UPDATE 2-NY MTA suffers new blow with debt rating downgrade

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By Joan Gralla

NEW YORK Feb 3 (Reuters) - The New York Metropolitan Transportation Authority's battle to shore up its finances suffered another blow on Wednesday after some of its debt was downgraded, which market sources said forced the agency to delay a bond sale.

Moody's Investors Service downgraded its rating by one-notch, affecting $12.6 billion of outstanding debt, citing a surprising shortfall in new tax revenue. The move will drive up borrowing costs for the cash-strapped agency.

In a a supplement to its statement for an offering of Build America Bonds, the MTA on Wednesday said it expects a special payroll tax aimed at helping to plug a deficit to be about $350 million below estimates for 2010 made in December.

Market sources said the MTA delayed the $609 million offering of taxable Build America Bonds that was planned for Wednesday.

An MTA official declined to comment.

The downgrade to A3 places the MTA's rating four notches above speculative, or junk status. Moody's said its outlook is stable.

The MTA, the biggest public transit system in the United States with about 9 million riders a day, has been in the midst of public hearings on a plan to reduce service, including cuts in service and staff.

The new tax, known as the payroll mobility tax, which was the cornerstone of a state rescue plan that was supposed to avert a "doomsday" budget plan for the MTA, also could fall much as $200 million a year short of estimates after 2010.

"The MTA is considering a variety of cost-saving and other measures in addition to those proposed in the December plan to deal with the anticipated additional revenue shortfalls in its operating budget," the agency said in its latest disclosure.

Tax revenues for New York state and New York City have shriveled during the recession and Governor David Paterson and Mayor Michael Bloomberg have repeatedly said they cannot afford to give the MTA more funds.

Paterson, who last spring devised a bailout that included the new payroll tax, told reporters the underperforming levy was "causing the MTA and inevitably the state some rather egregious problems."

In December, the MTA's unionized transit workers won an 11 percent pay hike over three years in an arbitration that the agency says it cannot afford. In January, the MTA's new chairman, Jay Walder, said the agency wasted 15 cents of every dollar it collects, and vowed a top-to-bottom shake-up.

Transit advocates have pleaded with the MTA to take federal dollars from the stimulus plan to avoid harsh service cuts, which include clipping rides for the disabled, but the agency instead says it will spend the money on capital projects.

Bloomberg told reporters on Wednesday that he did not know if an extension of the No. 7 subway line in Manhattan would be open by 2013 as planned. "This was done with the city's money; the state never came through with anything," he said.

So far, Moody's, which says the MTA's budget is short nearly $400 million, has taken the harshest view of the MTA's transportation revenue bonds, which are just one type of its debt.

The latest Moody's rating is one notch below Fitch Ratings and Standard & Poor's.

Fitch on Jan. 28 affirmed its A rating on the transportation revenue bonds but assigned it a negative outlook. Standard and Poor's on Jan. 28 gave the transportation revenue bonds an A rating with a stable outlook. (Additional reporting by Ciara Linnane; Editing by Leslie Adler)