Home MTA Economics What future the capital program?

What future the capital program?

by Benjamin Kabak

The MTA unviled its four-year budget plan last week, and inside of this document are a series of somewhat rosier projections than we’d expect. Despite a crushing deficit this year, if CEO and Chairman Jay Walder can realize all of his cost savings plans, the authority will run net cash balances in the black for 2010, 2011 and 2013 with significant but not too costly deficits in 2012 and 2014. To make these projections, the MTA had to rely on economic assumptions from the city and state, but in the past, these numbers haven’t been too far from reality.

In the consolidated statement which features a line-by-line breakdown of MTA costs, one item jumps out at me. That is the authority’s dept service payments. Last year, the MTA made $1.4 billion in debt service payments and is on pace this year to see that number reach $1.8 billion before jumping up over $2 billion in subsequent years. By 2014, debt service will reach $2.555 billion, and it will consist of approximately 13 percent of the MTA’s annual expenses.

Meanwhile, as debt service remains a significant annual cost on the operations ledger, the MTA is moving ahead with another five-year capital plan that will see the authority issues more revenue and construction bonds. Thus, these debt totals will not lessen or disappear from the ledger any time soon, and MTA Board members are growing leery of the capital spending. Every time we spend money on this capital plan, we’re increasing the debt, increasing the debt service, and this is like a time bomb here,” Andrew Saul, the authority’s vice chairman, said last week.

Saul wasn’t the only board member to question the wisdom of maintaining debt-producing programs as the MTA struggles to close a budget gap. “We’re paying interest during the construction periods of projects in part from the fare box, so we are paying for capital with the fare box,” board member Doreen Frasca said. “That means that less money is dropping down to pay maintenance expenses. We’ve cut 20 percent out of many of the agency budgets. We certainly haven’t cut the capital budget by 20 percent.”

For its part, the MTA defended its capital budget and noted that it had reduced its five-year plan by approximately $2 billion. “A series of five-year capital programs have revitalized our transit system,” the authority said in a statement. “While the more than $64 billion spent in that time has helped turn around our regional economy, maintaining and improving the 100-year-old transportation system is an ongoing need and we cannot afford to disinvest. The current $26.3 billion program reflects a nearly $2 billion reduction as the result of a comprehensive review of projects.”

All of this begs an important question: What should the MTA do about its capital spending and the need to take on debt? Once upon a time, the state contributed more money annually to the MTA’s capital plan, and the authority didn’t have to take on the debt. But as New York’s finances went south, successive governors have pulled more funding and have urged the MTA to bond their projects instead. Some of those — such as new subway lines — can be bonded because the revenue from the increase in ridership will cover the debt service payments in the future. But other programs — such as State of Good Repair initiatives and other routine maintenance, upgrade and rolling stock proposals — are funded without that guarantee of future returns. People stop using the subways as the system breaks down but spending billions to maintain it doesn’t lead to an incremental jump in ridership.

What the MTA can’t do is halt its capital program. It would be far too costly to cut back on maintenance and capital repairs while moving forward only on ambitious (and often delayed) expansion efforts only because the economics of bond issuances work out that way. The authority must make sure the system doesn’t slide into a state of unreliability because that would exert a huge cost on the city’s economy.

So for now, the debt system stays as it is. Unless the government can find more money for capital investment, the authority will have to take on more debt, and we’ll be paying tomorrow for upgrades today. It’s not an ideal situation by any means, but when it comes to funding transit, what is these days?

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16 comments

John Paul N. August 2, 2010 - 6:24 am

Here’s a blunt question: if the state is so mistrustful of the MTA, instead of saying “We will still fund you (less), but you have to come up with your own sources of funding”, isn’t it actually saying “We have no desire to support you, but we must because we own you, you must still come up with your own sources of funding so we don’t look bad.” Isn’t that really the current attitude of the state?

Legislators are able to get by on the non-transit issues people vote them for. (They abuse this so much to the point that they induce people to think transit issues are to have a low priority compared to positions on other issues. e.g. attention is focused elsewhere. This, while so much of the population is transit-dependent, it is so that people could think they can take the transit system for granted.) But if they collectively have this anti-transit attitude, maybe it is time for New York City to control the subway and bus system. However it seems most of the City’s politicians have the same attitude, so it’s not a good answer, it’s just a hot potato being thrown around.

Privatize already?!?! (shudders at the thought)

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John Paul N. August 2, 2010 - 6:43 am

Cap’n Transit has an excellent article about the lack of consensus in long-term transit financing in New York and the United States, and compares us to the French. We are not progressive on public transportation as they are there. But I also bet the French have higher taxes, and also the taxes per capita is higher than the United States. As I was reminded before, we Americans are stuck in our own business culture. We are also stuck in our large geographic area (compared to European countries) that we do seem to have less to fund our transportation system, public and private.

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Alon Levy August 3, 2010 - 12:41 am

The French have higher taxes, but they all go to welfare and social security. The per capita amount of committed money going to transit construction is actually lower in Paris than in New York. (However, the consensus the Cap’n mentions involves building a few more subways that would change that.)

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Streetsblog New York City » Today’s Headlines August 2, 2010 - 9:07 am

[…] With No State Funding for Capital Program, MTA Board Reconsiders Big Ticket Projects (NY1, SAS) […]

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Mike G August 2, 2010 - 9:41 am

According to stimulous.org, there is $469 BILLION left unspent in the American Recovery and Reinvestment Act. Why can’t the MTA get some more of this? I know the SAS and ESA projects have gotten a few million dollars here and there, but why can’t more stimulus money come the MTA’s way for capital improvement? Wouldn’t a fully funded full-length Second Avenue Subway be the perfect project for that money? Or does that make too much sense?

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Marc Shepherd August 2, 2010 - 11:35 am

Well, among other things, the stimulus is intended to fund projects that are ready to start NOW, and the later phases of the SAS are nowhere near that point.

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bob August 3, 2010 - 10:40 am

I have seen signs up that say some of the station rehabs are funded from stimulus money.

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Nathanael August 9, 2010 - 7:57 pm

Fulton St. Transit Center got some of the stimulus money (to interconnect all the underground stations there in a fully handicapped-accessible way, etc.).

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John August 2, 2010 - 3:10 pm

Cutting the capital budget through deferred maintenance would be like a return to the 1966-84 period, where first the TA and then the MTA underfunded upkeep on both its rolling stock and on its entire physical plant, leading to the almost-complete breakdown of the system by the early-80s. It’s an easy place to cut, since the ‘deferred’ in ‘deferred maintenance’ means the next guy will probably end up having to deal with the headache, but we’re not so far past the pre-David Gunn era not to remember what happened the last time the MTA decided it could save a few dollars by putting off repairs to things that riders might not notice right away.

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bob August 3, 2010 - 10:47 am

Basic maintenance is different than the capital budget. But if the maintenance is ignored long enough you can roll it into a capital project. On the face of it that seems like a bad way to operate. But the incentives are skewed:

1) Capital costs can be bonded out for future generations to pay easier than ongoing maintenance.

2) Traditionally federal money was only available for capital projects. This is less true than it was, I think, but there still is a bias there.

My reference point for bad maintenance is that in the early 80s there was a derailment about every 2-3 weeks. We have not gotten there yet…

Of course, this article is not really telling anything new, and there is no painless solution. So we’ll just ignore it until the crisis hits.

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Nathanael August 9, 2010 - 7:59 pm

Unfortunately, there’s so much deferred maintenance on stations *already* that a bunch of it is *already* capital project material. Same with signalling.

And then there’s the needed-long-term ADA upgrades (which means more station work) and the very desirable use of modern signalling (which means more signalling work). So basically there’s now a huge amount of capital expenditure which needs to be done, period, whether the money is there or not. Mostly in stations and signalling from what I can tell.

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IanM August 2, 2010 - 5:36 pm

I don’t think anyone’s seriously proposing that we stop maintaining the system and let it fall apart and become unreliable. But aside from essential maintenance, aren’t there aspects of the capital program that may not be completely necessary to pursue right now? How essential is underground Wi-Fi right now? Remote fare cards? ATO systems? By the same argument that we shouldn’t let maintenance and reliability deteriorate, shouldn’t we keep service from deteriorating (as subway and bus lines are discontinued)? How is that not a more important priority than some of these other things?

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Andrew August 3, 2010 - 12:08 am

I thought Transit Wireless was footing the bill for the wifi installation.

The MetroCard system costs the MTA more than it should in processing costs. One goal – perhaps the primary goal – of a new system is to reduce those costs.

ATO isn’t necessary, but replacements of old signals are, and CBTC may well be the most cost effective way to go.

Some of the recent service cuts can be classified as pure deterioration, but I think that many of the cuts and restructurings made sense. If a route is very poorly performing, arguably the MTA shouldn’t be operating it. If there’s another round of cuts, I think it will be much worse, since most of the relatively benign stuff has already been done.

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IanM August 3, 2010 - 12:25 pm

It makes sense for the MTA to adjust service based on performance, yes. A bus line that almost no one uses should be eliminated or re-structured. But by and large this was a significant decrease in service, not an increase in efficiency. I don’t see anything benign about the fact that it now takes me 5-10 minutes longer to get to work. It’s not the end of the world, but it seems to me like maintaining that service should have been far more important than many of these capital improvements, of which those were just a few examples. Digital signs telling me when the next train is coming will be nice, for example, but wouldn’t it have been better to keep more of the actual trains running?

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dennis August 2, 2010 - 7:18 pm

Paratransit costs will blow Walder’s budget to bits. No one has figured out how to get a grip on this entitlement, the cost of which continues to spiral out of control, as every old person in NY has figured out that the MTA is now in the business of providing door-to-door limo service–regardless of the cost–to people who could quite easily take the bus or the subway, but would rather not.

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Nathanael August 9, 2010 - 8:01 pm

The way to get a grip on paratransit costs is, quite simply, to make the subway system fully accessible. (And, incidentally, the sidewalks, which is NYC’s responsibility.)

This is what other cities have found. If you do that, the number of people qualified for paratransit drops to a very small number.

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