In normal times, the statement that New York State’s Metropolitan Transportation Authority put out early Wednesday would be, by itself, a seismic event: the MTA is telling bondholders that the coronavirus crisis imperils its ability to pay its debt. That’s bad enough, and the MTA is going to need massive federal aid just to keep municipal-bond markets from cratering. But the longer-term prospect is even worse: that even after the city, nation, and world have come out of quarantine, New York will be left with a crippled transit system that hobbles any economic recovery.

The MTA has issued what’s called a “material event” notice. In the terse announcement, it told investors in its $45 billion worth of municipal bonds that coronavirus is having “clearly severe” impacts on its finances, with the situation deteriorating daily. The issue isn’t a run-of-the-mill recession, when the MTA would normally cut back service and ask the state legislature for aid to paper over a deficit. Rather, it’s an acute cash-flow problem.

To allow health-care workers, grocery-store clerks, security guards for shuttered museums, and other workers to take trains and buses without subjecting themselves to dangerous crowds, the MTA is still running full weekday service. Yet ridership has plummeted—no surprise, as restaurants and retail stores are closed, office workers are doing their jobs from home, and many city residents appear to have left the city altogether. Early this week, subway ridership dropped 60 percent below normal levels; bus ridership, 50 percent. Because so many of Manhattan’s wealthier white-collar workers live in the suburbs, the commuter rails have fared even worse: Metro-North ridership is down 90 percent. Nor are people driving in: toll revenue on bridges and tunnels is down 21 percent.

The MTA, then, faces the same problem as the airlines, which, absent federal aid, are about to go bankrupt: its customers have deserted it because of a combination of government decree and personal fear. Airlines, at least, can cut costs quickly by largely stopping service. The MTA will likely start cutting service soon, too, but temporary mass layoffs only shift the problem elsewhere, as transit workers join the growing ranks of the unemployed and make it harder to start the transit system up quickly later.

For now, the MTA is bleeding cash. If this had been a normal March, it would have taken in about $1.6 billion in revenue and spent about $1.5 billion. Roughly half of the MTA’s revenue comes from taxes, not fares, but these taxes—on retail sales, mortgage transactions, petroleum, and downstate payrolls—are highly dependent on a functioning economy. With restaurants and stores shuttered, how much will the MTA take in from sales taxes this month?

A 60 percent reduction in revenues means a billion-dollar budget deficit—and just for one month. The MTA can’t survive long like this. It does have ways to shore up liquidity in an emergency, such as drawing down a $1 billion credit line, as well as drawing down on the reserves it keeps for future health-care payments. That might buy $4 billion, but it must be paid back. This Friday, when the MTA taps its credit line, it will be borrowing money to pay for operating expenses, something that will harm its future ability to invest in physical assets, like new trains and buses.

The MTA does not enter this crisis from a good position: it’s already carrying $45 billion in debt and spends 16 percent of its annual $17.1 billion budget on servicing these obligations. The authority signed an expensive contract with its largest union, the Transport Workers, last year, and has even more expensive deals with its commuter-rail unions. The MTA has a plan to spend $51 billion on modernizing subway signals, continuing to replace and repair track, and making more subway stations accessible to the handicapped—but even before this crisis, it would have had trouble finding ways to pay for the new debt for that program.

Covid-19 makes it much harder to figure out what the MTA’s finances will look like come summer, fall, and winter. The authority long ago budgeted for a 4 percent increase in fares and tolls next year. Lower-income and middle-income workers, after suffering the economic fallout from the coronavirus disaster, cannot afford more. Will ridership recover quickly, or will people remain afraid to take trains and buses, and stick to biking and walking? Will New York get its tourists back this summer? How many New Yorkers will lose their jobs, and thus not need to buy monthly transit passes?

The MTA needs massive aid from Congress—and fast. This week, chairman Pat Foye asked for $4 billion. That sounds like a lot, but it may not be enough. Once the public-health crisis recedes, the worst-case scenario is an MTA making massive cuts to a critical service as the city tries to recover its lost jobs and confidence. To avoid that, as its existing cash and credit reserves dwindle, it will have to think about asking its bondholders to absorb some of the pain.

Around the country, municipal bond yields are already spiking, because investors fear that transit authorities and even city and state governments will have to weigh the same calculation. Municipal bond yields have increased by 50 percent in a week, indicating that investors perceive higher risk (they want a higher return for that higher risk). If Congress doesn’t act fast to help mass transit, it could wind up with a credit crisis that makes 2008 look mild.

Photo by Yana Paskova/Getty Images


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