Home MTA Economics On debt, a comptroller’s report reveals the obvious

On debt, a comptroller’s report reveals the obvious

by Benjamin Kabak

The latest Comptroller's report echoes findings issued last month by the RPA. Image via RPA/ESTA.

When the MTA unveiled its latest three-year budget projections, transit advocates and transportation experts raised the debt alarm. As I detailed in early August, the MTA’s three-year projections relied on numerous assumptions and a larger debt burden. A few weeks ago, a recent report by the Regional Plan Association and the Empire State Transportation reinforced that idea. Debt service could account for nearly a quarter of the MTA’s operations budget by 2014.

It is, then, no surprise that yet another report issued by Thomas DiNapoli, New York State Comptroller, reaches the same conclusions. What is surprising, though, is the amount of time it took DiNapoli’s office to release this report and the ways in which it does little to help the MTA’s economic position. In an eight-page report (available here as a PDF) with lots of graphs published at a size far too small, DiNapoli explores the MTA’s basic assumptions and raises the same debt alarm.

“The MTA is in a very difficult position as it struggles to hold together a strained operating budget while proposing the largest borrowing program in its history to fund capital projects,” DiNapoli said. “There is no debating that the capital program is critically important, but my analysis shows that the magnitude of this borrowing plan will have serious implications for the operating budget in the coming years. Before taking on nearly $15 billion in new debt, the MTA must present the public with the facts about the potential long-term implications of this new borrowing on services, fares and budget gaps.”

The MTA hasn’t yet been forthcoming with the real impact the debt will have on services, fares and budget gaps, but the RPA/ESTA analysis did. DiNapoli’s work basically rehashes those findings. Here are his key conclusions in bullet-point form:

  • Debt service as a percent of total revenue could rise from 16.4 percent in 2011 to 22.7 percent in 2018 without new fare and toll increases. (The burden could reach 20.5 percent in 2018 even with biennial fare and toll increases of 7.5 percent).
  • In total, the proposed financing program would cost the authority’s operating budget $33 billion over the term of the loans, or nearly $13 billion more than the approved financing program.
  • The July financial plan assumes that any wage increases during the first three years of a new labor agreement will be offset by savings from union concessions. Wage increases at the projected inflation rate, for example, without offsetting savings would increase costs by $62 million in 2011 and as much as $327 million by 2015.
  • Spending continues to rise at a rate more than twice that of inflation. Despite an assumed three-year wage freeze, the MTA projects annual spending increases of 5.1 percent through 2015 based on rising costs for health insurance, pensions, debt service and services for disabled commuters.
  • The pace of the economic recovery is a matter of grave concern. Roughly one-third of the MTA’s revenues come from economically sensitive taxes, and the use of mass transit is closely tied to employment levels in the region.

Now, over the years, I’ve been fairly critical of DiNapoli’s reports. They don’t really shed light on any new problems with the MTA. In fact, we’ve known about the debt bomb for years; the recent three-year plan just accelerates the high percentage of the operating revenue that will have to be spent on debt service rather than on transit service. How many taxpayer dollars are going to DiNapoli’s office to duplicate research that’s already been published?

Yet, this report shows glimpses of, well, something. DiNapoli notes that spending has increased at twice the rate of inflation, and he pinpoints a variety of causes — labor costs, debt service and services for disabled commuters — as the primary culprits. The next steps then involve addressing these problems. How can the MTA lower its health care and pension obligations? What must be done to streamline debt service? How can we reduce Access-A-Ride costs? Those question don’t even address the concerns astutely raised by Andrew Smith in this extensive comment he left yesterday.

At some point, New York politicians who are in these positions of power are going to have to get serious about identifying cost savings plans. This report by DiNapoli is a small step toward that goal, but to save the MTA will require more than just small steps.

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12 comments

Streetsblog New York City » Today’s Headlines September 22, 2011 - 9:15 am

[…] Picks Up DiNapoli’s MTA Debt Bomb Warning; And: Kabak Weighs […]

Reply
Larry Littlefield September 22, 2011 - 9:32 am

Bankrutpcy?

FYI, while more and more of the operating budget is being eaten up by debt service, which is theoretically a capital cost, since the early 1990s a significant share of the operating budget has been paid for by capital borrowing.

Ie. “Reimbursible Expenditures” — operating expenditures reimbursed by the capital program because they occurred somewhere near a capital project.

That is over and above the fact that some of the “capital costs” were for things like painting.

Reply
David September 22, 2011 - 10:40 am

The Gubbermunt is WAY in debt and most Americans live and die in debt while corporations and billionaires enjoy paying virtually no taxes.
Go back through every century, and times really just never change…

Reply
Larry Littlefield September 22, 2011 - 11:27 am

Most of the “assets” that make billionaires billionaries these days are other people’s debts, not infrastructure, factories, patents, etc.

So what happens to wealth when people can’t pay? Thus far, government borrowing to keep the debt driven economy afloat. And when government’s can’t pay? Hmmm.

“Go back through every century, and times really just never change.”

Actually, there was one period in which wealth inequality fell substantially. The Great Depression.

Reply
David September 22, 2011 - 12:21 pm

Wealth may have become more equalized during Great Depression I, but there were millions more who were suddenly much poorer. You may not be a billionaire, but if you are financially comfortable, it makes all the difference to you and your family’s lives.
The 1950s are generally considered a zenith of American business and cultural domination. Europe and Asia’s industries were in a shambles and the US had little trouble switching from making tanks to washing machines and cars. The wealthiest Americans also paid some of the highest tax rates ever. They could pay less by INVESTING in America to create jobs and better the nation.
Somehow most people now, even many of those who remember this time,have forgotten how America Wins when everyone does their fair share.

Reply
Bolwerk September 22, 2011 - 2:53 pm

Yep, supply-side economics worked out really well…for India, China, and other emerging countries!

Reply
Larry Littlefield September 22, 2011 - 3:07 pm

So when the post-deal capitalism collapsed in the 1970s we had all demand and not enough supply, and now we have the reverse!

The transition to what comes next will not be brief or easy.

Reply
TWU: MTA debt a Wall Street problem :: Second Ave. Sagas October 5, 2011 - 12:34 pm

[…] a hole in its capital budget, debt has become us. State Comptroller Thomas DiNapoli issued a report again warning of the MTA’s debt bomb, and transit advocates have been sounding the alarm with more rigor. This week, the Transport […]

Reply
DiNapoli: MTA rife with ‘systemic overtime abuse’ :: Second Ave. Sagas November 10, 2011 - 1:00 am

[…] efficiency and economics at the authority. Telling the world that service changes are annoying and debt is a bad idea hardly seem like […]

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