New sources of recurring revenue in the state’s final budget and other aid, including expected revenue from congestion pricing, give the Metropolitan Transportation Authority an opportunity to ease the pressure that growing debt places on its operations and stabilize its future finances, according to a report released today by State Comptroller Thomas P. DiNapoli. Ensuring stronger finances down the road will depend in part on how the MTA chooses to manage debt in the coming years.
“The MTA received the State funding it requested to address its latest fiscal crisis,” DiNapoli said. “It should use this opportunity to stop its recurring cycle of fiscal crises by paying down and managing its debt more appropriately to shore up future operating and capital budgets. Our regional economy needs the MTA to regain its strength and win back riders to a safe, reliable and on-time transit system.”
The state’s increase in the payroll mobility tax will provide the MTA with $1.1 billion annually. Because the state is providing this new assistance now instead of years from now when federal pandemic aid is exhausted, the MTA is able to use the aid to prepay debt and ease the debt service payments coming from its operating budget by a total of $1.5 billion from 2023 through 2026. The MTA can use these savings to preserve and improve service.
Additional assistance in the state budget, which is expected to provide funding to help balance the MTA’s budget through 2026 — and federal approval for congestion pricing — are positive signs that the MTA can gain greater control over its long-term finances and reduce pressure from the capital program on its operating budget.
In the past, the MTA has used a debt structuring approach called “backloading” to balance its short-term budgets, pushing higher costs to budgets decades away and increasing total interest expenses. The MTA can now take steps to reduce its future debt load by managing capital spending wisely and committing to sound debt repayment practices without obscuring how debt is contributing to its budget deficits.
However, with ridership continuing to lag pre-pandemic levels, and with an ambitious 2020-2024 capital program still facing funding risks, the MTA will have to make some difficult choices. How it decides to bridge the gaps after 2026 and manage its debt can determine whether it remains on firm financial ground or whether it comes back to riders, toll payers and taxpayers for more assistance down the road.
- MTA’s outstanding long-term debt climbed from $11.4 billion in 2000 to $42.3 billion in 2022 and will reach $56.7 billion by 2028.
- By 2023, the MTA expects 17.9% of its revenue will go toward debt payments and peak around 19.5% in 2024 and 2025 before declining slightly. However, after adjusting for recent MTA and state actions, DiNapoli’s office projects the burden will be at about 16% through at least 2026, which is on par with pre-pandemic levels and a substantial reduction from current forecasts.
- Among the debt MTA carries is lockbox debt, which will be primarily funded with congestion pricing revenue and kept outside of the operating budget to eliminate any impact on operational spending. Non-lockbox debt, however, can impact MTA’s operations and that debt will decline to less than $39 billion of the total by 2028.
- Budgeted debt service (including lockbox debt service and excluding debt issued after the 2020-2024 capital program) is projected to reach nearly $5 billion by 2031, $1.8 billion more (58% higher) than in 2022. Much of this increase is expected to be funded by the capital lockbox, which will keep debt service in the MTA’s operating budget at less than $3.5 billion through 2030.
- MTA projections suggest it will continue to issue debt that delays paying down the principal for 10 years. While this buys short term relief, it extends and expands the amount of debt service that the MTA has to pay each year.
- MTA’s commitments for capital projects has vastly improved, with one-third ($18.6 billion) of its 2020-2024 program already committed. Historically, MTA’s slow pace of capital commitments has delayed improvements and increased debt.
Annual Update: Metropolitan Transportation Authority’s Debt Profile
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