Fitch Rates MTA New York's $600MM Mobility Tax RANs 'F1+'; Outlook Stable

CHICAGO - (BUSINESS WIRE) - Fitch Ratings assigns an 'F1+' short-term rating to the Metropolitan Transportation Authority, New York's (MTA) approximately $600 million revenue anticipation notes (RANs), series 2009. The Rating Outlook is Stable.

The proceeds of the bonds, expected to be sold the week of July 6, 2009, will be used to bridge the timing delay in the initiation and receipt of newly authorized revenues by the State of New York (State) to support ongoing system operations, by paying a portion of operating and maintenance (O&M) expenses as well as address the anticipated delay in the receipt of existing State subsidies, specifically the metropolitan mass transportation operating assistance fund. The bonds are secured by amounts to be received from the recently enacted regional mobility tax (RMT), other general operating subsidies, and special tax-supported operating subsidies on or after Nov. 25, 2009.

The 'F1+' rating reflects the broad, diverse 12-county region from which the RMT is derived with a substantial concentration of New York City-based employees and adequate coverage levels based on historical wage levels. RMT revenues expected to be received in November and December 2009 could be lower than either the MTA or State is projecting; however, under an extreme stress scenario, debt service coverage is expected to be at least 1.0 times (x) excluding the additional back-up pledge of other available sources. Fitch additionally notes that the security of the RANs is generally insulated from the operations of the MTA. An important rating consideration is the unique circumstance and one-time nature of this financing. While borrowing for operational needs is normally viewed as a credit negative, in this instance this borrowing facilitates the maintenance of stable operations.

The RMT affects employers and self-employed individuals within the MTA region who will now pay a new tax equal to $0.34 per $100 of payroll, retroactive March 1, 2009 and for public school districts, it will be retroactive Sept. 1, 2009. The MTA forecasts the RMT to generate $1.01 billion in 2009 and $1.53 billion in 2010.

The State legislature also approved a series of other taxes and fees to the extent RMT revenues are not sufficient to repay 100% of the principal and interest of the RANs on Nov. 25, 2009. Some of the other taxes and fees include: an auto registration fee of $25 annually for existing and new vehicles, effective Sept. 1, 2009; a $0.50 tax for each taxicab originating in New York City and ending anywhere in the 12-county region, effective Nov. 1, 2009; a 5% tax increase on car rentals; and a $2 annual driver's license renewal fee. The MTA estimates $69 million to be collected by the end of 2009 and $330 million to be collected in 2010 (together, other taxes).

If the RMT and other taxes are not sufficient on or after Nov. 25, 2009, the MTA can access the remaining tax revenues after payment of debt service on the MTA's dedicated tax fund bonds (DTF; rated 'A+' by Fitch) which are primarily secured by petroleum business and motor fuel taxes, motor vehicle fees, and regional sales and franchise taxes (together, DTF taxes).

If and to the extent the RMT revenues, other taxes, and remaining DTF taxes are insufficient to repay the RANs a) on and after Dec. 7, 2009, RMT revenues are less than 75% of the principal and interest of the RANs and b) on and after Dec. 16, 2009, RMT revenues are less than 100% of the principal and interest of the RANs, MTA's farebox revenues can then be used. This would occur after the payment of debt service on the MTA's transportation revenue bonds (TRB; rated 'A' by Fitch). However, the use of DTF taxes and farebox revenues to repay the RANs is senior to the payment of O&M expenses for the MTA but is subordinate to the payment of debt service on the DTF and TRB bonds.

The MTA forecasts the RMT to generate $858 million in November 2009 and $163 million in December 2009 for a total of $1.02 billion. This results in a debt service coverage ratio of 1.70x. MTA also estimates $69 million from other taxes for a total of $1.09 billion, increasing coverage to 1.82x. MTA provided the historical breakout of wages, salaries, and proprietor incomes from 2000-2007 with projections for 2008-2010. The authority also provided the RMT as if it had been in effect since the initial tax collection year, which has historically been more than $771 million. The worst year of decline occurred in 2002 by 2.6%. While this revenue stream is not expected to fluctuate considerably, the strong coverage levels in a stress scenario mitigate the effects of potential collection and implementation issues. The back-stop of additional operating subsidies provides further support should unexpected issues arise.

The MTA's total debt portfolio is 73.8% fixed; 3.4% term; 10.2% variable, and 12.5% synthetically fixed. Total MTA ridership (including Long Island Rail, Metro-North Commuter Rail) has increased at a 2.4% average annual growth rate (AAGR) from 2003-2008, with a 3.1% increase in 2008 over 2007. Subway ridership has grown at a 3.2% AAGR in the past five years with 2008 ridership up 3.9% over 2007. Meanwhile, bus ridership has been flat over the same five-year period with a 0.6% AAGR and 2008 ridership was only up 1.3% over 2007.

In February 2008, during the debate over congestion pricing, the MTA outlined a potential five-year $32 billion capital program to fund ongoing maintenance needs, complete existing expansion projects, and begin new expansion projects. Since then, the MTA has acknowledged the need to curtail its plans as a result of cost overruns and funding constraints.

The MTA is not required to make a formal capital program proposal for 2010-2014 until October, but so far has estimated that it needs about $18.8 billion to continue restoring the transit system to a state of good repair. The authority will need another $4.3 billion just to complete the East Side Access project and the first phase of the Second Avenue Subway project, for a total of $23 billion. Even assuming a generous increase in federal aid and a pared-down program, the MTA may need as much as $15 billion in additional resources, which the February Plan assumed would be addressed through the issuance of new money bonds. Under such a scenario, debt service would grow from $1.5 billion in 2009 to nearly $3.2 billion in 2020. Additional heavy reliance on debt for capital would likely place increasing pressure on the MTA's operating budget and its already significantly constrained financial flexibility. Fitch expects the MTA to proactively control operations and maintenance costs while implementing fare and toll increases. The MTA stated it intends to create a new bonding credit backed by the RMT to support debt at a later date. Fitch will monitor the developments of this future debt issuance.

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Fitch Ratings, New York
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Chad Lewis, +1-212-908-0886
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