DERAILING NEW YORK
February 11, 2010
Barely two months ago, New York's state-run Metropolitan Transportation Authority (MTA) faced a surprise $372 million deficit. Now it faces an additional deficit of nearly $400 million. These aren't ordinary budget gaps. This agency is in grave peril, say Nicole Gelinas, a senior fellow at the Manhattan Institute, and E.J. McMahon, director of the Institute's Empire Center for New York State Policy.
The MTA had to scramble recently to cover its immediate cash needs:
- Last June, it borrowed $600 million to meet payroll; it repaid the money as scheduled in December -- but kicked a $125 million pension payment from 2009 into this year.
- Now it has to borrow $700 million more to tide it over for another few months.
- Interest and underwriting costs on both short-term borrowings will cost the MTA at least $14 million.
Why is the MTA sinking? It's not just the recession, but the way New York's feckless politicians have responded to the downturn, say Gelinas and McMahon:
- The regional payroll tax that was the centerpiece of last year's historic MTA "bailout" is delivering about $200 million less than its $1.5 billion-a-year target.
- To fill the gap, Gov. Paterson this week proposed raising the tax by nearly 60 percent in New York City.
- Even more troubling, the state has started to loot the MTA to solve its own cash-flow problems.
A 1970s-style bond crisis could impose some discipline on New York's feckless politicians. But for now, Washington is keeping the bond markets from cracking the whip. Federally subsidized "Build America" bonds, created by President Obama and Congress in last year's stimulus act have allowed the MTA to borrow on great terms. Even last week, days after the Moody's downgrade, the authority issued $608 million in taxable debt at close to the same cheap interest rate it paid last month, say Gelinas and McMahon.
But Obama can't muzzle the bond markets forever. If the MTA's interest costs skyrocket, or if it runs into any other trouble accessing capital within the next year or so, will the state even have the capacity to help? All the politicians (and their lenders) seem to think the feds would rescue the MTA in a "real" crisis -- but Washington can't save all bondholders forever, say Gelinas and McMahon.
Source: E.J. McMahon and Nicole Gelinas, "Derailing New York," New York Post, February 10, 2010.
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