Wanting for federal aid, New York MTA must scramble

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With Congress gridlocked over further COVID-19 rescue aid for mass transit systems and New York State wary at best, New York’s Metropolitan Transportation Authority may have to scramble for other options.

The authority, which competitively sold $900 million of Series 2020D transportation revenue climate bond certified green bonds in three offerings on Tuesday, is one of the largest municipal issuers with roughly $45.4 billion in core-credit debt.

Before the sale, Moody’s Investors Service downgraded the MTA’s primary transportation revenue bond credit to A3 from A2.

“The rating agencies are not political figures. They’re calling it as we see it,” Authority Chairman Patrick Foye said during a television interview on Monday.

Options are limited for a transit system losing an estimated $200 million per week with further Washington help stalled and the state trying to grasp its own budget imbalance. The MTA is seeking $12 billion in the latest federal package.

Ridership on subways, buses and commuter trains plummeted as much as 90% after the pandemic escalated in March and delivered a gut-punch to the authority's fare, toll and dedicated tax revenue sources.

The state-run MTA’s finances were stressed even before the pandemic hit, prompting some observers to say the authority should examine other options. They include a gas-tax increase and other dedicated levies, business contributions and a hard look at labor and other internal operations.

“Labor relations, which are difficult in good times, should be an increasing area of focus in trying to negotiate more flexible work rules to save money while also recognizing the death toll the coronavirus has inflicted upon many MTA workers,” said Howard Cure, director of municipal bond research for Evercore Wealth Management.

As of Monday, 131 MTA employees had died from the virus.

Short-term, the MTA could again access the Federal Reserve’s borrowing program, the Municipal Lending Facility. Only the MTA and the nation’s lowest-rated state, Illinois, have tapped into the facility, “both for idiosyncratic reasons,” Municipal Market Analytics said.

MTA officials in August sold notes to the Fed to get a lower rate than it could obtain in the open market, rejecting bids on $450.7 million of notes from major banks.

According to data on the Municipal Securities Rulemaking Board's EMMA website, a block of Series 2017A, Subseries A1 climate certified transportation revenue green bonds — mandatory tender bonds — maturing in 2032 that originally priced at 113.832 cents on the dollar and a 3.38% yield, sold to a customer Tuesday at a price of 106.877 cents and a 3.82% yield.

Congressional leaders are looking into expanding the MLF to include more local governments, Emily Brock, director of the Government Finance Officers Association’s federal liaison center, said at last week’s Municipal Analysts Group of New York webcast.

Eyes are also on the national elections.

“The outcome of the November election and the control of the White House and Congress could have a big impact upon the financial position of the MTA, with Democratic party control perhaps being more accommodating to urban transportation needs,” Cure said.

Without a rescue package from Washington, the MTA, Foye said, could have to cut subway and bus service by 40% to 50%, raise fares and lay off up to 7,400 employees no later than November. Its board is scheduled to meet later this month.

With its revenue sources crippled, the goodwill gesture of reducing fares to entice riders back is less of an option. The MTA derives roughly half its revenue from the farebox.

“In some ways, the MTA has become a victim of its own success as it has one of the highest farebox recovery ratios of any transit system in the United States,” Cure said.

“As a consequence, its finances will feel a more severe impact from declines in ridership since it is such a significant source of revenue as opposed to say the Los Angles MTA, which derives much more of its revenues from its sales tax base.”

Subsidized or free service is under discussion in many regions nationwide. Los Angeles officials, for example, are studying the potential for eliminating fares on the Metro system, where fares contribute only about 13% of operating revenues.

“The revenue gap that would result in Los Angeles is far more manageable than the gap that would result in New York,” municipal bond analyst Joseph Krist said.

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