It’s Comptroller Week on Second Ave. Sagas. Hot on the heels of his report that the MTA is spending frivolously on contracts, New York State Comptroller Thomas DiNapoli has issued another report on the state on the MTA. In this one, he tells us something that we already know: The MTA’s latest capital plan proposal faces a funding gap of $9.9 billion and will depend too heavily on debt.
While I first explored this problem when the MTA announced its capital plan a few months ago, DiNapoli explores the issue in depth. According to the comptroller, only 67 percent of the plan has funding, and this figure does not include any money for the Second Ave. Subway. “Maintaining and expanding the MTA’s public transportation system is vital to the region’s economy, but finding adequate resources to meet demand will be difficult in the current economic environment,” DiNapoli said. “The MTA plans to close the funding gap with debt if it does not receive any additional aid, but that much new debt would strain the operating budget and increase pressure to raise fares and tolls.”
According to DiNapoli’s report, available here as a PDF, the budgeting and funding plan for the capital program is rather problematic. His office released more in a press release:
DiNapoli’s report indicates approximately 75 percent of the MTA’s proposed $28 billion capital program is allocated to maintain and modernize the existing system (i.e., the core program). Of this amount, the New York City Transit Authority would receive 65 percent, the Long Island Rail Road would receive 13 percent, the Triborough Bridge and Tunnel Authority would receive almost 12 percent and the Metro-North Railroad would receive about 8.5 percent. Another $5.7 billion would be allocated to complete East Side Access and Phase 1 of the Second Avenue Subway.
While the MTA has identified funding for the first two years of the program, the program has a funding shortfall of $9.9 billion over the following three years. DiNapoli’s report found that the funding gap could grow because the MTA is counting on a 56 percent increase in federal funding compared to the current five-year program.
The MTA’s July 2009 four-year financial plan assumes it will sell $16.5 billion in new debt to help finance its 2010-2014 capital program if it receives no additional financial assistance. This assumption is based on the planned issuance of $6 billion in bonds backed by new State revenues and another $9.9 billion in debt to cover the funding shortfall. Under such a scenario, debt service would more than double to $3.5 billion in 2020 from $1.5 billion in 2009.
Debt service is expected to consume 16.6 percent of revenues in 2009 and DiNapoli projects that it could consume 24.6 percent of revenue by 2017, assuming no future fare hikes, if the MTA undertakes a borrowing of that magnitude.
As DiNapoli analyzed the MTA’s current financial state, his findings are fairly drastic. The MTA, he says, will need $128.8 billion over the next twenty years simply to “restore and modernize the existing system.” Additional funds, he says in the understatement of the year, “would be needed to expand the system to meet future needs.”
On Wednesday, the MTA Board is going to approve the next five-year capital plan. It will then head off to the state for a Senatorial debate. It is missing funding for Phase II of the Second Ave. Subway; it includes debt service that will grow from $1.5 billion this year to $3.5 billion by 2020; and it is vitally necessary for the MTA to maintain a state of good repair. And that is one bad financial bind.
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I’d rather see the Senate bungle this one than ignore it, for the pure fun factor.
I didn’t hear the Comproller talking about who we reached this point. Same thing with his announcements on pensions. Who benefitted? How did we get into this mess?
He was a member of the state legislature, and like they all do, voted yes every time.
[…] M.T.A. budget woes, and State Comptroller Thomas P. DiNapoli’s response to the authority’s latest capital plan […]
Hi Ben (and Larry):
This is probably a minor point in the grand scheme of things… but what exactly is that 67% figure referring to? If it’s a $28 billion plan with a $9.9 billion gap, the MTA thinks it has funding for $18.1 billion worth, which is about 65%. Close, but not quite.
To my understanding of the report, the MTA actually needs to spend about $41.8 billion on capital maintenance and improvements (not including SAS phase 2) over the next 5 years, so its proposal for a $28 billion program only covers 67% of its needs. (Later in the press release there’s more detail by agency: the plan covers 62.5% of NYCT needs, 80% of LIRR needs, and 87% of MNRR needs, with even wider variation when further broken out by asset categories.)
Is that a complete misreading of the report? If it’s not, that means that not only is the MTA’s proposed capital program listing out just 67% of the work that it needs ($28/$42), but the estimated amount of funding available and identified is only about 43% of what’s needed ($18/$42). Yikes!
The authority has issued a five-year capital plan that features $25.5 billion in spending. You can read the proposal right here. No one has ever mentioned $42.5 million, and the MTA’s $25.5 billion figure includes the current plans for SAS. Phase 2 wouldn’t begin until the next five-year plan if then.
Sorry about the confusion. It’s no one’s fault, I think, just a matter of unclear terminology.
The Comptroller press release says: “Even though the proposed capital program would be the MTA’s largest ever, it would fund only 67 percent of the MTA’s capital needs for maintenance and modernization, and does not include any funding for the next phase of the Second Avenue Subway.”
Ben paraphrases this as: “According to the comptroller, only 67 percent of the plan has funding, and this figure does not include any money for the Second Ave. Subway.”
My question was pretty simple: what are the numerator and denominator that resulted in that number, 67%, and what do they represent?
The answer actually has nothing to do with the “$9.9 Billion Funding Gap” in the press release headline. A statement like “only 67 percent of the plan has funding” might lead one to think that the remaining 33% represents that roughly $10 billion funding gap, but that is apparently not what the Comptroller report meant when referring to the funded portion of the MTA’s capital “needs” (as distinct from the funded portion of the capital “plan”).
The numerator, which is a number that is never mentioned in the press release, is given in the OSC report itself: “The $21.3 billion core program funds only 67 percent of the MTA’s capital needs for the next five years, which could result in higher maintenance costs” (4th bullet point). (The core program excludes the building of new capacity like the SAS and a couple of other categories.)
The denominator comes from the MTA’s 20-year Needs Assessment, which breaks out capital investment needs into four 5-year periods, the first of which corresponds to the period of the proposed capital program. If you look at Table 1 on page 9, you can see that the “continuing needs” for NYCT, LIRR, MNR, MTA Bus, and B&T total up to $31.511 billion in 2010-14.
If you divide $21.291 by $31.511, you get 0.6757, which I guess is close enough to 67% for government work.
What this means is that the MTA by its own estimates thinks that it ought to budget $31.5B for its core capital program over the next five years, just for getting the existing system up to par and keeping it there, never mind system expansions. But it’s still only planning for $21.3B, even though that “could result in higher maintenance costs”. And it doesn’t even know how it’s going to pay for that inadequate amount of work without issuing ever more bonds, which leads to the “gap” or “shortfall” that seems to be getting most of the attention. The comptroller also points out that under the current proposal NYCT and MTA Bus would get less, relative to their needs, than commuter rail and bridges and tunnels.