Home MTA Economics Moving the region’s economy but driven into the ground

Moving the region’s economy but driven into the ground

by Benjamin Kabak

Early yesterday evening, news broke of a state error concerning revenue generated from the payroll tax that was supposed to bailout the MTA. Although up until last week, the state had been maintaining its initial figures, collection totals were $200 million off pace, and with a state appropriations cutback of $143 million going into effect, the MTA will end the year with $343 million less than expected.

Even though the state accountants are to blame for this large gap, for many New Yorkers, it will just be another arrow in the quiver of barbs to launch at the MTA. The agency, they say, cannot be trusted with any money because it all just disappears. Here, that’s not true, and as an agency spokesman said to me, Monday’s revelations represented “significant unraveling of the rescue package passed by the Legislature in the spring.” Twenty percent of the money promised by the state to the MTA just simply is not there.

The MTA and the state will now have to battle it out for funds, and the MTA will probably end up losing. Although they say they will do everything within their powers to avoid an unplanned 2010 fare hike, they might have to cut services across the board and will have to engage in serious internal belt-tightenin”

On the flip side, the MTA will be asked to do more. The agency will be asked to shuttle more people around New York City while relying on infrastructure that is badly in need of some major capital investments. The agency will be asked to provide more service to underserved areas, and more reliable and frequent service to those transit-rich neighborhoods. More, more, more is squaring off against less, less, less.

It is undeniable that the MTA is the engine that drives much of New York’s economy. The city is entirely dependent upon the subways for its transportation needs. Over seven million New Yorkers ride the subways each week day while Metro-North and the Long Island Rail Road each carry approximately 300,000. The MTA’s bridges and tunnels see just 800,000 toll trips per day. It is clear that the city’s road network and geographical reach make the subway the prime people mover in this urban area.

Outside of the city, the MTA’s economic reach extends throughout the state. As the Permanent Citizens Advisory Committee to the MTA noted during its statement last week on the MTA’s capital plan, “more than 60 municipalities through out the state of New York benefit from the MTA’s Capital Program through subcontractors for subway, bus and rail cars.” The 2005-2009 capital plan, they say, leveraged around $42.1 billion in economic activity from an original investment of $24 billion. The state, though, will not pledge to cover a $10 billion capital gap just as they can’t put together a proper bailout package to fund the MTA’s operations budget gap.

Still, forces conspire against a financially strapped MTA. As the agency’s fiscal picture heads further south, a group angling for TWU leadership posts is threatening “direct action” if the authority does not honor the arbitration award. The union leaders are simply upholding their duties to protect and defend their workers, but it is but another demand on money the MTA does not have. Somehow, the MTA is expected to find $300 million more every year for employee salary and benefits raises.

In the end, where will a looming financial Armageddon take us? The MTA is too important to fail, and it’s too important to roll back services. Maybe we’ll have skyrocketing fares, but more likely, we’ll have sensible funding mechanisms such as congestion pricing and East River Bridge tolls. For now, though, the MTA continually has to make do with less and less from the state while providing more and more for its workers and the millions of customers each day who rely on it for basic transportation needs. Something has to give.

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rhywun December 8, 2009 - 1:46 am

the MTA is expected to find $300 million more every year for employee salary and benefits raises

That’s just… crazy. And it’s the one thing in this whole mess that can be laid squarely at the feet of the MTA.

Maybe we’ll have skyrocketing fares, but more likely, we’ll have sensible funding mechanisms such as congestion pricing and East River Bridge tolls.

Huh. The former seems far more likely to me. If only because that’s what’s happening everywhere else in the country.

JebO December 8, 2009 - 10:10 am

“it’s the one thing in this whole mess that can be laid squarely at the feet of the MTA.”

Huh??? The MTA is actively fighting the raises by appealing an arbitration award that favored the TWU.

Alon Levy December 8, 2009 - 3:12 pm

You don’t need appeals to lay off redundant managers and consultants. The TWU doesn’t represent them.

Benjamin Kabak December 8, 2009 - 3:15 pm

You keep saying this as though it’s going to magically save $200 million. It won’t. That cost savings cannot materialize without either major pain to riders or some cutbacks on union worker staffing levels, salaries or benefits.

Alon Levy December 8, 2009 - 5:43 pm

It’s not, but it’s one of the things that will save money.

I also suspect that if the MTA replaces its current crops of consultants with better consultants, it’ll be able to spend a fraction of what it spends right now on its capital plan – after all, SAS does cost four times as much as subway construction in every other city.

rhywun December 8, 2009 - 11:41 pm

Only if those consultants can somehow extract more work out of labor–who are, after all, the vast majority of the cost.

Alon Levy December 9, 2009 - 1:51 pm

It’s not so much more work, as fewer workers, and more efficient use of workers.

rhywun December 8, 2009 - 11:38 pm

The MTA is actively fighting the raises by appealing an arbitration award that favored the TWU.

Too little, too late. They should have negotiated in good faith in the first place. By which I mean, they need to defend the people (us) who pay the union members’ salaries.

Aaron December 8, 2009 - 5:08 am

An error of this magnitude… it’s hard to conceptualize what went wrong. It’s either a monumental error of the scope of JPL losing a probe because they couldn’t remember what units they were using, or it’s deception (intentional or willful ignorance) on the part of Albany (sadly, something that California does – the budgetary situation being so bad there that the leaders of both parties tell themselves that the economy and tax revenues will be better than any sane person knows they can be, if only because any contrary thoughts require the contemplation of doomsday scenarios, scenarios that are taking place across California right now). The economy is indeed bad, but not so bad that an estimate of a payroll tax would be wildly off. 20% is not a margin of error.

Honestly, it saddens me to see this blamed on MTA. It often surprises me to see people push the gospel of the private sector onto public agencies, but then insist that employees of public agencies should earn City Year salaries because they’re serving the public. You can’t have it both ways. MTA is a massive state agency, bigger than many companies, and forcing it to run on a shoestring budget because of a vaguely generic feeling that “government is bad” will only run it into the ground. MTA provides a public service – I suspect if Bank of America ran the MTA, they would have shut down the G and the Franklin Avenue Shuttle, and probably canceled the SAS by now too.

Alon Levy December 8, 2009 - 3:21 pm

Well-run public companies would probably cancel SAS, too. In Tokyo they’ve stopping building new subways because the cost has risen to $500 million per km. SAS is budgeted at $1.7 billion per km.

Scott E December 8, 2009 - 7:16 am

What went wrong? I have a few ideas, though I don’t think they come close to totalling $200 million. (1) remember when Albany backtracked on the payroll tax, saying they would refund the tax on school employees? They never said where that would come from. (2) The individual counties that vehemently protested the tax (I forget which ones, but they’re on the far reaches of the Metro-North lines) and still do — I wonder if they are collecting it and paying it to Albany. Of course, they’re is still sloppy accounting, and sloppy politics on Albany’s part, but that’s hardly anything “new”.

Peter December 8, 2009 - 8:50 am

Hey, Bruce Ratner agreed to give the MTA over $100 million for the Development Rights to the Carlton Avenue Yards – Oh……
Never mind.

AK December 8, 2009 - 9:10 am

“The union leaders are simply upholding their duties to protect and defend their workers”

I’ve said this before, and I’ll say it again– union leadership that takes a myopic short-term view of the fiscal/political health of the employer is not working on behalf of its employees. Intelligent union heads understand that while there are times to fight for every penny, doing so 100% of the time dramatically reduces the union’s credibility and public support. More importantly (the UAW is a great example of this), fighting for benefits that eventually bankrupt the company is not a pro-worker strategy, as the company eventually lays off everyone and slashes benefits to the bone via the bankruptcy court. The TWU should realize that the more they demand for each individual employee, the more MTA will have to cut service or raise fares, which will have trickle down effects on their members and their members’ families.

rhywun December 8, 2009 - 11:44 pm

The reason the TWU gets away with this is because they’re working for a government agency, which has effectively unlimited funds. Sure, it will reach a breaking point eventually, but by then the current leadership will be comfortably retired.

(Of course, some private companies (ahem–GM) get a public bailout, too. But that’s not usually the case….)

Streetsblog New York City » Today’s Headlines December 8, 2009 - 9:16 am

[…] Albany Messed Up Payroll Tax Projections, But Who Will the Public Blame? (SAS) […]

Marc Shepherd December 8, 2009 - 9:50 am

What went wrong? My guess is the usual cause: overly rosy predictions. Whenever the legislature passes anything, it tends to over-state the benefit. It’s the same thing that happens in Congress, where “debt-reduction” packages never reduce the debt as much as claimed.

In this case, I suspect that they chose the most favorable estimate, and when the actual results came in lower, they waited till the last minute to tell anyone about the mistake.

DMIJohn December 8, 2009 - 12:34 pm

When first proposed by Ratvitch, the payroll tax was going to net $1.5 billion. It seems that the MTA was planning on only $1 billion, though, which indicates that the projections had factored in the recessionary impacts on the tax revenue. It looks like the school reimbursement was only going to be $60 million.

So, who knows where the shortfall comes from.

SEAN December 8, 2009 - 10:42 am

Principles on the MTA Payroll Tax
by Steven Higashide

Walder, center, with representatives of business groups Greater Southern Dutchess Chamber of Commerce and Pattern for Progress.
In parts of the Hudson Valley and Long Island, opposition to a payroll tax passed as part of a larger MTA funding package has been vocal since summer, spurring new MTA chairman Jay Walder to meet with Hudson Valley officials and organizations.

He did so again last Tuesday, speaking at three forums organized by business groups in Orange, Putnam, Dutchess, and Rockland Counties. Walder spent much of the meetings discussing the need for increased transparency at the MTA and addressing local issues like a a plan for transit-oriented development at the Beacon train station. But first he was repeatedly challenged to defend the payroll tax.

Walder did so, noting that the tax was a part of a larger funding package that included a NYC-specific taxi surcharge, and increased vehicle registration fees, and said the tax was an “appropriate” means to fund the MTA. Walder repeatedly said that the composition of the funding package was ultimately a political decision made by elected officials. This didn’t satisfy attendees, but it’s not surprising that the governor-appointed chair of a cash-poor agency avoided challenging the way in which the governor and State Legislature chose to fund his agency.

The MTA chair also cited practical problems with a proposal to cancel the payroll tax in four Hudson Valley counties and make up the difference with a 13% Metro-North fare increase in those counties (on top of the 10% fare increase this summer and a planned hike in 2011) and in Connecticut. Namely, the funding agreement between the MTA and Connecticut is enacted through a multi-year arbitration process and reopening it would mean years of negotiation. (Video from the first Tuesday meeting is available from the Poughkeepsie Journal.)

Suburban stakeholders in both the Hudson Valley and on Long Island should keep three facts in mind when thinking about the MTA funding package.

The transit funding package was preferable to the alternative. The MTA is critical to the economic viability of the entire metropolitan area. The service cuts and disinvestment that would have resulted had a funding package not been passed would have had catastrophic effects throughout the MTA region and beyond.

A regional tax is a logical source of transit funds. Transit benefits many people, not just transit riders. As Tri-State wrote in a letter to the Journal News, Metro-North reduces traffic, increases property values, attracts economic development, and supports tourism. These are regional benefits, so a regional tax to fund transit operations makes sense. The payroll tax also helps fund the first two years of the MTA’s capital program, which includes job-creating projects in the Hudson Valley such as:

Track, bridge, and viaduct repair in Orange and Rockland Counties,
A larger train yard for Metro-North’s Port Jervis Line that will support more frequent service with longer trains,
Rehabilitation of Poughkeepsie’s historic rail station and several Harlem Line stations,
Transit-oriented development or parking upgrades around Beacon and potentially Southeast and Poughkeepsie.
The payroll tax was, indeed, a political decision. The business leaders who questioned Walder asked about alternatives like NYC congestion pricing and East River bridge tolls, which are both sensible sources of transit funding. But state legislators didn’t vote on congestion pricing and dropped bridge tolls from the original MTA funding plan. If suburban interests want to change the balance of MTA funding, they’ll ultimately have to convince legislative leaders. It could be an easier political lift to ask for more benefits in return. For example, absorbing Nassau’s LI Bus and Westchester’s Bee-Line into a regional bus system could lower local taxes; the MTA could also contribute to local transit systems in the Hudson Valley and Suffolk County.

MTA To Launch New Website, Create Clearer Budget Documents
On Tuesday Walder repeated an earlier pledge to make the MTA a more transparent and accountable organization, and made some specific promises on this front. First, he promised that by the release of the preliminary 2011 budget in July, the agency will have overhauled the way it presents financial data to the public. Second, he said the MTA would roll out a new website in the coming months. At a State Senate hearing on Thursday, MTA staff previewed an “online dashboard” that will present the agency’s 2010-14 capital program in a more understandable, interactive way.

Amazing how these suburban business leaders just don’t get it. If they don’t want to pay the tax then the MTA wont provide the service that keeps cars off the road.

Larry Littlefield December 8, 2009 - 10:43 am

Don’t forget soaring pension costs, as all the “free” enhancements over the past decade are finally paid for (though this will do less damage to the MTA than the schools).

This chart explains all. What will life be like, and for how long, to reverse it?


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[…] understand the overall economic effect the transportation network has on our a region, I topic I explored yesterday. “It’s going to make it very difficult for people who rely on mass transit,” the […]


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