NYS Office of the Comptroller DiNapoli: Debt Adding to MTA's Financial Pressures With Riders and Fare Revenue Slow to Return
MTA Bought Time with Federal Aid, Higher State Tax Revenue, But Short-term Fixes Risk Making Future Budget Gaps Worse
Despite unprecedented federal aid and better-than-expected state tax revenues, the Metropolitan Transportation Authority (MTA) continues to plan to use borrowing techniques that push difficult financial decisions into the future and could leave less money to pay for services, according to New York State Comptroller Thomas P. DiNapoli’sannual report on the MTA’s debt. If riders do not return faster than the MTA projects, or if new sources of revenue are not found, rising debt payments could force the MTA to close future budget gaps through service cuts, greater than planned fare hikes, or delays to capital projects, the report concludes.
“The MTA’s finances are stable this year, but just around the corner it faces growing budget gaps with no solution to close them yet,” DiNapoli said. “The MTA should not kick the can down the road. Its plans to issue debt to pay for operating costs and put off paying down its debt for capital projects may save money in the short-term, but those bills will eventually come due for future riders and taxpayers. If it continues down this path, the MTA will have a harder time paying for maintenance, repair and other work that keeps the system running and funding the capital projects that are needed to improve service for riders.”
The MTA’s structural budget problems predate the pandemic with expenses having risen faster than operating revenue. When the pandemic hurt fare and tax revenue collections, the MTA’s bad financial situation became a dire problem. It is relying on more than $14 billion in one-time federal aid to balance its budgets through 2025. By 2026, the MTA faces a budget gap of over $2 billion and could, as a last resort, have to borrow to pay for operating costs, as is planned for 2025.
DiNapoli called on the MTA to work with its federal, state and city funding partners to accelerate and enhance funding sources for its capital plan to reduce pressure on its near-term debt burden. The report also encourages the MTA to prioritize its capital spending on projects that address the transit system’s resiliency, so that it has a clear understanding of which projects are critical and which can be delayed if necessary.
The report identified several concerns over the MTA’s debt, including:
The amount of outstanding long-term debt issued by the MTA increased from $25.8 billion in 2010 to $35.4 billion in 2019 (37%) and rose an additional 13% to $40.1 billion in 2021.
Outstanding debt will reach $47 billion by 2026 and could reach $57 billion by 2030, including all bonds backed by congestion pricing revenues to pay for its 2020-2024 capital program.
Debt service is projected to reach $4.3 billion by 2031, $1.5 billion more than in 2021 (55% higher), including projected debt service for the bonds that may be issued to fund operating costs.
If the MTA issues the entire $15 billion in debt backed by so-called lockbox funds, which are dedicated to pay for capital projects and include revenue from congestion pricing, the mansion tax and internet sales taxes, then debt service could rise to $4.9 billion by 2031.
20% of total MTA revenue will be used to pay down debt from 2021 through 2025, and the MTA is targeting its debt burden to remain below 18% of its operating budget over time. By contrast, New York City imposes a threshold of 15% on its debt burden.
Lockbox funds are earmarked by law for the 2020-2024 capital program and are not available for the operating budget, however if state law were changed to make these funds available for operations, the MTA’s debt burden could rise to nearly 23% by 2031.
The MTA deferred payment on the principal of all debt issued since 2018 for 10 years, masking its financial problems in the short-term. This includes planned financing for operating services provided in 2025, a debt that would still be paid from revenue in 2053.
The MTA anticipates future revenue growth will ease the burden that its debt puts on the operating budget and create breathing room to fund future capital programs. However, growth in ridership is far from certain.
Since 2010, debt has been the largest source of funding for the MTA’s five-year capital programs, which are vital to keeping the system in a state of good repair and reliable for riders. However, it is consistently late in completing these programs. DiNapoli’s report identifies $54.4 billion that has yet to be committed for projects that date as far back as the 2010 plan. Based on the pace of commitments in 2022, it would take MTA until 2028 to commit these funds and 2031 before the work was completed.
The MTA’s current $55.3 billion 2020-2024 capital program is its largest ever. Only $8.3 billion of the program has been committed, mostly because of a pause in capital commitments during the pandemic and the delay in receiving congestion pricing revenues. The Infrastructure Investment and Jobs Act will provide an estimated $10 billion over five years which the MTA estimates will provide $1.7 billion more than projected for the 2020-2024 capital program. These funds are expected to help the MTA cover the potential $2.9 billion capital plan gap that could be opened up if the MTA uses its debt capacity to issue debt for operating purposes instead of capital.