UPDATE 1-US transportation systems eye big storm defense costs-Fitch

Fri Nov 9, 2012 6:11am IST

Related Topics

* Agencies must consider impact of increasing occurrence of severe weather

* East Coast transit systems likely to use debt to finance upgrades

* Toll and fare hikes could be phased in long term to repay debt

Nov 8 (Reuters) - Major U.S. East Coast transportation agencies hit by Superstorm Sandy may face "substantial" costs to beef up defenses against flooding and other severe weather in coming years and will likely need to issue more debt to do it, Fitch Ratings said on Thursday.

Flooding, damage and power outages from the storm caused massive disruptions to trains, tunnels, airports and other major transportation systems in several Eastern states, particularly in New York and New Jersey.

The systems have to consider the "impact of the increasing occurrence of severe weather," Mike McDermott, managing director in Fitch's global infrastructure group, said in a statement.

"These costs could be substantial and will most likely be self-funded through unplanned debt issuance as grant funding could be hard to come by," he said.

The specter of major new debt for infrastructure upgrades could leave riders and drivers facing additional fare and toll hikes to pay back bondholders.

Such increases could be phased in over 20 to 30 years, "providing some cushion to the politically unpopular need to raise user fees," Fitch said in its report.

Hardest hit by severe storm-related flooding were the New York Metropolitan Transportation Authority - which runs New York City's subway system, the largest rapid transit system in the nation - and the Port Authority of New York and New Jersey, Fitch said.

While the MTA and Port Authority have made major progress in restoring operations, grants from the Federal Emergency Management Agency will not cover the cost of hardening infrastructure assets to make them more resilient to severe weather.

Additionally, many insurance policies don't cover flood damage, Fitch noted.

But if the agencies have to tap the $3.7 trillion U.S. municipal bond market to finance future improvements, they do have an important advantage - a stable revenue stream.

Because commuters and travelers have few transportation options in the area, the MTA, Port Authority, Triborough Bridge & Tunnel Authority, New Jersey Transit and several airports and other agencies are considered critical infrastructure.

That means people will almost certainly continue using the systems and paying user fees that provide revenue to the agencies to repay debt.

Of 23 agencies Fitch examined, most have at least 140 days' cash on hand for immediate repairs and lost toll and fare revenues stemming from extreme weather events, Fitch said.

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