NY City and MTA: Will they go down together?

Bonds

The financial crisis engulfing New York City and the state-run transit system that serves it has generated buzz of the possible demise of both.

Their COVID-19 woes interlock, for sure.

Metropolitan Transportation Authority officials at Wednesday’s board meeting revealed dark budget-and-service cut scenarios, should lack of federal funding come through. The stark numbers include 9,300 job cuts — about 13% of its workforce — and service reductions of up to 50% on subways, buses and commuter trains. Budget gaps through 2024 would total nearly $16 billion.

“It’s hard not to feel like these cuts would be the beginning of the end for the MTA, and for New York as we know it,” said Nick Sifuentes, executive director of the Tri-State Transportation Campaign.

Separately on Wednesday, Mayor Bill de Blasio announced the closing of in-person public school learning, citing the 3% threshold for the coronavirus positivity rate, keeping 300,000 students at home. This could presage other city restrictions that could have ripple effects on transit and other components of the city’s economy.

The MTA board is expected to vote on the cuts next month as part of its $16.1 billion calendar 2021 budget, specified in the November plan, and would take effect in the spring.

“Our sole focus now is on survival,” Chairman Patrick Foye said.

Coping strategies include deficit borrowing of up to $10 billion, which New York State authorized in its fiscal 2021 budget bill. While Foye said borrowing billions just to pay off operations “violates the fundamental principles of debt management,” he called the move necessary.

The MTA also intends to borrow up to $2.9 billion — its maximum available — from the Federal Reserve’s Municipal Liquidity Facility short-term borrowing program. It already tapped the MLF in August to refinance about $450 million of maturing bond anticipation notes.

According to Chief Financial Officer Robert Foran, the MTA expects to issue long-term bonds in 2023 to repay the MLF loan.

The state-run MTA, which operates New York City’s subways and buses, two commuter railroads and several interborough bridges and tunnels, is seeking a further $12 billion from the federal government. It is already one of the largest municipal issuers with roughly $46 billion in debt including special credits.

Despite the city’s phased reopening — now at risk — ridership on Nov. 6 was down 69% on the subway, 49% combined on buses, 73% on the Long Island Rail Road and 77% on Metro-North Railroad.

MTA is incorporating a worst-case ridership scenario in its November plan that consulting firm McKinsey & Co. crafted. It would result in farebox revenue falling short of July plan projections by $1.61 billion in 2021, followed by $1.9 billion, $2.01 billion and $1.52 billion in the following three years.

According to data on the Municipal Securities Rulemaking Board’s EMMA website, a block of Series 2015B transportation revenue bonds maturing in 2023 that originally priced at 120.035 cents on the dollar and a 5% coupon, sold to a customer Wednesday at a price of 108.89 cents and a 2.243% yield.

Though Congress is stalled for now, MTA officials hope for a more receptive approach to transit funding when Democrat Joe Biden becomes president next month.

The city itself is wobbly, despite Comptroller Scott Stringer’s announcement on Wednesday that tax revenues are running $834 million ahead of projections for the first quarter of 2021.

While this may help Blasio balance the November budget plan he will release shortly, other numbers are more stark. An estimated 300,000 people have left the city since March, when the pandemic escalated.

New York Mayor Bill de Blasio on Wednesday ordered public schools closed to in-person learning.

Ed Reed / Mayoral Photography Office

Moody’s Investors Service in August warned that any potential revenue growth in the school reopenings could be short-lived if the infection rates were to rise again.

Like the MTA, city officials are also seeking rescue aid.

“Maintaining transit service doesn’t guarantee that New York City will come back. Not maintaining transit service does guarantee that it won’t,” said Nicole Gelinas, a senior fellow at the Manhattan Institute for Policy Research.

A report by Manhattan Institute’s Donald Boyd and Michael Hendrix released Thursday cited the consequences of high-income outmigration.

They said a 1% percent net decline in people with more than $100,000 in aggregate income could trigger a $220 million annual loss in revenue from personal income, sales and unincorporated business taxes.

Declines of 3% and 5% could trigger drops of $576 million and $933 million, respectively.

“The reality is that the mass transit system in greater New York has been one of the best examples of infrastructure subsidizing business,” municipal bond analyst Joseph Krist said. “The concerns of business interests regarding the MTA’s future are real even if those concerns are motivated by enlightened self-interest.

“These sorts of studies supply good ammunition in the argument over an additional federal stimulus.”

The MTA is not alone. Moody’s assigned a negative outlook to the U.S. transportation sector, citing public health concerns and shifting work patterns; the effect of tax revenue declines; and uncertainty about federal funding.

Transit systems nationwide are seeking $35 billion from Washington.

Moody’s said it could revise its outlook should ridership increase more than 50% next year or if a new federal aid package significantly offsets losses.

Podcast: MTA board member Neal Zuckerman talks with Bond Buyer Northeast Regional Editor Paul Burton about the MTA’s fiscal crisis.

“We all agree, it doesn’t matter what part of New York you live in, and doesn’t matter who you are, New York doesn’t operate without the MTA,” Neal Zuckerman, an MTA board member and a principal at Boston Consulting Group, said on a Bond Buyer podcast. “It doesn’t run, it doesn’t work.”

The MTA has felt the sting from the capital markets. Its most recent in a rash of rating actions came from Fitch Ratings, which on Oct. 23 downgraded the authority’s transportation revenue bond anticipation notes to F2 from F1.

While acknowledging the urgent need for federal aid, Andrew Rein, president of the watchdog Citizens Budget Commission, urged the MTA to use “all tools available.”

“The choices are difficult and may require a break with the great tradition of widely available 24/7 service in order to focus resources on delivering the core services the regional economy depends upon,” Rein said. The open question, he added, is whether the proposed service cuts could dampen regional economic recovery.

Brian Fritsch, manager of advocacy campaigns for Regional Plan Association, called on Gov. Andrew Cuomo to take the lead on MTA’s financial problems.

That, he said, includes announcing the members of the Traffic Mobility Review Board to advance the implementation of congestion pricing — once it receives federal approval — and protecting the state’s $600 million in dedicated funding.

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