Moody’s: NY’s MTA Fiscal and Operating Challenges Would Increase in Recession Scenario

March 14, 2018 — The New York Metropolitan Transportation Authority’s (A1 stable) financial position has narrowed recently amid a decline in passenger fares along with a weaker dedicated tax collections, Moody’s Investors Service says in a new report. With these revenue trends, rising competition, and urgent capital needs, the MTA’s finances would be significantly vulnerable if an economic downturn or recession were to occur next year.

A recession similar in severity to the last downturn could leave MTA revenues as much $1.4 billion, or 9%, below its current revenue plan for next year. When added to the authority’s current 2019 spending plan, the result is a credit negative $2.1 billion, or 12%, overall budget gap.

“In estimating a future recession scenario, we assume that MTA’s dedicated taxes, ridership and toll revenue would decline from 2018 budgeted levels at the same rate experienced during the worst year of the severe 2007-09 recession,” according to Baye Larsen, a Moody’s Vice President. “We also assume MTA implements its planned 4% fare increase in fiscal 2019.”

If a large budget gap were to occur, additional fare and toll increases as well as service cuts would be MTA’s most significant budget-balancing tools available. However, while these measures would be a necessary part of the budget solution, at the scale needed for a 12% budget gap they could face considerable public and political opposition.

“If steep fare increases and service cuts proved politically unpalatable, a recession scenario budget gap would require external support from MTA’s parent government, the state, and key partners, the city and federal government,” Larsen says. New York State has been the primary source of funding solutions in the past.

If a recession developed, it will likely be harder for the MTA to manage compared to 2007-09 because of the more complex competitive environment, declining ridership trend, and lack of flexibility to defer capital and maintenance needs due to heightened public scrutiny of service quality. With these constraints, the MTA will be even more reliant than in the previous recession on support from its government funding partners to balance operations and continue essential capital projects. Given MTA’s extreme essentiality to the region, we expect MTA’s parent New York State, with cooperation from New York City, will continue to make transit funding a priority.



David Jacobson