MTA's message as budget implodes: we still need congestion pricing

The New York Metropolitan Transportation Authority will "reprioritize and shrink" its capital plan and look to borrow more in the capital markets — likely at higher costs — now that Gov. Kathy Hochul hit the brakes on its toll revenues, MTA Chief Executive Officer Janno Lieber said.

Lieber has had an "incredibly difficult week" since Hochul's announcement on Wednesday, he said at a Monday press conference; Hochul only warned him about her decision the night before. 

Since then, the state legislature rejected Hochul's plan for an alternative funding source for the MTA and adjourned for the year.

Metropolitan Transportation Authority / Patrick Cashin

The MTA remains committed to congestion pricing but cannot implement the tolls without the governor's approval, Lieber said. In the meantime, capital plan work has ground to a halt while the agency decides what to cut.

Congestion pricing, a toll on vehicles entering Manhattan's Central Business District, was supposed to take effect on June 30. That day would have been the culmination of a state law, environmental reviews, federal approval processes, $500 million worth of toll gantries, and, Lieber noted at the press conference, 1,800 days of work from MTA employees. 

The aforementioned state law didn't just allow congestion pricing, it required the MTA to implement it. The governor cannot void that mandate, Lieber said, nor should she. 

However, Hochul's Department of Transportation must sign off on the final federal approval for the MTA to start collecting tolls. So the MTA will continue to prepare for congestion pricing's implementation, even though the agency does not know when Hochul will allow it, Lieber said. 

"We at the MTA are not giving up on congestion pricing," Lieber said. "Not at all."

The MTA is still fighting the eight federal lawsuits against congestion pricing and is still waiting for the Federal Highway Authority to send its final letter of approval. 

Although Hochul said she was "committed" to the MTA's planned capital improvements, the agency can no longer afford them, Lieber said. The agency paused awarding any new contracts in April due to the lawsuits and the pause will remain. 

Congestion pricing revenue and subsequent bond issuances were supposed to create $15 billion for the MTA, roughly half of the remainder of the 2020-2024 capital plan. About 70% to 75% of that plan was for maintaining a "state of good repair," Lieber said.

The agency cannot even afford all of the state of good repair projects it had planned, Lieber said, and is prioritizing the ones most necessary to safety. He added that some employees' salaries are paid in part by the capital plans. 

Capital improvements like new subway cars, electric buses, and upgraded signal systems will not happen without a funding source. The MTA will continue with some elevator installations as required under a disability settlement, but not as many as were planned, Lieber said. 

The agency is also focused on maintaining funding from federal grants, like the $3.4 billion for phase II of the Second Avenue Subway expansion. Lieber has been in communication with New York's senators and representatives to ensure these grants are not at risk. 

Even after paring down the capital plan, the MTA will need to issue debt. The debt will be issued sooner than planned, and under the MTA's transportation revenue credit rather than its congestion pricing credit, so near-term debt service costs will be higher, Lieber said. The agency is analyzing how this will affect its operations budget. 

"If we are borrowing money earlier, to make up for the money we don't have, that has an impact on the operating budget, because that debt service goes over to operating," Leiber said.

The MTA had $46.7 billion of outstanding debt as of May 20 and its debt service payments were $2.7 billion last year, 15.7% of its total revenue.

The MTA's transportation revenue credit is rated A3 with a positive outlook from Moody's, A-minus with a positive outlook from S&P and AA from Fitch. KBRA rates the MTA AA with a stable outlook. After the governor's announcement, Moody's and S&P released statements that the loss of congestion pricing will be credit negative for the MTA, but no agencies have updated their ratings.

Fitch Ratings said the congestion pricing pause will not affect the MTA's rating in the near-term, because Senior Director Michael Rinaldi does not view the loss of congestion pricing revenue as a liquidity challenge for the agency.

"Extended delays by the state in establishing a long-term revenue solution threatens the MTA's ability to effectively execute its 2020-2024 capital program," Rinaldi wrote.

S&P said after Hochul's announcement that it does not anticipate revising the MTA's transportation revenue bonds or payroll mobility tax bonds at this time; it is awaiting further clarification from the agency's July and November financial plans.

"This development adds to the uncertainty regarding where the MTA's post-pandemic ridership will ultimately settle, and could potentially constrain the MTA TRB rating," S&P wrote in the bulletin.

Matt Fabian, a partner at Municipal Market Analytics, said the cancellation of congestion pricing "does not undermine fundamental MTA credit strengths."

The city's economy is so reliant on the MTA that the state has no choice but to fund the agency, Fabian argued; it's too big to fail.

The decision does, however, leave the MTA "even more dependent on state policy decisions and political realities," Fabian wrote in MMA's weekly newsletter. This puts more burden on the state and its taxpayers than on the MTA, he said. 

The MTA will hear a report on the revisions to the capital program at its June 26 board meeting — where the board originally planned to deliver the final authorization for the tolls. 

The next capital plan is due in October. Unless Hochul allows congestion pricing or the legislature comes back for a special session, the MTA will not have a new revenue source by then.

Howard Cure, director of municipal research at Evercore, said falling behind on state of good repair projects could have downstream effects for the MTA's revenue.

"You want reliable service, right?" Cure said. "Particularly in the city, where they're trying to attract more people to physically come back to work."

Unreliable service could cause a downward spiral of lower farebox revenues, worse MTA service, and fewer people entering New York City, potentially damaging the city's economy, he added.

Lieber also expressed personal frustration with the governor's decision. 

"As much as I want to understand, our job at the MTA is not to be political analysts," Leiber said.
"The governor plays on a statewide and national field, and sometimes, that means we don't look at things exactly the same."

"To the folks who are frustrated that this reversal took place, I can relate," Lieber said. "And I want to emphasize, I am incredibly moved by how New Yorkers — transit advocates, but regular New Yorkers as well — have turned out in full force and raised their voices to show support for transit and for the MTA."