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The MTA's Construction Crisis

May 15, 2008

By Nicole Gelinas

THE MTA-Tishman Speyer deal is dead.The real-estate devel oper Tishman Speyer won't be paying the MTA $1 billion to build a bunch of big buildings atop the West Side railyards. This collapse is a signal for Gov. Paterson and Mayor Bloomberg to act now to make mass transit a priority and find a way to pay for it.

The MTA had planned to use that $1 billion to help fund its capital plan—its menu of investments in maintaining/upgrading signals and tracks, buying new trains and buses and continuing such expansion projects as the Second Avenue Subway and the transit hub near Ground Zero.

Even if the agency cobbles together a new deal, it probably won't scare up $1 billion. And this probably won't be the last money to vanish from what the MTA has counted on from "asset sales."

But the worst news is that a billion-dollar loss makes the MTA's woes only a bit worse. Even before the West Side deal faltered, the authority faced a $10-to-$15 billion budget gap in its next six-year, $29 billion capital program, which starts next year. Plus, with construction costs rising sharply, it's likely that $29 billion won't get the job done.

The MTA can't borrow much to plug its gap. It's just starting to pay the bill from the heavy debt it's picked up since 2000. MTA chief Elliot Sander recently called the agency's coming debt payments "the mother of all balloon mortgages . . . it's the Hindenburg."

Consider one measure bond-raters use to gauge an investment's creditworthiness, a wonky thing called a "debt-service-coverage ratio." The MTA's revenues (from fares and tax dollars) now cover its yearly payments on bonds about 12 times over. But in two years, that measure could fall to eight times over—still strong, but a worrisome drop, and a more worrisome trend.

The ratings agency Fitch noted that there are "practical limits on the amount of new-money bonds that the MTA can issue." It warns that "given the resources allocated to [capital] expansion projects, . . . the MTA will need to prioritize and/or slow progress on some of these initiatives" unless it can find a huge new source of cash.

The agency can likely squeeze out a couple of billion in new borrowing, but it won't cover the capital plan's $10 billion-plus gap. Plus, the more it must spend on paying interest on its debt, the less cash is left for operating expenses like vital maintenance and cleaning—creating a vicious circle in which it must borrow even more down the line to make up for the work it lets slide now.

So it's not too early to start triage on the capital plan. So what to do?

First, protect and improve the system's existing assets—about $20 billion for regularly replacing subway cars and buses, rehabilitating tracks and stations, improving signals etc.

Maintaining the system, and using new technology to speed up commute times, can be just as good for passengers as building new transit lines. And it's vital that we not delay on such investments: New York's aging subways must compete with much better transit systems in Europe and Asia in offering a reasonable quality of commute.

After covering core costs, we can look to finally finish some expansion jobs. But that—thanks to poor planning—likely means delaying other projects. What about possible cuts to those endeavors? "I'm not sure I really want to go there," Sander said recently.

It is a tough call: The MTA has already dug up Downtown, so it has to finish its transit hub down there. And the East Side badly needs the new Second Avenue Subway.

As for the far West Side: There's probably no hope of luring private investment there during the next boom unless we build a subway line there beforehand. If Bloomberg had spent the last half-decade getting the MTA to build the extended No. 7 line, rather than worrying about what kind of private development he wanted over there, the area's future might look brighter today.

As for the MTA's fourth big project, a tunnel to link the LIRR directly to Grand Central: Contracts are awarded and a couple of billion has already been spent; stopping work on a project that's already begun can render expensive work obsolete.

Indeed, while it's important to prioritize which projects to fund—and finish—in a crunch, it's more important for the mayor and governor to prioritize mass transit in their budgets in general.

Consider: Over its next capital-plan period, the MTA will spend less on transit assets than the city will spend on Medicaid. Some of that cash will go for vital medical services, sure, but lots of it really just appeases Albany's all-powerful health-and-hospitals lobby.

Time and again, New York has made grand plans for infrastructure in good times, then had to slash them in bad times. We'll keep doing it—until some politician (the next mayor, maybe?) decides to hold himself directly accountable for how his constituents get back and forth to work.

Original Source: http://www.nypost.com/seven/05152008/postopinion/opedcolumnists/the_mtas_construction_crisis_110963.htm

 

 
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