NY MTA: Soaring debt service could cause fare hikes

NEW YORK Mon Jan 24, 2011 5:28pm EST

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NEW YORK (Reuters) - The New York Metropolitan Transportation Authority might have to raise subway and bus fares by approximately four-and-a-half times the last fare increase to cope with a jump in debt service that kicks in as soon as 2016, Bob Foran, the MTA's chief financial officer, said on Monday.

The MTA, the nation's biggest mass transit agency, has a balloon-type borrowing program in which the amount repaid rises sharply in later years.

Monday was the first time officials spelled out the impact the rising debt service could have on fares if no additional state or federal aid is received.

An MTA spokesman said fare hikes of the magnitude cited by Foran are not being considered.

The MTA, one of the country's biggest issuers in the $2.8 trillion municipal bond market, implemented fare hikes in late December that will raise revenue by 7.5 percent. The price for a single ride was not changed, but the cost of the monthly pass was raised and certain discounts trimmed.

The increase in the debt service was estimated at about $1 billion a year.

In this year, Finance Director Patrick McCoy McCoy, in a webcast meeting on Monday, said the MTA may sell about $500 million of debt in the second quarter, followed by $860 million in the third quarter.

The MTA also faces the expiration this year of $1.4 billion of so-called liquidity facilities, such as bank letters of credits.

Many cities, towns and agencies that issued auction rate securities were forced to refinance that kind of floating rate paper after the market collapsed during the credit crunch. Many of these issuers opted for variable rate debt that is backed by letters of credit.

With banks exiting this business amid stricter proposed international banking regulations, the cost of bank letters of credit are expected to skyrocket.

McCoy estimated that the fee could rise to one percentage point from 12 basis points to 15 basis points previously.

(Reporting by Joan Gralla; Editing by Leslie Adler)

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