Wall Street Crime Is a Boon for Thruway's New Tappan Zee Bridgeby
$2 billion from bank settlements poured into long-needed span
As agency sells bonds, windfall allows it to delay toll hikes
The replacement for the Tappan Zee Bridge, which is rising out of the waters of the Hudson River, is called “The New NY Bridge” by Governor Andrew Cuomo.
A better name might be the BNP Paribas Bridge or the Global Banking Malefactors Bridge, said E.J. McMahon, president of the Empire Center for Public Policy, a research group that advocates for less government spending.
In the last two state budgets, Cuomo and the legislature have allocated $2 billion in bank settlement money to the New York State Thruway Authority to pay for a new $4 billion span and to freeze tolls on the Thruway’s 570-mile system through 2020.
The windfall is limiting the authority’s need to borrow for the 3.1 mile (5 kilometer) bridge, which is expected to be completed in 2018. At the same time, it’s allowing the Thruway to put off toll increases to back that project and billions of dollars in other borrowing needed for roads and bridges, raising risks for bondholders, according to Moody’s Investor Service.
“This uncertain and delayed time frame for toll adjustments raises risks to bondholders that toll rates may not be adjusted in time and sufficiently to meet required operational and debt obligations,” Moody’s said in an April 18 report. “The longer the delay in rate increases, the higher the likelihood of rate shock” leading to lower traffic volume.
On Wednesday, investors will get a chance to put a price on that risk when the Thruway issues $850 million of bonds, its first-ever subordinate lien long-term debt, to help fund the eight-lane bridge connecting Rockland and Westchester counties about 27 miles north of New York City.
The junior debt is rated A3 by Moody’s, its seventh-highest investment grade, one level lower than the rating on the authority’s $3.2 billion of senior bonds. A majority of the securities being offered Wednesday mature in 40 years.
Some of the most actively traded Thruway bonds, which come due in 2032, sold for a yield of 2.54 percent Tuesday, or 1.08 percentage point more than top-rated debt. That gap, a measure of the risk perceived by investors, has changed little since the securities were issued in late 2014.
David Ambler, a credit analyst at AllianceBernstein Holding LP in New York, said uncertainty about Thruway tolls wasn’t “a big negative.”
“Absent those toll increase, they’ve articulated a game plan,” Ambler said. “It’s obviously difficult to raise the tolls, there’s no doubt about it. They’ve come up with a methodology to get breathing room.”
The Thruway has been the biggest recipient of $8.3 billion of settlement funds New York has collected from 15 banks and insurance companies for offenses, including transactions on behalf of countries like Iran and Sudan that are subject to U.S. embargoes. The biggest chunk, $3.6 billion, has come from BNP Paribas, France’s largest bank, which in 2014 agreed to plead guilty for violating sanctions.
In addition to settlement funds and its own bond sales, the Thruway is also using a $1.6 billion federal loan to finance the new bridge.
The bank settlement cash has enabled the authority, which oversees one of the longest U.S. toll roads, to subsidize drivers’ fees that are already low compared with its peers, according to Moody’s.
The Tappan Zee Bridge’s current $5 passenger-car tolls are a third of the $15 it costs to cross the George Washington Bridge or take the Holland and Lincoln tunnels from New Jersey to New York. On the Thruway itself, passenger cars pay 5 cents per mile. That
compares with 13 cents for cars on the Pennsylvania Turnpike.
Cuomo “has basically established toll suppression on the Thruway as a priority,” said McMahon. “I don’t know why, because it’s not a subject of dinner table conversation.”
The governor’s office sees it differently. “E.J. must not be eating dinner with anyone who commutes on the Thruway,” said Morris Peters, a spokesman for Cuomo’s budget division. “The Thruway is a vital artery for commerce and transportation and that’s why the Governor has frozen tolls until at least 2020 and established a taskforce to look closely at the issue before increased tolls impact anyone’s cost of living.”
The task force set up in November has yet to meet.
Moody’s estimated that average tolls on the new Tappan Zee Bridge would need to more than triple to above $15 by 2026 to support debt service, assuming tolls on the rest of the Thruway are held steady. In addition to the new bridge, the Thruway says it needs to borrow as much as $12.5 billion over the next 40 years to maintain its roads, bridges and maintenance facilities.
The Thruway’s lower tolls “leave ample margin for future increases given much higher toll rates for other river crossings in the New York metropolitan area,” Moody’s said.
Plans to replace the Tappan Zee languished for more than a decade until Cuomo took over the project and, with help from President Barack Obama, quickly secured the federal loan. The governor has compared the scope of the project to the construction of the Erie Canal in the 19th century.
The Tappan Zee opened in 1955 and was built to last 50 years. It carries 138,000 vehicles a day, 40 percent more than its original design intended, clogging traffic, according to the Thruway.
(An earlier version of this story corrected the ratio of tolls on the Tappan Zee to another in New York.)