A prolonged federal government shutdown would have negative credit implications for New Jersey Transit and other transportation agencies not felt in past budget standoffs, according to Moody’s Investors Service.
Moody’s analyst Baye Larsen noted in a Jan. 10 report that transportation systems like NJ Transit that rely heavily on federal grants will be most impacted by an extended shutdown. The three-week-and-counting shutdown has interrupted important sources of operating, capital, and debt-service funding and limits NJ Transit’s internal resources for to offset the lack of funds. In past shutdowns that were brief, mass transit systems were able to handle federal funding disruptions with internal liquidity, external lines of credit, and accelerated borrowing for needed capital, according to Larsen.
A lengthy government shutdown would jeopardize more than $2 billion of federal grants New Jersey Transit is slated to receive in the 2019 fiscal year.
Bloomberg News
NJ Transit has outstanding bonds that are directly repaid by federal grant reimbursements, but the securities are structured with debt-service reserves or advanced set-asides of debt-service payments that “mitigate a medium-term interruption of federal funds”, Larsen noted. However, the transit agency is expecting to receive more than $2 billion of federal grants in the 2019 fiscal year that ends June 30, which would fund 20% of its operating costs, 43% of its capital program and 100% of its debt service.
“Like most transit systems, it will be difficult to replace these revenues,” Larsen said. “Furthermore, NJ Transit’s internal resources are modest and it has minimal flexibility to raise revenue or lower spending.
Moody’s rates NJ Transit bonds A3 with a stable outlook. NJ Transit’s available cash for the 2017 fiscal year covered less than one month’s operations and the agency would face political challenges implementing fare increases to make up the revenue loss from a lengthy shutdown, according to Larsen.
A loss of federal funding would add another challenge to NJ Transit coming off a year in which the nation’s largest statewide public transportation system was forced to reduce service in order to meet the Federal Railroad Administration’s Dec. 31, 2018 milestone deadline for installing positive train control safety equipment. An audit released last October also detailed inadequate financing to oversee NJ Transit’s $5.3 billion of capital assets along with a lack of consistent state funding over the years contributing to delayed infrastructure repairs and losing key staff members.
The shutdown has resulted in nearly 90% of Federal Transit Administration staff getting furloughed with most of its programs closed resulting in U.S. mass transit systems temporarily losing financial support for a wide range of needs such as daily maintenance, ongoing repairs and expansion projects. The FTA provided transit systems with $13.2 billion of grants for both formula-driven annual aid, as well as project-specific capital grants during its last fiscal year that ended Sept. 30, 2018.
Other large mass transit systems like New York’s Metropolitan Transportation Authority are less exposed to the government shutdown, according to Larsen, since the agency does not use federal grants to cover operating costs. Nearly 25% of the MTA’s $33 billion multi-year capital plan relies on federal aid.