Gov. Kathy Hochul’s decision to pull the plug on congestion pricing damages the MTA’s chances for a credit upgrade, S&P Global said, which could force the agency to pay more as it borrows for critical improvements.
“This development adds to the uncertainty regarding where the MTA’s post-pandemic ridership will ultimately settle,” the ratings agency said in a client note late Friday, “and could potentially constrain the MTA [credit] rating.”
Moody’s described the loss of congestion pricing as “credit negative” for the MTA in a report Friday.
High credit ratings are vital to the Metropolitan Transportation Authority, which carries $42 billion in debt and pays $3 billion a year to service those obligations, equal to 15% of its operating budget. Congestion pricing would have created a recurring revenue stream of the sort valued highly by investors because it would have shielded a slug of the MTA budget from annual negotiations in Albany.
In March, after Fitch Ratings upgraded the MTA’s credit rating to AA, its highest ever, the transit agency issued a celebratory press release in which CEO and Chairman Janno Lieber said the move reflected growing confidence in the agency’s financial strength and would bring “tangible benefits when we look to finance critical transit projects.” MTA’s finance chief, Kevin Willens, added that a higher rating could lower borrowing costs and reduce the cost of financing transit projects, resulting in “actual savings.”
S&P’s endorsement would have been especially helpful. Its opinions are given great weight by institutional investors and would have supported the first-mover Fitch, which said congestion pricing was a key reason for its upgrade. Fitch director Tammy Gammerman told Crain’slast week she wasn’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.
Yet Fitch senior director Michael Rinaldi told Crain’s it was premature to cut the transit agency’s AA rating.
In March S&P said it also would consider raising the A- rating for MTA bonds backed by farebox revenue and would base its decision in part on congestion pricing and ridership. In its note Friday, it said that an MTA upgrade hinges on “if we believe it can sustain financial metrics consistent with a higher rating.”
That belief is looking iffy after Hochul’s bombshell last week, S&P acknowledged. The outcome could be higher costs, paid for by passengers and their employers, when the MTA looks to finance transit projects.
“Although we believe the MTA’s operations are a key priority of the state, the nature and level of state support to replace congestion pricing, if delayed, introduce additional uncertainty to the outlook for the authority,” S&P said.
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 and over the weekend said it must deprioritize accessible subway stations, modern signals, electric buses and other upgrades in the wake of the governor’s move.
S&P’s comments concerned the transit agency’s $10 billion in bonds already issued.
Aaron Elstein , 2024-06-10 18:37:45
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