MTA may sink whole state
Thirty-five years ago this month, the state Urban De velopment Corp. defaulted on its short-term debt -- setting off bond-market alarms that culminated in New York Citys 1970s fiscal crisis.
Could the Metropolitan Transportation Authority become this eras UDC?
Barely two months ago, the state-run MTA faced a surprise $372 million deficit. Now it faces an additional deficit of nearly $400 million.
These arent ordinary budget gaps. This agency is in grave peril.
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. Thats more than half of the money that Albany will give the agency for student fares this year.
Why is the MTA sinking? Its not just the recession, but the way New Yorks feckless politicians have responded to the downturn.
First, the regional payroll tax that was the centerpiece of last years historic MTA “bailout” is delivering about $200 million less than its $1.5 billion-a-year target. At first, Albany thought this shortfall was temporary; now, it looks indefinite.
To fill the gap, Gov. Paterson this week proposed raising the tax by nearly 60 percent in New York City. But the tax is a toll on job creation -- and the answer to the MTA mess is not more revenue. The shortfall shows that New Yorkers are nearly tapped out.
Second, and even more troubling, the state has started to loot the MTA to solve its own cash-flow problems.
Late last year, Paterson and the Legislature cut $143 million in MTA funding largely by diverting transit taxes into Albanys own general fund. Moodys noted that the money -- which “had already been appropriated” and collected -- went “to balance a portion of the states . . . budget gap.”
This was a first -- and helps explain why Moodys downgraded the MTAs $13 billion in revenue bonds last week.
Mayor Bloomberg has rightly condemned Patersons bid to jack up MTA taxes in the city, but hes not a blameless bystander here. There are no heroes in this saga:
* Not Paterson, the MTAs ultimate boss -- who nudged the agency into punting a critical contract with the Transport Workers Union into binding arbitration -- which predictably resulted in an unaffordable labor deal at the worst possible time.
* Not Patersons predecessors -- especially George Pataki, whose irresponsible refinancing of the MTAs longterm debt weakened the agencys infrastructure budget for a generation.
* Not Bloomberg, whose generous contract settlement with the citys largest civilian union weeks after the 2008 Wall Street meltdown set the pattern for the MTA contract he now condemns.
* Not MTA management -- present or recent past. The authoritys leaders deserve credit for trying to protect the capital budget -- but still fail to warn that the status-quo on labor will cripple the authority.
* Not “independent” straphanger watchdogs who parrot TWU talking points.
* And certainly not the Legislature -- whose members specialize in pandering to the public labor cartels and other interests that have dragged the state, the city and the MTA to financial ruin.
A 1970s-style bond crisis could impose some discipline on New Yorks 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 years stimulus act have allowed the MTA to borrow on great terms. (Also key here, of course, are zero-percent interest rates from the Federal Reserve.) Even last week, days after the Moodys downgrade, the authority issued $608 million in taxable debt at close to the same cheap interest rate it paid last month.
But Obama cant muzzle the bond markets forever.
In the 1970s, the Arab oil embargo was the destabilizing out side factor in the chain of events that led to the fiscal crisis. This time around, global bond markets could be tipped into trouble if the European Union cant “contain” -- for a while -- the debt crises of its weakest states, or if investors strike out against Americas growing debt.
If California, for example, has problems financing its vast debts, the ripple effects will be felt throughout the muni-bond market.
When the UDC crashed, most New Yorkers had barely ever heard of the housing-development agency. The potential starting point for New Yorks next crisis wont be so obscure: The MTA is steward of North Americas largest transit system, including some of the regions most vital infrastructure. It requires steady investment to remain in good condition.
If the MTAs 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 us in a “real” crisis -- but Washington cant save all bondholders forever.
Until that reality becomes obvious, the economic growth New York needs will be hampered by the MTAs woes: Well suffer from an aging transit system hobbled with deficits -- and from the damaging taxes imposed to subsidize it.
The late economist Herb Stein famously observed, “If something cant go on forever, it will stop.” The MTA downslide is unsustainable. When, and how, will it stop?
Original Source: http://www.nypost.com/p/news/opinion/opedcolumnists/derailing_new_york_5u5hl31br9P81o3SbVWWSO