Transportation leaders expect more volatility to come in the municipal market and need the federal government to provide more cash directly.
In a Tuesday web seminar hosted by The Bond Buyer and UBS, panelist Angelia Schmidt, managing director and head of municipal underwriting at UBS, said though some programs such as the Federal Reserve’s Municipal Liquidity Facility helped with liquidity, there could be a return to volatility and expansion of those programs may be needed to combat economic woes due to the pandemic.
“You have to assume that at some point, we will return to volatility, particularly given we’re not out of the woods yet as it pertains to the virus itself or what the recovery is going to look like,” Schmidt said.
Credit deterioration will drive volatility, although the market is enjoying a redemption period this summer, she added.
“Really the question is, what could the Fed do if we hit a more volatile period again?” Schmidt said.
The Federal Reserve created the MLF, a $500 billion short-term note program, this spring and its first deal went through with the state of Illinois earlier this month. Also this month, the Fed expanded the program to include transit authorities. The MLF charges a premium to issuers as the price of the Fed to becoming a backstop for the municipal market.
Pat McCoy, director of finance at the Metropolitan Transportation Authority in New York, said revenue issues have caused the need for more direct cash from Congress.
The changes put in place in June designated the MTA as an eligible issuer under the Municipal Liquidity Facility, and McCoy said the agency is working with its legal counsel and advisors to possibly do a deal through the program in the future.
The MTA has $500 million in bond anticipation notes due on July 1, which will be redeemed with available resources. It plans to issue additional BANs in July.
The MTA has been severely impacted by the coronavirus pandemic with an expected operating shortfall in the $7 billion to $8.5 billion range over a $17 billion budget.
Federal resources have been an important part of the solution, with the MTA receiving just under $4 billion from the CARES Act, McCoy said. The CARES Act authorized $150 billion for direct federal aid to states and municipalities.
“The direct cash infusion like the CARES Act is first and foremost critical, but I would never turn away the opportunity to make an appeal for the ability to do tax-exempt advance refunding,” McCoy said.
“But in the meantime, we need cash,” McCoy added. “Loans and loan program guarantees, I would put them lower on the priority list of things that we would want.”
Traffic took a bit hit starting in March, said Brian Mayhew, director of finance at the Metropolitan Transportation Commission, which serves the San Francisco Bay Area. Mayhew said the agency has suffered a loss of $96 million in toll revenue.
House Democrats introduced a
“If there was an earthquake," the federal government "would come in and replace my equipment, they would not replace my revenue,” Mayhew said. “What is in the current bill goes a long way towards giving us more tools to get into the market.”
“The operators and people out there just need cash. They need money,” Mayhew said.
Correction: An earlier version of this article incorrectly stated the MTA's BAN plans.
