MTA Borrowing $3B from Fed Shouldn’t Be Excuse for Raiding State Dedicated Funds

In September, an MTA Board Member suggested borrowing the maximum amount from the Federal Reserve’s Municipal Liquidity Facility (MLF) program, or $2.9B in three-year loans on top of the $450M borrowed in August. Should the MTA seek to borrow from the MLF, we recommend that the MTA work with the Fed and Senator Schumer to improve the program. The MLF program is not a substitute for direct emergency aid, but could support the MTA with a low-interest bridge loan as it weathers the COVID-19 crisis.

Importantly, this short-term loan from the Fed also cannot be an excuse for the Governor to raid MTA dedicated funds. The Governor must do his part and deliver to the MTA 100% of the dedicated transit funding that comes in. This means not withholding any funds, and not subjecting MTA dedicated taxes to 20% across-the-board cuts — an additional $600M hit.

To raid MTA dedicated funds to make up for NYS general fund shortfalls while the MTA is borrowing nearly $3B more from the Fed undermines the case before Congress for federal emergency aid.

According to the State Comptroller’s monthly cash report, New York State is sitting on a cash hoard of more than $22.5B as of the end of September 2020 — 54% more than it had in September 2019. The MTA is in much worse shape than New York State, as MTA ridership is still down nearly 70%. Full state support is also important for the MTA’s credit ratings. In its last downgrade, Kroll expressed concerns about the delay and possible reduction in MMTOA dedicated funds saying: “The delay of funds is inconsistent with KBRA’s expectation of uninterrupted State support of MTA operations.”

Should the MTA seek a bridge loan via the Fed’s MLF program, it should work to get as favorable conditions as possible. We recommend that the Federal Reserve and Congress:

1. Extend the program through 2022 – The program currently expires Dec 31, 2020. The MTA would like to see it extended, and we agree that continuing the program would provide more flexibility for the MTA to borrow as needed, rather than “max out” in 2020.
2. Lower interest rates – Currently, the MLF rates are lower than the bond market at 1.8%, but even lower rates would mean less that the MTA has to pay back in interest. The MLF currently “penalizes” government entities with poor credit ratings such as the MTA with higher interest rates. This is counter to the purpose of providing emergency relief to agencies in most need of loans. Debt service will account for 27% of the MTA’s revenues next year, and even higher debt payments will compete directly with service.
3. Expand to five-year bond terms – MLF loans/bonds currently have three-year terms. The MTA supports extending the borrowing terms. We suggest a period of 5 years to give MTA revenue more time to recover.
4. Consider increasing total borrowing available (“cap”) – The MLF currently allows agencies to borrow up to 20% of their 2019 operating revenues. Increasing the cap on borrowing to 30% or a third of pre-COVID 2019 operating revenues could enable the MTA to access $2B in additional funds. Coupled with the other changes outlined above, this would enable the MTA to access a larger amount of low-cost borrowing.

Again, the MLF is not a substitute for federal aid, and it is also not an excuse for the state to raid MTA dedicated funds. We urge both Congress to pass emergency aid, and for the state to provide its full commitment to the MTA by delivering 100% of dedicated taxes that come in.

Thank you for your consideration.