Bonds

State comptroller backs N.Y. MTA on importance of congestion pricing

The New York Metropolitan Transportation Authority has said for years that its congestion pricing plan is crucial to its budget. In a new debt profile report, the New York State comptroller backed the MTA up. 

Comptroller Thomas DiNapoli’s report questioned the MTA’s delayed capital plans, expensive borrowing habits and climbing debt service costs — and warned that all of these problems will worsen if congestion pricing can’t be implemented.

“The MTA’s capital program is critical to winning riders back to public transportation and increasing fare revenue. When capital projects are delayed, repairs and upgrades are put off, causing parts of the system to deteriorate further,” DiNapoli said in a press release. “There’s more at stake than just delayed projects. If the MTA covers the shortfall in capital funds by using its operating budget to pay for more borrowing, less money would be available for day-to-day operations and goals, like increasing service.”

‘If the MTA covers the shortfall in capital funds by using its operating budget to pay for more borrowing, less money would be available for day-to-day operations and goals,” said New York State Comptroller Thomas DiNapoli.

Office of the State Comptroller

Congestion pricing will toll vehicles entering lower Manhattan, with the goal of reducing congestion and improving air quality by reducing vehicle numbers, boosting ridership on public transit and raising funds to support transit capital programs.

The congestion pricing tolls were set to take effect in mid-June, but may be delayed by four different lawsuits in federal courts. 

Revenue from congestion pricing was supposed to fund $15 billion of the MTA’s 2020-2024 capital plan. In February, the MTA halted awarding new contracts as it waits for a verdict on the lawsuits. 

The MTA takes a long time to complete its capital plans, the comptroller’s report noted — it’s still working on both construction and contracts for the 2010-2014 capital plan — but the current plan has moved slower than most. 

The MTA made very few capital commitments in 2020, due to a pandemic-related pause in capital spending. The Authority committed $11.2 billion for capital projects in 2022, coming closer to getting on schedule, but pulled back once again in 2023 with only $8 billion in commitments. 

This year, the MTA’s goal for capital commitments is only $2.9 billion. The longer the MTA drags out the capital plan, the report said, the more it risks capital disinvestment, allowing assets to deteriorate.

If the lawsuits prevent congestion pricing, the MTA, a state agency, will have to find another source of revenue for its capital funding. In 2019, the state allocated revenue from congestion pricing, mansion tax and internet marketplace sales tax to the MTA. 

Those new revenue sources, which were placed in a lockbox separate from the MTA operating budget, are projected to generate around $25 billion in funds for the 2020-2024 capital program, the majority from congestion pricing.

The 2025-2029 capital plan will likely require more funding than the current one, and if new sources of funding can’t be identified, the report said the MTA could have a budget gap as high as $25 billion. 

The MTA could raise fares or cut services, the report said, which is something of a last resort. Or, the report said, it could issue more debt — which will cause a host of other problems.

The MTA’s outstanding long-term debt increased from $11.4 billion in 2010 to $40.4 billion in 2023, not including the funds in the lockbox. Debt service reached $2.7 billion in 2023, and is projected to reach $5 billion in 2031. 

These projections don’t include any debt for the 2025-2029 capital plan, but they do include $8.1 billion of bond anticipation notes that the MTA plans to issue this year as part of its current capital plan. The bond to redeem those BANs won’t be issued until 2027, and then will have deferred principal for 10 years. 

Assuming the MTA issues a similar amount of debt for the upcoming capital plan as it did for this one, the comptroller projects that debt service costs will be 51% higher in 2037 than in 2023; that’s the equivalent of raising the subway fare by 6%. 

If litigation prevents congestion pricing and the MTA decides to cover half its funding gap with bonds, the projections get even more dramatic:

“Debt service would be 84 percent higher than in 2023 or the equivalent of raising the subway fare by 13 percent in 2037,” the report said. 

The report also warned about the potential structure of that debt. The MTA began issuing debt with delayed principal payments during a period of financial stress, but has continued to do so even after financial stress subsided.

“This increases costs to the agency in the long run that future riders, toll payers and taxpayers will have to absorb,” DiNapoli wrote. “A recent OSC report highlighted that State borrowing for the MTA that backloaded principal payments with longer payoff schedules resulted in over $1 billion in higher costs to taxpayers in the long run.”

The report further described the MTA as “reliant” on debt with maturities longer than 30 years. 

“Of the 33 bonds that the MTA has issued since 2017, 15 bonds totaling over $4 billion had maturities longer than 30 years,” the report said. “Nine bond issuances that will take longer than 30 years to repay have been issued since 2021, during a period of sustained fiscal uncertainty.”

These longer maturities “mask short-term operating pressures,” the report said, and cost more over time.

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