New York Mayor Bill de Blasio has offered to inject about $2.5 billion into the state’s transportation authority if Governor Andrew Cuomo promises to use it exclusively for subway, rail and bus facilities, said a person familiar with the negotiations.
The amount is below the $3.2 billion the governor has demanded from the city, according to the person, who asked not to be named. The money is to help fill a $9 billion gap in the Metropolitan Transportation Authority’s $27 billion plan for infrastructure, the person said.
The unresolved spat between the men has simmered since the state first demanded the money from the city in May. It has soured municipal-bond investors on the authority’s finances, and may lead to higher debt-service costs, taxes, fares and tolls.
“The less they are able to agree on how to fund these projects, the worse its credit quality gets,” said Howard Cure, managing director for research at Evercore Wealth Management LLC.
The two Democrats, who 20 years ago were allies and friends in President Bill Clinton’s administration, have battled ever since de Blasio became mayor last year. They’ve fought over taxes, regulation of Uber Technologies Inc., housing policy and school control. The latest bickering could prove costly and damaging to the transit system -- the lifeblood of a city that serves as the economic engine for the region.
The city’s subway system, founded more than 100 years ago with much of its infrastructure built in the early 20th century, needs signaling and track work, especially sections that incurred damage from salt-water that flooded parts of the system in 2012 with Hurricane Sandy. The agency also runs city buses, the Long Island Rail Road and Metro-North suburban commuter lines, and a system of bridges and tunnels linking Manhattan and surrounding boroughs.
The dispute has intensified as an Oct. 28 deadline looms. That’s the day the agency board is scheduled to meet to adopt the five-year $27 billion capital plan. New projects can’t be funded without board approval of the program. The governor has pledged $8.3 billion in state funds and called on the mayor to add $2.5 billion to the $657 million he already offered.
The mayor countered by raising the city’s potential contribution to as much as the conditional $2.5 billion.
The mayor has also said he wants more city representation on the board of the state agency, and an accounting of where the state will find the money to meet its $8.3 billion pledge to ensure it won’t be taken from city programs anticipating state aid. The governor hasn’t agreed to these conditions, the person said.
City businesses and residents pay a total of about $4.5 billion to the MTA in city and state taxes, while $2.1 billion comes from taxpayers outside the city, said the Citizens Budget Commission, a non-partisan business-funded group. City-based fares and tolls amount to about $5 billion of the agency’s $7 billion-a-year operating budget.
“The governor’s challenge to the mayor to contribute more money from the city budget distracts from the real issue of developing new revenue to sustain the region’s transit needs,” CBC President Carol Kellermann said in an interview.
She proposed taxes on gasoline or vehicle miles traveled; higher car registration fees; and increased bridge and tunnel tolls. The governor and legislature have not backed such moves.
The dispute’s impact on the market can be seen in the increased yield that some investors are demanding for MTA bonds. The agency had $36 billion of outstanding debt as of Sept. 4, including $21.7 billion of transportation-revenue bonds rated A1 from Moody’s, its fifth-highest grade, and AA- from Standard & Poor’s, fourth highest.
MTA transportation-revenue bonds maturing November 2055 changed hands Oct. 6 at an average yield of 3.8 percent for trades of at least $1 million, according to data compiled by Bloomberg. That’s an average 1.8 percentage points more than top-rated municipal bonds, the biggest yield penalty since the debt first sold in March 2015.
The MTA has its highest ratings in 30 years, said Adam Lisberg, an agency spokesman.
The credits “are a strong as ever due to revenue growth, disciplined financial management and a long track record of sound financial performance,” Lisberg said by e-mail. “The rating services note that MTA has consistently met the challenges of operating in a complex political environment.”
Charles Grande, head of municipal research in New York at UBS Global Asset Management, which has about $14 billion under management said the feud adds to the financial uncertainty of an agency already facing increased labor, maintenance and operating costs.
“The market may be saturated at points with the MTA’s debt, and when you add the ongoing feud and the new debt coming there’s going to be a premium for the name,” Grande said. “The argument between the governor and mayor is highlighting one piece of multiple aspects affecting the MTA.”
Even so, some investors continue to express confidence in the agency’s credit.
“Our expectation is they’ll work it out,” said Larry Bellinger, vice president for municipal credit research in New York AllianceBernstein Holding, which holds MTA bonds among $32 billion in municipal debt. “This is just one more item they’re adding to their portfolio of feuds.”