A democratically controlled Senate could also offer a bigger stimulus package for the public transportation systems, but that chamber’s fate rests on two runoff elections in Georgia in January. Biden said Monday that Congress should immediately pass a Covid bailout package, but there are no active negotiations between House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnell.
The MTA is looking for federal funding to cover budget deficits this year and next. It is planned to present its budget proposal for 2021 during a monthly board meeting on Wednesday, followed by a vote next month. Without further help from the federal government, this plan will provide for service cuts of up to 40% for underground trains and buses and 50% for local transport routes.
“We’ll keep fighting and working for it,” said Pat Foye, MTA’s chief executive officer, in a phone interview about the $ 12 billion request. “As the largest public transportation agency in North America, our pandemic losses are greater than any other.”
Transportation needs dominate the New York City area, where officials are waiting for federal funds to begin work on the Gateway Project, a $ 11.6 billion mass transit tunnel under the Hudson River that connects Manhattan and New Jersey. The MTA is also awaiting federal guidelines on implementing congestion pricing, a new source of revenue originally intended to cover $ 15 billion in debt for capital needs, but could also help meet operating costs.
In addition to massive service savings, the MTA has warned it will be forced to issue debt to cover operating costs and lay off more than 8,000 workers. These changes could result in an estimated $ 65 billion per year gross domestic product loss for the New York City area and cost 450,000 potential jobs by 2022. This came out of a report released last month by the NYU Rudin Center for Transportation Policy and Management and New York-based consultancy Appleseed.
Biden has already focused on local transport. Phillip Washington, chairman of the board of directors of the Los Angeles County Metropolitan Transportation Authority, leads Biden’s transportation panel within his transition team. Polly Trottenberg, New York’s traffic commissioner, also belongs to this group.
“Over the long term, there is a lot of political support for the MTA to remain a viable system,” said Dora Lee, research director at Belle Haven Investments, which manages $ 13.3 billion in municipal securities, including MTA insured debt. “It is very important and essential to the New York economy and as a proxy for the economy of New York State.”
Still, investors are skeptical that the MTA will receive the full $ 12 billion from Congress. The agency, which owed nearly $ 46 billion in debt on Nov. 4, will vote on Wednesday to raise $ 2.9 billion in borrowing to fill budget gaps if it does not receive further federal aid receives. This is evident from the documents published in the MTAs website.
According to state auditor Thomas DiNapoli, MTA debt is already facing “levels of suffocation”. The principal and interest payments are expected to account for 25.7% of sales in 2021.
The MTA plans to borrow for the second time through the Federal Reserve’s municipal liquidity facility. The MTA and Illinois are the only companies taking advantage of this program because low interest rates have limited this borrowing to the most financially stressed loans. The credit facility expires on December 31st.
A surge in MTA debt shouldn’t scare bondholders as the agency’s driver numbers and revenue should return to more normal levels over time, said Richard Schwam, a municipal credit analyst at AllianceBernstein LP, which owns $ 49 billion in state – and municipal debt including MTA managed shackles. The MTA estimates pre-pandemic driver numbers may not return until almost 2023.
Prior to the pandemic, drivers packed shoulder to shoulder on subways, buses, and commuter rails as the network serves more than 15 million people in New York City, southeast New York state, and Connecticut. A coronavirus vaccine would help regain driver confidence in the safety of the MTA system.
Even if Congress declined to provide funding to the MTA, the system can temporarily rely on deficit funding and the MLF program to raise the necessary money, Schwam said. Investors who can get past the financial burden of the MTA could see an advantage in sticking with the loan, he said.
“People will want to own it and are generally confident that you will get a really nice profit with such an investment, although it will be bumpy for a few years,” said Schwam.
Some MTA bonds trade at cheaper levels than they normally would. While the extra yield investors are asking to hold MTA debt instead of top-rated municipalities has decreased since the mid-March pandemic, that yield differential is still large compared to bonds traded before the virus.
An MTA bond, sold in February 2016 with a 5.25% coupon and maturing in 2056, was last traded on Monday at an average yield of 3.8%, 224 basis points more than AAA-rated municipal debt, according to the data compiled by Bloomberg. That return spread is much larger than it would be if you were trading debt in January this year, averaging 3 basis points above the top-rated Munis.