Readers Write: MTA prepares to cancel contracts for projects

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MTA Chairman Pat Foye didn’t reveal all the potential consequences when he notified a number of vendors last week that he may be forced to cancel existing and not award future contracts.

This is based upon the MTA not obtaining an additional $12 billion in federal CARE COVID-19 funding. Most bus, subway and some commuter rail car procurements are funded by Federal Transit Administration grants. The FTA NY Region 2 Office has accepted Toll Credits, instead of hard cash, to meet the legal 20 percent of local share requirement for grant approval. This has been in place for decades.

As a result, FTA funded MTA bus, subway and commuter rail car procurements are 100 percent federally funded. There is no cost savings to the MTA if they cancel or delay any FTA funded procurements.

The MTA never identifies which federally funded procurements are FTA grant funded that they would consider canceling. The current MTA $51 billion 2020-2024 Five Year Capital Plan correctly assumes over $7 billion in annual FTA formula funding.

The MTA hopes for another $3 billion under a competitive New Starts Full Funding Grant Agreement to help pay for the $6.9 billion Second Avenue Subway Phase 2. It is the height of arrogance for the MTA to believe the FTA could approve both a second $12 billion CARE COVID-19 bailout and $3 billion Second Avenue Subway Phase 2 FFGA in 2020.

There is no guarantee that FTA will commit up to $3 billion for Second Avenue Subway Phase 2 any time soon.

Like all transit agencies, the MTA can not legally award a contract unless secure funding is already in place. Bus, subway and rail car builders, prior to COVID-19, already had a backlog of orders. They range from pre-production to production to delivery going back years. Suppliers or subcontractors are in a similar situation.

As a result of COVID-19, both manufacturers and suppliers may have fallen behind schedule several months due to staff shortages. There is currently plenty of work already in place to keep the transit industry busy for years to come.

Let the MTA produce documentation that bus, subway and rail car manufacturers and suppliers will face significant financial losses resulting in their future demise if they have to cancel or reduce the number of new contract awards. Seeing is believing.

If the vendor is in the process of building a bus, subway or commuter rail car, they will not agree to cancel the contract unless the MTA pays liquidated damages. Has the MTA performed a financial risk assessment to determine what the total potential value of liquidated damages could be if they elect to terminate previously awarded contracts?

What would be the legal costs to MTA in addition to liquidated damages to vendors? There are FTA legal grant requirements for the grantee to guarantee that the asset goes into transit service.

Would the MTA want to be on the hook to the FTA for reimbursement of assets that never went into transit service? Has the MTA performed a financial risk assessment to determine what FTA might ask for as well?

Why isn’t the MTA open and transparent by listing all bus, subway and rail car procurements currently underway in one document? Identify the funding source. It could be either an approved FTA grant, pending FTA grant currently under review by the FTA, future FTA grant or local funding from previous or current Capital Programs. There are over $8 billion worth of carryover MTA contracts from the 2010-2014 & 2015-2019 Capital Programs. Those funds are supposedly in place. Why would the MTA include these contracts for projects that are several years late?

The real goal behind the scene is that MTA Chairman Foye and company continue to take the position “my way or the highway”. They refuse to acknowledge that the $51 billion 2020 – 2024 Five Year Capital Plan, was never real due to overly optimistic funding assumptions. No wonder bonding companies continue to downgrade their rating. On paper, the MTA on paper has $59 billion worth of work to do between 2020 and 2024.

If the MTA Capital Program was reduced by $12 billion to offset costs and revenue losses related to CARE COVID-19 from $51 to $39 billion, there will be $7 billion more than the previous largest record $32 billion 2015-2019 Five Year Capital Plan. This doesn’t include $8 billion more in carryover work. This would not mean the end of our transit industry or gutting the MTA Capital Program as threatened.

 

Larry Penner

Great Neck

Larry Penner is a transportation advocate, historian and writer who previously worked for the Federal Transit Administration Region 2 New York Office.

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1 COMMENT

  1. “No wonder bonding companies continue to downgrade their rating. ”

    That is due to ridership cratering and a general fear of taking mass transit.

    “$24.4 billion of TRB bonds affected by downgrade

    New York, September 11, 2020 — Moody’s Investors Service has downgraded to A3 from A2 the rating on the Metropolitan Transportation Authority’s, NY (MTA) Transportation Revenue Bonds and affirmed the MIG 2 rating on MTA’s Transportation Revenue Bond Anticipation Notes. Moody’s has also assigned an A3 rating to MTA’s $900 million Transportation Revenue Green Bonds, Series 2020D (Climate Bond Certified). The outlook is negative.

    RATINGS RATIONALE

    The downgrade of Metropolitan Transportation Authority’s (MTA) Transportation Revenue Bond ratings to A3 from A2 reflects an expectation that the system’s ridership and revenue recovery from the coronavirus pandemic will be slower than originally forecast and result in larger budget gaps after 2020, higher leverage metrics, and significant capital program deferrals. We expect that the ridership recovery will be slower than our April forecast, resulting in larger budget gaps beginning in fiscal 2021.

    Given the size of projected budget gaps, it is highly likely that MTA will balance its 2020 and 2021 financial plans with deficit financing bonds or notes. While deficit financing would alleviate immediate cash flow pressures and preserve service levels, this solution does not resolve structural budget gaps, and will result in higher debt and fixed costs that could crowd out other important spending. Use of debt capacity also risks disrupting the timing and implementation of the authority’s $55 billion capital program and potentially weakening asset condition and service quality. In addition, while we expect strong political and financial support will continue from New York State (Aa1 negative), New York City (Aa1 negative) and the US Government (Aaa stable), the amount and timing of additional support remains uncertain, particularly in light of these governments’ own fiscal challenges.

    The continuing impact of the coronavirus outbreak and protracted economic recovery is creating a severe and extensive credit shock across many sectors, regions and markets, and the combined credit effects of these developments are unprecedented. The MTA will also be challenged in the longer term by social risks such as growing and relatively inflexible labor costs, and environmental risks (particularly from natural disasters), although the latter is partially mitigated by MTA’s significant resiliency investments and the availability of private insurance and federal disaster recovery assistance.”

    Now would be a great time to address the structural bloat and fraud in the system. But it will business as usual to the detriment of everyone else in the region.

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