Home MTA Economics The dangerous allure of a quick stimulus fix

The dangerous allure of a quick stimulus fix

by Benjamin Kabak

Over the last few weeks, as the MTA’s funding woes have risen to the surface, a debate over the use of stimulus funds to cover the budget deficit has emerged. On the one side are the City Council and Gene Russianoff’s Straphangers Campaign who support using stimulus funds to cover the gap. On the other are, for example, the Regional Plan Association and I believe it to be a bad idea. Today, we see exactly why it’s a dangerous plan to put forward.

On its surface, Gene Russianoff’s idea almost makes sense. The MTA is legally allowed to take 10 percent of its stimulus dollars to cover operating costs. Of course, the capital fund too is stretched to its limit, and future investment in the system even in the face of temporary operating shortfalls is a key component to the long-term health of New York City. If the Russianoff Plan is enacted, the MTA would be robbing its future self to cover numerous services that deserve to be reexamined anyway.

One of my counterarguments to the Russianoff plan is the way it provides only a quick fix. The MTA has an institutional funding problem in that the city and state are shirking their responsibilities to the organization, and a one-off stimulus fix does nothing to address those problems. An economic crisis should be the time for New York to establish a better approach toward funding transit.

I’ve also argued that politicians will embrace the stimulus funding plan because it allows them to disregard further their duties toward the MTA. Why bother trying to solve a problem when they can just plug a hole for one year? Not surprisingly, that — with a twist — is exactly what some upstate politicians are trying to do. As the Poughkeepsie Journal reported earlier this week, five U.S. House representatives have asked Gov. David Paterson to reduce the MTA’s payroll tax and use stimulus funds to cover this year’s gap.

I won’t mince words here: This is a terrible idea. It would take another $110 million away from the MTA at a time when the authority is already running deficits of around $300-$400 million. It would leave the MTA with less guaranteed money after 2010. At Mobilizing the Region, Steven Higashide says it best: “This would blow a hole in future MTA budgets, since it would replace yearly tax revenues with one-year stimulus funds.”

Higashide’s Tri-State Transportation Campaign is one of the co-signers of the Russianoff Plan, but it is a plan that puts more faith in our politicians than they seem to deserve. The use of stimulus funds to hide this year’s budget gap is a dangerous move to make, and our politicians are slowly starting to show us why.

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pb January 29, 2010 - 1:18 pm

Again, didn’t I hear Albany correctly last year tell the MTA that it would look for a better solution at the end of 2009 or was I hearing things? They said, after they passed the funding package that they understand the concerns of the MTA and would look for a better way of doing things and come back at the end of 09. What happend??

David Robertson January 29, 2010 - 1:42 pm

Bravo Benjamin Kabak with your counterarguments they are valid.

I wish and hope you follow in the footsteps of William Moses Kunstler.

Marc Shepherd January 29, 2010 - 1:52 pm

The short-term “fix” suggested by the five U.S. House representatives is not surprising. Congress has been running the Federal government’s budget the same way for years. They’ve gotten away with it because the U.S. government can run deficits. The MTA does not have that option.

Niccolo Machiavelli January 29, 2010 - 8:04 pm

Simply because the above Representatives came forth with a poorly considered, crowd-pleasing three-card Monty scheme (under enormous constituent pressure as a function of the payroll tax) doesn’t make Mr. Russianoff and Ms. Quinn wrong in this particular circumstance.

Your argument gently floats above the reality that interest payments on the capital debt (accumulated largely since the Pataki Administration) and direct pay-go contributions from the fare-box to the capital plan have drained the operating budget for years. And, its not like there was once a fully funded capital plan that is now dribbling inexorably away. Last year’s legislation only provided capital funding for two of the five years in the most optimistic of economic projections so its not like Mr. Russianoff and Ms. Quinn have upset an otherwise perfect state of capital budget affairs.

Even RPA is even moderating its long-held position on the matter, particularly but not limited to, “Regional Plan Association supports the one-time use of federal funds for transit operations as part of the final legislation. Such use of funds should be shown to create jobs, connect people to jobs and lay a foundation for a fully modernized 21st century transportation infrastructure.” (from their Jan 13, 2010 position paper) Their position goes on to qualify considerations regarding states and localities providing sufficient resources to operate their systems. This consideration is covered by the legislation proposed by T4America including “maintenance of effort” provisions and is supported by nearly all transit advocates nationwide.

Your position is unclear, however, as you seem to have tarred Mr. Russianoff and Ms. Quinn’s proposal with the same rhetorical brush as the Hudson Valley Congresspeople when theres are entirely different positions, one reasonable and the other not.

After draining the operating budget for years through the interest payment on the unfunded debts built up when the economy was booming and Pataki and Giuliani needed to be re-elected and using direct pay-go fare box payments to support the capital plan (even when the legislature would not last spring) it is not an effective argument to now pretend that there is a Hadrian’s wall of honest budgeting separating the operating and capital budgets. The system needs both all the time. But when and where you draw each from must include considerations of the business cycle, extreme in this particular case. And, this business cycle, the Great Recession, is clearly sufficiently extreme to justify actions regarding drawing resources from the Federal Government, the lender of last resort.

Personally, I think you hold the capital plan in unreasonably high esteem. Perhaps your interest in this great hole in the ground has clouded your objectivity. Nonetheless your argument still owes an explanation to the Gods of Logic as to how it is OK for the operating budget to fund the capital plan but not vice versa.

And your thrust against Mr. Russianoff, “One of my counterarguments to the Russianoff plan is the way it provides only a quick fix” puts his pretty-well-thought-out proposal in a rhetorical hole you have dug for him. No solution to the immediate emergency can be accepted by you and the guardians of the exchequer unless they also provide something that no one has ever done, or probably will ever do, provide a long term source of capital resources.

But it gets worse, “An economic crisis should be the time for New York to establish a better approach toward funding transit.” Just why is that? Why isn’t an economic boom the time to establish a better approach? You are basically holding a gun to the head of the system by demanding that in the period of greatest financial catastrophe the MTA must do what the great banks and investors couldn’t, end the financial crisis without help from the Federal Government.

Older and Wiser January 30, 2010 - 5:05 pm

Well presented, Niccolo.

Russell Warshay February 1, 2010 - 10:19 am

Two wrongs don’t make a right. Just because the operating budget has subsidized the capital budget, that doesn’t make it right for the capital budget to subsidize the operating budget.

There are reasons why the capital budget became separated from the operating budget in the way that it is today. Historically, the capital budget has been raided to fund the operating budget. Also, this is most likely to happen during an economic downturn. The MTA is in conditions that mirror

Raiding the capital budget for the operating budget is nothing more than pandering to the public, and to the “nickel fare” mentality. It is irresponsible. Low fares are no more of a public good than is clean, safe, reliable, comfortable and widely available mass transit.

Now as far as the “long term source of capital resources,” it is Gene Russianoff who helped to create the current financial scenario. It was he who led the way to the real estate transaction tax. Yes, it does provides more revenue, and that is a good thing. It is also far too unreliable. In 2007 it brought in $1.5 billion. In 2009 it brought in a third of that amount. This is what happens when fiscal policy is implemented from a philosophical, rather than an economic foundation.

Holding onto the real estate transaction tax came with an extra cost. The severe drop in revenue from that source contributed to a heightened public mistrust of government, and to the MTA in particular. Most people simply read about a surplus one year, and a massive deficit the next. Corruption and/or incompetence is assumed. Politocians, like John Liu, are all too happy to hold press conferences to expolit public misperceptions. Greater financial stability will get the MTA greater credibility with the public. It is hard enough to for the MTA to get more public financing without the extra barrier of cynicism that has been created by the real estate transaction tax.

In my view, now is the time to get rid of the real estate transaction tax by replacing it with a better source of revenue. Tolling the East River crossings might be politically viable if the real estate transaction tax was eliminated. If this happened in time for 2009, there would have been another half billion in revenue. Is this the whole solution? No. It is, however, a far more responsible route than raiding the capital budget.

Alon Levy February 1, 2010 - 10:42 am

The payroll tax is a fairly stable source of revenue.

Russell Warshay February 1, 2010 - 11:12 am

It is, but it does come with a price as well. Job creation and retention are reduced. I believe that this externality needs to be part of any public discussion. Given the choice, I’d go with additional payroll taxes, and I’m not a big fan of that option.

Alon, another important issue is one that you repeatedly champion. Waste. The MTA’s waste of money in inefficient operations, as well as the possibility of massive, and unnecessary cost overruns in capital projects, should be part of a long term solution. Reducing waste should also be seen as a source of revenue.

Alon Levy February 1, 2010 - 6:17 pm

Every tax comes with a negative economic impact. Payroll taxes reduce employment, income taxes reduce disposable income, and sales tax reduce consumption.

The waste of money issue is ironically best tackled in times of growth. In operations, I’m convinced the biggest waste is fare collection: it’s inefficient to have people pay a bus driver or have a conductor punch tickets; in both cases, proof of payment is much simpler to handle. However, proof of payment requires some validation method, or a hand-held magnetic card reader, both of which require some capital expenditure.

Capital construction waste is a different matter (it may just be an issue of suing contractors who collude to make joint bids), but it’s a different budget.

Russell Warshay February 1, 2010 - 11:01 am

I only mentioned Gene Russianoff in a negative context. He has been a strong advocate for mass transit, and overall, I believe that we are better off because of him. I did cite him because the post to which I was responding cited his position as worthy of defense. Not only do I disagree with this, but I do call into question the credibility of the analytics and assumptions to which Mr. Russianoff, as well as Ms. Quinn, use to justify raiding the capital fund.

Toward a perpetual funding source :: Second Ave. Sagas | A New York City Subway Blog February 1, 2010 - 12:34 pm

[…] the surface, their proposal doesn’t sound like a bad one, but I’ve had my reservations. Without exhausting the other options first, I don’t support taking money that should be used […]


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