N.Y. MTA Considers a Financial-Advisory Deal With PRAG

(Bloomberg) -- New York’s Metropolitan Transportation Authority is considering paying Public Resources Advisory Group $1 million a year for financial consulting as the transit agency struggles to bring riders back and restore revenue collections.

PRAG, as the firm is known, has been the MTA’s financial adviser since 2016, assisting on bond sales and market access. The agency’s board on Wednesday is set to consider a five-year contract at a $980,000 annual fee that will increase 2% each year, according to board documents. That charge is up 26.8% from the last year of the prior contract, according to the board document.

The pandemic has undermined the fiscal health of the largest U.S. public transit system, with weekday subway ridership still a little more than half of pre-Covid levels. Moody’s Investors Service and S&P Global Rating Inc. each downgraded the MTA by two levels during the pandemic.

“The increase in fee reflects the significant increase in time and effort expected to be provided over the term of the contract by PRAG given the MTA’s funding needs going forward as well as a review of the time the incumbent has spent during its prior engagement relative to their compensation,” according to the board document, which a committee discussed Monday.

The consulting firm, which is based in New York City, will work with Backstrom McCarley Berry & Co., a registered broker dealer, and Sycamore Advisors, a municipal adviser, directing 30% of its fees from the MTA to them, according to the board document.

The MTA owes $49 billion and plans to continue selling debt repaid with new revenue sources. Those novel transactions require professional guidance.

The MTA in April sold bonds backed by a payroll mobility tax, the first-ever long-term borrowing for the agency repaid from that revenue stream. The MTA is also planning to borrow off of fees that motorists will pay to drive into Manhattan’s central business district, once the program is in place. That congestion-pricing initiative, which is going through an environmental-review process, is estimated to bring in $1 billion a year and back $15 billion of financing for the MTA’s capital plan.

The board will also consider a five-year contract with Mohanty Gargiulo to serve as a swap adviser. The firm has been consulting for the MTA on derivatives since 2013.

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