Archive for February, 2010
Searching for a perpetual funding source
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Over the weekend, as part of their campaign to convince the MTA to use stimulus dollars as a quick fix for most of its budget gap, James Vacca, Christine Quinn and Gene Russianoff penned a Daily News op-ed putting forth their plan. By now, we know the argument: It is legally permissible for the MTA to use 10 percent of its stimulus dollars for operating costs. That contribution of around $120 million plus the $50 million in operating expenses reserved for pay-as-you-go capital needs would be enough to take the service cuts off the table while the city and state should work out a funding plan for the Student MetroCard program.
On the surface, their proposal doesn’t sound like a bad one, but I’ve had my reservations. Without exhausting the other options first, I don’t support taking money that should be used for capital resources or the PAYGO fund to cover operating deficits. Furthermore, having spent some time examining Transit’s service cuts proposals, I believe many of these cuts should stay as is. It simply doesn’t make sense for the MTA to run bus services that cost $12-$25 per passenger and service just 1100 riders per week as Staten Island’s S60 bus does.
In the end — at the 11th hour when no better solution is on the table — I would be willing to support this so-called Russianoff Plan, but for now, I want to see New York try to find that better solution. Today at The Transport Politic, Yonah Freemark tackles a similar subject. He explores how transit riders are no longer surprised by Doomsday cuts and questions the way American municipalities fund transit operations. He writes:
If there is no obvious way to avoid these reductions now, governments at all levels of the federal system should learn from this recession in order to prepare for the next one. In most other countries, despite economic downturns similar to the one being experienced by the United States, transit services have not been cut back at all. One explanation, of course, is a more stable source of revenues than the sales tax relied upon by most American transit systems to fund system operations and capital programs. Similarly, other countries have stronger social support networks, ensuring that when they experience recessions, they’re less likely to see tax revenues drop to a degree seen in the U.S. Finally, most other developed countries don’t immediately turn to inefficient, ineffective tax cuts to solve economic problems.
In other words, the declining state of American transit operations today is more a reflection of a general lack of political will to maintain public service stability. If it is disappointing to watch agencies reduce services dramatically now, it is downright depressing to note that nothing is being done to ensure that a similar situation won’t occur again.
Early last year when the MTA was facing another budget crisis, Freemark explored the state of MTA financing. Two aspects of our transit agency — very high payroll costs and an over-reliance on taxes that fluctuate with the economy — left the MTA high and dry. Paris, for example, relied upon some robust payroll taxes and heavy local subsidies along with a reduced payroll to avoid these economic problems while maintaining control of its fixed costs. New York now has that payroll tax, but it’s such a small part of the MTA’s overall budget that it can’t act as a countervailing measure to a bad real estate and sales economy.
Right now, the MTA’s funding problems are those of a lack of political will. Albany and City Hall have left the MTA with fewer subsidies than ever before, and payroll obligations are starting to spiral out of control. Before the MTA moves stimulus funds to cover operating deficits — a move that may bring the MTA to break-even this year but will leave them with the same problems next — the major players must try to contain these costs and find a more stable annual revenue source. The city and the MTA can’t keep playing this same economic game year in and year out.
At Hudson Yards, a two-month extension for Related
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As the Tunnel Boring Machines continue their march from 34th St. and 11th Ave. to Times Square, the MTA and Related are still hashing out their $1 billion deal for the development rights to the land above the Hudson Railyards. The deal, originally set to be signed in January with its first payment this month, has been given an additional 60 days, according to a report in The Observer, and as the real estate markets continue to struggle, the future of this deal is still not set in stone.
According to Eliot Brown, the MTA and Related have agreed to extend the deadline to sign the contract from January 31 to March 31, and he says that the real estate executives “have recently been expressing confidence that they indeed expect to sign the contract once the documents are ready.” Meanwhile, Goldman Sachs, one of Related’s funding partners, has dropped out of the deal, but Related says that will not impact their ability to pay the money owed to the MTA.
Brown has more:
A bit more info about the contract with the M.T.A. is in a memo from the agency, obtained by The Observer, sent late Friday to the M.T.A.’s board. The memo says that Related has until March 31 to sign the contract, when it will have to plunk down $21.75 million and trigger another $21.75 million in payments over the following year. (The whole deal is valued at a $1 billion transaction for the MTA in today’s dollars; the entire 12 million-square-foot mega-development, if built out fully, would run an estimated $15 billion.)
Should Related, led by Stephen Ross, indeed sign the contract by March, it would then obligate itself to close on the deal once the economy improves to the point where it hits a set of quantifiable triggers that include commercial vacancy rates, according to multiple people familiar with the deal. Thus the true test of whether or not the deal for the rail yards will happen is at that point—when Related must close on the deal and commit to the full 99-year lease (and the $1 billion in payments) or back out.
THE PROCESS HAS become considerably more drawn out and far more uncertain than imagined at the economy’s peak, when the M.T.A. was first soliciting bids for the site. The M.T.A. had planned for the $1 billion to start rolling in, and budgeted accordingly in its capital plan. Now Related must find major tenants willing to leap over to the far West Side and be anchors for a new giant complex of hotels, retail and office towers. And the development must have a certain critical mass of tenants to get going: the platforms alone for the two 13-acre rail yards are estimated to cost up to $1 billion, meaning a promised set of occupants is needed to get financing.
For the agency, this delay is obviously a fiscal inconvenience. It has been nearly two years since Tishman Speyer originally agreed to buy the land, and the MTA could see another $1 billion deal disappear at a time when they most need the money.
Meanwhile, the 7 line extension continues onward. The subway extension will be built, and at the rate Related is going, it will open well before the bulk of the Hudson Yards development takes place. At least those who eventually build there will have a subway line. Whether the extension is still the best use of city spending on transportation expansion remains an open question.









