Jul
29

Ravitch charged with solving debt problems he helped create

By

Thirty years ago, when the ten-year-old MTA was facing a subway crisis, New York turned to Richard Ravitch to step in and save a decaying and unsafe system. Now, the 40-year-old MTA, suffering from the same economy slump affecting Americans the country over, has once again turned to Richard Ravitch to revive and revitalize the MTA’s finances. Ironically, Ravitch and his panel are tasked with solving a problem created by Ravitch thirty years ago: crushing debt brought about by investment in the subway system.

This is quite the conundrum. Why would the MTA turn to Ravitch to fix a problem that stems, by and large, from policies he instituted and paths he chose in the 1980s? Better yet, how exactly did Ravitch create those problems? A very well done Ray Rivera article in The Times this weekend delved into the issue of MTA debt, and in Rivera’s work, we see the origins of the MTA’s current financial difficulties.

Rivera writes:

When Richard Ravitch was named chairman of the Metropolitan Transportation Authority in 1979, he inherited a subway system in decay. Trains derailed or collided on average every 15 days. Stations were filthy and crime was rampant. Ridership sank to lows not seen since World War I.

To revive the system, Mr. Ravitch, a former construction executive, persuaded lawmakers to allow the authority to do what countless cities and states had long done to build and maintain their infrastructure: Issue bonds.

“The system was falling apart, and the only way I could get the money to rebuild it was to borrow it,” Mr. Ravitch said in a recent interview.

Nearly 30 years later, the system is by all accounts better. But the authority’s debt has ballooned, and like stressed homeowners across the country, the system is groaning under the pressure to repay it. Indeed, debt payments are the system’s largest single cost after payroll, and by 2012 they will account for one of every five dollars the authority spends.

Rivera goes on to talk about the recent restructuring of the MTA’s finances. The agency is on the hook for debt payments until, at the earliest, 2032, and those payments amount to at least $1 billion annually. If the agency wants to expand its system, as it is doing now, if the MTA wants to keep stations in a good state of good repair, renovate those that need improvements and keep equipment modern, those debt tolls could increase.

And it all started with Ravitch:

Money for capital improvements hovered around $50 million — not the billions Mr. Ravitch and his analysts knew it would take. So he went to Albany.

“The Legislature squawked,” recalled Mr. Ravitch, 75. “They said that will result in a fare increase, and I said ‘That’s absolutely correct.’ But I said it will also result in an improvement in the system and attract more riders and avoid the dysfunctionality in the system, and they were persuaded.”

The law passed in 1981, and the next year the authority issued its first bonds, totaling $350 million. The authority issued hundreds of millions of dollars in new debt over the next 20 years, nearly all of it going toward new stainless steel cars and buses, and track repairs, signal replacements and other system improvements. By 2000, the agency’s outstanding debt had reached $12 billion.

Over this time period, as the MTA fell further and further into debt, city and state politicians were content to let the transit authority crumble. Until 1991, New York City and State funded a combined 26 percent of the capital plans. From 1992 onward, that contribution fell to a meager nine percent, and the MTA had to rely on the money they could raise from bond sales. Right now, if all of the MTA’s bonds were recalled, the transit agency would, in all likelihood, default.

This time around, Ravitch is going to have to rely on something other than yet another bond issue to fund the MTA. The transportation agency cannot continue to borrow against itself to fund capital improvements, system expansions and maintenance programs. Ravitch will have to demand more money from a government strapped for cash, and identify some other sources of dedicated revenue stream. As we know, Ravitch got us into this mess by suggesting bond issues in the first place. Can he get us out of it?



Categories : MTA Construction, PANYNJ

12 Responses to “Ravitch charged with solving debt problems he helped create”

  1. Alfred Beech says:

    I think I need a history lesson. I thought the MTA was formed by merging the Transit Authority with the Triborough Bridge and Tunnel Authority. The merge was done in part because the Triborough ran a consistant surplus, and the Transit Authority was forever in debt, so the two halves should, in theory, balance out. Do the bridge and tunnel tolls still support mass transit? Could the MTA raise tolls to help the mass trasit deficit?

  2. Ed says:

    I remember a celebratory New Yorker profile of Ravitch that came out in the 1980s.

    To be fair, subway service did improve substantially because of his actions. And at the time the options were limited. The only real alternative, other than to let the system continue to slowly deteriorate into inoperability, was triage, essentially shut down half the system and concentrate on maintaining the other half.

    Ravitch couldn’t fix the basic problem, which is in the local political culture taxes are meant to fund pensions, not infrastructure. So here we are.

  3. Marc Shepherd says:

    Alfred, your recollection is correct. Revenue surpluses from the bridges and tunnels still subsidize mass transit, just as originally intended. But you need to bear in mind that when the MTA was created, the subway was suffering from decades of deferred maintenance and under-investment. The bridge & tunnel surplus was not enough, by itself, to rectify this problem. That was why Ravitch sought and received the authority to issue bonds. Ben’s post is slightly unfair, because the level of debt that Ravitch took on is small compared to what was done under the Pataki administration.

    Raising bridge & tunnel tolls to further subsidize mass transit will likely encounter the same kind of objections that congestion pricing did. By and large, the people using the bridges and tunnels don’t have a realistic mass transit alternative, and developing better transit takes years. The legislators who represent “auto-centric” districts don’t think their constituents should be the ones to subsidize the subway any more than they do already.

    But there are a limited number of financial levers available, and since no one will propose higher debt service, every option will require somebody to pay more.

    • Boris says:

      Marc,

      Deferred maintenance and under-investment started after the MTA was founded, not before. The subways were doing pretty well in the 60’s, until white flight, an embracing of suburbs and the automobile, and poor city and state finances caused major declines in services. The city went bankrupt in 1975 and the subway reached its low point in 1979, as the article suggests- 11 years after the creation of the MTA.

    • Alon Levy says:

      By and large, the people using the bridges and tunnels don’t have a realistic mass transit alternative

      Except that they by and large do. About 80% of the people driving from the outer boroughs into Manhattan have a realistic transit alternative. At peak hour, the Metro-North and LIRR dominate the commute-to-Manhattan market from their respective suburbs; extending this domination to off-peak travel merely requires more trains at the off-peak hours, which doesn’t require any new investment.

      Ironically, the free bridges are those that serve the people who have the best mass transit options. There’s no good transit alternative to the Whitestone and Throg’s Neck bridges, and yet they’re both tolled. The Brooklyn, Manhattan, Williamsburg, and Queensborough bridges parallel multiple subway and commuter rail routes.

      • Marc Shepherd says:

        Actually, I was referring to the bridges and tunnels that are already tolled. I would be extremely surprised if 80% of MTA B&T users have a realistic mass transit alternative. (I suppose it depends on how you define that.) Even on the untolled bridges, the 80% figure seems awfully high. Do you have a basis for it?

        • Alon Levy says:

          The figure is that 80% of people who drive into Manhattan have a realistic transit alternative. This comes from two separate studies, one that asks people who drive into Manhattan why they choose to drive (when asked specifically, 83% say they have a transit alternative), and another that surveys transit availability (80% have a transit alternative that will add 15 minutes or less to their commute). I don’t think anybody’s seriously proposing to create new tolls on bridges between Brooklyn and Queens.

  4. Boris says:

    Based on this blog post, I’m not really convinced that Ravitch is to blame for the MTA’s problems. It’s not his fault somebody used his ideas to borrow irresponsibly. The biggest problems started after 1991, as stated here, because the city and state reduced its funding levels and forced the MTA to live off borrowed money. Was he still chairman at that time?

    Furthermore, the NYT article mentions that the debt doubled in 2000-2 “to finance the system’s first major expansion since the 1930s” (I wonder, what is this expansion they are talking about? Surely not the Second Avenue subway). I doubt Ravitch had much to do with this debt doubling. Most of the blame lies with the Pataki administration.

  5. Marc Shepherd says:

    Boris, deferred maintenance and under-investment pre-dates World War II. The BMT and IRT were forced into bankruptcy by the unrealistically low five-cent fare, which they weren’t allowed to raise to ecnomically viable levels. Do you think they were keeping the system adequately maintained on five cents a ride?

    And after the city took over, was there a dramatic influx of funding? Of course not. Other than a few targeted unification projects, there clearly wasn’t. The post-war era saw Robert Moses at the height of his power, with practically all of the discretionary investment dollars spent on roads, not rails. The merger that created the MTA was meant to rectify under-investment in transit that was, by then, a decades-old problem.

    • Boris says:

      Marc,

      I find that very hard to believe. I’ll need to see some evidence. A system that was only built, largely, in the 20’s and 30’s and was privately operated (which means it had to at least break even) was underfunded by the 40’s? I agree that Moses had a hand in destroying many public transit options, such as converting an elevated train line into what is now the Gowanus expressway. The original Second Avenue El also succumbed quite early. But that in no way compares to what the core subway system had to go through in the 70’s and 80’s.

      • Alon Levy says:

        The system didn’t break even after World War One. Due to various ancillary revenues and debt the IRT and BMT managed to survive, barely, but they weren’t running at a profit. The farebox recovery ratio in 1930 was actually lower than it is right now – about 50%, versus 67%.

        The reason things only fell apart in the 1970s is that deferred maintenance takes decades to be destructive. In the 1970s there wasn’t even money for the routine stuff, which is why the deterioration was so rapid, but there was no money for such repairs in the 1930s, either, and still the system survived. The IRT may have been bankrupt, but the oldest structures were thirty years old. In the mid-70s, sixty year old Sea Beach Line had never gotten an overhaul.

  6. herenthere says:

    Maybe Ravitch saw into a crystal ball in the 70s and made it so that the city would one day need him again…just like a superhero!

    On a more realistic tone, Ben, you are one great storyteller! (Kudos for summarizing the Times article).

Leave a Reply

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>