Ever under a microscope, MTA finances show high pension costsBy
Transit analysts and advocates have engaged recently in an interesting, if wonky, battle over the state of the MTA’s finances. Taken as a whole, these arguments lead to the conclusion the MTA is both over- and under-funded. It doesn’t have enough money but can’t spend the copious billions it does have efficiently or quickly enough to warrant giving it more. It is stuck between a proverbial rock and a hard place.
On the one hand, the MTA has access to around $30 billion in capital funding (though the dollars will materialize through debt service and other questionable financial practices), and on the other hand, $30 billion at the MTA’s current spending levels and efficiencies isn’t enough for the agency to do everything that needs doing. Two recent articles underscore these tensions, but the fix remains elusive.
The first comes from The Post. Former MTA Chairman Peter Kalikow had some unkind words for his one-time ally Gov. Andrew Cuomo over MTA financing:
“It’s not right. Cuomo is wrong. He’s nickled an dimed the MTA on the capital program,” Kalikow told The Post, in rare criticism of the governor from a former MTA chair. He said while Albany has promised $8.3 billion toward in the $27 billion five-year capital plan, the state has handed over less than two billion dollars of the promised funds so far. “They have not funded it properly,” Kalikow said. “If you get Prendergast the money needed, he could do the job.”
It’s not quite clear how much Kalikow wants, but there is a sentiment that the MTA needs more than $30 billion to keep things running smoothly. One problem with that argument is that the MTA’s spending practices are woefully inefficient, and cost control is something I’ve covered extensively in the past. The other is that it isn’t clear if the MTA can spend more than what it has. After a while, there are only so many qualified contractors in New York City who can do the work the MTA funds. But the former point is more important than the latter. Should the MTA get more money before it improves its spending practices?
The second article is even wonkier. Here’s The Wall Street Journal on how recent accounting changes have exposed the MTA’s long-term pension obligations:
New accounting rules are shining a light on more than $7 billion in pension liabilities facing the Metropolitan Transportation Authority. While the disclosures won’t force the MTA to raise tolls or cut service, they quantify the authority’s tab for commitments to pay retirees, and some critics detect a mounting potential burden on riders and taxpayers. “I would hope there would be some sticker shock” with the pension-cost reporting, said Charles Brecher, director of research at the Citizens Budget Commission, a civic group based in Manhattan. “You want to inform people about the cost of these promises.”
The MTA pays steeper costs for employee pensions and other retirement benefits than its peers in London and Paris, Moody’s Investors Service analysts said in March report. For each ride, the MTA paid $3.06 in overall personnel costs in 2014, compared with $1.05 for Paris and 75 cents for London, according to the report. Nearly $1 of every MTA ride goes to health care, pension and retirement costs…
the MTA’s labor-related costs could reduce its budget flexibility and compete with capital improvements, the Moody’s report noted. An MTA spokeswoman said the market understands the authority’s cost structure “and still rates our bonds highly.” A downgrade in the MTA’s bond ratings could increase its borrowing costs…The relatively high cost of the MTA’s pension liabilities could increase pressure to raise fares and tolls or cut service. “If you have some downturn in your revenues, those are expenses you can’t cut so all the cuts have to come out what’s left of your budget,” said Marcia Van Wagner, a Moody’s analyst.
The MTA’s pension costs have been a long-standing issue that few people like to take up because of the explosive nature of issue. In the article, TWU President John Samuelsen defends the MTA’s pensions for its drivers as part of a “dignified retirement.” He doesn’t address how workers pad their pensions through overtime in their final years or how employers across the nation outside of the public sector have essentially eliminated pensions entirely. Rather, he offers us this defense of the job: “They,” he said of financial analysts, “would pee themselves if they had to drive a bus up Utica Avenue for an eight-hour shift.” It’s part of a straw-man argument that cuts both ways.
The MTA’s pension obligations are a part of a broader conversation about how the MTA spends its money. The pension dollars will eventually come out of fare revenue, and the fares will go up to support pensions. Meanwhile, the capital dollars — which should fund more than they do — are bandied about by politicians as part of a game. The MTA can’t spend the money it has wisely and can’t access the dollars it needs properly. Talk about being stuck between a rock and a hard place.