Home MTA Economics MTA set to borrow $5 billion for Sandy repairs

MTA set to borrow $5 billion for Sandy repairs

by Benjamin Kabak

Repairs from Sandy will add to the MTA's debt load. Image via RPA/ESTA.

As we well know, the MTA has a debt problem. By the end of the decade, the MTA’s annual debt service payments should top $2 billion, and debt — as opposed to transit expenses and true operating costs — is the largest growing portion of the MTA budget. Even as the authority has engaged in historic cost-cutting measures over the past few years, the debt problem just doesn’t go away.

Now, the MTA has a Sandy problem as well. With the cost of repairs and some — but not all — hardening projects pegged at over $5 billion, the MTA has to find a way to fund these repairs. Eventually, federal money and insurance dollars will help cover the costs, but you know how these things work. It takes negotiations and time to get the checks cut and the dollars distributed.

Earlier this week, at the monthly board meeting, MTA officials spoke about the funding options for the repairs, and the MTA’s favorite four-letter word came up. To fund immediate repairs, the MTA will borrow money and take on more debt. If only my credit limit were as high as the MTA’s. While discussing the funding, MTA head Joe Lhota vowed to find ways to pay for it that don’t involve fare hikes. “The burden of Sandy will not be upon our riders,” he said.

Still, with the numbers the MTA is throwing around and their plans for funding, the riders will somehow, someway feel the pain. Before Sandy, the MTA’s financial picture was improving. Small surpluses for 2012 and 2013 were to lead to service enhancements — which the MTA says are still on the table — and further savings were on the table. The storm threw that plan fully out of whack as the MTA lost $268 million on fare revenue and increased operating costs and has to fund capital work worth $4.75 billion, the equivalent of a year in the capital budget.

In documents released this week, the MTA says it expects to receive federal reimbursement over a period of three years beginning in 2013. To fund the repairs sooner, the MTA will issue $2.9 billion of debt in 2013 and $1.9 billion in 2014. The MTA also anticipates that it could be left footing the bill for over $900 million in repairs without federal assistance. If the MTA has to bond out that difference, borrowing costs would add $62 million a year to the MTA’s already-substantial debt load.

That’s where Lhota’s statement comes into play. He feels the MTA could, if necessary, fund the difference through internal costs. The agency will not raise fares more than it is already planning to do to pay down this debt. But even if riders aren’t subsidizing the debt, they’re still paying for it. With more debt on the books, the MTA’s credit rating could suffer and borrowing costs may increase. With more debt on the books, the MTA will have less leeway in its tight budget for transit services. With more debt on the books, the riders are left in a very precarious position. Worse yet, we’re still not even contemplating ways to improve and eliminate flood-prone areas.

As is often the case, it’s all about the money for the MTA, and that dollar will just be stretched tighter and tighter as the transit network struggles to recover from the worst natural disaster in its 108-year history.

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Stephen Smith November 30, 2012 - 3:05 am

I’m not really seeing any evidence of an agency that’s been burdened by its debt. Agencies burdened by debt don’t spend $600 million on repairing a single subway station with little (if any) serious structural damage. Or do things like build unnecessary $2+ billion deep cavern stations to avoid having to make even mildly efficient use of the train station with the most tracks of any in the world.

I’m not just taking a pot shot at the MTA – I just don’t see any evidence of an agency being burdened by debt. Yes, it has a lot of it, but given the rate at which it continues to spend, the debt doesn’t seem to be holding it back.

Nathanael November 30, 2012 - 6:03 pm

Regarding the debt: it isn’t a problem now because interest rates are low, which is because of the Second Great Depression which we’re in. The debt could become an enormous problem if interest rates went up, which would be likely to happen if the economy recovered.

Bolwerk December 2, 2012 - 2:12 am

I only glanced, but it doesn’t look like they sold a insane deal of variable rate bonds. Even then, I would guess they probably have some threshold where they call and/or swap for fixed rates.

Bolwerk December 2, 2012 - 2:01 am

Huh? What do you think constitutes a burden? They are paying billions$ in debt service, mostly from borrowing to finance operations and neglect in the past. Not to beat Larry Littlefield’s drum, but the past should have paid for its own operations and maintenance. Maybe you can make the case the MTA isn’t the one being burdened, but the rest of us are getting the short end of the stick when the money that could be going to today’s capital and maintenance budgets instead goes to pay for debt service that we shouldn’t have been stuck with.

Larry Littlefield November 30, 2012 - 7:44 am

Elephant in the room — the next capital plan and the one after. Remember, virtually everything in the capital plan is actually maintenance — ongoing, normal, replacement. What is needed just to keep what we have.

One time only events, such as Sandy and the “mega-projects” aren’t nearly as burdensome precisely because they are only one time. And we don’t need to do more of them if we can’t afford it.

Jason November 30, 2012 - 11:38 am

Jeez, look at that debt service, it truly is strangling the MTA. I wonder what the our MTA would like like if it had no debt, of perhaps debt at the level of its fuel costs?

Larry Littlefield November 30, 2012 - 1:03 pm

Who knows that the MTA looks like?

On the one hand, it is now calling an “operating cost” debt service on the capital plan.

On the other hand, much of the “capital plan” is really just ongoing normal replacement, which is really just maintenance and should really be funded as a operating cost.

And lots of operating costs have been charged to the capital budget as “reimbursable expenses.”

And how much of that pension expense is the cost of paying for the pension rights workers are earning by working today, and how much of it is in fact “pension debt” created by past retroactive deals and underfunding.

mg November 30, 2012 - 3:47 pm

Why are subway yards not decked over and leased to developers? They may not fetch the price of the West Side yards but locations like the Jamaica Yards could be desire locations. Putting a station in the yards themselves would increase the value.

The Corona #7 Yards could support hotels and or an entertainment (convention?) complex especially give its closeness to LaGuadia. (A one track shuttle track between LGA and the Corona Yards/Citifield subway and LIRR Station could possible be paid for by the increase to rental of the air rights.)

Duke November 30, 2012 - 6:07 pm

It has been done (Pitkin Yard, 148 St Yard, Jerome Yard). The problem is that most yards are at or above grade, which makes deckovers impossible. The Concourse Yard is the only obvious untapped sale of air rights on the subway. Corona Yard maybe, but it’s tucked out of the way and access would be difficult.

Someone December 2, 2012 - 7:06 pm

They could do deckovers on Concourse Yard, but it would be hard because much of the yard is at grade or in a trench. The Corona Yards are at ground level or above ground, and right next to the LIRR station, thereby making a deckover very expensive. Additionally, there are zoning rules that would probably prohibit any type of residential development over the yards. There is a maintenance building in Corona Yard, so you’d have to tear that down before building anything.

Larry Littlefield December 2, 2012 - 9:45 pm

The rent/sales price per square foot would have to be very, very, very high to provide a return for a developer and enough revenue for the MTA to justify the future constraints on the rail yard. Manhattan is just about the only place where I can imagine such a deal working.

And yes, railroads have no “as of right” floor area. If they did have as of right floor area, they could do a zoning lot merger, sell the “air rights,” and have a very tall building go up on a lot adjacent to the yard without actually having to build on it.

mg December 2, 2012 - 9:58 pm

Who would object to rezoning the corona yards. nobody lives near there and aside from height issues due to the LGA flight path, it would make a perfect location for a luxury resort – near LGA, not far from JFK, right at the US open, Citifield, the future soccer stadium and with LIRR access to Penn (and soon Grand Central) and reasonable access to times square etc via the #7. It also has good highway access to LI, the Bronx and even NJ. The nearby Queens Chinatown could be a draw as well.

Larry Littlefield December 3, 2012 - 2:07 pm

Where would you put the development? In the park?

You aren’t going to get enough to real estate there to cover the cost of the platform (which would screw up operations for the MTA while being built and constrain options afteward) and a big payment to the MTA. Or any payment to the MTA. In fact, the thing would probably require a subsidy.

Look at how long it is taking to find someone who can cover the cost of the platform and payment for air rights IN MANHATTAN.

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