Home MTA Economics Struggling to pay when the bill comes due

Struggling to pay when the bill comes due

by Benjamin Kabak

Once upon a time, in 1991, the MTA’s annual budget clocked in at $2.9 billion. In today’s dollars, that’s approximately $7.6 billion. Yet, for 2010, the MTA’s budget is a whopping $11.9 billion. It is outpacing inflation by nearly 57 percent. No wonder the MTA is going broke.

Just a few years ago, in 2005, the MTA’s operating budget sat at $7.6 billion. That figure was just $800 million over the inflation-adjusted 1991 budget, and it seemed more in line with an expanding transit network that had to hire a few more employees and institute more service to meet demand. What has happened since the mid-2000s, with its origins in the 1990s, goes a long way toward exploring the root cause of the MTA’s current budget.

The problem started with the duel blow of the Pataki and Guiliani Administrations. In 1994, the city cut back massively on MTA appropriations, starving the agency of $100 million or 15 percent of total city subsidies. In 1995, the Pataki Administration cut when the state reapportioned approximately $86 million in taxes that should have gone to the authority. It would be just the beginning.

Over the next 15 years, the city and state systematically withdrew funding for the MTA. Student transit subsidies were cut, and capital funding agreements rescinded. As Fox 5 reported last night, “In 1990, 26 percent of MTA capital projects were paid with state and city funds. By 2004, it was only 2 percent.”

Yet, throughout the years, the MTA continued to build and expand. They continued to pursue a badly-needed State of Good Repair program and began plans to build the Second Ave. Subway, the 7 line extension and the East Side Access project. While some of the big-ticket items are fully funded by the city, in the case of the 7 line, others — including portions of the Second Ave. Subway and many of the MTA’s capital purchases — have been funded through bond issues, and bond issues lead to debt.

The numbers are stark. A 2005 report by the Fiscal Policy Institute highlights the MTA’s debt problem. The 1987-1991 five-year capital plan relied on debt funding to cover 25 percent of the costs. Each successive five-year plan came to depend more and more heavily on debt, and by the time the state approved the 2000-2004 plan, 61 percent of the MTA’s projects were being paid for out of debt. Today, the bill is due.

In the MTA’s overall budget of $11.9 billion for 2010, debt service payments constitute $1.9 billion. Sixteen percent of the MTA’s budget is going toward funding for projects that were built nearly ten years ago. That far outstripes overtime, pensions and health care, and it is the third highest line-item expenditure after payroll obligations and other non-labor expenses.

So what is there to do? We can sit here and blame the state for reducing its capital commitments from a high of 20 percent in the 1982-1986 five-year plan to a low of 0 percent in the 2000-2004 plan. We can finger the city too as its contributions plummeted from 15 percent of the overall bill to 2 percent. But we can’t change the past, and while it’s easy to scapegoat labor costs, those haven’t risen nearly as dramatically as the MTA’s debt obligations have.

Maybe then the MTA needs to reconsider its capital plan. The state’s capital review board recently rejected the MTA’s next five-year plan because it had a funding gap of nearly $10 billion, and the Authority simply cannot afford to take on even more debt. Adequate funding for mass transit in New York City is a must, but that funding must be responsible and thorough. No longer can we saddle the MTA with crippling levels of debt.

You may also like

25 comments

Alon Levy March 4, 2010 - 3:14 am

First, $2.9 billion in 1990 had the same purchasing power as $4.8 billion in 2010. Even if you adjust for per capita income, $2.9 billion in 1990 was equivalent to $5.8 billion in 2009 (no 2010 data, sorry).

Second, if we exclude debt payments, we need to explain growth from $5.8 billion to $10 billion. Most of it you can chalk to higher subway ridership, but not all. In other words, we still see more spending per rider expressed in terms of person-units employed.

Reply
Benjamin Kabak March 4, 2010 - 3:18 am

So then the inflation calculator I’m using is wrong, and the MTA’s budget is outpacing inflation by basically 100 percent.

Then, it would seem to be a labor and man-power issue. Why have the MTA’s labor costs sky-rocketed? Probably because (1) their pension obligations have increased and (2) general health care premiums have increased over the last twenty years as well.

So the MTA’s problem is debt service + health care costs + pension obligations. The pension obligations are, at this point, a sunk cost, but if health care costs can be lowered and debt service eliminated or decreased, the MTA could restore some semblance of fiscal balance.

Reply
Russell Warshay March 4, 2010 - 9:20 am

“…pension obligations are, at this point, a sunk cost…”

For existing employees, yeah. If, however, the MTA is able to transition to 401(k)s for new hires, that could have a positive impact on the MTA’s finances in the future.

As far as the debt service goes, I’d like to see the MTA use real estate transaction tax revenues for this. The MTA could do something like keep $600 million/year for things other than debt service, and allocate everything above that for debt service, and early debt retirement.

Reply
SEAN March 4, 2010 - 10:19 am

“…pension obligations are, at this point, a sunk cost…”

For existing employees, yeah. If, however, the MTA is able to transition to 401(k)s for new hires, that could have a positive impact on the MTA’s finances in the future.

If you do a little research you will find out that a 401k is turning out to be a losing proposision for the company & the employee. Why are companies cutting matching contributions. They either don’t have the money or don’t want to lose it.

As for the political side of this; Pataki was worned about borrowing to fund the MTA & look where we are.

Reply
Marc Shepherd March 4, 2010 - 11:57 am

The majority of the MTA’s employees are unionized. A shift from pension to 401(k) would therefore have to be part of a collective bargaining agreement. Good luck with that.

Reply
Russell Warshay March 4, 2010 - 2:32 pm

Yeah, that is definitely easier said than done.

Nesta March 4, 2010 - 12:18 pm

401k’s are a joke. They were started with the idea that the company would either match or at least contribute a set amount. These days most companies don’t do either!!!

Reply
Josh K March 4, 2010 - 12:45 pm

401(k)’s are not only a joke, but absolutely useless for most people’s retirements. Look at what has been happening during this current recession. Anything invested in the market is subject to the ups and downs of the market. There are no guarantees that your money will be there when you need it. You can’t plan a retirement if you don’t know exactly how much you’ll be getting per month.

What is needed is a federally administered single-payer healthcare system, such as “Medicare for all” to reign in the costs of healthcare. If the MTA didn’t have to cover it’s employees and retirees balooning healthcare costs, the labor costs would probably come down.

Also, Russel, if I’m not mistaken, the real estate transaction tax revenues are wayyy down, that they barely cover much of anything at the moment. It’s questionable if NYC will ever see a return of such rapid real estate development in our lifetimes and the subsequent tax windfall from it.

Russell Warshay March 4, 2010 - 2:18 pm

“401(k)’s are not only a joke, but absolutely useless for most people’s retirements.”

That depends on how they are set up. With a robust matching contribution, they can be very effective.

“Look at what has been happening during this current recession.”

The “current” recession ended months ago.

“Anything invested in the market is subject to the ups and downs of the market. There are no guarantees that your money will be there when you need it. You can’t plan a retirement if you don’t know exactly how much you’ll be getting per month.”

You could say the same thing about pensions were it not for governmental institutions ready to step in for when a pension fund fails. Business cycles can force a company into Chapter 11 just from pension obligations. Look at airlines. No institution should have to make a retirement contribution beyond a paycheck. You can argue that those contributions should be greater, and I’d actually agree with that, but its not fair to be liable for a changed environment years after the fact.

Also, the stock market’s losses have mostly, but not completely recovered. This is not that much of an issue, however, for anyone who is diversified.

“What is needed is a federally administered single-payer healthcare system, such as “Medicare for all” to reign in the costs of healthcare. If the MTA didn’t have to cover it’s employees and retirees balooning healthcare costs, the labor costs would probably come down.”

I agree with much of this, except for the need for universal coverage to be single payer. Single payer runs against the grain of American political culture. Those who advocate for this are often blind to political realities. The late Sen. Ted Kennedy single handedly killed the Nixon Administration’s 1974 attempt at health care reform because it was not single payer, and he spent the rest of his life regretting it. We could have had universal coverage a long time ago. I’d look to systems like what is in Germany or the Netherlands. That strikes me as a more realistic way to get universal coverage in the U.S.

“Also, Russell, if I’m not mistaken, the real estate transaction tax revenues are wayyy down, that they barely cover much of anything at the moment.”

Yeah, that’s my point. If the MTA tries to live off the current revenue level from real estate transaction taxes, when things turn around, the extra revenue could be dedicated to debt service.

“It’s questionable if NYC will ever see a return of such rapid real estate development in our lifetimes and the subsequent tax windfall from it.”

I wouldn’t bet on it. The American financial system is even more consolidated in New York than it was before subprime mortgages almost pulled the entire system down. NYC’s population has continued to grow. Also, the recent recession looks to the first in a long time where New York is barely trailing the rest of the U.S. in a recovery. NYC is actually in decent shape, considering that we actually had a financial panic.

SEAN March 4, 2010 - 3:18 pm

That depends on how they are set up. With a robust matching contribution, they can be very effective.

“Look at what has been happening during this current recession.”

The “current” recession ended months ago.

Not true. This recession is still continuing despite what the news robots keep saying. Also what jobs that are being created are at the lower end of the pay scale & the jobs that have been lost tended to be toward the upper end of the pay scale.

“Anything invested in the market is subject to the ups and downs of the market. There are no guarantees that your money will be there when you need it. You can’t plan a retirement if you don’t know exactly how much you’ll be getting per month.”

You could say the same thing about pensions were it not for governmental institutions ready to step in for when a pension fund fails. Business cycles can force a company into Chapter 11 just from pension obligations. Look at airlines. No institution should have to make a retirement contribution beyond a paycheck. You can argue that those contributions should be greater, and I’d actually agree with that, but its not fair to be liable for a changed environment years after the fact.

American corporations don’t plan for the future. It is all about right now,not what might or will happena few years down the road.

Also, the stock market’s losses have mostly, but not completely recovered. This is not that much of an issue, however, for anyone who is diversified.

The entire market is being influenced by the actions of a handful of Wall Street furms, mostly Goldman Sacks.

“What is needed is a federally administered single-payer healthcare system, such as “Medicare for all” to reign in the costs of healthcare. If the MTA didn’t have to cover it’s employees and retirees balooning healthcare costs, the labor costs would probably come down.”

I agree with much of this, except for the need for universal coverage to be single payer. Single payer runs against the grain of American political culture. Those who advocate for this are often blind to political realities. The late Sen. Ted Kennedy single handedly killed the Nixon Administration’s 1974 attempt at health care reform because it was not single payer, and he spent the rest of his life regretting it. We could have had universal coverage a long time ago. I’d look to systems like what is in Germany or the Netherlands. That strikes me as a more realistic way to get universal coverage in the U.S.

Something needs to be done & quickly before the lobbyests get there dirty hands on this. If you are a free market capitalist, welcome to paradise & all of it’s unintended consequences.

“Also, Russell, if I’m not mistaken, the real estate transaction tax revenues are wayyy down, that they barely cover much of anything at the moment.”

Yeah, that’s my point. If the MTA tries to live off the current revenue level from real estate transaction taxes, when things turn around, the extra revenue could be dedicated to debt service.

“It’s questionable if NYC will ever see a return of such rapid real estate development in our lifetimes and the subsequent tax windfall from it.”

I wouldn’t bet on it. The American financial system is even more consolidated in New York than it was before subprime mortgages almost pulled the entire system down. NYC’s population has continued to grow. Also, the recent recession looks to the first in a long time where New York is barely trailing the rest of the U.S. in a recovery. NYC is actually in decent shape, considering that we actually had a financial panic.

Either the commuter tax will get reinstated or some other means of revenue generation like congestion pricing will need to be put into place.

Alon Levy March 4, 2010 - 3:58 pm

By the conventional way of measuring recessions, based on economic activity, the recession ended last summer. By other means, such as employment, the US is near the bottom; which side it is on depends on the February jobs report, which will come out this Friday.

In either case, you could convincingly argue that recessions shouldn’t be considered over until income/employment goes back above its pre-recession peak. By those standards, the US may still be in the recession that started in 2001: total employment and real GDP per capita fully recovered, but real household income and the employment-population ratios have yet to exceed their 2000 levels.

With health care reform, French single-payer is better than the German multi-payer system, which was a first in the world and had no previous experience to base itself on. The Dutch system is in flux right now – it’s in the process of reforming itself along more market-oriented lines (but still much less market-oriented than in Switzerland, let alone in the US health care reform bills, let alone in the US today).

What really doesn’t work is Canadian single-payer, where add-on coverage is basically nonexistent.

Rhywun March 4, 2010 - 4:22 am

One wonders if even the current SAS stub will be completed – is it covered by previous five-year-plans? But surely the remainder of the line is DOA.

Reply
Russell Warshay March 4, 2010 - 9:59 am

“One wonders if even the current SAS stub will be completed”

If its not completed, I believe that the MTA would have to return billions to the Federal Government.

“But surely the remainder of the line is DOA.”

Not necessarily. When ESA is complete, the 4/5/6 subway lines will become even more crowded. The SAS will be needed all the way down to Lower Manhattan for the additional capacity. More importantly, however, is that if the 4/5/6 becomes noticeably more crowded than it is now, real estate values for Midtown office space could stagnate. If that happens, I believe that the real estate lobby gets moving. They’ll want the SAS completed to preserve the value of their investments.

Reply
peter knox March 4, 2010 - 10:15 am

To finish it, they have to work on it. The Feds should walk over to the project once in a while and see how their money is being wasted. No work has been done above 91st St. for at least a week. A number of holes have been dug around 86th St., but last Saturday no one was in sight. April will be the third anniversary of this fiasco. It has no chance of being completed before 2018-2020. Forget the supposed deficit. Add at least another 3B to the 5.2B funny number the MTA is floating to prevent an honest discussion of the feasibility of this quixotic project. And with each passing day, more innocent people around 2nd Avenue are being irreparably harmed.

Reply
Al D March 4, 2010 - 10:23 am

It’s a shame that everybody knew this years ago, and nobody in power had the backbone to stand up to this then. Now, we have even more weak-minded leaders, and Mayor Mike, despite his campaign promise to ‘take on the MTA’ (even though those in the know knew this to be an empty promise) has done nada. We need someone with cohones to set this mess straight.

Reply
Andy K March 4, 2010 - 11:29 am

These types of financing fiascos seem to be the funding method of choice for transportation projects. These really benefit the banks at the expense of everyone else. Sometimes it might make sense to advance some projects through borrowing, but this should be carefully thought out.

Reply
Marc Shepherd March 4, 2010 - 12:02 pm

Debt financing is how politicians love to work, especially the Republicans (Pataki and Giuliani) who were largely responsible for this debacle. Remember, bank presidents are mostly Republicans, and the more debt is issued, the better it is for the banks.

This is a great strategy for politicians too, because in the short term they can claim to be Geting Things Done, and by the time the bill comes due, it is somebody else’s problem.

I do think debt financing makes sense when there is a dedicated revenue stream to pay the money back. Robert Moses built all of his bridges this way. But there is no revenue stream from the Second Avenue Subway. Most of its riders (assuming it gets built) are people who were already using the transit system anyway.

Reply
SEAN March 4, 2010 - 12:19 pm

But there is no revenue stream from the Second Avenue Subway. Most of its riders (assuming it gets built) are people who were already using the transit system.

True, but those who move to the new line open up space for new potential riders on the 4, 5 & 6 lines.

Reply
pete March 4, 2010 - 12:31 pm

Do a special property tax district on second ave like every other municipality that funds local infrastructure.

Reply
Benjamin Kabak March 4, 2010 - 12:33 pm

Just to be clear, the SAS funding isn’t the issue. It’s an overall problem with capital funding. The MTA isn’t carrying that much debt on the Second Ave. Subway relative to some of their other big-ticket items because so much of that money comes from the federal government.

Benjamin Kabak March 4, 2010 - 12:23 pm

Most of its riders (assuming it gets built) are people who were already using the transit system anyway.

The SAS should boost ridership by a large enough margin to to ensure adequate bond backing. The problem is that these bond payments are due now when the SAS isn’t supposed to go into revenue service until 2016 or 2017 or 2018.

Reply
Russell Warshay March 4, 2010 - 2:26 pm

“Debt financing is how politicians love to work, especially the Republicans (Pataki and Giuliani) who were largely responsible for this debacle.”

Can you cite a study that empirically backs up your assertion that Republicans are more likely to engage in debt financing?

“bank presidents are mostly Republicans”

The CEOs of Goldman Sachs and JPMorgan Chase, two of the largest banks, are Democrats. I wouldn’t be so quick to generalize.

Reply
Think twice March 4, 2010 - 12:40 pm

“Starving the beast” is one of the hallmarks of political laziness in this state and nation.

God forbid that Rude-boy Ghouliani and Milquetoast Paturkey actually took on reforming/overhauling the MTA when they had their chance.

Reply
Anon March 4, 2010 - 6:00 pm

$4,611,000,000.00 via BLS
You MUST use BLS for this data.

but don’t forget to look at the price of steel, concrete and construction in general

Also don’t forget about how New York has been getting screwed on energy prices
http://www.eia.doe.gov/cneaf/e.....5_6_b.html

Reply
Alon Levy March 5, 2010 - 2:20 am

The operating budget wouldn’t be too affected by the prices of steel and concrete. Even energy is a fairly small expenditure for the MTA.

Reply

Leave a Comment

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More

Privacy & Cookies Policy