Archive for MTA Economics
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.
The New York State Court of Appeals has upheld yet another appeal of the MTA Payroll Mobility Tax, delivering another blow to Nassau County Executive Ed Mangano’s never-ending attempts to starve transit. Despite Mangano’s second such loss and a dismissal by the court that effectively means no constitutional question was directly implicated by the case, the Tea Party-backed Nassau County official, will continue to spend taxpayer dollars on another avenue of appeal.
Yancey Roy of Newsday broke the news:
New York’s top court threw out a lawsuit Thursday seeking to overturn the controversial MTA payroll tax on constitutional grounds. But Nassau County Executive Edward Mangano, who filed the suit, still has 30 days to appeal on other grounds.
The state Court of Appeals dismissed Mangano’s lawsuit without comment, upholding a mid-level court ruling that the tax, paid by employers in the 12-country region served by the Metropolitan Transportation Authority, is constitutional…
Court spokesman Gary Spencer said Mangano has 30 days to file a motion asking the court’s permission to argue the case. Nassau County attorney John Ciampoli said Mangano definitely will appeal. Ciampoli said the payroll tax was “fundamentally defective in how it was adopted” by the state Legislature.
At this point, Mangano is barking up the wrong tree. He’s not going to get the tax overturned, and his efforts to continue this lawsuit are bordering on laughable. If he loses his reelection bid this November, I’d expect Tom Suozzi would drop the appeal. Polling, however, is very close for this race.
More telling, though, is this comment on the Newsday article. “This tax is a hideous intrusion on the rights of Long Islanders who do not use the MTA,” one commenter said. If that’s not a telling glimpse into the provincial and siloed viewpoints of Nassau County residents who look down upon transit without realizing its true impact, I don’t know what is.
When the MTA announced its move to purchase catastrophe bonds as a hedge against future storm surges, it raised a few eyebrows among both the reinsurance world and transit advocates. The catastrophe bond market is a highly specialized one, and the MTA had become the first major public entity to wade into it. Now, as details emerge the bond issuance appears to offer investments a big payoff and provides the MTA protection against unlikely events. It is, essentially, a private insurance.
In the first in-depth piece to examine the catastrophe bond sale, Tessa Stuart of The Village Voice looks at the big bet and the big payoff. As she frames it, after Sandy when the MTA had to turn to insurance to cover billions of dollars of damage, it was clear that the agency’s premiums would be unaffordable moving forward. And so to test the market, the MTA turned to catastrophe bonds. She writes:
That’s how the fate of the subway system ended up in the hands of just 20 investors. If a hurricane were to descend on New York tomorrow, repairs to the subway system would be paid for with money put up by those investors, who bought shares of a so-called catastrophe bond the MTA sold this past summer. It’s not philanthropy; it’s an investment. The same 20 bankrollers stand to make millions, provided another Sandy doesn’t hit tomorrow or anytime in the next three years.
Before Sandy, the MTA owned an insurance policy worth $1 billion. After the storm, says the agency’s director of risk and insurance management, Laureen Coyne, “It was impossible to get that kind of coverage.” Even half a billion dollars’ worth would have cost twice as much. The MTA was particularly concerned about its protection in the event of another flood…
Without a lot of options, the MTA dove headfirst into the small, strange catastrophe bond market, where an estimated 100 investors worldwide do $16 billion worth of deals…In order to sell the bond, the MTA’s in-house insurer, First Mutual Transportation, enlisted a law firm to create an offshore entity dubbed MetroCat Re, located—for “various legal and tax reasons,” Coyne says—in Bermuda. All the money involved in the bond arrangement goes through MetroCat Re.
Essentially, the bond is a simple high-stakes bet: If a catastrophic hurricane causes a Sandy-magnitude storm surge on or before August 5, 2016, investors lose every cent they ponied up. No hurricane, and they get all of their money back, plus a return that will top 13.5 percent.
The MTA put the bond up for sale in July, expecting to sell $125 million in shares, but the interest was overwhelming. The agency ultimately sold more than $200 million to just 20 investors. (Ostrovskaya describes the buyers not as individuals, but “pretty much specific catastrophe bond funds that specialize in this type of investment.”)
The surge protection supplements the $500 million in insurance the MTA has purchased to cover perils such as wind and fire. That policy costs the MTA $46 million a year.
It’s easy to see why the catastrophe bond was popular—it’s an incredibly lucrative proposition. A $10 million share could pay off more than $1.35 million in just three years. The money comes straight from the MTA, which makes quarterly payments into a trust, in much the same way that it would pay an insurance premium. At the end of three years, if disaster hasn’t struck, the investors cash out.
Stuart’s piece goes on to explain how a storm surge high enough to trigger the bond conditions is rather unlikely, but I think that’s besides the point. The only way the MTA could insure against future losses was through these bonds. All told, the various investors could make a combined $27 million — a total similar to what the MTA is paying for insurance — and the agency gets more coverage than it can from insurance companies right now. It’s an intriguing situation, and it’s the one time we’re hoping the MTA has to shell out the money in the end rather than suffer through another catastrophic storm.
The MTA is sitting on top of a substantial debt bomb. By 2017, the amounts owed by the agency to its creditors will reach $39 billion, and while much of this debt comes from capital expenditures, debt service payments — which are expected to reach $3 billion annually by 2018 — burden the operating budget instead. These figures do not account for the MTA’s next capital plan of around $28 billion, a significant portion of which will be funded through the issuance of more debt.
Agency officials are well aware of the debt problem. They know that the MTA’s lending capabilities may soon be maxed out, but a perfect storm of conditions have left the agency with few other choices. With drastically reduced direct contributions from the city and state, the MTA has to bond out maintenance projects that keep the system running or else risk a slide back into the conditions of the malign neglect of the 1970s. These problems aren’t new or a secret.
Debt, though, is boring. It’s complicated and abstract, and few people from riders to consumers of the news truly care about the abstract debt on the books of a state bureaucracy. What they care about instead are the fares and the service. In a utopian world, customers pay less for more service; in the real world, customers are paying more for incremental service upgrades. Sometimes, they pay more just to maintain the current service levels. Fare hikes rile up the angry masses and provoke outrage, some warranted and some not, from politicians. Fare hikes, of course, are tied to debt, but that’s a level of complexity that most people don’t need or want to care about.
Still, certain government bodies should rise above the populist calls against fare hikes. Whenever the MTA’s budgetary conditions improve, as they recently have, anyone with a megaphone yells for fare hike reductions. It may make for happier customers and, perhaps, more riders, but it does not make for sound fiscal policy. Today, from New York State Comptroller Thomas DiNapoli, we have one of those calls.
In a generally positive report issued today [pdf], DiNapoli found that, after years of troubles, the MTA budget looks pretty good. A combination of unexpected financial contributions and aggressive belt-tightening has led the MTA to realize nearly $2 billion in resources. Over the past seven months, the MTA has reduced out-year gaps to a total of $240 million (down from $638 million) and did so through higher tax revenues, lower pension contributions, lower energy costs, lower debt service and lower health insurance costs. Internal restructuring and cuts as well as an attempt to lower paratransit expenditures has contributed as well.
Yet, even while acknowledging the MTA’s debt problems, DiNapoli chose to focus on how fare increases have outpaced inflation over the past decade and how avoiding planned fare hikes in 2015 and 2017 should be a priority. It is a truly populist stance from someone who is supposed to be responsible for maintaining the fiscal integrity of state agencies. “The MTA’s financial outlook is much improved,” DiNapoli said in a statement. “While funding the next capital program and improving services are critically important, reducing the size of planned fare and toll hikes must also be considered. There is plenty of time before the next scheduled fare increase for the MTA to refocus its efforts on reducing waste, which could go a long way toward easing the financial burden on commuters.”
The MTA’s problems stem from a history DiNapoli is in danger of repeating. For decades, politicians kept the subway fares artificially low at five and later ten cents. Only through recent aggressive fare hikes have the historical inflation trends matched the five-cent fare in 1904 to the current fare in 2013. Fares over the last seven years have risen 47 percent with no corresponding inflationary jump.
But the agency finds itself between that proverbial rock and a hard place. The best and most reliable way for the MTA to generate more revenue is through fare increases, and without a more stable funding stream, fare increases will continue. It’s also disingenuous for the state comptroller to complain on one page about skyrocketing debt and on the other call for a moratorium on fare increases.
So straphangers and the MTA are stuck. We’re stuck with fare hikes that won’t step and debt obligations that won’t simply disappear. It would be nice to keep fares at current levels for longer than 24 months, but it wouldn’t be a prudent fiscal decision on behalf of the agency tasked with overseeing our transit system to do so.
The MTA missed its overtime spending projects during the first half of 2013 by nearly $70 million, according to agency budget documents released yesterday. Thanks to a combination of employee vacancies, maintenance and weather emergencies largely driven by Transit’s response to the damage inflicted by Sandy, overtime spending hit $368.5 million from January-June, a variance of $68.9 million over what the MTA had originally budgeted for this year. It is unclear how this unanticipated expense will impact the year-end budget.
According to the special report released yesterday [PDF], weather was a driving factor in this jump. Of the $68.9 million, $29 million stemmed from responses to weather issues, and $20 million of that is directly attributable to Sandy. “Work included, but was not limited to, supplemental bus and shuttle service for subway and train lines that were damaged, repair of signals in flooded areas that were immersed in salt water, station repairs, and extensive damaged track work.” Vacancies and employee availability contributed $10 million to the overtime expenditures as well, but these costs were partially offset by payroll savings.
The report did not contain any clear cut steps to reduce these overtime expenses and urged agency leaders to reassess future budget projects. The report called for an aggressive attempt at filling vacancies and expanding the “pool of employees-in-training for critical operating positions,” but overall and despite a dip in 2010, overtime expenses, mired in the upper $500 million level annually, remain a big concern.
It was back in the waning days of June when the State Senate and Assembly both passed a lockbox bill with strong protections for transit funding. This was the second time that the bill had passed the legislature, and while Gov. Cuomo had gutted the protections that prevented a raid on transit financing last time around, advocates were optimistic that the bill would gain Cuomo’s signature. Since then, though, we’ve waited. And waited. And waited.
Lately, though, there is a reason for some optimism as upstate newspapers, not usually in favor of anything that bolsters the MTA — they amazingly view it as a drain on the rest of New York State — have lined up behind the lockbox. Since the bill protects all transit money and not just that earmarked for the MTA, upstaters have reason to argue for a signature. The Buffalo News voiced its support this week, and The Press-Republican from Plattsburgh sounded off last week.
Over at Capital New York, Dana Rubinstein sees this groundswell of support as an indicator that Cuomo will soon have to sign the bill. If everyone in New York state wants these modest protections in place, the governor will have to step in and govern soon enough.