For the capital plan, a $6.9 billion debt proposalBy
As the MTA looks to shore up both its operating budget and five-year capital plan, the agency is prepared to turn toward a set of familiar funding sources to stay afloat. In a sweeping budget released yesterday at its Board meeting, the authority reiterated that its operating budget will require fare hikes as planned in both 2013 and 2015 as well as the current mix of dedicated taxes if the agency is to maintain a balanced budget. Meanwhile, the capital plan will rely on even more debt as the authority plans to borrow nearly $7 billion to close its funding gap.
“By keeping our focus on making every dollar count, this financial plan brings stability back to the MTA’s finances,” outgoing MTA Chairman and CEO Jay Walder said. “As a result, we’re able to meet our commitments to avoid service cuts and fare increases next year. The savings also pave the way for a new funding strategy that will advance vital capital investments that protect the safety and reliability of our transportation network.”
In its budget documents, the MTA made clear that its basic assumptions rely on continued support from Albany and continued inaction from those interested in repealing the payroll tax. In its release, the Authority noted that the budget was prepared based on four basic assumptions: a three-year zero wage increase initiative that “reflects new fiscal realities”; two fare hikes in 2013 and 2015 as planned; more cost-cutting measures; and “continued receipt of dedicated taxes and subsidies.”
Both union leaders and Albany representatives are likely nervous about these assumptions. With the TWU negotiations looming, a net-zero wage increase would either leave their members with stagnant salaries for three years or with their ranks reduced as the MTA can keep labor spending steady by simply cutting positions. In Albany, as Lee Zeldin and his ilk attempt to overturn the payroll tax, the MTA has made it clear that it needs the $1.5 billion in subsidies. If they want to reduce the tax burden in suburban counties that already enjoy mass transit benefits, they’re going to have find a way to replace those revenue streams.
Meanwhile, the MTA said it will turn toward debt financing and more state and city contributions to find its capital plan. With a $10 billion gap and $4 billion already cut from what was once a five-year, $28 billion plan, the MTA has applied for a $2.2 billion low-rate federal loan and will issue $4.7 billion in MTA revenue bonds, bringing the total debt to $6.9 billion. It anticipates drawing in around $890 million from the sale of 347 Madison and other underutilized properties and has asked the city, state and Port Authority for a combined $1.7 billion as well.
Transit advocates did not rush to embrace this plan. The Tri-State Transportation Campaign sent out a lengthy statement yesterday:
The financing plan announced today would all but guarantee that tomorrow’s New Yorkers would face much higher fares and future service cuts. It centers around borrowing an additional $6.9 billion to fund the transit system’s capital needs, saddling future generations with yet more debt. Seventeen cents of every fare dollar already goes to pay off old debt, and this plan would significantly increase that amount.
Furthermore, this plan is balanced only with the help of assumption after assumption. It relies on new revenue from the Port Authority and a loan from the federal government. It assumes changes in labor agreements. It relies on an increase in support from New York City. It relies on an increase in the agency’s debt cap by the State, and approval by the State Legislature of new bonds. It assumes that federal transportation funding will remain at existing levels, when many in Congress are calling for drastic cuts.
Much of our region’s economic dynamism can be traced back to the investments made since the MTA’s first multi-year rebuilding program was created in 1982. The capital program generates tens of thousands of new jobs and tens of billions of dollars in economic activity. The projects that the capital plan supports — such as station rehabs, signal modernization, track work, lighting, and customer assistance — are essential to the region’s prosperity. But this plan amounts to a ticking time-bomb.
The city and Mayor Bloomberg declined to comment, but the Citizens Budget Commission issued a call to action:
The new proposal is better than doing nothing to meet the essential infrastructure needs of mass transit. But it has a critical flaw – it proposes to borrow billions without presenting a corresponding plan for new revenues to match the increased long-run debt service burden. In the coming months, as the proposal is debated, this gap should be meaningfully addressed by our elected representatives…
The MTA Board, in consultation with the Governor and legislative leaders, should develop a revised financing plan. It should rely on prudent forms of borrowing and identify adequate revenues to cover future debt service. The best medicine for the MTA’s fiscal woes is new revenue from sources such as accelerated and larger fare and toll increases, increases in auto user fees such as vehicle registration and drivers’ license fees, and a better version of the much maligned efforts to charge for auto access to central Manhattan. Of course existing sources must be retained and optimized. A viable strategy for maintaining and enhancing mass transit inevitably requires that New Yorkers pay more in some way. Our political leaders should be honest about that fact and address the problem rather than temporarily dodging it.
It’s tough to feel too good about this plan. It would indeed help the MTA to finish its big-ticket items, and they must have this money. But saddling the authority with more debt will just lead to future cuts and fare hikes. Already, the MTA is carrying too much debt, and as it looks toward the next ten or fifteen years, debt will begin to hinder its actions.
For now, though, the lines have been drawn and assumptions have been aired. It’s a first step in what will be a long process, and how it ends will impact the long- and short-term futures of New York City’s aging subway system.
For more on the budget, read through the MTA’s plans right here.