New MTA head Jay Walder is a transit expert with deep experience in financial management. He’ll need that experience as the MTA prepares to submit its 2010-2014 capital program in the fall. With little money for transit investment coming from the state and city, MTA officials and the state comptroller have predicted that the authority might issue billions of dollars in debt to pay for the next five years of maintaining the system and finishing current expansion projects. But doing so would set the system up for a repeat of the financial meltdown it experienced this year.
As MTR has recapped before, that crisis had its roots in a series of disastrous decisions by New York State and the MTA in 2000. After Gov. Pataki slashed state aid to the agency’s 2000-04 capital program, the agency funded the program with over $20 billion in bonds (many of them backed by the fare) and refinanced existing debt, back-loading its payments and lighting what the Straphangers Campaign called a “debt bomb.” (The term was christened after the first major use of fare-backed bonds, as a funding source for the 1995-99 capital plan.)
Between 2004 and 2008, the cost of the MTA’s annual debt service nearly doubled. Then real estate tax revenue, another MTA funding source, collapsed with the housing market and plunged the agency into its “doomsday” crisis.
In June of this year, state comptroller Tom DiNapoli released a report on the MTA’s financial condition and warned against future bonding. While the recently passed transit rescue package has shored up the MTA’s operating budget, it does not fully fund the capital program. Even a bare-bones capital plan could require up to $15 billion in new debt given shortfalls in projected local, state, and federal aid. His understated conclusion is that this “would place increasing pressure on the operating budget, just as heavy borrowing in the past has contributed to the MTA’s current fiscal crisis.”
Nine years ago, Gov. Pataki and MTA chairman Virgil Conway went with a debt-backed plan even as transit and business advocates, legislators, and the state comptroller decried it as “a disaster-in-waiting, built on a mountain of borrowed money,” in the words of the New York Times. Like a hot potato, the debt bomb was passed from governor to govenor until it went off last year, creating a crisis that was barely averted through the efforts of an even larger coalition of advocates, officials, and members of the public. Having had the MTA debt bomb go off in his hands, Gov. Paterson surely understands that the worst course of action would be for he and MTA chief Jay Walder to light it again.