The credit ratings agency Moody’s hinted at a downgrade to the Metropolitan Transportation Authority’s credit if the Trump administration is successful in killing congestion pricing. Such a move would raise the cost of borrowing for the agency and jeopardize mass transit projects by making it harder for the agency to finance them.
The U.S. Department of Transportation’s move to revoke federal approval for the Manhattan tolling program “exacerbates long-standing capital risks” for the MTA and is a blow to the authority’s plans to use revenue from charging motorists who enter south of 60th Street to modernize the region’s mass transit, the rating agency said in a Feb. 28 memo which has not been previously reported.
“Unexpected federal policy and funding changes create an unpredictable environment for [bond] issuers that could become increasingly credit negative,” the report states.
After the federal government’s Feb. 20 announcement that it intends to revote final approval for the tolling program, the MTA filed a legal challenge in the U.S. District Court of the Southern District of New York. The legal battle over congestion pricing is likely to be a lengthy one, and that creates uncertainty for the authority as it seeks to finance mass transit projects. In the meantime, the MTA continues to collect the congestion pricing toll and said it will do so unless told otherwise by a judge.
The MTA could negotiate some sort of compromise with federal officials to expedite a solution, but that could leave the agency with less funding for transit projects, said Moody’s. The U.S. government would have significant leverage in those negotiations, Moody’s notes, because of the sizable federal funding it provides to transit in New York City, including $13 billion for the MTA’s 2020-2024 capital plan, most of which hasn’t been disbursed to the authority.
Meanwhile, funding for the MTA’s 2025-2029 capital plan is also uncertain. The authority proposed a $68 billion vision for the plan, but the state’s Capital Plan Review Board rejected the proposal in December until the state finds new revenue sources to plug a $35 billion funding gap in the MTA’s proposal amid state lawmakers’ deliberations over this year’s state budget.
The MTA is dependent on the state to come up with the cash because the authority’s ability to finance its latest capital plan is limited “without straining its operating budget or significantly weakening its credit profile,” according to Moody’s report. But delaying or abandoning projects to reduce spending could jeopardize service and the MTA’s long-term health, said Moody’s
“Alternatively, the MTA could cut or postpone capital projects,” states the memo. “However, deep capital spending cuts would slow necessary improvements to equipment and service levels, and potentially impede MTA’s post-pandemic ridership recovery.”
Moody’s report “reiterates key points” that MTA officials have publicly warned about, the MTA’s Chief Financial Officer, Kevin Willens, said in a statement.
