MTA Has The Opportunity To Refinance Its Debt

Will the MTA refinance or extend its debt further into the future? Source: Flickr / paulmmay

THE COMMUTE: As we already know, a huge portion of the MTA’s financial problems relate to the debt it has incurred over the years to finance its capital program. With interest rates at historic lows, the MTA can now reduce its debt by refinancing. The MTA’s current budget includes an $86 million deficit. Chairman Joe Lhota asked Governor Andrew Cuomo to waive the fee the state would charge the MTA if they were to refinance a portion of their old debt. That would save the MTA $54 million over the life of the bonds, according to Bloomberg News.

However, the MTA also intends to take on an additional $9 billion in new debt this year, according to Therefore, if the charge were to be waived on this debt as well, the MTA could save $76 million in state fees. MTA Board member Allen Cappelli has recommended that any savings from waiving state fees be used to restore services cut in 2010. The governor may just waive the entire $76 million or a portion of it to partially offset the $320 million the MTA lost by the recent partial repeal of the Payroll Mobility Tax. Or he may decide not to waive any of it.

The 2010 bus service cutbacks saved the MTA $51.2 million and the subway cutbacks saved an additional $16.6 million. Cappelli doesn’t explain how a one-time savings of up to $76 million would pay for increased operating costs beyond the first year. We also do not know what the future annual savings would be if the bonds were to be refinanced at lower rates.

I am not a finance person. It is one of my least favorite subjects. What I do not understand is why the state charges a substantial fee to one of its own agencies in the first place, other than it is required by law. If the reason is to discourage the MTA from taking on debt in the first place, then the state should adequately fund the MTA to minimize the amount of debt needed.

If the MTA can lower its costs by refinancing debt, it would seem to me that would also be in the state’s best interest. The only danger, as some others have warned, is that the MTA may not merely lower its debt for the next 10 years by refinancing. Instead, the exchange could push its debt further into the future by refinancing a bond with 10 years left with a new 30 year bond, for example.

The state should reimburse the MTA for the amount of funding it lost through the partial repeal of the Payroll Mobility Tax as the governor promised he would do. Any waiver of state fees should not count toward this reimbursement but should be used to restore those bus service cutbacks that resulted in more inefficient bus routes. If half the cutbacks are restored, for example, in two years from now, the economy may improve so that these service restorations can become permanent. Beyond that, hopefully additional restorations and service increases could be made if Lhota is inclined to increase service rather than to continue to decrease it, which only causes further patronage losses.

Lhota is the finance expert. He should be able to decide which types of refinancing would be most beneficial to the MTA. Also, the last MTA Board member who spoke out against the service cutbacks, Norman Seabrook, did not have his term renewed. Cappelli has been just as outspoken as Seabrook was.

How will the MTA refinance? Will it extend its debt further into the future? Will Governor Andrew Cuomo keep his promise by not allowing the partial repeal of the payroll tax to affect the MTA’s bottom line? Will the governor waive the state refinancing fees? Will the MTA restore any services? Will Allen Cappelli’s term on the board be renewed when it expires or will he also be punished for speaking out against the service cuts? These are all crucial questions. How the governor and MTA chairman answers them will give us a better idea how pro- or anti-mass transit the governor is, and how good of a chairman Lhota will be.

Opinions anyone?

The Commute is a weekly feature highlighting news and information about the city’s mass transit system and transportation infrastructure. It is written by Allan Rosen, a Manhattan Beach resident and former Director of MTA/NYC Transit Bus Planning (1981).

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  1. I like this article, so I am a little sorry nobody has commented yet. So I will.

    When was the last time the MTA refinanced its debt? All I can say is that seems like the economy would really have to get going again in order for the MTA to even consider that.

  2. l would support refinancing its debt service if and only if the MTA is banned from issuing more debt service, except when approved via the referendum.

  3. What I would like to know is what the new $9 billion in debt is for and if the projects are necessary. I can see it for improvements that will bring new revenue, but it is not a way we shoud be financing rebuilding the existing system. That way the MTA will always have financial problems.

    The other point is refinancing would make sense if they can issue bonds paying less without extending the length of the debt.

  4. Also, I don’t know the answer, but I wouldn’t be surprised if the MTA never refinanced before. I don’t think there was the opportunity. If anyone knows the answer for sure, please let us know.

  5. Some of the projects include:

    2nd Avenue Subway
    7 train extension to Manhattan’s West Side
    LIRR to Grand Central
    Installing CBTC on the 7 line
    Culver Rehabilitation Project
    Fulton Street Transit Center
    Installing CBTC on Queens Blvd

  6. Other than the Second Avenue Subway, in other words not projects that will increase revenue. Not a good method to raise funding if you eventually want to get yourself out of debt. And how much more bonds would they need to complete the first half of the Second Avenue Subway?

  7. Not necessarily.  CBTC on the 7 would increase capacity thereby permitting increased ridership. LIRR to Grand Central should increase ridership and revenue, however the LIRR operating subsidy is much higher than NYCT’s, so the subsidy would increase as well.  Fulton St Transit Center should generate rental income from its shops and may incrementally increase ridership because of the shops and ease of station access.

    I agree with you on the other capital projects.

  8. Everyone, please keep in mind that it finance experts who got us into the Great Recession in the first place.  Guaranteed returns, that’s what they said.  Spread the risk, that’s what they said. Debt? blaaaahhhhhhhh.  You’re increase in equity will more than offset that. 

    And now another $9bn worth of kicking the can down the road.  If a re-finance in effect reduces exisitng debt service (or payments), and it is offset by the increased debt results in the same debt service (or payment) and re-payment terms, then the scheme would work because there is a net zero change.  Anything more is kicking the can to our kids/grandkids.  Let ’em sort it out, those brats.  Let’s saddle them instead.  How utterly foolhardy, selfish and self-centered/satisfied…

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