Gov. Kathy’s Hochul decision to yank congestion-pricing revenue has caused an uproar reminiscent of the subway’s 2017 “summer of hell.” But one key player in this political firestorm has been quiet as a churchmouse, at least so far: the bond markets.
Prices on the MTA’s $10 billion worth of tax-free bonds haven’t reacted since Gov. Hochul dropped her bombshell Wednesday, analysts say. No ratings agency has indicated it’s worried about the Metropolitan Transportation Authority’s ability to service its existing debt obligations, which currently reach $42 billion. One way or another, the financial crowd believes, the legislature and governor will not let the MTA default on those debts.
But the MTA’s credit rating could be another story. The MTA has not yet sold bonds against the $1 billion in recurring revenue it was expecting from congestion pricing to raise an expected $15 billion for capital improvements.
The approval of the tolling scheme was cited as a reason Fitch Ratings in March raised MTA’s credit rating to a near-pristine AA rating, citing the state as a reliable partner. The state “has demonstrated consistent and meaningful financial support to the MTA during prior periods of stress,” Fitch said. “Evidence of [New York state’s] support includes the recent increase in the maximum rate of the Payroll Mobility Tax…and authorization of significant subsidies for the capital plan including congestion pricing, internet sales tax and mansion tax.”
The MTA’s credit rating could be at risk over Hocul’s decision to indefinitely delay congestion pricing, because that raises questions over just how meaningful support will be in the future for the agency. Yet Fitch senior director Michael Rinaldi said it’s premature to cut the transit agency’s AA rating.
“The governor has signaled intent to come up with a plan,” he said Friday morning.
In the meantime, the MTA’s hard-earned financial stability is in doubt because a governor panicked. Near-term, Fitch director Tammy Gammerman isn’t optimistic that lawmakers can find a way to replace congestion funding given how long it took to get it approved in the first place.
“To try to figure out something long term and sustainable in just a few days doesn’t feel very likely,” she said.
From Wall Street’s narrow perspective, nothing has been lost yet, since congestion pricing-related bonds haven’t been sold to investors.
“We don’t make rating decisions based on hypotheticals – what may or may not transpire,” said Karen Daly, head of public finance at bond-rating firm KBRA. “This is still very recent news.”
The Securities Industry and Financial Markets Association issued a statement Thursday that didn’t mention congestion pricing but warned lawmakers against raising taxes on financial firms as another funding solution for the MTA.
But without raising business taxes it’ll be nearly impossible for the state to replace the $15 billion revenue opportunity afforded by congestion pricing.
“There is a longer-term question of how this funding gap will be filled,” said Ana Champeny, vice president at the Citizens Budget Commission. “It was supporting critical capital investment to keep the MTA in a state of good repair.”
Congestion pricing effectively would give the MTA a new line of credit after it exhausted the older one. For decades the agency issued bonds backed by farebox revenues. Those borrowings helped finance $125 billion worth of capital improvements since 1982. Even so, there never was enough money to adequately maintain the subway system, especially when ridership jumped because more New Yorkers than ever were going to work.
Years of neglect took their toll in 2017’s summer of hell, when the public transit network started to come apart at the seams. In one of many memorable incidents, on June 27 a southbound A train derailed near 125th Street, filling the tunnel with smoke and injuring more than 40 passengers. Two days later, Gov. Andrew Cuomo declared a state of emergency for subways and the Long Island Rail Road and a month later the MTA announced a “two-phase Subway Action Plan.” Phase 1, with an estimated cost of $836 million, focused on stabilizing and improving the system. Phase 2, with an estimated cost of $8 billion, was to modernize the system that relies on switching technology that’s more than 100 years old.
Long-delayed investments delivered real benefits. After the 7 line’s signaling system was fully digitized, at a cost of $766 million, signal-related delays fell by more than half, according to the New York State Comptroller’s Office.
The state borrowed yet more to pay the work and by 2022 debt-servicing costs were chewing up 18% of the MTA’s budget. If the percentage grew further, the agency’s credit rating would have been cut and borrowing costs would have risen further, a problem congestion pricing was designed to prevent by creating a dedicated revenue stream for the MTA. It was the second such program after Albany enacted the Payroll Mobility Tax in 2009 and financial analysts were pleased that the state was shielding more MTA funding from the legislature’s annual budget fights.
Aaron Elstein , 2024-06-07 20:25:43
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