Fitch Rates MTA New York's $597MM Transportation Revs 'A'; Outlook Stable.

NEW YORK -- Fitch Ratings has assigned an 'A' rating to the following Metropolitan Transportation Authority, New York (MTA) transportation revenue bonds:

--$500 million, series 2009A-1 (federally taxable - Issuer Subsidy - Build America Bonds);

--$96.565 million, series 2009A-2.

Fitch also affirms 'A' rating on $11.9 billion in outstanding transportation revenue bonds. The Rating Outlook is Stable for all bonds. The proceeds of the bonds, expected to be sold the week of Oct. 5, 2009, will be used to fund a portion of the authority's transit and commuter projects and to pay the cost of issuance. Additionally, a portion of the 2009A-2 bonds are expected to current refund a portion of outstanding transportation revenue bonds.

The transportation revenue bonds are primarily secured by operating receipts and operating subsidies. They include transit and commuter rail fares and other operating revenues, surplus toll revenues, and certain dedicated tax sources, state and local operating subsidies, and reimbursements.

The 'A' rating reflects the gross lien on pledged revenues, the essentiality and performance of the transit services supported by diverse pledged revenues, the importance of the MTA's transit network to the economy of the New York region, and the demonstrated ability of the MTA to produce near-term solutions for its operating and capital needs. While the 'A' rating reflects the MTA's historically robust debt service coverage, Fitch incorporates the expectation that future leveraging on the transportation revenue credit will occur. Given the near-term pressure the MTA is facing, it will need to delicately balance funding for capital projects and excess cash for operating support of transit and commuter rail service.

Primary risks for the MTA include the ongoing significant capital and operating needs in the medium- to- long term, the vulnerability to fiscal stress during economic downturns, the declining nature of the operating subsidies, and the continued reliance on debt financings to help fund capital needs. Additionally, the MTA's long-term needs for growing levels of public subsidy and/or new operating and capital funding solutions as well as periodic rate increases for transit and Triborough Bridge and Tunnel Authority (TBTA) (general revenue bonds rated 'AA' and subordinate revenue bonds rate 'AA-', Negative Outlook, see Fitch press release dated Sept. 3, 2009) crossings exposes the MTA to political risk. In addition, MTA relies on sizeable transfers from TBTA to support its transit and commuter rail services but TBTA has an increasing dependence on sustained revenue growth which could pressure its ability to fund these transfers.

On May 7, 2009, New York State enacted new legislation providing additional sources of revenues including taxes, fees and surcharges to address the extreme financial pressure as a result of near- to medium-term operating and capital hurdles given the rapid decline in operating subsidies, primarily mortgage recording tax revenues and other regional tax sources due to the downturn in regional housing prices and the current national and regional economic downturn. Specifically, these new sources include a regional mobility tax (RMT), which affects employers and self-employed individuals within the MTA region who will now pay a new tax equal to $0.34 per $100 of payroll, retroactive March 1, 2009 and for public school districts, it will be retroactive Sept. 1, 2009. The MTA forecasts the RMT to generate $1.01 billion in 2009 and $1.53 billion in 2010. Other taxes and fees include: an auto registration fee of $25 annually for existing and new vehicles, effective Sept. 1, 2009; a $0.50 tax for each taxicab originating in New York City and ending anywhere in the 12-county region, effective Nov. 1, 2009; a 5% tax increase on car rentals; and a $2 annual driver's license renewal fee. The MTA estimates $69 million to be collected by the end of 2009 and $330 million to be collected in 2010 (together, other taxes). However, in 2009 these sources of revenues primarily secure the MTA's approximately $600 million revenue anticipation notes (RANs), series 2009, rated 'F1+' by Fitch, which are expected to mature and be paid off by Dec. 31, 2009.

Including the new dedicated sources, the MTA's 2010-2013 financial plan now anticipates small cash balances through 2011 but expects net deficits of $352 million and $223 million for 2012 and 2013, respectively, including other gap closing programs. While the MTA has historically projected large operating deficits they have a demonstrated track record of meeting a balanced operation. Nevertheless, these gaps are of concern as the fiscal and operational stability of the system is important to the rating. To the extent that the economic pressures impacting the dedicated operating subsidies continue in the near term, the 2012-2013 deficits could be larger. Without additional resources and/or a combination of fare and toll increases as well as service cuts, similar to the plan proposed earlier this year prior to the state's legislative action, the rating could be pressured.

The MTA's proposed $25.5 billion 2010-2014 capital program which is still subject to approval by the Capital Plan Review Board (CPRB) is comprised of approximately $18.8 billion in core projects on the existing system, $5.7 billion for expansion projects, $1 billion in MTA wide security/safety programs and interagency police/planning/business service center. Additionally, the TBTA has a core program of $2.5 billion, not subject to CPRB approval. The MTA's main expansion projects include completing the East Side Access and the first phase of the 2nd Avenue subway, for a total of approximately $12 billion, which includes spending from prior capital plans. Approximately $3.5 billion out of $7.4 billion has been spent to date on the East Side Access project and it is expected to be open by September 2016, while $1.5 billion out of $4.5 billion has been spent on the 2nd Avenue subway with an expected completion in December 2016. The remaining phases II-IV for the 2nd Avenue subway are estimated to be $13 billion. Even assuming a generous 25% increase in base funding levels of federal aid, the MTA still projects a $10 billion funding gap for the 2010-2014 capital plan. Additional heavy reliance on debt for capital would likely place increasing pressure on the MTA's operating budget and its already significantly constrained financial flexibility. Fitch expects the MTA to proactively control operations and maintenance costs while implementing fare and toll increases (scheduled to occur in 2011 and 2013). Nevertheless, the MTA faces endless capital needs and operating challenges, so timely action will be absolutely necessary to maintain adequate levels of service, safety and state of good repair on existing facilities, as well as current and planned capital expansion projects.

The MTA is responsible for North America's largest transit network, serving 2.6 billion riders annually. The authority's network is essential to the economic well-being of the region, handling 80% of all daily trips to Manhattan's business district.

Additional information is available at www.fitchratings.com.

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