MTA could face debt payment problem

The MTA is not immune from the nation’s current economic woes. According to a story with alarming consequences in today’s Daily News, the transit agency could be facing a budget crisis when and if its debt payments increase due to rising interest rates.

Pete Donohue has the details:

Skyrocketing interest rates caused by the Wall Street meltdown could raise the MTA’s annual payments by tens of millions of dollars above what was anticipated in its budget plans, experts told the Daily News.

The latest financial headache for the debt-heavy Metropolitan Transportation Authority comes as the authority faces a huge 2009 budget gap and is trying to avoid service cuts. “The potential impact could be significant,” one expert said.

The best-case scenario would be for government bailout efforts to free up credit and lower interest rates soon. “If that happens soon – very soon – our budget target for interest cost has a prayer of being met,” said Doreen Frasca, chairwoman of the MTA’s transit committee and the founder of a financial services firm.

The MTA issued a statement to Donohue about potential debt payment problems, and while the agency has stabliized some long-term bonds, short-term, variable-rate certificates pose a problem. “The situation is in such flux that the full impact on our bottom line cannot yet be assessed,” the statement said.

In short, the MTA could be facing a massive budget crisis if their debt payment plans don’t steady. The agency will not have the money it needs to pay off its massive debt, and if creditors call in the money, bankruptcy would be the worst case scenario.

While the federal government is busy bailing out investment banks and financial institutes that made a number of unnecessarily risky investments, will they extend the courtesy to institutions like the MTA whose long-term financial health is just as vital to our economy as the failing banks? I doubt it.