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

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.