By David Pendered
MARTA’s fare hike planned for 2015 – possibly to $2.75 per trip – and the possibility of zone pricing doesn’t offset the lack of state funding for the system, a bond rating house has determined.
Fitch Ratings made its comments on MARTA’s fiscal situation in an advisory on MARTA’s planned sale this week of $26.3 million in sales tax revenue bonds.
MARTA’s entire revenue structure results in “thin financial margins,” the report states. Fitch took a look at MARTA’s financial projections and issued the following comment:
- “Under these assumptions, system revenues would fail to cover operating expenses and debt service by fiscal 2015, with deficits widening rapidly through fiscal 2018.”
Fitch gave MARTA’s pending bonds a rating of AA—, with a stable outlook. For Fitch, the rating represents the middle of the investment grade. Fitch’s highest rating is AAA, and its lowest investment grade is BBB—.
The rating is based on a host of factors, including the negative effect of fare hikes on ridership and metro Atlanta’s slow recovery from the recession.
One bright spot highlighted for potential investors is that Georgia doesn’t allow governments to declare bankruptcy. Fitch noted that this means bond holders won’t see the future sales taxes that were supposed to repay them being diverted to other government uses.
Fitch made several references to the lack of state funding for the nation’s ninth-largest transit system. Among the references:
- “Challenged Financial Operations: The authority’s finances are pressured by a weak revenue base which lacks state financial support, and places excessive reliance upon sales taxes and fares to fund operations.
- “Lack of Financial Flexibility: MARTA is burdened with a limited and restrictive revenue structure and little financial flexibility. The authority receives virtually no state support and a highly elastic demand structure renders it difficult to raise fares sufficiently to offset the state funding gap. Furthermore, the 50/50 rule hinders management discretion, although this restriction was temporarily suspended through state legislative action for three years from fiscal 2011 through the end of this fiscal year.
- “Lack of state funding increases reliance on sales taxes: MARTA is the only major mass transit system in the nation that does not receive dedicated state funding, limiting the revenue base while increasing reliance upon sales taxes and fare revenues to support operations. In fiscal 2012, sales tax and fare revenues accounted for 83 percent of system funding. The authority does receive federal funding but it provides only 12 percent of revenues.”
Fitch analysts indicated they would like to see MARTA implement more fare hikes.
The report noted that fare increases in 2009 and 2011 raised the fare box recovery ratio to 32 percent, which Fitch said is “more in line with other mass transit systems.”
Fitch supports the idea of an additional fare hike and zone pricing to raise revenues. Incidentally, zone pricing became a possibility more than a decade ago – when MARTA began using the Breeze card. In zone pricing, passengers would be charged for the distance traveled.
- “Management is planning on another fare rise in fiscal 2015, possibly up to $2.75 per ride and is considering instituting zone pricing which Fitch considers to be a viable option as a significant portion of rail ridership derives from outside of the immediate service area.”
That said, Fitch noted that the previous fare hikes coincided with a decrease in ridership – 15 percent on buses and almost 13 percent on trains – between 2009 and 2012. The report also noted the concurrent timing of the economic downturn.
Regarding the current bond package, MARTA intends to use the proceeds to pay off bonds sold in 2003. Those bonds carry a higher interest rate than expected in the pending sale.