* Agencies must consider impact of increasing occurrence of
* East Coast transit systems likely to use debt to finance
* Toll and fare hikes could be phased in long term to repay
Nov 8 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,
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
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.