Plan would reduce New York's MTA to servicing legacy debt
The City Council speaker's ambitious plan to reshape New York City's transit system would leave the massive Metropolitan Transportation Authority with nothing to do but service its legacy debt.
Corey Johnson's proposal would involve fares, tolls and certain dedicated taxes flowing through the legacy MTA to service its debt, with the remainder flowing back to a new agency called Big Apple Transit, as well as the Long Island and Metro-North commuter railroads.
Johnson, in his State of the City speech Tuesday in Queens, said the plan would provide more sustainable funding for operations and capital, and offset, for example, warnings by S&P Global Ratings in its negative outlook on the MTA.
"It’s very detailed and really makes the case for why this is the best approach for us as a city," Johnson said of his blueprint.
The state-owned MTA is one of the biggest municipal bond issuers with roughly $41 billion in debt.
"It is not a simple task to divorce the MTA’s revenues from its outstanding bonds," Johnson's blueprint says. "Therefore, the current MTA should remain solely to service existing MTA bonds, with all other activities being transferred to the newly spun-off entities."
Big Apple Transit and the railroads, not the MTA, would issue new bonds under Johnson's proposal, which faces the steep challenge of getting state lawmakers in Albany, as well as Gov. Andrew Cuomo, to sign off.
"Generally, I think using a separate sales tax that can be leveraged is not a bad idea for the new BAT," said Howard Cure, director of municipal bond research for Evercore Wealth Management.
Transit agencies in California, Chicago and Boston, said Cure, use a local sales tax for their transportation agencies with excess monies going to the local entity.
"The question still remains if the state will give the city that kind of autonomy to implement this revenue stream and cascading flow of funds," Cure added. "That's a heavy lift."
Cure also expects blowback from businesses to increases in the payroll mobility and corporate taxes, which are part of the plan. Those taxes are still federally deductible.
According to Johnson's "Let's Go" report, a model for a cascading flow of funds is the relationship between the New York Local Government Assistance Corp. and the Sales Tax Asset Receivable Corp., or STAR.
The state established LGAC in 1990 as a public benefit corporation to issue bonds or notes to help local governments and school districts smooth cash flow. Backstopping the bonds is a 1% slice of the state’s sales tax, which flows through the Local Government Assistance Tax Fund. Any remainder goes to the state treasury.
The city established STAR in 2004 to retire debt by issuing bonds backed by LGAC's annual payments.
"While the purpose of the LGAC–STAR arrangement is different from the MTA–BAT arrangement, it shows that cascading flows of funds can be designed with close cooperation between the city and the state," Johnson said.
New York sales tax revenue bonds, he added, provide a simpler example of state bonds serviced by pledged revenues in excess of debt service, with excess spilling over and flowing to other sources.
According to Johnson's plan, the MTA, once Big Apple Transit is created, would exist solely to service its outstanding debt, with the legacy MTA having first claim to farebox revenues as bond covenants mandate.
"Since farebox revenue on its own is more than sufficient to meet MTA debt service requirements until the remainder of its debt is retired, this should assuage any current bondholder concerns over MTA debt service coverage would no longer be applicable," Johnson said.
Lawmakers expect this month to debate a congestion pricing plan for Manhattan, which supporters say could raise $1 billion for transit improvements annually and $15 billion through bonding. Johnson said the City Council is poised to pass its own tolling plan if Albany doesn't.
"I don't know if the city has the authority to do that," said Cure, who believes the MTA's Triborough Bridge and Tunnel Authority is best suited for congestion-pricing street management.
Johnson said the multipronged crisis at the MTA prompted his call. To dramatize, he displayed a video that showed flooding, track fires and "pizza rat," a rodent who became a social-media sensation after a video showed him running down a subway staircase with a pizza slice.
Johnson's criticism of the MTA excludes Andy Byford, the authority's New York City Transit president. Byford, ebullient for much of his tenure, has been silent of late amid Cuomo's moves to tighten his grip on the authority, prompting media speculation that Byford has been sidelined.
"Imagine what Andy Byford could do without the dysfunction of the MTA slowing him down," Johnson said.
Johnson also called for a more diverse transit board, which paralleled a lament from MTA board member Veronica Vanterpool last week.
"I should not be checking off three boxes as the youngest around this table, one of three women of color, and one of three women," said Vanterpool, an appointee of Mayor Bill de Blasio. "We need different types of people sitting at this table that are not just representing our traditional areas of expertise of real estate, of law, of construction."