The MTA approved a $69 billion capital plan; it's only half funded

The New York Metropolitan Transportation Authority board approved its 2025-2029 capital plan last week.

It could not answer the question of how it will be funded.

The 2025-2029 plan devotes most of its $68.4 billion price tag to keeping the system in a state of good repair.

The MTA is already more than $16 billion short on the $28.5 billion remaining in its current capital plan, after New York Gov. Kathy Hochul abruptly axed congestion pricing tolls in lower Manhattan in June.

Now the new capital plan ? the biggest the MTA has ever attempted ? has a $33.4 billion budget gap.

MTA officials say they're confident the state government will supply the funds. If the agency can acquire the money, it will face another challenge: spending it.

The plan
The MTA is correct to focus on state of good repair projects, said Ana Champeny, vice president for research of the Citizens Budget Commission. According to the 20-year needs assessment the MTA conducted last year, it has up to $90 billion of capital needs.

"There is a lot that we like about the capital program," Champeny said, citing the focus on state of good repair projects. "It is still larger than we think is doable, but is not dramatically larger."

The plan includes just one major expansion project, beginning construction on the Interborough Express, a rapid transit line serving Brooklyn and Queens, which will cost $2.75 billion.

The biggest investments would be in rolling stock. The MTA wants to spend $10.9 billion on nearly 2,000 new subway and rail cars and $3.3 billion on 2,500 buses.

The capital plan calls for $5.4 billion to install at least 75 miles of signaling technology for faster and more reliable service, $4 billion to repair and upgrade power systems and $9 billion to repair structurally deficient bridges and tunnels.

There's also $7.8 billion for improving subway stations and $7.1 billion to install elevators at stations.

The MTA plans to issue $10 billion of bonds for this plan and its Triborough Bridge and Tunnel Authority $3 billion. Assuming federal, state and city funds hold steady from the current capital plan, there is a funding gap of $33 billion ? nearly half the plan.

MTA CEO Janno Lieber said he's spoken with state lawmakers about the capital plan and is confident they will deliver the funds.

This isn't an unreasonable assumption, considering the state's past support of the MTA, said Fitch Ratings analyst Eric Kim.

"We've seen over the past decades ? not just in the past few years, but decades now ? the state has repeatedly stepped up and provided support for the MTA to ensure its viability and sustainability," Kim said.

Fitch rates the MTA's transportation revenue bonds AA.

The MTA's capital plans usually have funding gaps that it asks the state to fill, Fitch analyst Michael Rinaldi added.

"That part is not unusual. It's a big number, though," Rinaldi said. "The funding gap is significantly higher than it has been at the time the MTA has proved approved prior plans."

Spending
Under the plan, the MTA would spend $14.5 billion in 2025. The most the agency has ever spent on capital projects in a single year was $11.4 billion in 2022.

In 2023, when the MTA halted most capital projects due to lawsuits, it spent $8 billion. In 2024, it projected in July, it will likely commit $3.3 billion to capital projects.

The last two years were turbulent for the MTA, and MTA officials argued that, adjusted for inflation, the goals of the current plan are about the same as the $11.8 billion from 2022.

But there's another wrinkle: the MTA still has to finish $28.5 billion of its current capital plan, much of which was also urgent state-of-good repair projects.

That plan was thrown into limbo first by COVID-19, then by uncertainty around congestion pricing tolls, before Hochul canceled them weeks before they were planned to take effect.

New York City Comptroller Brad Lander is organizing a coalition that's filed several lawsuits pressuring Hochul to reinstate congestion pricing. Oral arguments for the first lawsuit began on Friday.

Congestion pricing was projected to generate $1 billion per year for the MTA, which it would have used to support $15 billion of bonds.

If congestion pricing takes effect, or if the state finds another source of $15 billion to replace it, the agency says it will begin work on the planned projects immediately.

As it stands, it's still trying to finish a pared-down version of its 2020-2024 capital plan with the $12 billion of remaining funds.

The MTA never finishes its capital plans in the allotted five years, Deputy State Comptroller Rahul Jain said.

"They take seven years to potentially identify all the funding that they're going to apply, and then they often take 10 or more years to actually do the project," Jain said.

But this is still an unprecedented level of overhang. And if the MTA fills its budget gaps and executes both plans simultaneously, it will be planning to spend $96 billion over five years.

The MTA argues this is not an infeasible goal.

For one, the new plan is frontloaded with money that's easier to spend. About $6 billion of the 2025 spending is purchasing new train cars and buses, which is much more straightforward than approving contracts and construction.

And, although the CBC remains very skeptical about the MTA's capacity to execute both plans, Champeny noted that the MTA had plenty of projects ready to go that were paused upon congestion pricing's cancellation. Some of those plans will be faster to execute than the average project.

Still, Champeny said, $19 billion per year is almost a 40% increase of the MTA's previous peak of spending.

"I would look at their statement, given the history of how the CBC reacts to capital plans and spending, as very much a positive commentary," Lieber said.

Bonds

Jain said the $13 billion bonding target in the 2025-2029 plan is responsible, and shows that the MTA is lowering its target for debt service as a share of the operating budget.

Debt service under the plan will average 15.2% of the MTA's operating budget though 2035, according to the MTA's projections, except for 2031 and 2032, when it will grow to 16% or slightly higher.

The plan also signals that the authority is moving away from its strategy of backloading interest payments, which the state comptroller's office has long criticized.

The MTA often issues bond anticipation notes, which it refunds with long-term bonds with delayed principal payments for up to ten years. Jain and Champeny both expressed approval that the MTA seems to intend to find different ways of managing debt service costs.

"It's good to see them doing that. I will acknowledge that's a good step," Champeny said.

The Citizens Budget Commission was less pleased with the proposed bonds. The MTA projects that its operating budget will have a deficit in 2027 that will only grow, and issuing these bonds doesn't help that deficit, Champeny argued.

"You can say, 'Yes, debt service remains, you know, 15, 16, 17% of the operating budget,'" Champeny said. "But that operating budget itself, those expenses are $1.3 billion short. So if you can't pay to run the services, is that really the time to take on additional debt?"

Of course, the MTA's capital plan will likely involve far more than $13 billion of debt, although the further debt won't impact its operating budget. Whatever revenues the state finds to fill its budget gap will likely become bonds.

New York created four new sources of revenue for the MTA's 2020-2024 capital plan: congestion pricing, a mansion tax, and a city and state internet sales tax. The MTA created a "lockbox" for those funds, separate from the rest of its finances, from which it issues debt and pays debt service.

The mansion and sales taxes brought in a combined $674 million in 2023, and are projected to yield $653 million in 2024, but thanks to bonding for the intercept sales taxes, the lockbox revenue accounts for $10 billion of the 2020-2024 capital plan.

The MTA board voted at its August board meeting to securitize its mansion tax revenue, a move Jain assumes is to enable more progress on the current capital plan.

Future revenue from those funds will be used to fund debt service and cover the cost of the congestion pricing tolling infrastructure, so they can't contribute at all to the MTA's new funding gap. But whatever new state revenue ends up funding the next capital plan will also go in the lockbox and is likely to become bonds.

The MTA will want to bond as little of the revenue as possible, Champeny said, so it can use the funds in future capital plans. But the agency may not have a choice. If the state will only devote around $2 billion of new annual revenue, the MTA could use that for around $33.4 billion of bonds.

In that scenario, and assuming the agency is allowed to start congestion pricing, the MTA would issue $61.4 billion just for capital projects over the next five years.

The agency would have to structure the debt to avoid depleting market interest, Jain said, but he thinks that's a feasible goal.

"But these lockbox revenues are really quite different than the operating budget. And so the market thinks of some of them somewhat differently," Champeny said.

"The sales tax intercept is pretty well received, in part because it's an intercept. There is no appropriation," she said.

"The MTA is confident that the authority can execute the borrowing assumed in the current capital program, as well as the debt proposed in the 2025-2029 Capital Plan," MTA spokesperson Eugene Resnick said.

The agency is making the best of a bad situation, Jain said.

"I think they're taking a step, in securitizing the mansion tax receipts, that is not necessarily something that they wanted to take. They wanted to use some of these funds as [pay-as-you-go]" Jain said. "I think we're seeing in real time what's happening with their response to not having the congestion pricing funding in hand."