As the MTA is fond of pointing out how pension and health care benefits are directly responsible for the next fare hike, the unions have responded in turn with complaints about the MTA’s debt refinancing structure. In a report [pdf] issued by the ATU, the labor union alleges that interest rate swaps executed from 1996 through the mid-2000s is costing the MTA over $100 million annually.
The MTA disputes these findings. “To compare transactions we entered into years ago, compared to what you can get in risky variable rate debt right now is either irresponsible or deliberately misleading,” MTA spokesman Adam Lisberg said to WNYC. “They are simply wrong.”
Economists, meanwhile, have urged the MTA to renegotiate with the banks much as they have had to do so with their other contractors. Parrot also noted that the MTA is about to go to market to sell billions in new bonds to refinance its capital construction program. “They could say to the banks, ‘If you’re unwilling to renegotiate these credit swaps, we’re not so sure you’re going to get a piece of these bonds,’” economist James Parrot said. The MTA claims such a move is impossible due to the MTA’s reliance on the banks, which may be the problem in the first place.
6 comments
If New York had a state-owned bank, or a city-owned bank, the MTA could issue municipal bonds without screwing around with the commercial banks and their outrageous fees.
North Dakota has a state-owned bank.
It’s a matter of interest rates, not fees. When you’re a big player – a multimillionaire, or a large business, or a large government agency – the fees aren’t as relevant to you.
The MTA can issue bonds directly to the people of the state at whatever rate they like. I suggest 2%; that would sell very effectively.
The MTA is only using the banks for *advertising, distribution, and underwriting*. Chris has a point: the MTA doesn’t need the banks at *all*. Is there a state law requiring them to use banks?
The MTA could issue bonds without using a bank at all so a state owned bank seems beside the point.
I beleive the title should be
ATU: MTA debt refinancing costing millions
not
TWU: MTA debt refinancing costing millions
though i’m sure TWU agrees
Yeah, the ATU is so enamored with this that when I asked Larry Hanley about how the state legislature charged the MBTA with debt for Big Dig mitigations, he instead responded about this refinancing scheme. Turns out the refinancing bit would save the MBTA $26 million a year; the Big Dig debt interest that he ignored is $117 million, and total debt interest is $351 million.