Can the Port Authority and MTA afford repairs after Sandy?
Hurricane Sandy blasted through New York City and left a swath of wreckage. The cost of repairing the region’s infrastructure hasn’t been totaled yet, but Joe Lhota, head of the Metropolitan Transportation Authority (MTA), said this:
As of last night, seven subway tunnels under the East River flooded. Metro-North Railroad lost power from 59th Street to Croton-Harmon on the Hudson Line and to New Haven on the New Haven Line. The Long Island Rail Road evacuated its West Side Yards and suffered flooding in one East River tunnel. The Hugh L. Carey Tunnel is flooded from end to end and the Queens Midtown Tunnel also took on water and was closed. Six bus garages were disabled by high water. We are assessing the extent of the damage and beginning the process of recovery.
The MTA currently has a fully committed 2010-2014 capital budget of $24 billion, which does not take into account any spending needs that arise from Sandy. Here is where the current funding comes from (page 15):
$10.5 billion in MTA Bonds
$2 billion in MTA Bridges and Tunnels dedicated funds
$6.3 billion in Federal Funds
$167 million in MTA Bus Federal and City Match
$762 million from City Capital Funds
$1.4 billion from other sources
Also included is a $2.2 billion Railroad Rehabilitation & Improvement Financing (“RRIF”) loan to support East Side Access, administered by the Federal Railroad Administration, and $770 million in State Assistance funds added to re-establish a traditional funding partnership.
The other regional infrastructure group, the Port Authority of New York and New Jersey, which owns airports, bridges, tunnels and marine terminals, has not tallied the sum of damages from Sandy, but it was already facing extraordinary unfunded infrastructure needs even before the hurricane hit. From a September Port Authority release detailing two reports on their organizational reforms and capital capacity (emphasis mine):
Implementing the roadmap will be especially important, given the Port Authority plans to spend $26.9 billion on capital projects in the next 10 years, but has more than $44 billion of known investment needs during that period. According to Navigant and Rothschild, even with the scheduled toll and fare increases, the funds generated won’t even cover the agency’s capital needs for its ITN projects, necessitating careful prioritization, better value from current capital delivery programs, and consideration of creative, alternative financing structures.
The agency’s Capital Plan calls on the agency to undertake several major infrastructure projects in the very near-term. They include the replacement of the suspender ropes on the 81-year-old George Washington Bridge; raising the roadway of the Bayonne Bridge; the replacement of the Goethals Bridge; and the expansion of Terminals 4 and 5 at JFK Airport and the replacement of the Central Terminal Building at LaGuardia Airport.
In one of its reports, the Investment bank Rothschild advocates privatizing some of the Port Authority’s assets so that private funds can be used. But there are many other ways to fund vital infrastructure in an economic region that helps power the U.S. economy. Tough times is no excuse to give away public assets to private entities.
The most obvious source of funding for these projects would be for the Federal Reserve to purchase public infrastructure bonds instead of the $40 billion a month of mortgage-backed securities it has been buying. The housing market is important, and keeping mortgage rates low is useful, but investing in public infrastructure is much more important for the nation now. This approach would require a small legislative change to Section 14(b) of the Federal Reserve Act, which currently only allows the Fed to purchase of municipal bonds that mature in six months or less. These infrastructure bonds must be issued with maturities extending from 30 to 50 years, because the assets they fund will last at least that long. In two months, the Fed could buy $80 billion in infrastructure bonds. That would build some very important public infrastructure.
Sandy was devastating, but as I wrote this week, America has the resources to handle the aftermath of the storm. We have an enormous toolkit, but we need to be creative in how we use it. The Port Authority and the MTA will undoubtedly face funding challenges, and the Fed is the nation’s lender of last resort. The economy should take advantage of it when it needs it.