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.

Debt payments are making up an ever-increasing amount of the MTA's annual budget. Image via RPA/ESTA.

A few weeks ago, the Regional Plan Association and the Empire State Transportation Alliance dug deep into the MTA’s budget projections and voiced their concerns over the MTA’s ballooning debt balloons. For long-time transit watchers, the agency’s debt isn’t a new storyline, but the numbers are increasingly heading upwards. The system is saddled with more debt than every before, and there’s no sign of relief on the horizon.

Yesterday, Streetsblog excerpted parts of the presentation which I’ve seen as well, and the picture isn’t a pretty one. According to the MTA’s own metrics, debt payments will account for over 17.5 percent of its operating budget by 2014, and according to the RPA and ESTA, the real total based upon the MTA’s sleight-of-hand accounting may be closer to 23 percent. Labor costs will fall to around 53 percent of expenditures.

“Every year,” Noah Kazis wrote, “more and more money that might go toward paying bus drivers, buying fuel, cleaning stations or keeping fares affordable is instead spent on debt service. Even over a period when pension costs will have risen by a billion dollars per year, it’s debt that is chewing up the MTA’s budget.”

Besides the debt, though, the other area of growth concerns pensions. In 2003, pension spending accounting for under five percent of the MTA’s operating budget, but by 2014, that number will rise to around 9.36 percent. That type of growth is unsustainable and worrisome. The MTA cannot become a pension and debt organization while running a subway system, but by 2014, over 30 percent of its operating budget will be tied up in those two areas.

So why so much debt? Kazis explains:

That debt is the outcome of decades of diminishing state support for public transit. After a major infusion of capital under the Hugh Carey administration, Governor Mario Cuomo cut all direct support for the MTA capital program. Though Cuomo found other revenues for the capital plan, notably by repurposing Westway dollars for transit, George Pataki just let those zeroes stand and put the cost of the capital plan on the MTA’s credit card, starting the debt build-up in earnest. Pataki also started using dedicated transit funds to pay the state’s commitments to the MTA, essentially double-dipping on those funds and costing transit almost $200 million a year.

The 2009 passage of the payroll tax helped the MTA’s budgets significantly — it is now the agency’s largest dedicated revenue source – but Albany’s decisions to kill congestion pricing and bridge tolls meant that the MTA still had to borrow heavily to pay for repairs and mega-projects like the Second Avenue Subway.

The result is a massive run-up in debt. Though the MTA spent only $848 million on debt service in 2004, according to RPA, it is projected to spend more than three times as much, $2.67 billion, in 2014. Debt alone will eat up 17.6 percent of the MTA’s operating budget by 2014; worse, RPA says that an alternative calculation shows the 2014 debt load at 23.1 percent of the operating budget.

Talk about debt often causes other people’s eyes to glaze over. They just want to know that trains will run frequently and on time, that the fare won’t go up and that there will be a seat for them on the next train. But these debt payments will impact the MTA’s ability to provide service. The authority can cut employees; they can cut trains and buses; they can raise; but they cannot cut debt. Without better and more concrete investment in the system, debt will balloon, and the rest of us — the riders and commuters who depend upon the subways — will lose out.

With the MTA’s release of its 2012-2015 budget, the analysts came out in full force. While most were skeptical of the various assumptions tenuously supporting the authority’s plans, the city’s Independent Budget Office takes a different approach. The MTA revenues, they say in a report released on Friday, are resting on some highly volatile taxes and fees, and small shifts in the economy and political winds could leave the authority flailing for dollars.

For many transit policy wonks, the IBO report simply reinforces what we already know. By relying so heavily on real estate transfer taxes, an unpopular payroll tax and various other subsidies instead of a relatively steady stream of revenue generated by fares and tolls, the MTA risks financial instability tied to the economy. When, for instance, the real estate market collapses as it did in 2008, the MTA’s own financial outlook plunges.

Take a look at the following chart from the IBO report:

It ostensibly showcases the volatility of fees and taxes as compared with fares and tolls, but it tells another story as well. That story focuses on addition. By adding the payroll tax the previous mix of various fees and taxes that support the MTA, the state was able to push its contributions in line with the 2005-2007 trend line after three years of collecting amounts below normal. As the MTA depends upon these revenue streams to stay afloat, how often can they expect Albany to add more? Based on recent responses, the answer is “not very.”

The IBO’s report is short, but it sheds some light on the appropriations process. It walks through the convoluted ways in which various taxes and fees are collected by the start, siphoned into general funds or specific appropriations buckets and then redistributed to the MTA. Along the way, the state often reappropriates funds for other uses, and that’s how the MTA has seen $260 million in supposedly dedicated revenue vanish at the click of a button.

For a sense of the process, take a look at this table. Click to enlarge.

From the IBO’s perspective, the problems involve volatility. The MTA expects to draw in nearly as much in dedicated taxes and fees as it does from fare revenue. Adding the dollars collected from its tolls alters the balance to an extent, but the agency is still depending upon fees and taxes for over 40 percent of its annual budget. The IBO sees these revenue streams as too volatile and would prefer the MTA rely on fares and tolls — which have a tendency to remain constant over the years.

“While dedicated taxes and fees can hold down upward pressure on fares and tolls, the transportation authority’s growing reliance on these revenue sources does not assure fiscal stability. Some of the authority’s largest dedicated revenue sources are among the most sensitive to the ups and downs of the business cycle and the even more pronounced swings in the market for real estate,” the report says.

So what can the MTA do? The IBO clearly wants to see the authority rely more on fares. “Dedicated revenues do not assure stable funding,” they say over and over again. But the MTA’s current fare policies are the result of legislative bargaining. By agreeing to avoid fare hikes more frequently than every other year, the MTA earned the $1.5 billion in payroll tax revenue. If the payroll tax were to disappear, the MTA would have to institute a steep fare hike, and if they institute a steep fare hike off schedule, they risk incurring the wrath of Albany.

Finally, the 800-pound gorilla in the room concerns spending. The IBO report doesn’t delve into the MTA’s expenses, but they do highlight how in 2003, the authority’s overall revenue hit $6.4 billion while in 2010 it was over $10 billion. Even accounting for inflation, a jump in revenue — and concurrent spending — by nearly 50 percent is alarming. A good chunk of that money is going toward debt service on the never-ending capital plans while others are going toward increased labor expenses. Either way, spending has to be curtailed as well. Just as the MTA’s revenue streams cannot keep increasing ever upwards, neither can its expenses.

Ultimately, the issue circles back to the purposes behind mass transit. If the subways and buses are a public good for everyone, fares cannot be too high, and the MTA must depend upon a steady stream of taxes and fees for support. If, however, Albany is reticent about balancing the taxes and fees, the fares must go up, and public transit starts to become to expensive. The MTA has managed to walk that tight rope without falling, but the latest from the IBO seems to pull the safety net out from underneath the precariously balanced authority.