New York’s MTA Leverages Crisis to Pitch for Long-Term Aid

(Bloomberg Opinion) -- To many New Yorkers, the city’s intricate subway system is both a source of pride and a target of frequent frustration. For $2.75, you can travel anywhere at just about any time in America’s largest metropolis — that is, of course, if the trains aren’t delayed or shut down for desperately needed maintenance.

It’s no secret that the Metropolitan Transportation Authority has long been strapped. Around this time last year, the agency was staring down an annual deficit of more than $500 million, which was was projected to reach close to $1 billion by 2022. Andy Byford, who resigned earlier this year as head of the MTA’s New York City Transit authority after earning praise — and the nickname “Train Daddy” — for his efforts to turn around the agency’s fortunes, had estimated it would cost $40 billion over 10 years to get the 116-year-old subway system up to contemporary standards.

Of course, any time the MTA proposes a fare increase to cover the infrastructure improvements, it’s immediately met with public outcry. But for all its struggles, the one thing the MTA had going for it was that it’s fairly recession-proof. If New Yorkers need to move around the city at a reasonable price, subways and buses are the only game in town. 

No one could have contemplated a realistic scenario in which the City That Never Sleeps would suddenly stand still. But that’s the new reality in the coronavirus era. Suddenly, with ridership plunging by roughly 90%, the MTA has turned from an agency that always seems to just scrape by to one that might eventually not be able to pay on its $45.3 billion of municipal debt.

Or, at least, so said Pat Foye, the MTA’s chairman and chief executive officer, in comments Tuesday:

“We expect to make every principal and interest payment — we’re not asking for forgiveness from our creditors,” he said during an appearance on The Brian Lehrer Show on WNYC.

“We’re obviously one of the largest borrowers in the muni market and the MTA making its principal and interest payments is incredibly helpful to the overall market,” said Foye, who is recovering from Covid-19. “To be able to do that, we’re going to need additional support from the federal government and we’re going to have to come up with a plan that we’re hard at work on, which will also include some non-financial legislative changes in Albany.”

Foye knows what he’s doing here. He has also served as the president of the MTA, executive director of the Port Authority of New York & New Jersey and chairman of New York’s Empire State Development Corp. He understands as well as anyone the importance of the $3.9 trillion municipal market for state and local governments nationwide to fund infrastructure projects. If Detroit’s $18 billion default and bankruptcy rocked the market in 2013, what would happen if an agency with more than twice as much debt went under?

To be clear, the MTA is not at risk of imminent default. As Bloomberg News’s Michelle Kaske reported, the agency has about $3.8 billion of liquidity resources, such as $1 billion of bank loans tapped last month, a cash balance of $1.2 billion and internal flexible funds of $1.2 billion. And yet, it’s not exactly a great vote of confidence to see that the MTA is planning to issue $800 million in revenue bonds to help pay down $1 billion of short-term notes maturing on May 15.

The agency somewhat walked back the insinuation behind Foye’s comment that “we expect” to make bond payments. “MTA has sufficient liquidity and resources to fund its debt service accrual requirements even as the ongoing COVID-19 crisis has put significant strain on MTA’s financial condition, and we are committed to continuing disclosure of material events on a timely basis,” Bob Foran, the MTA’s chief financial officer, said in a statement.

No public official wants to bring up default, or even evoke the idea of asking for forgiveness from creditors. The fact that Foye did so anyway seems to be addressing the MTA’s long-term position. The city, state and federal government are all scrambling to funnel money and resources to the areas that have been hardest hit by the coronavirus pandemic. The mantra seems to be that it’s better to overreact than under-react to this crisis.

So it shouldn’t come as much surprise that the MTA wants to make sure it gets its cut while the cash spigots are open. Again, Foye has been around long enough to see neglect for important public transit improvements in the tristate area, like an additional train tunnel linking New Jersey to Manhattan.

Already, the MTA is feeling the squeeze from credit-rating companies. S&P Global Ratings downgraded the MTA to A-, four steps above speculative grade, citing the coronavirus’s “impact on ridership and traffic, likely impact to subsidies and taxes, and prospects for permanent negative dislocation of passenger and traffic volume, compounding the downward trend of recent years.” My Bloomberg Opinion colleague Tyler Cowen contemplated a permanent transformation of New York City in a column this week. 

To paraphrase Rahm Emanuel, who until recently was the mayor of Chicago, another cash-strapped and heavily indebted city, leaders should never let a serious crisis to go to waste and set aside the opportunity to make big moves. Foye seems to understand this.

Is the MTA on the doorstep of default without federal aid? No, it still has billions of dollars to bridge these next months. Are the MTA’s finances sustainable for the next three decades without some sort of aggressive action or assistance? I’m not so sure. And if nothing changes now, with nine in 10 riders spending yet another week in lockdown and probably at least a few more, when will it ever, other than an outright debt crisis?

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.

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