Archive for MTA Economics

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.

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Whenever the MTA raises fares — a biennial occurrence for the foreseeable future these days — the price increases if often called a regressive tax. While the fare hikes are generally applied across the board, these increases have a larger negative impact on those from lower economic classes as it takes out a larger percentage of their incomes. If public transit is supposed to equalize the way we New Yorkers get around the city and access job centers, schools and everything else the city has to offer, constant fare hikes should, at a certain level, be a policy concern.

Lately, as the MTA has been forced to balance its budget on the backs of its riders (rather than, say, through some sort of congestion pricing or tolling plan), anti-poverty advocates have focused on transit fares as a point of concern. A few weeks ago, the Community Service Society of New York in conjunction with the Riders Alliance released a report [pdf] with some sobering numbers. Approximately 1 in 4 New Yorkers simply cannot afford to pay transit fares and thus are very limited in their potential job searches. Meanwhile, low-income New Yorkers who are more heavily reliant on transit than their richer neighbors spend a disproportionately higher percentage of their incomes on transit.

The study traces how certain transit benefits programs aren’t set up properly. While the MTA’s fare structure is set up to reward frequent travelers, only 18 percent of low-income riders are buying 30-day Metrocards, mostly because they cannot afford the initial outlay of $116.50. So they end up paying more over the course of the month — either through weekly purchases of the 7-day card (which adds up to a pro-rated $132.86 over 30 days) or through pay-per-ride cards. Additionally, tax breaks for transit usage often do not reach low-income riders. Here’s how the report puts it:

While the tax deduction for monthly MetroCard passes can save higher-income New York City families over $600 per year, the deduction is worth less to lower-income families who face lower tax rates. In fact, some families with lower earnings who are eligible for the Earned Income Tax Credit (EITC) would actually be worse off if they were to enroll in commuter benefits.

The pre-tax commuter parking benefit also yields higher tax savings to relatively more affluent suburban commuters who claim both the transit and parking allowance (e.g., those who drive to a commuter rail station). Most of the neediest commuters, however, do not own cars and benefit from the parking deduction; they are also more likely to live in New York City and rely on the MTA, allowing them to claim less than half of the $255 transit allowance for monthly MetroCard expenses. The pre-tax commuter benefits program offers considerable savings to many middle- and upper-income commuters. The cost to the state of New York of a tax subsidy such as this is the forgone state and city income tax revenues. Between the commuter benefit tax subsidy, half-price MetroCards for the disabled and elderly, and discounted monthly passes that are not affordable to low-income families, substantial public resources are being used to subsidize transit fares without reaching the majority of low-income families.

An estimated 800,000 riders would be eligible for a half-price fare for poor New Yorkers, saving those who opt to participate up to $700 per year.

The solution, the group argues, is a half-fare discount plan, such as those currently available for seniors or students, targeted at poor New Yorkers. The CSS argues that those eligible number around 800,000, and they would save approximately $700 a year in transit costs. The CSS estimates similar eligibility and participation rates as food stamps and believes the program would cost approximately $194 million in lost farebox revenue. It is worth noting as well that other cities, including Seattle, San Francisco and London, have already embraced some form of discount fares for low-income riders.

“Economic mobility and transit affordability go hand in hand. To get to work, pick up your kids from school, go to the doctor, to do almost everything you need to do in New York City to survive requires riding the subway or bus, “ David R. Jones, President and CEO of the Community Service Society, said in a statement. “Yet one-quarter of the city’s working poor often cannot afford bus and subway fare. The MTA should be available to everyone in our city, not just those with credit cards in their pocket who can afford a monthly pass, but to those with a few bucks in their pockets who are struggling to take care of their families and get ahead.”

The supporters of the plan haven’t pitched this is an idea the MTA should drive; it is, after all, something that will have to be made available to transit riders with a corresponding increase in MTA funding to offset the potential lost revenue. But so far, over two-thirds of New Yorkers surveyed have expressed some level of support for low-income fare subsidies. How the city and state could pay for this program is up for debate. The CSS argues for a share of some fare tolling/congestion pricing revenue, but everyone will have their hands in the pot. A surcharge on taxis, including Uber and Lyft rides, is mentioned in the report as are gas tax hikes, a so-called “millionaires” tax or direct budgetary contributions. It certainly warrants a robust public discussion. In our current climate, with lackluster support from transit from both Albany and City Hall, can this become an argument over economic fairness and livability in New York City in 2016? It should be.

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As the clock on March expired and the calendar flipped to April, New York State legislators passed a $155 billion budget. The state has a lot of money to play with, and as interest rates remain low, it’s very easy to borrow. It would be, in other words, a great time to fund mass transit through direct contributions, and even $3 billion in annual direct contributions would lead to a guaranteed $15 billion for the MTA’s five-year capital plan. This money would lessen the MTA’s need to borrow and then fund borrowing through fare revenue. Less than 2% of the state budget should go toward MTA capital improvements. But that’s not what happened.

As I explored shortly after the budget passed, the MTA didn’t get much out of it except for some funding earmarked toward future phases of the Second Ave. Subway and, apparently, a vague promise to approve the capital plan following a second round of amendments. Meanwhile, Cuomo has promised to fund a sliver of the MTA’s current five-year, $28 billion capital plan only when the agency has exhausted all other revenue streams. To that end, no one expects the MTA to realize any of this money until the mid-2020s, and Cuomo has insidiously allowed the MTA to raise its debt ceiling. Thus the agency can borrow even more before the state’s obligations to pony up a few billion dollars come due.

Over at NY1, Zack Fink broke the story:

After staying up all night, the New York State Senate finally voted on the last budget bills before 9 a.m. Friday. One of those bills raised the debt ceiling for the Metropolitan Transportation Authority (MTA), allowing the agency to borrow up to $55 billion. “What kind of message does that send, that we’re allowing one state authority to issue more debt than the entire state of New York is allowed to?” said State Assembly Member Nicole Malliotakis of Staten Island and Brooklyn. “It’s going to lead in the future to higher tolls, fares, and service cuts.”

…Observers said the new MTA debt ceiling explains how Cuomo will fund the agency’s ambitious capital program construction, which includes East Side Manhattan access to the Long Island Rail Road and the Second Avenue Subway. “Cuomo said he’s going to give $8.3 billion to MTA; he only showed up with $1 billion,” said Nicole Gelinas of the Manhattan Institute. “And so where is he going to get the rest of this money? Obviously there’s your answer.”

Critics say commuters will ultimately get hit with the bill. “Somebody has to pay for this. The MTA already has budget gaps over the next several years, so people’s fares and tolls will go up to pay for all this debt,” Gelinas said. “It’s just that the governor probably expects that this will happen after he leaves office.”

It is my understanding that the MTA’s debt will come in the form of so-called moral obligation bonds and not general obligations bonds. Thus, if the MTA defaults on its bond obligations in order to force bondholders to the table, the state will not step in to cover any outstanding debt service payments. In other words, by hook or by crook, we the subway and bus riders of New York City (along with the Metro-North and LIRR riders and those paying bridge and tunnel tolls) are stuck with mounting debt and mounting debt service obligations that would put more pressure on fares and the MTA’s ability to provide and expand service. That’s Gov. Cuomo’s New York.

Meanwhile, the Governor has promised upstate drivers parity and breaks on New York State Thruway tolls. It seems unlikely that they will be saddled with debt this high that could be easily avoided for a small percentage of the overall budget. Cuomo too has proposed a series of transit projects that aren’t in line with what the city needs. He’s singularly focused on improving the way people enter and exit New York City rather than on improving how they get around New York City once they’re here, and even some ideas — such as the Willets Point Laguardia AirTrain — are worse than doing nothing.

It’s easy to saddle future generations of New Yorkers who will never have the opportunity to vote for Cuomo or the current batch of legislators will the debt that arises out of transit ideas built today, whether they’re good or bad ideas, and that is exactly what our politicians have done. It’s a devious way to make decisions that affect us all for decades to come.

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As the legislative stalemate over the MTA’s current five-year capital plan nears the start of its 16th month since spending for the plan was due to begin, New York Gov. Andrew Cuomo has repeatedly had the audacity to claim an unapproved plan was in line with business as usual for the MTA. He has cited to the 2010-2014 plan as proof, but he has failed to draw an apt analogy. With the world mired in a recession, the MTA’s previous five-year plan was approved in two parts with the state’s Capital Program Review Board authorizing two years and then three for a full five-year plan. This time around, the CPRB has even had the chance to weigh in on the current five-year plan, and even as negotiations around certain projects continue, Cuomo has failed to deliver on repeated promises to fund the plan.

A few weeks ago, shortly after MTA CEO and Chairman Tom Prendergast was summoned to Albany to talk MTA finances, I explored how Cuomo’s MTA funding reality have failed to live up to his promises, and now, we learn the bad news: If the MTA capital plan is not approved by the end of June, the agency will not be able to access money to pay contractors for new projects. This deadline does not affect in-progress projects where the money has already been allocated (such as the first phase of the Second Ave. Subway), but without approval key initiatives, including future phases of the Second Ave. Subway, will be delayed further. In fact, one of the reasons why the MTA’s plan to replace the MetroCard has come to a near-stop is due to the fact that the agency cannot yet access funds for the project.

Prendergast told reporters of this deadline during last week’s MTA Board meetings, and the visibly-annoyed MTA head couldn’t put a positive spin on his boss’ inaction, the longest such delay in approval of funding in MTA history. “June 30th of this year,” he said. “That’s when we run out of money [and] can’t make new awards for projects that are in the 15-19 plan. For prior-approved plans, where we have money, we can make those awards, but for new plans, we can’t make those awards.”

The problem, as I’ve detailed, is that Cuomo’s current budget proposal doesn’t include any real commitments to MTA funding. He wants the agency to tap out its essentially limitless ability to fund through borrowing before ponying up any dollars. It’s an IOU, and in response, the Riders Alliance attempted to pay for subway rides with IOUs as well. It didn’t work, and Cuomo’s plan shouldn’t be allowed to stand.

To put an additional bow on this present, after months of listening to upstate complaints about parity, Cuomo’s budget includes billions in actual dollars for New York State DOT projects (in other words, roads), and the parity argument falls apart under any sort of scrutiny. As the Riders Alliance recently detailed in a report, the state is promising over $5 billion more to roads while the MTA regions are expected to pick up $11 billion in capital funding. Upstate municipalities with pending DOT projects aren’t kicking in any money at all, and on paper at least, New York is funding 59 percent of of DOT’s five-year plan with direct contributions while Cuomo has pledged to fund only 31 percent of the MTA’s five-year program.

“The conventional wisdom says that the MTA is getting more state money than roads and bridges, but a basic review of the budget shows that the opposite is true,” John Raskin, the Executive Director of the Riders Alliance, said in a statement. “Governor Cuomo is proposing to put real cash into highways and roads and bridges, but the MTA is just getting an IOU and a promise to revisit the issue sometime down the line. Public transit is literally bursting at the seams, and delays are skyrocketing, but Governor Cuomo is still playing games instead of actually putting in the money that would address the problem.”

The state legislature is expected to pass some budget measure by the end of this week, and the MTA’s financial picture will come into focus. Even with some renewed attention to a tolling/congesting pricing plan, the outcome of this week’s discussion won’t be satisfying for the MTA and its millions of customers, and the game of chicken Cuomo is playing with subway funding is costly for everyone involved. It raises the issue of whether New York City should have more control over its subway system, but the funding obligations that come with such a move are steep. Where we go from here should echo throughout the next years and decades, but I’m not sure anyone should hold his or her breath over a positive outcome this late in the game.

“How does this make sense?” That is the question Assembly Member Jim Brennan, the chair of the Committee on Corporations, Authorities and Commissions, asked when faced with Gov. Andrew Cuomo’s smoke-and-mirrors approach to MTA funding during a recent hearing. His has hardly been the only incredulous voice throwing all levels of shade toward Cuomo’s proposal, and as we sit in Month 15 of a stand-off over funding for the MTA’s capital plans, planning for work to be performed under the current five-year program has slowed to a crawl.

The problem began back in October when Cuomo announced a funding agreement covering the MTA’s capital funding gap. Along with coercing the city to give $2.5 billion to the plan, Cuomo promised around $8 billion of additional state funding, but he was ambiguously vague about the source of the money. A noted motorist, Cuomo has never tried to use his political capital to push through any congestion pricing plan or Sam Schwartz’s tolling plan, and transit advocates and economists were concerned Cuomo would force the MTA to fund the capital plan through debt. The $8 billion, in other words, wasn’t really there at all, and the state would simply enable more MTA borrowing.

That is essentially what’s happened but worse. In his budget release [pdf], The state’s additional contributions beyond an initial grant of $1 billion would, as Cuomo noted, be available to the MTA only “after MTA capital resources planned for the capital program…have been exhausted,” and the state anticipated fulfilling its funding pledges for the 2015-2019 capital program by 2025-2026. For those keeping score at home, 2025 is supposed to be the launch year for the MTA’s second five-year program after the one currently under endless review.

With the measure also increasing the MTA’s debt ceiling to $55 billion for capital expenditures from 1992-2019, it’s clear that the governor wasn’t too interested in ponying up the billions in a way that would prevent future pressure on the MTA’s operating costs in the form of ever-increasing debt service obligations. Thus, his October promise was anything but a promise and simply consisted of debt, debt, and more debt. The capital program, meanwhile, still hasn’t been approved, and the MTA can’t spend money on needed projects yet.

No one watching the watchers is too happy about Cuomo’s proposal. Brennan pushed MTA CEO and Chairman Tom Prendergast a few weeks ago on sources for the money, but Prendergast’s lack of concrete answers pushed the legislators toward pointed criticism. “At some point,” Brennan said, “it would be nice to see a proposal from this person who’s the elected leader of the state.”

Senator Marty Golden was similar skeptical. “I have no idea how we can actually do a capital program and actually approve a capital program with language that it’ll be there when you need it. Corporate America would laugh at this. Any country would be surprised with this type of approach in funding.”

Advocates have written pleading op-eds urging the Governor to right this wrong, and the New York City Independent Budget Office has thrown up some serious red flags as well [pdf]. In a report released late last week, the IBO warned that both the city and state are likely to delay their actual contributions until the MTA exhausts its borrowing capabilities and then delays repayment until 2025-2026. This, in turn, could affect access to federal funding, delay budgetary considerations until after the next rounds of state and city elections and jeopardize actual contributions to the 2020-2024 plan, if not that plan in its entirety (which, by the way, is when I would expect to see the bulk of Phase 2 of the Second Ave. Subway receiving funding).

The state and city have continued to push back on this narrative by claiming their budgetary contributions are “iron clad,” but it’s hard to take Cuomo or Mayor Bill de Blasio as their words. They have hardly been transit boosters before, and the budgetary shenanigans are just another way to stick it to New York City’s transit riders without tackling the larger issues of mobility and capital funding. It’s the same old song and dance, and 15 months after the capital program was due to start, we are still no closer to a real solution.

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The only subway station Gov. Cuomo has visited lately is literally a museum. (Kevin P. Coughlin/Office of Governor Andrew M. Cuomo)

When it comes to Gov. Andrew Cuomo and transportation funding, I’m not buying what he’s selling, and now, with details finally emerging three months after he announced a pledge to fund the MTA’s still-unapproved 2015-2019 capital plan, no one else is either. What started out as a promise to fund $8 or $10 billion of the plan via state sources has turned into a business-as-usual approach to the capital budget. Most of the state financing will come via debt, and it will fall on the shoulders of the riders through increases in debt service obligations that will eventually be a leading driver of future fare hikes. It’s not newfangled support from Gov. Cuomo and, coupled with his recent giveaway to New York drivers, it’s a far cry from the parity upstate politicians spent the fall whining about.

For weeks, as Cuomo conducted his infrastructure tour of New York State, pledging to see through lots of pretty projects without funding behind them, whispers of debt filled the air, and when he spoke at the Transit Museum on Friday, Cuomo even mentioned the dreaded d-word as the likely driver behind state contributions to the MTA’s capital plan. “Part of it is debt. Part of it is revenue,” he said to reporters, about state contributions to the MTA.

On Thursday, City & State reported that the state is essentially kicking the can down the road on funding. As Jon Lentz detailed, the state’s budget documents promise funding “only when the MTA’s capital resources have been spent down,” and budget-watchers don’t like this language.

“He’s not really going to add any money to the MTA,” Carol Kellermann, head of the Citizens Budget Commission, said. “Apparently it’s really just that the MTA is going to borrow the money, which doesn’t surprise me, because it’s what I thought all along. There was some conveyance of the idea that the state was going to contribute money to the MTA capital plan, which probably turns out not to be the case.”

The tireless Dana Rubinstein had more on Cuomo’s kinda, sorta rolling back his funding commitments:

Cuomo punts, according to Chuck Brecher, the co-director of research at the Citizens Budget Commission. “We were looking to the budget as being the time and the place where they would indicate how they’re going to pay for the commitment to do the $8-plus billion in the capital plan,” said Brecher. “The approach they’ve taken is to say they want to stall.”

The governor’s office had no immediate comment…Last year, the state appropriated $1 billion for the plan. So, now, the state owes $7.3 billion, according to Brecher. The state is only committing to hand over the rest of that money after the MTA has spent all of its contributions from the city and federal government. “What they’re saying is we promise to give you the rest of the $7.3 billion and we’ll give it to you as the last dollar in the capital plan, after you’ve used up all the money you’ve promised,” he said…

“The plan is to have a plan, and in the meanwhile, to keep having budget surpluses!” said Nicole Gelinas, a transportation expert with the Manhattan Institute, via email. “Practically speaking, it means the MTA will have to do its borrowing up front, and that when and if we have a fiscal crisis, the state will have to come up with a new emergency revenue, a la the 2009 payroll tax, to avoid draconian service cuts,” she added. “They are stretching a five-year capital program well beyond the six-year budget outlook, meaning, officially or unofficially, debt.”

In other words, once the MTA is no longer able to borrow a single dollar more, the state will step in. That’s a terrible plan and one that will surely lead to some combination of significantly higher fares or worse service. In fact, as Charles Komanoff wrote earlier this week, fares could increase by as much as 12 percent simply to fund new debt service obligations, and that figure is an additional 12 percent on top of the MTA’s regularly scheduled biennial fare hikes. Instead of some sort of equitable funding solution — such as Move New York’s fair tolling and traffic pricing plan — Gov. Cuomo has come up with nothing and is taking a lot of credit for it. It’s a veritable house of cards, and the wind is starting to blow.

Meanwhile, Cuomo has also pledged $22 billion to upstate roads, and a significant portion of that will be direct state contributions. When you consider as well that Cuomo is freezing New York’s already-low per-mileage Thruway tolls at current levels for the foreseeable future, the state’s current funding mix — including imposition of debt obligations on relevant agencies — heavily favors roads and drivers over rail lines and their passengers. Is this what Cuomo meant last week when he stressed the need to encourage transit use, especially in downstate areas? Color me discouraged.

During their last meetings of 2015, the MTA Board on Wednesday took care of one piece of pressing business: The agency’s oversight body approved the 2016 budget with projections for the next few years. For the perennially beleaguered agency, the outlook is rosy. With a boost from what officials call “modest” fare hikes every two years, the MTA has predicted positive balances through 2019 and over $240 million in service increases on the horizon. But one watchdog worries that the agency’s planning could take a serious hit were another recession to arrive, and the riders would bear the brunt of the pain.

As budgets go, the MTA’s outlook is shockingly optimistic. After years of deficits and cost reduction efforts, the MTA is predicting surpluses until 2019 (and those out-year projections never seem to materialize). So with nearly $300 million on hand at the end of this year and with a $123 million surplus predicted for 2016, the MTA plans to add service but won’t eschew biennial fare hikes. It’s also not clear, as I’ve discussed before, if the MTA is adding enough service to meet spiking demand, but more service is on the way.

“The MTA is committed to bringing high-quality service to our customers at a reasonable cost, and our updated Financial Plan shows how we are putting that commitment into action,” MTA Chairman and CEO Thomas F. Prendergast said in a statement last mont. “We are continuing to find new ways to save money, we are making smart investments to serve our growing ridership, and we are doing this while minimizing the impact on our customers’ wallets.”

The new projections are powered by higher real estate tax receipts (which we’ll return to shortly), higher toll revenue. With this money, the MTA plans to do the following:

  • Fare and toll increases in 2017 and 2019 will be limited to 4% per increase.
  • The MTA will increase bus and subway service, but only by $38 million over the next four years. By contrast, the service cuts in 2010 resulted in nearly $100 million in savings.
  • The MTA will spend $13 million on new Select Bus Service routes and $35 million on Second Ave. Subway operations.
  • Maintenance backlogs will enjoy $42 million worth of work.
  • Capital contributions from the MTA will increase by $125 million annually which allows for $2.4 billion in additional bonding but also leads to more debt down the road.
  • The agency will reduce its liability for unfunded pension obligations by around $140 million.

As you can see, this is very much a mixed bag of expenditures, and the agency still needs to receive final sign-off on the 2015-2019 capital plan and has asked Albany to address declining taxi surcharge revenues due to the increase in popularity of Uber, Lyft, Via and other car-hailing services. There is also, according to a recent report issued by the Citizens Budget Commission, an 800-pound gorilla in the room. If another recession hits, they said [pdf], the MTA is ill-prepared to handle it, and riders would be socked by higher-than-anticipated fare hikes and deep service cuts. The CBC worries that the MTA’s revenue growth projections — 2.2 percent annually — are too optimistic and that by relying on real estate taxes and fares, the MTA’s budget is too susceptible to an economic downturn.

If a recession were to arrive during this financial plan, the CBC says we should expect these surpluses to turn into deficits that could be as much as $600 million. Such a deficit would require a fare hike of nearly 12 percent, and the CBC expects the state to turn to congestion pricing to fill the MTA’s coffers. Considering how New York politicians don’t seem to have the appetite for congestion pricing during good times, it’s tough to see them embracing this solution in bad ones. The MTA would also have to further reduce head counts and draw on any reserves they could.

So what’s the takeway? The CBC opines:

Based on the MTA’s response to recent budget gaps created by mandates for higher labor costs, the likely response would not be politically unpopular service cuts or fare increases. Instead resources in its financial plan related to capital funds and retiree benefits would be reallocated to cover operating expenses. This will increase future costs, create risks, and ultimately impose a greater burden for future transit riders and taxpayers.

A wiser strategy is to take other actions sooner to anticipate a future recession. More cautious
economic and revenue assumptions seem appropriate, and new policies regarding reserves would be a constructive step. Accumulation of general reserves should be permitted, and an explicit rainy day fund established covering a larger share of total expenses before releasing future reserves to reduce other long-term liabilities. Greater restrictions on diversion of OPEB funding and a firmer commitment to PAYGO capital allocations would reduce the risks associated with reallocation of those items. Finally, continuing to increase planned efficiency gains beyond current targets for future years would help bring expenditures in line with the revenues available when a downturn occurs.

In other words, even in good years, we shouldn’t grow complacent. It’s sound advice for an agency that has struggled (or even, as some may say, bumbled through various economic crises). For now, though, the footing looks solid, but the fare hikes will come. And that will be the way of things for the foreseeable future.

For the nitty-gritty on the MTA’s budget, feel free to peruse the 2016-2019 Financial Plan Adoption Materials, available here as a PDF.

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In response to the Riders Alliance’s call to improve transit access to LaGuardia Airport by rebranding the Q70 and eliminating its fare, the MTA came down hard against the idea. Despite the Riders Alliance’s contention that a fare-free service would likely generate more ridership, and thus more revenue, for the MTA, the agency opted to highlight the potential affect on its bottom line such a free service would have. Cost estimates ranged from a few hundred thousand to tens of millions, and while officials stopped short of uncategorically dismissing the idea, they might as well have.

“One-fourth of riders do not come from the subway and don’t use the free transfer, and thus we would lose money on one out of every four customers under their plan,” Transit spokesman Kevin Ortiz said to me in a statement. “If ridership would continue to grow on the route to the level they claim, we would have to add service, and that costs money. And where would we find the buses?”

Where would the MTA find the buses? Well, that must be the costs MTA spokesman Adam Lisberg had in mind when he later said on Twitter that the agency is “generally opposed” to ideas that “would cost the MTA tens of millions” of dollars. It’s hard to believe increasing service from every 12 minutes to every 10 for a few hours a day would have that much of an effect on the MTA’s budget, but that was the party line earlier this week.

Meanwhile, it wasn’t the only time the MTA, or its surrogates, relied on an argument over token amounts of money to reject a rider-friendly initiative. Earlier this week, Governor Andrew Cuomo vetoed a measure that would have upped MetroCard transfers on certain routes from one per two hours to two. The measure had bipartisan support, but Cuomo claimed it foisted an unfunded $40 million expense onto the MTA’s shoulders. “The bill,” he said in a veto message, “does not provide any funding to account for this expense. Such funding decisions should be addressed in the context of the state budget negotiations.” The MTA urged those riders who need the extra transfers to buy unlimited ride cards instead.

For the MTA, this recent attention to dollars lost around the edges of its $13 billion annual budget — a half a million here, $40 million there — is hardly a new development. The MTA’s operating budget has, for years, run on razor-thin margins, thanks in part to capital debt payments, and the agency has recently focused on penny-pinching when it comes to operations, often at the expense of rider-friendly initiatives. Costs matter.

Meanwhile, just a few weeks ago, the MTA secured $28 billion for its capital projects, and boy do costs not even come into consideration here. The MTA is currently building, along the East Side, the world’s most expensive subway and, underneath Grand Central, the world’s most expensive commuter rail terminal. The 7 line extension was the world’s second most expensive subway, and the Fulton St. Transit Center’s $1.4 billion price tag looks low only because the WTC PATH Hub across the street costs nearly three times as much. Meanwhile, future phases of the Second Ave. Subway are likely to cost even more, and no one at the MTA is decrying these dollar figures which are orders of magnitude higher than a free shuttle bus to the airport.

It’s hard to say that the MTA cares about construction costs. Outwardly, there’s been very little effort to get them under control, and project costs inch higher and higher with each passing year. Securing the dollars is a fight, and the money goes further everywhere else in the world. Government regulations, interest group politics, local NIMBYism, bad labor practices and plain old corruption seem to all play into the MTA’s costs, but no agency officials have claimed to lose money on capital expansion projects.

Ultimately, then, it seems that the MTA cares about money only around the margins. Usually, they don’t; sometimes, they do. And those times seem to implicate benefits for riders. This strikes me as a rather uneven response from an agency with so many customers that should be trying to attract more. If anything, it’s hypocritical and exhausting.

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The topic of MTA debt is not a particularly sexy one. I’d rather write about how the subways are unsustainably crowded and how the MTA has no real plan for immediate relief. I’d rather write about light rail efforts through Queens, the latest goings-on in London with regards to overnight Tube service or some thoughts on closed entrances. But MTA debt is too important to ignore. Even if you’re tempted to close the tab or allow your mind to wander, stick with me for a few hundred words today.

The latest round of news about MTA debt comes from — you’ll never believe this — Gov. Andrew Cuomo. A few weeks ago, when Gov. Cuomo and Mayor Bill de Blasio magnanimously did their jobs and came to an agreement on MTA capital funding, the two politicians hailed the deal as something groundbreaking. The MTA, the argument went, had unprecedented support from the state and unprecedented support from the city. Everyone wins!

If that sounds too good to be true, well, you’ve been paying attention. Despite announcing around $9 billion in state support for the MTA, Cuomo has not once said how he plans to generate this money. Had he wanted to see through a Move New York-style traffic pricing plan, he could have, but that would have gone against the ethos of Mr. Muscle Car Governor Cuomo. Instead, he’s like to turn to the tried-and-truth method of totally screwing over New York City subway riders: debt.

Bill Hammond, now writing for Politico after his unceremonious ouster from the struggling Daily News, had the story:

At best – and assuming it holds up – the deal settles only the latest turf squabble between feuding politicians: With a $10 billion hole to fill in the MTA’s $26 billion five-year capital plan, Governor Andrew Cuomo committed that the state will contribute $8.3 billion while Mayor Bill de Blasio agreed to chip in $2.5 billion from city coffers. But this divvying-up exercise was a crisis only to the extent that governor made it one, as a tactic to offload a fraction of the headache onto his declared friend, fellow Democrat and favorite punching bag at City Hall.

The real political heavy lifting to be done involves not who collects that $10 billion tab, but who gets stuck with paying it – and how and when. And whether the MTA will walk away with a short-term cash infusion, or with the sustained base of funding necessary to build and maintain a halfway up-to-date mass transit system…The overdue debate on covering the $10 billion gap should begin to get serious in January, when Cuomo is promising to spell out, as part of his annual budget proposal, exactly how he intends to raise the $8.3 billion. De Blasio, too, will have to account for his share in budget documents due in the next three months.

This should be interesting. The Daily News has reported that Cuomo will likely borrow some or all of his amount – which is legitimate, given that it will be used for long-term investments in infrastructure – and that he is ruling out tax hikes. But $8.3 billion would add 15 percent to the state’s already prodigious debt load of $55 billion. Even if spread over a 30-year term, the annual payments on those new bonds would be roughly half a billion dollars – corresponding to nearly a 10 percent increase over current debt service.

The Daily News report Hammond mentioned is right here, and it’s a tells a tale of more debt. The MTA may have to borrow to cover the state’s contributions, and it’s not clear if the MTA or the state would fund the debt. The MTA simply cannot afford more debt. The agency is already carrying $35 billion in debt — debt that’s funded through fare revenue. More would simply push the cost of the capital plan onto the shoulders of riders, no matter what Cuomo says.

So Cuomo’s solution has been anything but a solution. Without identifying a revenue stream, debt simply becomes something we must fund in the future, and that’s no way to solve transit funding problems. Will New York wake up the problems of debt? It’s not looking good for the near future or the far future, and that’s not a positive development for anyone.

A glimpse into One Vanderbilt's Transit Hall. (Via KPF)

A Transit Hall and other improvements are a part of One Vanderbilt’s $210 million package. (Via KPF)

Since my office is now across the street from Grand Central, I’ve had a front-row view of the work at 1 Vanderbilt. In a way, it’s a peek into the potential future of MTA financing. As the old building goes down and a new skyscraper takes its place, we should ask if this model of value-capture is sufficient and sustainable. The new developers of the new building will guarantee at least $210 million in upgrades for the Grand Central subway stop, but is this truly a model that the city can replicate on a grand scale while addressing the needs of growing demand for transit?

The idea behind the funding for the transit improvements at 1 Vanderbilt is simple: In exchange for permission to construct the 68-story tower, SL Green will contribute a few hundred million to fancy up the Grand Central subway station. The dank Lexington Ave. line will see improved street level access, more platform space and a larger mezzanine. Ideally, these changes will help the station better handle both current passenger loads and anticipated increases in ridership brought about by the new building, the East Side rezoning and the eventual opening of the East Side Access project.

Transit advocates seem to like the idea. On Friday, Gene Russianoff of the Straphangers and John Raskin of the Riders Alliance published an Op-Ed in the Daily News calling upon the city to pursue this type of funding on a wider scale. They write:

Over time, especially with systematic disinvestment from the federal government, we’ll need more funds to fill the gap. One promising source is sitting right there in underdeveloped land near the subway. Think of it as a kind of “value capture”: Landowners seek permission for large-scale bonuses to how big they can build. In return, they must offer transit improvements. In the past, many of the changes have been modest, as anyone stuck at the bottom of a non-working private escalator in the subways can tell you. We must be more demanding…

If we extend it to far more projects, the One Vanderbilt model could eventually bring in hundreds of millions of dollars as the city considers a new generation of super skyscrapers. (It’s true that real estate does pay citywide taxes that fund transit. But these are like the broad-based transit taxes on drivers, corporations and consumers — not tied to specific improvements.)

Many communities around New York City owe their existence to our number one capital asset — our subways. How fitting that desperately-needed subway aid should come from our number one home town industry, real estate.

In theory, it’s hard to oppose this deal. Mega-towers will likely tax the subways around them, and the MTA shouldn’t be left holding the bag as developers walk away with millions of dollars from these new towers. But in practice, I’m not yet convinced it’s a sustainable model for MTA funding.

The problem concerns, as Raskin and Russianoff put it, “underdeveloped land near the subway.” Is there enough underdeveloped land to generate enough revenue for the MTA to build multi-billion-dollar subway extensions? The land, for instance, around the Triboro RX line isn’t zoned for developments big enough to help offset anything more than a token amount of the costs, and asking developers in corridors with lower value than Midtown Manhattan may not be a fruitful exercise. This may work in Manhattan — and could help parts of additional phases of the Second Ave. Subway — but beyond that, I’m skeptical.

The MTA’s problems regard cost and sustainability. Can the MTA get a handle on its absurd capital costs? And is there a geographically neutral way to fund transit that doesn’t simply lead to more money for Manhattan and less for growing Outer Borough areas equally as overburdened? The 1 Vanderbilt model is a component to a capital funding plan, but it’s unlikely to be a panacea without significant other pieces.

Categories : MTA Economics
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