If the MTA is unable to attain a net zero wage increase for unionized workers, operating deficits could top $500 million by 2014. (via)

The MTA Wednesday unveiled its final 2012 budget and the latest set of projections for 2013-2015. Although the budgets still rely on revenue generated by fare hikes in both 2013 and 2015, the authority does not currently anticipate cutting services to balance its books. However, the long-term outlook remains debt-heavy, and the MTA admitted that its four-year projections rest on a precariously balanced dime.

“The MTA has achieved a fragile fiscal stability by reducing expenses and operating more efficiently,” Joseph Lhota, MTA Executive Director, said in a statement. “It’s clear, though, that we’re still feeling the impact of the economic crisis and must continue to reduce costs even as we work to improve service.”

The details, available in full as a PDF here, remain substantially the same as they were in July. Thanks to aggressive cost-cutting measures instituted while Jay Walder was the CEO and Chair, the MTA anticipates annual savings of at least $850 million by 2015. By freezing non-unionized worker pay for three years, reducing administrative overhead and reining in overtime, the MTA has begrudgingly become a leaner organization.

Yet, the long-term outlook is rife with potential problems. Even still, the MTA is relying on two fare and toll hikes that will be designed to increase revenue by 7.5 percent, but those are the safe figures. The MTA is counting on $323 million in what they’re calling “net zero wage savings for represented employees.” In other words, unionized workers will either by taking pay freezes for the foreseeable future or the MTA will have to resort to layoffs. I don’t think John Samuelsen will be too happy to hear that.

The MTA, meanwhile, warned of inherent risks in their rosy projects. For now, the authority anticipates an operating surplus in 2011, a balanced budget in 2012 and a smaller surplus in 2013 before the MTA lands over $200 million in the red by 2015. Much of this deficit, the authority says, is driven by increasing costs of retiree and healthcare benefits that will eat up nearly all of the additional revenue generated by the anticipated 2013 and 2015 fare hikes.

Furthermore, the MTA warns that a variety of factors could turn this rosy outlook sour. Among those factors are a stagnant overall economy; reductions in state subsidies and dedicated taxes; a failure to achieve desired expense reductions; an increase in labor costs due to bargained-for agreements that do not attain the “net zero” wage level; less funding for the capital program. As far as projected budgets go, then, the MTA’s current plan may be a final one that needs approval but it’s hardly set in stone.

The other 800 pound gorilla in the room involves debt on the operating budget and funding for the capital plan. As the MTA seeks to close a significant funding gap in its five-year capital plan, it will do so through a series of measures that will increase its long-term debt obligations. Even as the authority retires debt from the 1980s, more will hit the books. Future New Yorkers will have to pay for both our desired maintenance and theirs.

“In the context of the ongoing economic crisis in New York State, this proposal advances our critical capital investments in an affordable way,” MTA CFO Robert Foran said. “It relies on revenues already dedicated to capital expenses and keeps debt service at a manageable level, with the percentage of debt to capital investment the lowest in 15 years.”

And what of the surplus and budget flexibility? Two MTA Board members have proposed reinstituting services lost to the 2010 cuts. Mitch Pally and Allen Cappelli both called up on the MTA to include a $20 million item in its $12 billion budget that would restore some of the old service. “I don’t believe we can restore all of them, but I believe a portion of them should be – and can be – funded in this plan,” Pally said during yesterday’s MTA Board meeting.

Everyone is fighting for a piece of the pie, and those who inherit the most are those who will have to face the MTA’s mounting pile of debt. For now, the authority will stay afloat, but the long-term outlook is not comforting.

Over the past few years, I’ve been rather critical of New York State Comptroller Thomas DiNapoli’s reports highlighting MTA efficiencies. He’s been targeting small potato issues that wouldn’t result in major cost savings without highlighting how a comprehensive reform effort involving Albany, MTA management and its labor unions would streamline efficiency and economics at the authority. Telling the world that service changes are annoying and debt is a bad idea hardly seem like game-chargers.

Now, though, a glimmer of useful information has emerged from DiNapoli’s office. In a highly targeted forensic audit of the Signal Construction Unit for Metro-North, DiNapoli has found “systemic overtime abuse” that may rise to the level of fraud. The audit — available here as a PDF — explores how 28 workers in a 30-employee division took home an average of $42,000 per employee in overtime in 2010 and how pension padding may balloon to $5.5 million.

“MTA management has tolerated a manipulation of the system by both supervisors and workers who have enjoyed the perks of having a daytime shift for jobs that need to be done at nights and on weekends,” DiNapoli said. “In 2010, in one 30-member unit at Metro North, over one million dollars was paid out for avoidable overtime and rest shifts. Federal laws implemented to protect riders were exploited to enrich employees at the expense of taxpayers. There’s no place for this type of abuse in New York and it must stop.”

In a press release, DiNapoli’s office summed up the technical findings:

Supervisors boosted employee incomes and pensions by regularly assigning overtime work to be done at night by workers whose normally scheduled shift was during the daytime. These extra overtime shifts in turn triggered a requirement (the federal Hours of Service statute) that they rest – at full pay – during their next day’s shift.

DiNapoli’s auditors calculated that the shift manipulation for 28 of the 30 employees in the Unit cost Metro-North $991,208 in overtime and $216,128 in pay for rest shifts in 2010. For six of these employees, the additional payments inflated future projected pension benefits by $5.5 million. One worker was able to increase his projected total pension amount by $1.5 million above what would have been earned at his regular salary.

The Signal Construction Unit supervisors, who are not covered by the statute, also improperly enriched themselves by scheduling their own overtime and paid rest shifts. The Comptroller’s office believes the supervisors’ actions are potentially fraudulent because they did not perform job duties expressly set forth in the statute. In addition, the audit also found that supervisors improperly approved their own time records and charged payroll costs to unrelated capital projects to avoid detection.

While Metro-North officials in a letter appended to the audit disagreed with some of DiNapoli’s findings, the comptroller has referred the case to the MTA Inspector General for further investigation. A finding of corruption or legally-actionable fraud could be quite revealing for both the MTA and Metro-North workers.

In fact, the audit itself could be troubling without further investigation. Two rank-and-file crew members did not disguise their ability to exploit the job for more pay. “I’m entitled to it,” one said. “It’s my turn now.”
Another employee added, “I know I have a good gig going on. If I had to name the top five jobs in the country, this would have to be, hands down, number one.” DiNapoli claims these MTA workers “exemplify the sense of entitlement and culture that is likely pervasive throughout the MTA.”

Ultimately, DiNapoli’s suggestions seem rather obvious. Stop unnecessary overtime pay; don’t allow supervisors to sign their own attendance records; stop improper payments. Yet, despite this seemingly mundane outcome, DiNapoli’s audit is an eye-opener. In one department of 30 workers, 28 of them took home an extra $42,000 in overtime pay last year. How deep does this run?

The MTA and New York City’s property owners have a complicated relationship under the current transit financing scheme. Developers and property owners rely upon the MTA’s services to increase the desirability and, of course, the value of said property while the MTA relies upon real estate transfer taxes to help fund their operating budget. When it comes to capital investment, though, property owners owe nothing to the MTA but stand to benefit.

Earlier on Wednesday, while catching up on some transit news, I came across an intriguing article that brings this divide to light. It’s a short piece in Columbia Daily Spectator about a proposed renovation to the 168th Street station. This Washington Heights stop, a key transfer point between the Eighth Avenue IND and the IRT local 1 train, also serves the Columbia University Medical Center, and the station complex is looking a little unloved. While not on the level of, say, Chambers St. on the BMT Nassau St. line, 168th St. features your typically dingy conditions and cracked platforms. It needs some work.

Soon though the MTA will begin a partial rehab for this station. The authority will be replacing the brick arches with Glass Fiber Reinforced Polymer and will shore up some columns while repairing beams. This station, after all, is one with structural concerns with the ceiling.

According to The Spectator then, Columbia officials are pleased. In fact, the school’s board has long requested the MTA gussy up the station so visitors are not turned off by the grime. The way the article is presented though speaks volumes of how Columbia, which is currently building a massive complex in Manhattanville, wants to be involved. Luke Barnes writes:

University Trustees don’t like the look of the 168th Street subway station—and the MTA plans to do something about it.

The Metropolitan Transportation Authority is planning a renovation of the No. 1 train station that services New York-Presbyterian Hospital and Columbia University Medical Center. Although still in the planning stage, the project is slated to begin in December and wrap up before the end of 2014, according to a MTA representative. “It’s probably the worst looking subway station I’m aware of in the city and it is a Columbia-related station,” professor Ronald Breslow, the chair of the campus planning committee, said at a University Senate plenary meeting last week. He added that the subway station came up at a recent meeting of the Board of Trustees, and several said that they were concerned…

Columbia officials said they agree that the station needs a renovation, but there are currently not any plans for the University to work with the MTA on its planned renovations. “For many of our students, patients, faculty and visitors, the subway station is the first thing they see when coming to CUMC,” said Ross Frommer, associate dean for Government and Community Affairs in a statement to Spectator. “As the largest destination for subway riders in this part of the city, we would work with the MTA in any way that we can to make improvements to the station.”

So a wealthy institution wants its subway stop to look nicer, but they also want someone else to do the work. If they contribute anything to the project, it will be to cover the costs of signage promoting Columbia. Otherwise, they are content to pressure the MTA to do something while they sit back and complain.

Now, I don’t think the MTA should be in the business of asking for handouts. It would be an absurd commentary on the state of transit funding if the MTA had to go, hat in hand, to private property owners in order to fund capital expansion. But if Columbia wants to see a station rehab that badly, they should be willing to do something about it. After all, they’re going to benefit materially from the MTA’s efforts. Why shouldn’t they be expected to contribute to it as well?

Now and then over the years, I’ve written about “adopt-a-station” plans as a way to draw resources to subway station cleanliness efforts, and I wonder if a similar program would work with the capital program. Why didn’t developers around 41st and 10th Ave. who would benefit tremendously from a subway station there figure out a way to contribute the effort? Why isn’t Columbia required pony up the bucks to help clean up a station they claim is “the first thing” visitors see? Subway improvements and system growth, after all, don’t just happen.

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Updated (10:00 a.m.): From what I’ve heard from sources at Columbia, the issue at 168th St. is perhaps not as clear cut as The Spectator made it out to be. There are those on university committees who believe the institution should consider picking up some of the tab, as they did with station rehab projects at 116th, 110th and 103rd Streets in the past.

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

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

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

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

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

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

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

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

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

Fitch, the investor ratings company, has assigned nearly $100 million in MTA revenue variable rate bonds an A rating and has downgraded over $14 billion in preexisting debt from an A+ to an A, the company announced today. According to the press release, available on Transportation Nation, “the downgrade reflects higher than expected near-to-medium term financial pressure.”

The release explains further:

The downgrade reflects higher than expected near-to-medium term financial pressure stemming from increasing operating costs (projected to moderate in growth in the outer years) and pension obligations and growing annual debt service obligations from expected near-term issuance associated with the capital program. This is exacerbated by the strong likelihood that operating subsides (dedicated tax sources) will not grow as anticipated in the near term leading to wider deficits. The Stable Outlook reflects the authority’s institutional focus on monitoring developments and willingness to take corrective action albeit that the options available are fewer in the current environment.

The downgrade comes following the release of a long-term capital plan that relies heavily on debt-backed bonds and other shaky assumptions. Transit advocates were none too pleased to hear the news. “Just like in Washington, decisions made by our elected officials in Albany caused this downgrade,” Paul Steely White, Executive Director of Transportation Alternatives, said. “The State’s raids on public transit funding have forced the MTA to pay for subways and buses with debt. Now, it will cost more for the MTA to run the system, and this will hit New Yorkers where it hurts—fare hikes and service cuts; unless our elected officials in Albany find secure revenue for public transit.”

Apparently my talk of debt earlier today was not all that premature.