Debt Management Networks and the Proverbs of Financial Management: Principles and Interests in the New York Metropolitan Transportation Authority Debt Restructuring

Gerald J. Miller and Jonathan B. Justice

Municipal Finance Journal, 2011, vol. 31, issue 4, 19 - 40

Abstract: New York’s Metropolitan Transportation Authority (MTA) provides capital-intensive transit services to a metropolitan area of more than 20 million residents. Confronted with shrinking state and local subsidies and resistance to fare and toll increases, the MTA financed its five-year capital plan for 2000–2004 in part by refunding $13 billion of outstanding debt in a way that permitted additional, new-money borrowing but incurred more than $4 billion in additional interest costs for the existing debt. This case illustrates the dynamics of financial decision making in a quasi-governmental organization confronting a decision problem that required trading off some core standards of professional public financial management against others in an environment characterized by significant political-economic ambiguity. Given abundant but ambiguous guidance from professional standards, political instructions, and market signals, MTA financial managers relied on the informal advice provided by private-sector members of their debt-management network. That advice led the MTA to structure the decision problem in a way that privileged timely availability of funds and avoidance of political conflict over cost minimization and to seize upon a solution devised by investment bankers offering informal, free advice in anticipation of future fee and interest income that increased the MTA’s cost of funds. The resulting long-term increase in debt service costs has contributed to the MTA’s current financial challenges, fare increases, and reductions in service quantity and quality.

Date: 2011
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1086/MFJ31040019 (application/pdf)
http://dx.doi.org/10.1086/MFJ31040019 (text/html)
Access to the online full text or PDF requires a subscription.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucp:munifj:doi:10.1086/mfj31040019

Access Statistics for this article

More articles in Municipal Finance Journal from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().