year, $33 billion capital plan, and has fast-tracked public hearings and a vote of the full board of commissioners, scheduled for Aug. 19.
In January, Moody’s Investors Service cut its outlook for the Port Authority’s Aa2-rated bonds to negative from stable and affirmed that outlook in March, when the authority sold $225 million of 167th series consolidated bonds.
“When that came out in public, it concerned us,” an authority spokesman said Monday.
Fitch Ratings and Standard & Poor’s each give the authority a AA-minus with a stable outlook.
The authority operates five airports, including John F. Kennedy International, LaGuardia, and Newark Liberty International in the New York City area; the Lincoln and Holland Tunnels; the George Washington, Goethals, Outerbridge, and Bayonne bridges; and Port Authority Trans-Hudson, or PATH, trains. It also owns the 16-acre World Trade Center site in lower Manhattan.
It cited a trifecta of challenges in its Friday statement — the sharp revenue drop because of the recession, steep increases in post-Sept. 11 security costs, and the need for what it called the largest overhaul of facilities in its 90-year history.
Moody’s cited the “cost and complexity” of its capital plan, particularly the development of the World Trade Center site.
In addition, Moody’s added: “A complex structure makes the authority vulnerable to political interference that can result in delays, revenue diversions for non-system assets, and added costs for major capital projects essential to the region.”
Proposed increases would include raising tolls for cars using E-ZPass on crossings to $12 from $8 roundtrip during peak hours and hiking one-way PATH fares to $2.75 from $1.75.
“While we understand the Port Authority’s leadership concerns about a potential downgrade to its bond rating if toll increases are not instituted, our primary concern with this proposal is its impact on our respective states’ residents and commercial users of the crossings,” New York Gov. Andrew Cuomo and New Jersey Gov. Chris Christie said in a joint statement.
“A downgrade of the Port Authority’s bond rating does indeed pose a potentially disastrous result … and would be unacceptable,” they said.
The authority, in its 2011 budget, said the collapse of the variable-rate debt market and the speculative real estate market triggered increases in debt service costs. The move to fixed-rate bonds to pay for current projects, it said, cost 2.5% more in annual interest rates for about $4 billion of planned borrowing, it said.
Construction cost increases at the World Trade Center site also required the use of higher rate taxable debt and pushed debt costs up by roughly $1 billion through 2016, the authority added.