MTA Debt May Reach ‘Suffocating Levels,’ DiNapoli Says

(Bloomberg) -- New York’s Metropolitan Transportation Authority should push ahead with its workforce-reduction plan and only use deficit borrowing as a last resort as the agency’s debt may reach “suffocating levels” if Congress fails to direct more aid to the nation’s largest transit system, according to state Comptroller Thomas DiNapoli.

Principal and interest payments are forecast to eat up a larger part of the MTA’s budget because the pandemic has decimated revenue collections, with an estimated 19.4% of revenue going to cover debt-service in 2020, up from a yearly average of 16% during the past decade, according to DiNapoli’s annual financial report on the MTA that was released Tuesday. Those costs are projected to take up 25.7% of revenue in 2021, according to the report.

The Comptroller’s report comes as the prospect of the MTA receiving additional federal funds before next month’s general election is diminishing, with Washington lawmakers continuing to disagree on the size of another coronavirus relief bill. The MTA has warned that without more federal aid, it will be forced to cut subway and bus service by 40%, boost already planned fare and toll increases, impose layoffs and borrow to cover operating costs.

“If in fact one of the responses to their current challenge is to go deeper into debt, at some point that will reverberate in terms of an impact on fares, on tolls and the other thing is a cutback on service,” DiNapoli said in a call with reporters Tuesday.

The transit agency is seeking $12 billion of federal funds to help cover budget shortfalls this year and next. It’s considering borrowing about $2.9 billion through the Federal Reserve’s municipal lending program. The pandemic has weakened ridership and revenue as people work from home and avoid public transportation.

“Massive service and employee cuts, fare hikes, a gutting of our historic capital plan, and more unsustainable debt, which will only put future pressure on the fare box, are all on the table without help from Washington,” Pat Foye, MTA’s chief executive officer, said in a statement Tuesday. “Continued inaction by Congress will not only hurt our customers and employees, but also the economic rebound of New York and the nation.”

The MTA had $44.8 billion of debt as of Sept. 4, according to the agency’s website. It anticipates that will increase to $50.4 billion in 2024. The state has allowed the MTA to issue as much as $10 billion for operating expenses to cover lost revenue because of the coronavirus. That could increase debt service by $675 million each year, according to DiNapoli’s report.

“Failure to fund the MTA now could disrupt maintenance and repairs and increase the MTA’s debt to suffocating levels that could take multiple generations to recover from,” DiNapoli said in a statement Tuesday. “More than a reliable subway or commuter train ride is at stake. Washington needs to step up to help the MTA if our regional economy is going to fully recover.”

Investors have been demanding more compensation to hold MTA securities, which are rated A3 by Moody’s Investors Service and BBB+ by S&P Global Ratings. An MTA revenue bond maturing in 2029 traded Tuesday in sizes of at least $1 million at an average yield of 4.16%, according to Bloomberg data. That’s higher than the 2.65% yield on an index of BBB tax-exempt debt, according to a Bloomberg Barclays index.

Before the coronavirus outbreak, the MTA had been working on a transformation plan to reduce administrative positions and save an estimated $1.6 billion. That plan is on hold during the pandemic.

“The MTA must continue to push forward on implementing its transformation plan and any other efficiencies it can find, such as overtime spending,” according to the report.

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