Archive for MTA Economics
When the MTA started moving off of its net-zero labor demands a few months ago, we knew how this story would end. The MTA’s economic picture would improve as the region’s economy grew stronger, and the unions would demand a greater share of the pie. They would get their slice while the riders would get the scraps. Now that the MTA has sealed the deal with the TWU and LIRR unions, the financial picture for the next few years has taken shape, and lo and behold, riders are getting the bare minimum in service increases and biennial 4 percent fare hikes while the labor deals will cost $1.5 billion over the next four years.
As presented by the MTA on Monday during its monthly Board meetings and as later broadcast in a press release, the MTA anticipates that the new labor deals will result in annual increases in expenditures of $260 million. They swear, though, that the money won’t come from higher-than-anticipated fare hikes. Rather, the MTA will “reallocate” resources to pay for these labor costs as well as some service enhancements while maintaining pay-as-you-go funding for $5.4 billion worth of capital expenses for the next five-year plan. Without meaningful work rule reform, this is indeed a pyrrhic victory.
In fact, it may not even be a victory. The MTA will still take $80 million away from those PAYGO funds each year and simply have less to spend on capital projects. That’s one of the reasons the MTA faces a significant capital funding gap. Here’s the agency explaining other sources of money:
The plan makes several long-term trade-offs to ensure revenues meet ongoing obligations. Over the four-year period, supplemental contributions to an LIRR pension plan totaling $110 million will be eliminated, though all actuarially-required contributions will continue. Also, $254 million will be withdrawn, and additional contributions totaling $533 million will be suspended for four years, from a discretionary fund for future retiree health benefits which has no mandatory funding level. The plan also reduces pay-as-you funding for the MTA Capital Program by $80 million per year, which is equivalent to a $1.5 billion reduction in Capital Program funding capacity.
And how about the rest of us? Tell the people what they’ve won. For $15.5 million, we’re going to get….weekend J train service to Broad St. some time in mid-2015, extensions of service to Gateway Center II along the B13 and B83 bus routes, and added service along the Bx5. Staten Island residents will enjoy more frequent SIR and bus service to lineup with the increased overnight ferry service, and we’ll get two more Select Bus Service routes next year. Transit is also planning to better respond to signal problems in order to cut down unplanned service issues during the day.
Now, I don’t want to look a gift horse in the mouth, but it’s easy to see who gets the better end of that deal. This is the fiscal reality we live in though. The unions outlasted the MTA’s economic downturn, and the rest of us get saddled with a disproportionate amount of the costs without enjoying a similar share of the benefits. Less money for capital expenses; service improvements that raise just barely above the “token” level and more delays for future expansion and technology infrastructure projects — it’s all just part of the same old song and dance.
OK, OK. Maybe there’s no Jeffrey Lebowski to ask for money, but New York State Comptroller Thomas DiNapoli can’t seem to find around $12 billion for the MTA’s next capital plan. This is hardly a breaking piece of news for anyone who’s watched the recent politicking behind the MTA’s looming need to present a new five-year spending plan, but DiNapoli’s report drives home the fact that the MTA has to spend a lot of money it doesn’t have to keep our trains and buses running smoothly.
“Millions of New Yorkers rely on the MTA transit system and while it is in far better condition than it was 30 years ago, much more needs to be done,” DiNapoli said in a statement. “The MTA has to find a way to finance improvements without putting the financial burden on riders. This can be achieved only by working closely with the federal government, New York state and New York City to develop a long-term financing program and by using resources effectively and efficiently. Otherwise, needed repairs will be pushed even further into the future, and fares and tolls could rise even faster.”
DiNapoli’s main point isn’t necessarily that $12 billion is missing, but rather that $12 billion in funding will not materialize without sending the agency further into debt. In his short report, the New York State Comptroller analyzes the spending needs for the MTA and concludes, as we know, that the next capital plan isn’t a sexy one. Unless the MTA is aggressive in requesting funding for future phases of the Second Ave. Subway or work beyond the never-ending East Side Access plan, the capital program will fund much-needed signal and infrastructure upgrades and rolling stock purchases.
That’s not to say that these aren’t 100 percent necessary for the future healthy of New York City; they are. But when it comes to headlines, few New Yorkers are going to read about signal modernization and long delays caused by the work with any joy. This is stuff we never see even if our daily rides depend on it. Still, says DiNapoli, despite 30 years of investment, the system is not in a state of good repair and may never get there without considerably more investment.
As DiNapoli notes, this funding gap was a problem with the last five-year plan, and the MTA “solved” this problem by cutting expenditures and bonding out its obligations, thus adding more debt to the ledger. Debt service in 2018, notes the Comptroller, will be three times what it was in 2005. How long can this go on?
Ultimately, then, the issue isn’t that $12 billion is missing from the MTA’s capital budget. Rather, the issue is that the MTA will have to continue to go into debt to cover the funding gap. Can they add another round of debt to their finances without beginning to impact service? As debt counts against the operations budget, already riders pay for this debt as fares go up to cover operating obligations. DiNapoli doesn’t offer a stark picture for the future, but the meaning is there. Someone will pay for that $12 billion. Either the MTA doesn’t perform work or somehow it gets paid. Either way, without direct contributions from outside sources, riders alone will foot that bill.
For the past few years, through the tenures of three different MTA heads, “net zero” had become a mantra. Without a net-zero labor increase, the MTA’s budget would be deeply in the red with the costs expected to fall on the riders in the form of service cuts, fare hikes or both. As late as February, the MTA warned of steep fare hikes if they couldn’t toe the net-zero line. The Citizens Budget Commission has long since endorsed the approach, and the MTA and TWU were at war.
Then, suddenly, it was election season, and the MTA and TWU were, with the help of Gov. Andrew Cuomo, shaking hands and best buds. Without exacting much in the way of labor reform — and certainly without anything close to net-zero — the MTA gave the TWU a new contract with only a few concessions. The raises — 8 percent over five years — are deserved, and there are some givebacks. But ultimately, the MTA’s labor costs are going to increase by $411 million through 2016. That ain’t net-zero.
In a document released yesterday to bond investors [pdf], the MTA offered the public its first glimpse at the ramifications of the deal. The Memorandum of Understanding won’t be released until after the TWU votes on it, and such a vote isn’t likely until after next week’s MTA Board meeting. So what we know is that the MTA is on the hook for a lot of money. The deal includes retroactive payments of $126 million and a current bump in labor expenses of around $55 million. In 2015 and 2016, the MTA expects to spend $116 million and $114 million respectively, though some experts — notably Nicole Gelinas — believes these estimates to be low.
To cover some of the costs, the new deal includes an increase in the amount of employee contributions to health and other benefits as well as a new “wage progression schedule.” Still, someone has to come up with $411 million, and MTA Chairman and CEO Tom Prendergast insists it won’t fail to the fare paying public this time around. So how is the MTA going to pay? Read it (and weep):
MTA anticipates that the onetime payment for retroactive wages in 2014 will be funded from monies derived from released 2013 general reserves budgeted for voluntary deposits to the MTA Long Island Rail Road Plan for Additional Pensions that would have reduced the unfunded liability and future expenses. Increases in current year and annual ongoing costs are anticipated to be paid from funds budgeted for voluntary deposits to the MTA Long Island Rail Road Plan for Additional Pensions, and a portion of monies earmarked for voluntary deposit into the OPEB trust for future retiree healthcare costs.
It gets better. If other unions that do not have contracts in place sign similar deals, the MTA would have to find another $300 million. This money, the agency says, will come from voluntary deposits into the OPEB trust and a reduction of PAYGO capital funds of approximately $70 million. To say this doesn’t fall on the riders is sleight of hand accounting. In fact, this entire budget is sleight hand accounting.
But now we know: The MTA is robbing future riders to pay for the present. It doesn’t bother Cuomo because he’ll be gone from Albany before the bill comes due, but for the rest of us, this isn’t a good deal. We may not pay now because the MTA will keep those looming fare hikes low, but give it a few years. We the riders will be paying then or else the system will suffer.
For a little while, it appeared as though Albany would stop Gov. Andrew Cuomo’s latest raid on transit funding, but when the budgetary dust settled this past week, the status quo remained unchanged. Despite an initial plan to grab $40 million that didn’t pass the New York State Assembly or Senate, state legislators ultimately accepted a budget that diverted $30 million in transit funding the state had previously agreed to issue. With fare hikes on tap for 2015 (and every two years after that), the diversion is a stark reminder of the way Albany treats New York City’s transit riders.
“The sacrifice of dedicated transit funds will mean less money available to provide subway, bus, Metro-North and Long Island Railroad service. Taking away transit funding at the state level has a direct impact on levels of service, which still have not been restored to 2010 levels, and on fares, which continue to rise every other year,” a group of advocates including the Straphangers Campaign, the Riders Alliance and TSTC said in a release this weekend. “Sadly, our elected leaders have sent a clear message that the State can—and will—use the MTA as a piggy bank, siphoning dollars out of the pockets of transit riders.”
What made this year’s raid a bit more galling were words from MTA Chair Tom Prendergast essentially supporting it. I don’t expect Prendergast, who sits atop the MTA at the pleasure of the governor, to speak out forcefully against the actions of his boss, but the MTA seems more resigned to this budgetary fate than we’d like. “Our needs are being met,” Prendergast said to The Daily News. “It’s as simple as that.”
Even as the MTA says its needs are being met, though, are the needs of the riders being met? The $30 million, as many have pointed out, won’t lead to massive service cuts or an increase in the planned fare hike, but it’s money the MTA doesn’t have to invest in service or debt payments. It’s money the MTA doesn’t have when the budget inevitably takes a nose dive in a few years. It’s money the riders won’t see re-invested in a system that could use every dollar it can find.
Over the past few years, we’ve seen Cuomo repeatedly reject efforts to make transit raids more transparent as he has vetoed a lockbox that would require impact statements when funds are diverted. He’s taken the credit for good MTA news and none of the blame for the bad. So this latest raid isn’t shocking. Yet, it’s still a reminder that transit riders, even as they fill the system in record-setting numbers, are the ones left holding the short straw year after year once the budgetary dust settles.
Throughout the course of his career, Richard Ravitch has been something of a jack-of-all-trades in New York and an on-again, off-again savior for transit. He’s served as the Lieutenant Government of New York, and he authored a plan to revive the MTA’s finances during the depths of the agency’s financial crisis. He also served as the authority’s head during the start of its revival in the early 1980s. When he talks, New Yorkers generally listen.
On Wednesday, Ravitch unexpectedly took the microphone during the MTA’s Board meeting, and he had some strident words on the morning of a controversial vote. As you may recall, a few weeks ago, out of the blue, Gov. Cuomo announced a rollback of the Verrazano Bridge toll. In a move that would cost the MTA $14 million in dedicated revenue, Cuomo forked over a discount on the toll. Although the state will reimburse $7 million, this move comes without any corresponding aspects of Sam Schwartz’s traffic plan, a move to compensate transit riders or a nod to the MTA’s labor or economic situation.
Thus, when Ravitch took the microphone Wednesday morning, he did not mince words. Noting first that New York law requires MTA Board members to represent the MTA first, he leveled serious charges toward board members. “The law made it very clear that you, as members of the board of a public authority, have as your fiduciary responsibility an obligation to the mission of this authority,” he said. “That is your overriding obligation.”
Even though Gov. Cuomo, who ostensibly can control the board through a decent number of votes, wanted the toll plan, Ravitch believed it shouldn’t have made it past the vote, and he pointed to all the right things. “You are in the midst of two labor negotiations in which you are undoubtedly asserting, and properly so, the financial constraints that make it impossible for you to meet the demands of the labor unions. That argument is inconsistent with voluntarily reducing the revenues of this authority,” he said.
In the face of Ravitch’s words, the MTA Board still approved the toll decrease, but it was a divisive vote. Ted Mann, covering his last MTA Board meeting while on the Wall Street Journal’s transit beat, covered the turmoil:
One board member, former New York City budget director Mark Page, abstained from the vote, explaining that he didn’t believe the toll rebates were “an MTA initiative,” and hadn’t been subjected to the authority’s usual decision-making processes. “I don’t believe if the question were being asked solely of the MTA and this board that we’d be taking this action ourselves with our resources at this moment,” Mr. Page said…
But that position wasn’t embraced by the board, even as members prepared to vote in favor of the plan. “Why do lower bus fares not have an equal claim on the MTA’s finances?” member Norman Brown asked, noting that the city also provides Staten Island Ferry service, free of charge. “I live in a little place called Brooklyn,” he said. “We’re the ones that pay the toll that you’re always citing as a horrible toll.”
The six-dollar residential discount rate is “already a substantial” discount, Mr. Brown said. “Do the math.” Another board member, Jeff Kay, said the MTA should remind state officials later in the year, as the authority lobbies for financial support for its operating and capital budgets in Albany, that the authority has acceded to demands from the legislature about how it levies tolls. “I really do hope they’re taking ownership of our funding decisions,” Mr. Kay said, adding ”Guys, we’re doing what you asked us to do.”
Staten Island representatives were quick to defend the measure. “This has gone though a lot of permutation, and overcome many obstacles in the last two years to get this done,” Allen Cappelli said. “We eliminated the obstacles, got Albany on board. This was well-discussed and well thought out, and we’ve finally come to this day. I feel like doing the dance of joy.”
It’s not an easy issue. As I noted to Ted Mann on Twitter earlier in the day, while the rest of the MTA region got nothing in the vote, we do enjoy one-seat train service into Manhattan on a regular schedule. Staten Island’s been waiting 80 years for that, and such a plan isn’t on the horizon. But Cuomo’s giveaway was just that, and everyone else is going to pay as the various interest groups angling for a piece of the MTA’s pie load up for a fight.
After Gov. Andrew Cuomo vetoed the lockbox bill, New York’s transit advocates worried that it would open the door to another raid. Now that the governor’s budget is out, there are concerns that Cuomo has again reappropriated transit dollars in a way that leaves the MTA without money it expects, but the details are a bit hazy. The missing money, in fact, may not be from a misappropriation but from a decision made over a year ago to roll back some of the payroll mobility tax.
The Tri-State Transportation Campaign brought this issue to light yesterday. In Cuomo’s budget presentation, the Governor notes that “the Budget will use $40 million in surplus mass transportation operating assistance funds to pay for a portion of the debt service associated with previously issued MTA service contract bonds.”
The $40 million is barely a drop in the bucket for the MTA, and it’s not enough to avoid, say, any future potential fare hikes. But politicians are casting a wary glance. As the Daily News notes, one Brooklyn assembly rep has objected to the budget. “It’s a grab and he shouldn’t do it,” James Brennan said. “There are many possible uses of these funds that would benefit the riding public, from improved maintenance to restoration of service to mitigating fare hikes.”
The governor too defended the move. Suddenly, the same people who are always concerned with the MTA’s debt obligations are objecting to an effort to slowly pay it down. Cuomo has upped state contributions to the MTA’s operating budget and called the debt payments a “legitimate transit purpose.” I can’t get too worked up over this one.
But there’s another item TSTC highlighted that bears further examination:
While the Governor’s budget includes $310 million from the State’s General Fund to the MTA to compensate for lost revenue resulting from the rollback of the payroll mobility tax (PMT) in December 2011, this flat amount (which has been included every year since 2012) could be actually shortchanging potential revenue. The New York State Department of Labor estimates that 218,300 jobs were created in the downstate MTA region from November 2011 to November 2013, which means that additional PMT revenue likely would have been generated from these additional jobs, in excess of the $310 million. This additional revenue may have been enough to offset the proposed four percent MTA fare increase in 2015.
It’s not clear what, if any, effect the PMT would have on job-creation numbers, but it wouldn’t have led all downstate companies to freeze employment expansion. It seems clear the MTA is getting shortchanged here, and that was always a concern when Cuomo rolled back the PMTA. That, and not the debt payment issue, should be the real concern.
The zombie lawsuit to overturn the MTA payroll mobility tax has finally hit a dead end. New York’s Court of Appeals, the state’s top judicial body, has upheld the tax. The measure, a 34-cent tax on every $100 of payroll, has not been popular amongst Republican suburban legislators, but the MTA has long maintained, as they did last June, that “removal of the tax’s revenues would have had a catastrophic impact” on the region’s economy and transit system. Today’s dismissal, without comment from any judges, is a victory and should put an end to the legal wrangling over the tax.
The PMT grew out of the MTA’s last financial crisis when state legislators approved a mix of fees and taxes to bolster the agency’s bottom line. It was deeply unpopular outside of the city, and after a variety of unsuccessful challenges, plaintiffs found a sympathetic ear on Long Island. While one judge found the tax unconstitutional on shaky legal grounds, the Appellate Division revsered course. For the tax to fall now, politicians will have to step in with better solutions and replacement funds.
In responses to today’s ruling, those politicians are well aware of what awaits. Lee Zeldin, who has made a career out of opposition to the payroll tax, spoke against the court’s decision, and Nassau County Executive Ed Mangano declared a Pyrrhic victory as the structure of the tax has changed over the years. Meanwhile, other state reps from north of the city have recognized that the tax is, absent a significant amount of horse-trading, here to stay.
Allow me to dip for just a minute into a quote from 2012′s The Dark Knight Rises. As Anne Hathaway’s Selina Kyle shares a dance with Bruce Wayne at a masquerade ball, she warns him of impending troubles. “There’s a storm coming, Mr. Wayne,” she warns Wayne. “You and your friends better batten down the hatches, because when it hits, you’re all going to wonder how you ever thought you could live so large and leave so little for the rest of us.”
It’s a bit of an overly dramatic line, but when Bane takes over, Kyle’s words aren’t wrong. Today, when I read WNYC’s coverage of the MTA’s latest budget machinations and the current state of management’s relationship with labor, I had a flashback to the film. “Underground where I work,” Christine Williams, a station agent based in Brooklyn, said. “There’s a storm brewing — and it’s not good. It’s not a merry Christmas when you can’t afford to get to work and when you get to work you’re working at a $7 an hour job. It’s like you can’t win in New York.”
This too a bit overly dramatic. A search through the SeeThroughNY database revealed that Ms. Williams earned $25 an hour back in 2008 — which is hardly a challenging amount — and it’s a far cry from minimum wage. Still, the point remains: As the MTA passed a $13.5 billion budget that rests largely on the shaky assumption of a net-zero labor spending increase, the workers are not happy. “We’re certainly not looking for the stars,” TWU president John Samuelson said during a protest outside this week’s MTA Board meeting. “We’re looking for raises that keep up with the cost of living.”
The debate and the battle aren’t necessarily either/or propositions. The MTA’s stated goal — and one that will help avert massive fare hikes or service increases — is a net-zero scenario. That doesn’t mean wages can’t go up. Rather, it means if wages go up, something else moves along with it. Wages go up; worker count and staffing levels go down. Wages go up; pension contributions go down or retirement age goes up or benefits contributions go down. The options are out there, but the TWU isn’t readily embracing anything at a time of good economic feelings for the MTA.
The real question right now as the TWU Local 100 heads to work each day nearly two years removed from the expiration of their last contract concerns a strike. We all still remember those few days in 2005 when the TWU walked out of the job. For New Yorkers, it was disruptive; for the TWU, it was destructive. Would they do it again? The Taylor Law makes a strike seem doubtful, but union officials are threatening “job actions” which could be slowdowns of any shape or form. They grow tiresome after a while.
Meanwhile, within the MTA’s leadership, the net-zero concept is a controversial one. Perennial Board gadfly Charles Moerdler challenged the assumption this week. Moerdler called such an approach “indefensible and fictional.” As Prendergast pointed out that each percentage point increase in wage increases would add $50 million to the MTA budget, the idea of net-zero seems both perfectly defensible and nearly entirely necessary. A five-percent raise, for instance, would be devastating to the MTA’s budget.
So this gap between the rock and the hard place seems to be narrowing. Rank-and-file are growing dismayed over the fact that it’s been years since their last raise (though non-unionized labor have felt that sting for even longer). At MTA HQ, the lack of labor spending could lead to an even faster brain drain while disgruntled union workers could make service worse. Of course, there’s plenty of room for reform across the board. Will we get there or will this awkward detente be steady enough to support slow movement on a new contract for the TWU? It’s a key issue for the MTA heading into 2014.
With an improving economy, record high ridership and internal cost-cutting buoying the MTA’s bottom line, the transit agency announced that planned fare hikes for 2015 and 2017 would be less than expected. In budget documents presented to the Board today, the MTA noted that the biennial fare and toll increases will be reduced to produce an increase in revenue of around four percent, down from initial estimates of a 7.5 percent jump. Still, the budget rests on shaky assumptions, and as other interested parties make a move to claim some of the pie, these numbers could still shift before the hikes are implemented.
According to agency documents, an aggressive effort to limit the growth of expenses to keep pace with inflation allows the MTA to realize savings that can be reinvested in the system. The MTA has already announced service increases on eight lines set for June, and even though constant price increases are tough to swallow, the fare hike reduction is good news for the straphanging public.
“We try to keep costs down in order to minimize the financial burden on our customers, and as this financial plan shows, we are succeeding in that effort,” MTA Chairman and CEO Thomas F. Prendergast said. “Our customers want value, which is quality and quantity of service, and that service has to be reliable and safe. Through this financial plan, that’s what we work to provide.”
In addition to these giveaways, the MTA has other plans for its financial flexibility. The MTA plans to invest approximately $80 million in the unfunded pension liabilities for the LIRR and make addition investments in other unfunded post-employment benefit obligations, thus realizing savings in the long-term as well.
Still, risks remain as the budget is tenuously balanced on the back of an assumption of net-zero wage increases, a point hotly contested by the TWU. The MTA will look to achieve this net-zero goal through a combination of a wage freeze, staff reductions, workrule efficiency gains and benefit reductions, but union officials have already tried to lay claim to some of these dollars. “They’re tossing a few crumbs at the public and expect to be patted on the back. It’s pretty outrageous,” TWU Local 100 President John said to The Post. “Both the workers and the riders deserve better.”
Samuelsen claimed the MTA should use all of the financial flexibility to give workers a raise and avert the fare hikes. His statements essentially ignore the fact that doing either of those — let alone both at once — would effectively deplete whatever cash surplus and financial wiggle room the MTA has. For now, though, the news is good, but as with all things MTA, the economics could change in a flash.
As the 100th anniversary of Grand Central continues, the historical rail terminal is still set to see some new restaurants in some of its unique spaces. Nearly 18 months after we first learned that the MTA was looking to lease out additional spaces, Crain’s New York once again reports that the restaurant planned for part of Vanderbilt Hall will soon become a reality. The MTA will not reveal any details about interested parties, but sources told Crain’s that a deal is in progress.
As reports last year noted, the Vanderbilt Hall area contains approximately 12,000 square feet of space and is currently used for everything from squash games to ice rinks to holiday markets. The restaurant lease will likely take over one half of that space, and the other half will serve as a rotating event area. The annual holiday market, for instance, will continue but may be only half the size. Per reports last year, the restaurant will be open seven days a weekand will not be a chain. We’ll know more soon.