TEXT - Fitch rates New York's MTA dedicated tax fund bonds
Oct 10 - Fitch Ratings has assigned an 'AA-' rating to the following Metropolitan Transportation Authority, NY (MTA) dedicated tax fund (DTF) bonds: --$950 million DTF refunding bonds, series 2012A. The bonds are expected to price through negotiation the week of Oct. 15, 2012. In addition, Fitch affirms the 'AA-' underlying, long-term rating on the authority's $5.1 billion outstanding DTF bonds. The affirmation includes the 'AA-' rating on $35 million series 2008B-3a floating rate tender notes that are scheduled to be remarketed later this month. The Rating Outlook is Stable. SECURITY The DTF bonds are secured by a gross lien on the Mass Transportation Trust Fund (MTTF), which is funded from an allocation of the state's petroleum business tax, motor fuel tax and motor vehicle fees, subject to annual appropriation by the state legislature. Providing further security is a standby gross pledge of the Metropolitan Mass Transportation Operating Assistance Account (MMTOA), which is funded from a regional sales tax, the state petroleum business tax, a state franchise tax and a regional franchise tax surcharge, also subject to annual state appropriation. KEY RATING DRIVERS SOLID DEDICATED TAX STREAM: The dedicated taxes are diverse and derived from a broad, wealthy state and regional economy, although revenues are sensitive to economic cycles. RECORD OF STATE SUPPORT: Tax revenues allocated to the DTF are subject to annual appropriation by the state legislature, and the state has discretion regarding revenues flowing to the fund. The state has a track record of providing a generally reliable revenue stream to the dedicated tax fund. AMPLE COVERAGE: Dedicated revenues provide ample coverage of maximum annual debt service (MADS), and there is a strong incentive to limit leveraging of the DTF given the demands on surplus revenues for operating support of transit and commuter rail. STRATEGIC IMPORTANCE: The MTA transportation network is essential to the economy of the New York region, with New York City Transit carrying an average of 7.6 million daily subway and bus riders and another 597,000 daily commuter rail passengers. INSULATION FROM MTA OPERATIONS: The security for the dedicated tax bonds is largely insulated from the highly constrained financial operations of the MTA, although excess DTF revenues after debt service obligations are met are needed to support transit and commuter operations. CREDIT PROFILE Underlying the 'AA-' rating on the DTF bonds is the amount and diversity of revenues that are pledged to the DTF for debt service on its bonds, subject to state legislative appropriation, the record of state support of the fund, and the expectation that the MTA will continue to maintain sufficient financial flexibility within the DTF to not only cover DTF bond debt service adequately but also provide sizable transfers to the MTA to support transit and commuter rail operating needs. The bonds are special obligations secured by state taxes deposited in the pledged amounts account from MTTF and MMTOA receipts. The state legislature established the MTTF in 1991 to address the need for continued capital investment in the state's transportation infrastructure. MTTF revenue is derived from statewide petroleum business taxes, motor fuel taxes, and motor vehicle fees. The MMTOA was created in 1980 in anticipation of continuing ongoing operating deficits of state mass transportation systems. Four categories of special taxes are deposited into the MMTOA: a temporary regional franchise tax surcharge on business activity carried out within the transportation district that, though temporary, has been regularly extended since 1982; a regional sales tax imposed on sales and uses of certain tangible property and services within the MTA transportation district; a portion of franchise taxes on certain transportation and transmission companies statewide; and an additional portion of statewide petroleum business taxes. Tax revenues allocated to the DTF are subject to annual appropriation by the state legislature. The state is not bound or obligated to continue imposition of taxes and fees from which trust fund revenues are currently derived and can amend, modify, repeal, or otherwise alter statutes imposing or relating to the fund or the taxes or appropriations. As a result, the rating on the DTF bonds could not be higher than the appropriation debt rating of New York State (currently 'AA-' with a Positive Outlook, one notch below the state's general obligation rating). The state has a track record of providing a generally reliable revenue stream to the DTF, although as part of a gap-closing plan in late 2009 the state legislature reduced the MMTOA appropriation. This was the first time an existing appropriation to the MTA from a dedicated tax that had already been collected by the state had been reduced, and there has been no further such action since that time. Total MTTF and MMTOA receipts of $1.86 billion in state fiscal year 2012 (which ended on March 31, 2012) provided 4.7 times (x) coverage of MADS. MTTF receipts alone provided coverage of about 1.6x MADS. An additional bonds test requires not less than 1.35x historical coverage of MADS by MTTF receipts and investment income, and not less than 2.5x coverage of MADS by combined MTTF and MMTOA receipts and investment income. As MTA issues additional bonds to finance its large transit and commuter rail capital needs, debt service coverage is expected to fall but still be strong based on MTA's operating needs, which provide practical limits on the amount of debt issued in the future. MTTF receipts are transferred to the debt service account monthly in the amount of 1/5 of the next interest payment and 1/10 of the next principal payment. MMTOA receipts are applied to the debt service account to the extent MTTF receipts are not sufficient to meet the debt service requirement but have never been needed for this purpose. Excess MTTF and MMTOA receipts are used by the MTA for capital and operating needs of the transit and commuter rail systems, including debt service on the MTA's transportation revenue bonds (rated 'A' with a Stable Outlook by Fitch). The transportation revenue bonds are also secured by MTA's operating receipts and other sources. For more information on the MTA, see Fitch's press release 'Fitch Rates Metropolitan Transportation Authority (NY) Revs 'A'; Outlook Stable' dated Sept. 28, 2012. For more information on the state's general credit, see Fitch's press release 'Fitch Affirms New York State GO Bonds at 'AA'; Outlook Positive' dated June 11, 2012. Both are available on Fitch's web site at 'www.fitchratings.com'.