Plummeting ridership and fare revenue. Dire warnings to bondholders that it won’t be able to fund its operations. A sharp cut in its municipal-credit rating.
The state-run Metropolitan Transportation Administration in a time of deep recession, skyrocketing unemployment and plunging tax revenues? No, the MTA right now — when New York’s economy has never been better.
Last Thursday, the MTA received its latest blow. Standard & Poor’s, one of the country’s three major bond-analysis firms, cut the authority’s credit rating.
“The MTA’s new credit score is a single A, down from a AA- last year and A+ starting in March.”
Just like your credit score falls almost immediately when you put your dental surgery on four credit cards, the MTA’s credit score falls when it tries to balance $41 billion in debt on the backs of riders and taxpayers who have had enough, with a state and city government that appear indifferent to the authority’s plight.
The MTA’s new credit score is a single A, down from a AA- last year and A+ starting in March. A two-notch downgrade in five months is hardly a great sign. New York City, for example, is firmly rated AA.
Long term, the downgrade may mean higher borrowing costs for the authority, as potential investors perceive more risk. More important than any particular letter grade, though, are the reasons for the cut.
Ridership is still falling — even faster than in the past two years. In 2016, subway ridership fell 0.3 percent; last year, it fell 1.7 percent. Based on this year so far, it’ll fall another 2.1 percent in 2018.
“These trends could more than offset the 4 percent average fare increases planned . . . in 2019 and 2021,” S&P notes.
But the MTA needs the money from those planned fare hikes to stay afloat. It says so itself, in a document it released last week ahead of selling $220 million in bonds. “If projected fare and toll increases are not implemented,” the MTA warned, its “financial situation will quickly deteriorate.”
If they are implemented, though, and people continue to flee the system, it’s the same result — just with existing customers paying more for worse service.
Indeed, even with these higher fares — bringing in an extra $300 million a year — the MTA faces a $300 million cash deficit 16 months from now, and a $424 million deficit the year after that.
Hidden in the MTA’s new budget for next year, too, are signs that even more than a year into new management, one hand still doesn’t know what the other is doing.
To save $562 million, for example, the MTA wants to “eliminate non-essential vacant positions.” A fine idea, but then why did the MTA just spend a year hounding the city to provide $228 million to help pay for 2,700 new workers?
The MTA wanted the city to pay for new jobs while reaping the savings from cutting old jobs — an accounting trick.
The biggest problem, though, is debt. S&P says the MTA has a “very high debt burden,” citing the current five-year program to invest in new tracks, subways and buses, which requires $32.5 billion, including close to $10 billion in new debt. That’ll bring the
MTA’s total borrowing to $41 billion.
It’s sobering, though, that S&P made its downgrades before the MTA even borrowed most of this new money. So far, the MTA has issued less than $500 million of that planned $10 billion.
In the most recent debt offering, the MTA warns its bondholders that “to sustain operations and protect investments” in existing assets, it “will almost certainly require a new source of future funding.”
Before approving new revenues like congestion pricing, it would be good for the governor and the mayor to prod the MTA to look at its massive costs: for example, the $1.9 billion the authority will spend on health care this year, growing by more than a third — to $2.6 billion — over four years.
Otherwise, it’s hard to see how New York’s remaining subway riders ever get the multibillion-dollar Byford plan. Remember, that was the initiative announced over Memorial Day by then-newish New York City Transit President Andy Byford to quickly modernize subway signals.
But as the latest S&P downgrade makes clear, new revenues will go to today’s projected deficits, not toward those grand plans for faster service.
This piece originally appeared in the New York Post
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Nicole Gelinas is a senior fellow at the Manhattan Institute and contributing editor at City Journal. Follow her on Twitter here.
This piece originally appeared in New York Post