In a move that could spell disaster for the MTA’s capital construction program, Fitch, smallest of the three top credit rating agencies, has downgraded the authority’s debt from A+ to A.
The bad news comes as the Transit Funding Lockbox Act, a bill that would prevent New York State from using MTA funds for other general expenses, remains unsigned by Governor Cuomo.
The downgraded rating could mean higher interest rates for the MTA, which would increase what is an already enlarged debt burden, effectively kicking the transit entity while it’s down.
Higher interest rates would be a major setback for large construction projects currently underway, such as the Second Avenue Subway in Manhattan.
Increased rates could also result in additional cuts to the everyday upkeep of the nation’s largest public transit system – causing further reductions in service, (even) less frequent cleaning and maintenance, as well additional fare hikes for commuters.
The action could mean that the MTA could have to pay more money to borrow for big projects like the Second Avenue subway, leaving less money for rider services.
Fitch said in a press release that the downgrade stemmed from increased operating costs and pension obligations, and a growing debt service.
Over the years, debt service has become an increasingly large proportion of the MTA budget, jumping from 10 percent in 2004 to an estimated 18 percent in 2014, according to Regional Plan Association, a non-profit group.
While State Senator Marty Golden, a sponsor of the lockbox bill, remains cautiously optimistic, others see the governor’s reluctance as a potentially bad sign.
From City Hall News:
“We’re hoping the governor signs the bill, but no governor wants to be restricted in how he uses his funds,” said the bill’s sponsor, Brooklyn Sen. Marty Golden (emphasis theirs). Another transit expert fretted, “There has to be some reason why it’s not moving. The longer you wait, the less likely it gets signed.”
The report also mentions the possibility that continued hesitation by the governor to bring the act out of legislative limbo could lead to further downgrading of MTA debt.
Website Transportation Nation quotes Charles Brecher, Director of Research for the Citizens Budget Commission, who says that the MTA’s budget woes are simply a case of the entity spending more than it takes in. To explain their current predicament, he used the analogy of a homeowner taking out a large mortgage.
However, Brecher told the transportation blog that while higher interest rates are a danger, they aren’t a certainty, at least not yet.
The report also includes an excerpt from a statement the MTA released Thursday, in which the authority insists its debt is still “fundamentally secure.”
With MTA Chairman Jay Walder leaving for a more lucrative job in Hong Kong, and a labor contract with TWU Local 100 set to expire at the end of the year, many in Southern Brooklyn who rely on public transit are left wondering not if the immediate future will bring more bad news, but when.
State Senator Marty Golden represents District 22, which includes Bay Ridge, Dyker Heights, Gerritsen Beach and Marine Park; as well as parts of Bensonhurst, Midwood, Gravesend and Sheepshead Bay.