MTA Officials Seek Federal Assistance
Catching up with stories from Halloween & the weekend, comes this story about MTA officials seeking federal assistance. NY1 Transit Reporter Bobby Cuza has more in this report:
Just when it seemed the Metropolitan Transportation Authority’s financial picture could not get any worse, it now appears a fare increase planned for next year could be even bigger than expected – thanks in part to the growing budget deficits in Albany.
“We are extremely concerned about what has occurred with the state’s revenues,” said MTA Executive Director and Chief Executive Officer Elliot “Lee” Sander.
While not technically a state agency, the MTA does receive state aid. Next year, it was counting on $300 million in new funding from both the state and city to help close a roughly one-billion-dollar deficit.
Like the state, the MTA is now looking to the federal government for help – hoping to cash in on an economic stimulus package, which the MTA hopes will include money for infrastructure projects.
“We have given them a laundry list of things that we think would be helpful to us – station painting, cleaning, cars, that kind of stuff,” said MTA Deputy Executive Director Christopher Boylan. “So it would be things that you could actually create jobs with in 60 to 90 days.”
Click here for a video & the complete report.
Any regular reader of this blog knows how I feel about the role elected officials on all levels played in the MTA being in the hole it is in financially. It is refreshing to see MTA officials seeking federal assistance. If the government can bail out banks, it should be able to do the same for transportation agencies which are just as important to this country as any bank would ever be. If the country’s transit infrastructure collapses, so will this country. This isn’t just an opinion from a passionate transit advocate but an actual fact.
While I doubt the federal government will provide the money necessary to avoid a fare hike, it should look to provide an enormous amount of funds to the MTA as it is the most important transit agency in the country bar none. Lets see i f they will step up to the plate & provide the timely financial hit that is desperately needed to continue the game.
xoxo Transit Blogger
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MTA’s Global Bond Investments Backfired
Yesterday’s print edition of the New York Times contained a must read piece which talked about how global bond investments by the MTA & others have backfired. The piece focuses on bonds known as “Collateralized Debt Obligations” or “C.D.O.’s”. These bonds are considered an asset backed security/structured credit product. They come in the form of adjustable rates which changed from day to day. Charles Duhog & Carter Dougherty have more:
On a snowy day two years ago, the school board in Whitefish Bay, Wis., gathered to discuss a looming problem: how to plug a gaping hole in the teachers’ retirement plan.
It turned to David W. Noack, a trusted local investment banker, who proposed that the district borrow from overseas and use the money for a complex investment that offered big profits.
“Every three months you’re going to get a payment,” he promised, according to a tape of the meeting. But would it be risky? “There would need to be 15 Enrons” for the district to lose money, he said.
The board and four other nearby districts ultimately invested $200 million in the deal, most of it borrowed from an Irish bank. Without realizing it, the schools were imitating hedge funds.
Half a continent away, New York subway officials were also being wooed by bankers. Officials were told that just as home buyers had embraced adjustable-rate loans, New York could save money by borrowing at lower interest rates that changed every day.
During the go-go investing years, school districts, transit agencies and other government entities were quick to jump into the global economy, hoping for fast gains to cover growing pension costs and budgets without raising taxes. Deals were arranged by armies of persuasive financiers who received big paydays.
But now, hundreds of cities and government agencies are facing economic turmoil. Far from being isolated examples, the Wisconsin schools and New York’s transportation system are among the many players in a financial fiasco that has ricocheted globally.
For years, municipal agencies like the M.T.A. had raised money by issuing plain-vanilla bonds with fixed interest rates. But then bankers began telling officials that there was a way to get cheaper financing.
By 2006 Depfa was the largest buyer of last resort in the world, standing behind $2.9 billion of bonds issued that year alone. It backed a $200 million bond issued by the M.T.A.
But as Depfa grew, it became more reliant on enormous short-term loans to finance its operations. Those loans cost less, and thus helped the bank achieve higher profits, but only when times were good. Indeed, some employees were worried about that debt.
Then, in mid-September, the American investment bank Lehman Brothers went bankrupt. Short-term lending markets froze up. Ratings agencies, including Standard & Poor’s, downgraded Depfa, citing the company’s difficulties borrowing at affordable rates.
That set off a crisis in Germany, where officials worried that Depfa’s sudden need for cash would drag down its parent company and set off a chain reaction at other banks. The German government and private banks extended $64 billion in credit to Hypo to stop it from imploding.
“We will not allow the distress of one financial institution to endanger the entire system,” Angela Merkel, the German chancellor, said at the time.
That crisis spread almost immediately to the M.T.A.
The transportation authority, guided by Gary Dellaverson, a rumpled, cigarillo-smoking chief financial officer, had $3.75 billion of variable-rate debt outstanding.
About $200 million of that debt was backed by Depfa. When the bank was downgraded, investors dumped those transportation bonds, because of worries they would get stuck with them if Depfa’s problems worsened. Depfa was forced to buy $150 million of them, and bonds worth billions of dollars issued by other municipalities.
Then came the twist: Depfa’s contracts said that if it bought back bonds, the municipalities had to pay a higher-than-average interest rate. The New York transportation authority’s repayment obligation could eventually balloon by about $12 million a year on the Depfa loans alone.
On its own, that cost could be absorbed by the agency. But, as the economy declined, the M.T.A. had lost hundreds of millions because tax receipts — which finance part of its budget — were falling. And its ability to renew its variable-rate bonds at low interest rates was hurt by the trouble at Depfa and other banks. The transportation authority now faces a $900 million shortfall, according to officials. It is “fairly breathtaking,” Mr. Dellaverson told the M.T.A.’s finance committee. “This is not a tolerable long-term position for us to be in.”
In a recent interview, Mr. Dellaverson defended New York’s use of variable bonds.
“Variable-rate debt has helped M.T.A. save millions of dollars, and we’ve been conservative in issuing it,” he said. “But there are risks, which we work hard to mitigate. Usually it works. But what’s happening today is a total lack of marketplace rationality.”
Click here for the complete report.
This sounds like a case of the MTA being stupid & greedy at the same time. I would assume they studied all the risks & executed potential projected return scenarios out so what made them go through with such a risky proposition? I invest so I fully understand that risks are involved. I love to take risks but only if they are legitimately worth my time. If the returns from a standard & safer strategy produce similar results with a more riskier one, common sense tells me to stick with what works. Was the minimal difference in additional money really worth putting yourself in such a hole?
I understand that the MTA & others could not have seen such a huge market crash leading to the closure of companies such as Lehman Brothers but still. these “investments” should have set off an alarm & led to a smaller investment in them or none at all. Who would sign a contract agreeing to get raped on interest if the bonds defaulted? When I see an agreement that protects the side I might do business with that much, the red flags immediately go up for me. The same should have applied to the MTA.
Maybe it is time for the MTA to clean house & bring in new financial “experts” who can make more sound judgments that not only affect the agency but the riding public as well.
xoxo Transit Blogger
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- MTA Completes Sale Of $1.25B In Bonds
Service Diversions 10-31
Let me apologize for not getting these posted sooner. I was out all day & night. I did not get home until after 6am due to having an amazing Halloween. Anyhow let me not digress anymore & get to the main point which is to say the service diversions page has been updated. As usual, the diversions cover this weekend, into next week, & sometimes beyond. Remember to print out a copy for your own use or browse the site via your cell phone. The site is optimized to work perfectly on all cell phones. Have a safe weekend!
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Penn Station LIRR Waiting Room Closed This Weekend
The Long Island Rail Road has sent out a press release to announce to customers that its waiting room in Penn Station will be closed this weekend. The closure is due to work on restroom renovations. Here are the complete details:
The Penn Station customer waiting room will be closed this coming weekend from 3 AM, Saturday, November 1 through 5 AM, Monday, November 3 as work is done related to the renovation of the nearby customer restrooms. A temporary customer waiting/seating area will be located in the Connecting Concourse. Both the men’s and women’s
rest rooms will be open during this phase of the work.The $5 million restroom renovation project includes doubling the size of the women’s room, installation of new heating and ventilation systems along with new walls, floors, ceilings, lighting and plumbing fixtures in both restrooms. Work is expected to be completed in the third quarter of 2009.
xoxo Transit Blogger
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MTA Service Advisory
The MTA sent me a press release earlier with a service advisory. I apologize for not getting it out sooner:
The aftermath of a building fire in Downtown Flushing will continue to cause transit problems on area buses through this evening’s rush period. Subway service on the 7 Flushing Line will also be subject to delays due to Fire Department of New York activity in the area.
Q44 (Northbound)-regular route via Main Street, left on Sandford, right on College Point Boulevard, right on Roosevelt Avenue, left on Prince, left on 38th Avenue, left on Main Street, right on Northern Boulevard, left on Union then regular.
Q44 (Southbound)-regular route via Union Street, right on Sandford, left on Main Street then regular.
Q12, Q15 and Q26 (Eastbound)- regular route, right on Union, left Roosevelt Avenue then regular.
Q12, Q15 and Q26 (Westbound)- regular route via Roosevelt Avenue, right on Union, left on 37th Avenue, left on 138th Street, left on 39th Avenue then regular
Q17 and Q27 (Northbound)- regular route via Kissena Boulevard, left on Sandford, right on College Point, left on Prince, right on 38th Avenue, right on Main Street then regular
Q17 and Q27 (Southbound)- regular route on Main Street, right on 39th Avenue, left on Prince Street, left on 40th Road, right on Main Street then regular
Customers may call our Travel Information Center at 718-330-1234 from 6 a.m. to 10 p.m. daily, or log onto www.mta.info to use Trip Planner to plan their trips.
xoxo Transit Blogger
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