Along with its large budget gaps, the MTA also has massive debt. By 2014, debt financing might take up a full 23% of its operating budget. And now Fitch, the smallest of the three ratings agencies, has downgraded that debt — meaning the MTA might have to pay more for it, meaning you might have to pay more for using the MTA. The press release explaining the downgrade from A+ to A reads, in part:
The MTA’s July Financial Plan shows improvement from previous financial plans that forecasted larger deficits, and Fitch recognizes management’s expense control actions and the demonstrated ability to navigate through the difficult economic environment impacting the greater New York City area and surrounding region. However, it is Fitch’s opinion that the MTA will face significant challenges related to meeting the plan over the next several years as significant new debt is issued to finance the $23.8 billion 2010-2014 capital program.
Operating revenues from transit, bus, commuter rail and the bridges and tunnels year-to-date (YTD) through May are tracking close to budget, while total operating expenses are tracking slightly below budget, at around 1.2%. Receipts from dedicated operating subsidies including new state aid, state dedicated taxes and real estate related taxes have been mixed through May. New state aid comprised of the payroll mobility tax (PMT) and MTA Aid (license fee, vehicle registration fee, taxi fee and automobile rental fee) are currently tracking with budgeted estimates, while real estate taxes consisting of the regional mortgage recording tax and New York City urban taxes are tracking around 10% higher, reflecting some rebound in the real estate market. The sustainability of this turnaround is uncertain.
The MTA’s 2010-2014 $23.8 billion capital program comprised approximately $18.1 billion in core projects on the existing system and $5.7 billion for expansion projects. As with prior capital programs, long-term debt is expected to finance a significant portion of the 2010-2014 capital program. To the extent that forecasted financial performance is not met, the MTA may be forced to scale back debt financing to fund a portion of the program. The political pressure to keep construction going to support jobs will be a counter-weight. Deferred maintenance or a decrease in system reliability would be potential credit concerns.
The MTA sent us the following statement about the downgrade:
“Since Fitch put these credits on negative outlook in late 2009, the MTA has successfully weathered continued difficulties in the local economy, and has taken actions to ensure that it continues to meet its financial obligations and mission. While a downgrade is never welcome news, we believe the strength of the credits remains fundamentally secure. We also believe that the impact of the Fitch rating action is largely priced into the market already and that any pricing impact would be minimal.”