How serious are the finances of the state-controlled Metropolitan Transportation Authority? Last week, the MTA was forced to borrow money from the Federal Reserve, the country’s central bank and the lender of last resort to financial companies – not transit authorities. As the months go by without congressional assistance, the MTA’s options dwindle, jeopardizing the takeover of Gotham.
Even though people try to get back to everyday life, they avoid crowds which means avoiding public transport. MTA attendance, after skyrocketing in early summer, has stagnated at a fraction of pre-pandemic trips. Last Wednesday, metro ridership was down 77%.
Metro-North attendance is down 83%, showing that New York white collar workers have not returned to Manhattan.
People who need to travel use other options. Citi Bike ridership works even with last year, and traffic at the MTA toll bridges was only down 12%.
So transit fares have soared, by $ 5.3 billion this year alone, with the taxes the MTA gets from Albany.
Even with the $ 4 billion given by Congress in early April, the MTA expects a budget hole of $ 10.3 billion, compared to a budget of $ 34.5 billion over two years this year and year. next – 30% of spending.
Because of these numbers, the MTA cannot borrow in traditional bond markets, at least not at an interest rate it wants to pay. Last week he tried to borrow $ 451 million from traditional lenders (like banks), with a three-year repayment term, but lenders demanded an interest rate more than double the January rate. .
The MTA therefore turned to the Fed, taking advantage of an emergency program. It is only the second government borrower to do so, after the long-bankrupt state of Illinois. And the agency still had to pay 50% more than in January.
The MTA will not get much for this new debt, being able to speed up projects like modernizing subway signals.
The new loan only repays the previous debt, which would have matured on September 1. The Fed’s action is just as much a bailout of MTA’s existing lenders, who would have been in trouble if the MTA couldn’t raise new debt to pay off the old one.
OK, the MTA saved time – but time for what? Congress is expected to come up with a new aid package. But what if Congress doesn’t show up long enough or long enough?
A nightmare scenario is, three years from now, a stumbling MTA with, say, 60 percent of pre-pandemic ridership. People with options have either left town or stranded with bikes in Manhattan and cars in the boroughs. The MTA does not have the resources to repair and maintain its infrastructure, and it must cut services to pay off its existing $ 46 billion debt.
Consider this: $ 2.6 billion in annual debt repayment costs, in last year’s pre-pandemic budget, accounted for 17% of MTA’s revenue. Next year’s $ 3 billion in debt repayment charges will consume a full quarter of significantly less income.
For now, bondholders don’t have to worry. Legally, they have the first claim on the income. It is the drivers who will immediately suffer from drastically reduced service and maintenance outages that will lead to even worse service down the road. (Of course, if the transit crisis has lasted for a few years, the reality on the ground will erode the protection of bondholders, as it has in Puerto Rico and Detroit.)
The MTA has limited choices. It is already planning $ 1.8 billion in budget cuts over two years, ranging from hiring freeze to reducing consultants.
Far beyond that, there should be a wage freeze, including for unionized workers – for which he needs the political support of the state. But Governor Andrew Cuomo has granted a new statewide holiday, Juneteenth, without removing an existing holiday, a new additional cost of $ 32 million annually to the MTA.
The MTA is already planning a 4% tariff hike next March – now a tax on essential workers. She might consider raising tolls much higher and faster than fares, as car and truck traffic rebounded. But even a 20% hike in tolls – well beyond that, would take drivers away from New York altogether – raises less than $ 300 million.
The MTA, with political support, can do it faster. But the big picture: To get New York back to normal, we’re counting on Congress or a vaccination miracle – then a quick return to office life five days a week.
Nicole Gelinas is editor of the City Journal at the Manhattan Institute.