Moody's: NY Payroll Tax Ruling Could Hurt MTA Debt Rating

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The rating agency Moody's issued a "credit negative" for the New York Metropolitan Transportation Authority on Monday. That's because of a court ruling last week that overturned New York's Payroll Mobility Tax, a key source of funding for the MTA.

"It doesn't mean there is a ratings change," cautioned David Jacobson of Moody's. "What we are saying is that... the court case, could -- key word 'could' -- have a negative impact, but [right now] it is not enough to warrant a change in the rating or the outlook."

The court ruling, which we covered extensively last week on TN, does not force the state to stop collecting the tax. The MTA has said it is confident the ruling will be overturned on appeal.

At issue is the right of NY State to tax 34 cents per one hundred dollars of payroll for all employers, including freelancers in the 12 counties around New York City that are served by subways, buses and commuter trains. The Nassau County court ruled that the tax violated the state constitution because some counties where the tax is collected did not vote to support it. That is not necessary if the tax "supports a substantial state interest."

The 2009 law was enacted to bail out the MTA from a $2 billion a year short fall. The MTA said payroll taxes and other fees affected by the ruling contribute $1.8 billion or about 15 percent of the agency's budget.

A ratings downgrade for the MTA could make debt financing more expensive for the agency, which is currently undertaking a $23 billion capital plan.

The MTA is rated A2, an upper/medium grade, by Moody's. Jacobson said that puts the MTA in "pretty solidly in the middle of investment grade scale." The Moody's outlook remains "stable."