Benjamin Kabak

Fitch, the investor ratings company, has assigned nearly $100 million in MTA revenue variable rate bonds an A rating and has downgraded over $14 billion in preexisting debt from an A+ to an A, the company announced today. According to the press release, available on Transportation Nation, “the downgrade reflects higher than expected near-to-medium term financial pressure.”

The release explains further:

The downgrade reflects higher than expected near-to-medium term financial pressure stemming from increasing operating costs (projected to moderate in growth in the outer years) and pension obligations and growing annual debt service obligations from expected near-term issuance associated with the capital program. This is exacerbated by the strong likelihood that operating subsides (dedicated tax sources) will not grow as anticipated in the near term leading to wider deficits. The Stable Outlook reflects the authority’s institutional focus on monitoring developments and willingness to take corrective action albeit that the options available are fewer in the current environment.

The downgrade comes following the release of a long-term capital plan that relies heavily on debt-backed bonds and other shaky assumptions. Transit advocates were none too pleased to hear the news. “Just like in Washington, decisions made by our elected officials in Albany caused this downgrade,” Paul Steely White, Executive Director of Transportation Alternatives, said. “The State’s raids on public transit funding have forced the MTA to pay for subways and buses with debt. Now, it will cost more for the MTA to run the system, and this will hit New Yorkers where it hurts—fare hikes and service cuts; unless our elected officials in Albany find secure revenue for public transit.”

Apparently my talk of debt earlier today was not all that premature.

Debt payments are making up an ever-increasing amount of the MTA's annual budget. Image via RPA/ESTA.

A few weeks ago, the Regional Plan Association and the Empire State Transportation Alliance dug deep into the MTA’s budget projections and voiced their concerns over the MTA’s ballooning debt balloons. For long-time transit watchers, the agency’s debt isn’t a new storyline, but the numbers are increasingly heading upwards. The system is saddled with more debt than every before, and there’s no sign of relief on the horizon.

Yesterday, Streetsblog excerpted parts of the presentation which I’ve seen as well, and the picture isn’t a pretty one. According to the MTA’s own metrics, debt payments will account for over 17.5 percent of its operating budget by 2014, and according to the RPA and ESTA, the real total based upon the MTA’s sleight-of-hand accounting may be closer to 23 percent. Labor costs will fall to around 53 percent of expenditures.

“Every year,” Noah Kazis wrote, “more and more money that might go toward paying bus drivers, buying fuel, cleaning stations or keeping fares affordable is instead spent on debt service. Even over a period when pension costs will have risen by a billion dollars per year, it’s debt that is chewing up the MTA’s budget.”

Besides the debt, though, the other area of growth concerns pensions. In 2003, pension spending accounting for under five percent of the MTA’s operating budget, but by 2014, that number will rise to around 9.36 percent. That type of growth is unsustainable and worrisome. The MTA cannot become a pension and debt organization while running a subway system, but by 2014, over 30 percent of its operating budget will be tied up in those two areas.

So why so much debt? Kazis explains:

That debt is the outcome of decades of diminishing state support for public transit. After a major infusion of capital under the Hugh Carey administration, Governor Mario Cuomo cut all direct support for the MTA capital program. Though Cuomo found other revenues for the capital plan, notably by repurposing Westway dollars for transit, George Pataki just let those zeroes stand and put the cost of the capital plan on the MTA’s credit card, starting the debt build-up in earnest. Pataki also started using dedicated transit funds to pay the state’s commitments to the MTA, essentially double-dipping on those funds and costing transit almost $200 million a year.

The 2009 passage of the payroll tax helped the MTA’s budgets significantly — it is now the agency’s largest dedicated revenue source – but Albany’s decisions to kill congestion pricing and bridge tolls meant that the MTA still had to borrow heavily to pay for repairs and mega-projects like the Second Avenue Subway.

The result is a massive run-up in debt. Though the MTA spent only $848 million on debt service in 2004, according to RPA, it is projected to spend more than three times as much, $2.67 billion, in 2014. Debt alone will eat up 17.6 percent of the MTA’s operating budget by 2014; worse, RPA says that an alternative calculation shows the 2014 debt load at 23.1 percent of the operating budget.

Talk about debt often causes other people’s eyes to glaze over. They just want to know that trains will run frequently and on time, that the fare won’t go up and that there will be a seat for them on the next train. But these debt payments will impact the MTA’s ability to provide service. The authority can cut employees; they can cut trains and buses; they can raise; but they cannot cut debt. Without better and more concrete investment in the system, debt will balloon, and the rest of us — the riders and commuters who depend upon the subways — will lose out.