S&P lowers MTA's credit rating

[RR503]

This is bad. Very, very, very bad. Expect this to put upwards pressure on pretty much every single facet of the MTA's cost structure, and expect to see that reflected in fares. 

Article:

http://www.crainsnewyork.com/article/20180810/FINANCE/180819991/sp-lowers-mtas-credit-rating-citing-political-dysfunction#utm_medium=email&utm_source=cnyb-dailyalert&utm_campaign=cnyb-dailyalert-20180810

Key points:

Quote

Falling ridership and the lack of congestion pricing figures to cost the transit system in another way: by forcing it to pay more for all the borrowed money it will need to fix up the subway and bus systems.

The Metropolitan Transportation Authority's credit rating was lowered one notch Thursday, to A from A+, by S&P Global Ratings. That means S&P thinks creditors are now taking on more risk when buying MTA bonds and presumably will demand a higher rate of interest to compensate for that. S&P said the MTA's credit outlook is "negative," meaning further downgrades loom unless political leaders come up with new, sustainable sources of revenue.

...

S&P's gloomy announcement is unwelcome news for a transit agency that needs anywhere from $20 billion to $40 billion to carry out new subway and bus chief Andy Byford's plan to reduce chronic delays. Presumably most of the money needed will have to borrowed, much as the agency borrowed heavily in the 1980s and 1990s to shore up the ailing system.

The borrowing spree helped make the subway cleaner and more reliable, at least for a while. But borrowing has continued, costs are still rising, and revenue has not kept up. As a consequence, the MTA has $75 billion worth of liabilities on its balance sheet and paid $1.5 billion in interest last year to service that debt. Put another away, three years of payments to bondholders and other creditors costs the equivalent of building the Second Avenue subway.

S&P said although state and city officials have gotten together in the past to create new sources of revenue for the MTA, the state agency's massive capital needs combined with chronically bad blood between Mayor Bill de Blasio and Gov. Andrew Cuomo raise questions about when the money will come.

...

 

[Deucey]

More debt than Texas.

Ain’t that bouta...

[kosciusko]

Hopefully this will ring some alarm bells up top. Congestion pricing and maybe even a tax on FHVs need to happen.

[QM1to6Ave]

I'm shocked they kept the A+ rating up until this point, tbh.

[bobtehpanda]

Quote

The borrowing spree helped make the subway cleaner and more reliable, at least for a while. But borrowing has continued, costs are still rising, and revenue has not kept up. As a consequence, the MTA has $75 billion worth of liabilities on its balance sheet and paid $1.5 billion in interest last year to service that debt. Put another away, three years of payments to bondholders and other creditors costs the equivalent of building the Second Avenue subway.

It's too bad the State would rather have the MTA borrow til the end of time instead of take some responsibility for an agency they created.

[kosciusko]

2 hours ago, QM1to6Ave said:

I'm shocked they kept the A+ rating up until this point, tbh.

A+ isn't that good.

[QM1to6Ave]

On 8/10/2018 at 11:47 PM, kosciusko said:

A+ isn't that good.

I am aware of the rating system. I figured they were closer to the BBB range given all their issues 

[bobtehpanda]

11 hours ago, QM1to6Ave said:

I am aware of the rating system. I figured they were closer to the BBB range given all their issues 

The MTA has never been even close to default. People got used to the Albany song and dance where politicians pretended they didn't want to raise fares.

[QM1to6Ave]

4 hours ago, bobtehpanda said:

The MTA has never been even close to default. People got used to the Albany song and dance where politicians pretended they didn't want to raise fares.

That is a pleasant surprise. I guess politicians' grandstanding was harmless for once

[bobtehpanda]

22 minutes ago, QM1to6Ave said:

That is a pleasant surprise. I guess politicians' grandstanding was harmless for once

Until now, hence the downgrade.

We have never solved the MTA's inherent budget problems, which are threefold:

• Government subsidy of services has not kept up with increase in demand (e.g., Student Metrocard funding has been frozen at like $90M since the '90s)
• There is no dedicated source of funding for maintenance and the capital program, hence the current crisis
• The MTA's revenue sources (tolls, mortgage & real estate taxes, sales tax, etc.) are all tightly bound to the economic cycle, which means that the next recession will blow us deep into the red, and we're overdue for one

Until these three problems are solved, there will be no end to the MTA issuing more debt than it can handle.

[RR503]

25 minutes ago, bobtehpanda said:

Until now, hence the downgrade.

We have never solved the MTA's inherent budget problems, which are threefold:

• Government subsidy of services has not kept up with increase in demand (e.g., Student Metrocard funding has been frozen at like $90M since the '90s)
• There is no dedicated source of funding for maintenance and the capital program, hence the current crisis
• The MTA's revenue sources (tolls, mortgage & real estate taxes, sales tax, etc.) are all tightly bound to the economic cycle, which means that the next recession will blow us deep into the red, and we're overdue for one

Until these three problems are solved, there will be no end to the MTA issuing more debt than it can handle.

Those are the supply side problems, yes, but I think there are some major demand-side factors too. 

- Opaque, complex and brutally unfair procurement processes which increase costs even on small projects

- A lack of internal accountability and communication regarding expenditures and project management -- things get delayed because there is simply no one in charge of the excessively large number of departments involved in each project

- Work practices out of the stone age (we don't need 20 people to clean tiles)

- An amazing amount of unnecessary customization resulting both from run-of-the-mill NYC chauvinism and from a complete failure to replace nearly century-old electronics

- Because of all of the factors in both of these posts, an astounding amount of risk associated with anything -- a reality which adds premiums to all costs 

[Future ENY OP]

2019 and 2021 we are in for a big hit.. That's all.

[paulrivera]

Welp... Time to sell off the bus system before they tank it like the Dolans with the Knicks.

[Interested Rider]

This does not surprise me at all as the question has always been where is the revenue to back up the bonds?

I do not care which party is in power as both of them are just as guilty when it comes to cutting funding for the agency, The political class will find an excuse to cut funding as while the system has many riders, it does not have a strong constituency that will fight for more money. When they mention "Education" , the political class comes out of the woodwork to provide more money for it as the politicians are dependent on the education establishment to get elected and re-elected.

Transit does not have that base of support and therefore no matter how important it is to the lifeblood of this area, it will always get the short end of the stick as it has always been a victim of some politician's whims. For example: Staten Island Borough President Connor who wanted to divorce his wife and refused to extend for more than one year the franchises for the Staten Island Express buses until the TA bought Pouch Terminal  and who can forget the disaster known as 2 Broadway and it's acquisition are just two of the many cases that could be cited here as why there are (and always be)  problems when it comes to the MTA funding. Every decision that is made has a political angle to it and therefore any attempt to find t!he revenue to support the bonds will come down to why should I support this if it will not help me get elected or re-elected as compared with an education finding increase where I know that it will help me in the future!

[Deucey]

1 hour ago, Interested Rider said:

This does not surprise me at all as the question has always been where is the revenue to back up the bonds?

Which is why I advocate for a food and beverage sales tax, since people will always order takeout, eat out or drink in the city, and it captures tourist and commuter monies.

Others beg for a congestion charge and bridge tolls - self-defeating (IMO) like other sin taxes (cigs, for example) since if fewer partake, fewer dollars and more charge/tax increases that aren't necessarily offset by cost savings.

But what's really needed is an actual dedicated state and city funding lockbox that rises and falls with inflation that cannot be raised. And it wouldn't be just for downstate - same funding would go to upstate transit districts and authorities as well.

But in a strong executive state like NY, it won't happen.

 

Should've had a Con-Con...

[Via Garibaldi 8]

2 minutes ago, Deucey said:

Which is why I advocate for a food and beverage sales tax, since people will always order takeout, eat out or drink in the city, and it captures tourist and commuter monies.

Others beg for a congestion charge and bridge tolls - self-defeating (IMO) like other sin taxes (cigs, for example) since if fewer partake, fewer dollars and more charge/tax increases that aren't necessarily offset by cost savings.

But what's really needed is an actual dedicated state and city funding lockbox that rises and falls with inflation that cannot be raised. And it wouldn't be just for downstate - same funding would go to upstate transit districts and authorities as well.

But in a strong executive state like NY, it won't happen.

 

Should've had a Con-Con...

New York City already pays through the nose in taxes. Enough is enough. Drinks are already taxed anyway with that stupid recycling fee that I pay even though I recycle everything possible religiously.

[Mtatransit]

2 hours ago, Deucey said:

Which is why I advocate for a food and beverage sales tax, since people will always order takeout, eat out or drink in the city, and it captures tourist and commuter monies.

I disagree. We shouldn’t introduce a tax just because people have no choice but to pay it. Congestion pricing has positive externality in that there will be less traffic in Manhattan

Plus I think someone ought to do a audit of the entire MTA corporate and operation to find any inefficiency’s and change it. Raising more money and throwing down the black hole is not going to improve any of our commutes.

[bobtehpanda]

3 hours ago, Deucey said:

Which is why I advocate for a food and beverage sales tax, since people will always order takeout, eat out or drink in the city, and it captures tourist and commuter monies.

Others beg for a congestion charge and bridge tolls - self-defeating (IMO) like other sin taxes (cigs, for example) since if fewer partake, fewer dollars and more charge/tax increases that aren't necessarily offset by cost savings.

But what's really needed is an actual dedicated state and city funding lockbox that rises and falls with inflation that cannot be raised. And it wouldn't be just for downstate - same funding would go to upstate transit districts and authorities as well.

But in a strong executive state like NY, it won't happen.

 

Should've had a Con-Con...

We don't necessarily need the congestion tax that everybody wants.

A 21st century version of the tax would be to charge whatever price it takes to keep traffic speeds in Manhattan free-flowing at that particular time. Guarantee Manhattan Bridge to Holland Tunnel in 10 minutes, or Battery Tunnel-60th St/FDR in 15, or whatever seems appropriate.

DC actually did that on a local area highway; they required the toll to be set to continuously maintain 55MPH speeds, and the toll actually spiked to $40.

[Via Garibaldi 8]

This new rating, along with the projection of yet more declines in ridership for THIS year, may very well mean increased fare hikes above 4% for next year and 2021...

NICOLE GELINAS

OPINION

The MTA’s latest woe is a bad omen for its repair plans

By Nicole Gelinas August 12, 2018 | 9:32pm

R. Umar Abbasi

 

Plummeting ridership and fare revenue. Dire warnings to bondholders that it won’t be able to fund its operations. A sharp cut in its municipal-credit rating.

The state-run Metropolitan Transportation Administration in a time of deep recession, skyrocketing unemployment and plunging tax revenues? No, the MTA right now — when New York’s economy has never been better.

Last Thursday, the MTA received its latest blow. Standard & Poor’s, one of the country’s three major bond-analysis firms, cut the authority’s credit rating.

Just like your credit score falls almost immediately when you put your dental surgery on four credit cards, the MTA’s credit score falls when it tries to balance $41 billion in debt on the backs of riders and taxpayers who have had enough, with a state and city government that appear indifferent to the authority’s plight.

The MTA’s new credit score is a single A, down from a AA- last year and A+ starting in March. A two-notch downgrade in five months is hardly a great sign. New York City, for example, is firmly rated AA.

Long term, the downgrade may mean higher borrowing costs for the authority, as potential investors perceive more risk. More important than any particular letter grade, though, are the reasons for the cut.

Ridership is still falling — even faster than in the past two years. In 2016, subway ridership fell 0.3 percent; last year, it fell 1.7 percent. Based on this year so far, it’ll fall another 2.1 percent in 2018.

“These trends could more than offset the 4 percent average fare increases planned . . . in 2019 and 2021,” S&P notes.

But the MTA needs the money from those planned fare hikes to stay afloat. It says so itself, in a document it released last week ahead of selling $220 million in bonds. “If projected fare and toll increases are not implemented,” the MTA warned, its “financial situation will quickly deteriorate.”

If they are implemented, though, and people continue to flee the system, it’s the same result — just with existing customers paying more for worse service.

Indeed, even with these higher fares — bringing in an extra $300 million a year — the MTA faces a $300 million cash deficit 16 months from now, and a $424 million deficit the year after that.

Hidden in the MTA’s new budget for next year, too, are signs that even more than a year into new management, one hand still doesn’t know what the other is doing.

To save $562 million, for example, the MTA wants to “eliminate non-essential vacant positions.” A fine idea, but then why did the MTA just spend a year hounding the city to provide $228 million to help pay for 2,700 new workers?

The MTA wanted the city to pay for new jobs while reaping the savings from cutting old jobs — an accounting trick.

The biggest problem, though, is debt. S&P says the MTA has a “very high debt burden,” citing the current five-year program to invest in new tracks, subways and buses, which requires $32.5 billion, including close to $10 billion in new debt. That’ll bring the

MTA’s total borrowing to $41 billion.

It’s sobering, though, that S&P made its downgrades before the MTA even borrowed most of this new money. So far, the MTA has issued less than $500 million of that planned $10 billion.

In the most recent debt offering, the MTA warns its bondholders that “to sustain operations and protect investments” in existing assets, it “will almost certainly require a new source of future funding.”

Before approving new revenues like congestion pricing, it would be good for the governor and the mayor to prod the MTA to look at its massive costs: for example, the $1.9 billion the authority will spend on health care this year, growing by more than a third — to $2.6 billion — over four years.

Otherwise, it’s hard to see how New York’s remaining subway riders ever get the multibillion-dollar Byford plan. Remember, that was the initiative announced over Memorial Day by then-newish New York City Transit President Andy Byford to quickly modernize subway signals.

But as the latest S&P downgrade makes clear, new revenues will go to today’s projected deficits, not toward those grand plans for faster service.

Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.

Source: https://nypost.com/2018/08/12/the-mtas-latest-woe-is-a-bad-omen-for-its-repair-plans/

[Interested Rider]

I read the  Nicole Gelinas article in the New York Post and like all the other articles from the Manhattan Institute's City Journal, it is a warning for something to be done before it is too late. The question is whether anyone in the political class is listening and my opinion they are not as it does not fit their agenda.

The work of the Manhattan Institute reminds me of the proverbial "canary in the coal mine" as it serves as a warning as to what will happen to the city and state if they fail to heed all the warning signs which are as clear as night and day to us but are all but ignored by the political class which continues to add on more worthless programs to bloated city and state budgets. 

None of the candidates for governor, comptroller, attorney general and for that matter lieutenant governor on the ballot  are listening as I have not heard one coherent proposal (let alone one coherent sentence) as to how the problem can be resolved for the good of the entire city and state which is dependent on a fully functional mass transit system. All I hear and read  is that the state or city is suing this or that corporate entity because someone in the political class has an agenda that runs contrary to what the corporation is doing. It is like the thinking in Washington when it comes to the debt, "we will be long gone from here so it becomes someone else's problem" and in my opinion it is the same viewpoint of the legislators here and in Albany which is the reason there is silence.

I have posted many times on various threads on this forum as to why I fear for both this city and state as right after election watch the members pf the political class who said everything was fine in terms of the city and state, change their tune and start with the gloom and doom scenario which was not told to us as the person was afraid that he(or she) will not get elected.  Again, this is  the first of a number of credit drops that will be done over the next couple of months involving the city and state bond ratings as the warning signs were there but no one listened or wanted to take the iniative to resolve the problem.

 

[bobtehpanda]

21 minutes ago, Interested Rider said:

I read the  Nicole Gelinas article in the New York Post and like all the other articles from the Manhattan Institute's City Journal, it is a warning for something to be done before it is too late. The question is whether anyone in the political class is listening and my opinion they are not as it does not fit their agenda.

The work of the Manhattan Institute reminds me of the proverbial "canary in the coal mine" as it serves as a warning as to what will happen to the city and state if they fail to heed all the warning signs which are as clear as night and day to us but are all but ignored by the political class which continues to add on more worthless programs to bloated city and state budgets. 

None of the candidates for governor, comptroller, attorney general and for that matter lieutenant governor on the ballot  are listening as I have not heard one coherent proposal (let alone one coherent sentence) as to how the problem can be resolved for the good of the entire city and state which is dependent on a fully functional mass transit system. All I hear and read  is that the state or city is suing this or that corporate entity because someone in the political class has an agenda that runs contrary to what the corporation is doing. It is like the thinking in Washington when it comes to the debt, "we will be long gone from here so it becomes someone else's problem" and in my opinion it is the same viewpoint of the legislators here and in Albany which is the reason there is silence.

I have posted many times on various threads on this forum as to why I fear for both this city and state as right after election watch the members pf the political class who said everything was fine in terms of the city and state, change their tune and start with the gloom and doom scenario which was not told to us as the person was afraid that he(or she) will not get elected.  Again, this is  the first of a number of credit drops that will be done over the next couple of months involving the city and state bond ratings as the warning signs were there but no one listened or wanted to take the iniative to resolve the problem.

 

The major issue, IMO, is that business stopped caring. Rockefeller was an embodiment of what could be done if government and business colluded, but these days no industry outside of real estate really cares about the nuts and bolts, and certainly not beyond 'what can I get out of this.' And the politicians, particularly since Giuliani and Pataki/Cuomo Sr., have all become leeches grandstanding for higher office.

Personally I blame the glorification of MBAs and finance types.

[RR503]

3 hours ago, bobtehpanda said:

The major issue, IMO, is that business stopped caring. Rockefeller was an embodiment of what could be done if government and business colluded, but these days no industry outside of real estate really cares about the nuts and bolts, and certainly not beyond 'what can I get out of this.' And the politicians, particularly since Giuliani and Pataki/Cuomo Sr., have all become leeches grandstanding for higher office.

Personally I blame the glorification of MBAs and finance types.

Eh. While globalization and pettiness have reduced corporate focus on single locations, I ascribe the lack of interest more to the fact that on their end, little is wrong (yet). While the subway is shit, employees are still getting to work (mostly), people still want to live in NYC, the real estate bubble is still strong, and the MTA's finances remain passable. When any one of those things becomes untrue, then you'll begin to see more corporate action -- even by the finance bros.