Over the weekend, as part of their campaign to convince the MTA to use stimulus dollars as a quick fix for most of its budget gap, James Vacca, Christine Quinn and Gene Russianoff penned a Daily News op-ed putting forth their plan. By now, we know the argument: It is legally permissible for the MTA to use 10 percent of its stimulus dollars for operating costs. That contribution of around $120 million plus the $50 million in operating expenses reserved for pay-as-you-go capital needs would be enough to take the service cuts off the table while the city and state should work out a funding plan for the Student MetroCard program.
On 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 for capital resources or the PAYGO fund to cover operating deficits. Furthermore, having spent some time examining Transit’s service cuts proposals, I believe many of these cuts should stay as is. It simply doesn’t make sense for the MTA to run bus services that cost $12-$25 per passenger and service just 1100 riders per week as Staten Island’s S60 bus does.
In the end — at the 11th hour when no better solution is on the table — I would be willing to support this so-called Russianoff Plan, but for now, I want to see New York try to find that better solution. Today at The Transport Politic, Yonah Freemark tackles a similar subject. He explores how transit riders are no longer surprised by Doomsday cuts and questions the way American municipalities fund transit operations. He writes:
If there is no obvious way to avoid these reductions now, governments at all levels of the federal system should learn from this recession in order to prepare for the next one. In most other countries, despite economic downturns similar to the one being experienced by the United States, transit services have not been cut back at all. One explanation, of course, is a more stable source of revenues than the sales tax relied upon by most American transit systems to fund system operations and capital programs. Similarly, other countries have stronger social support networks, ensuring that when they experience recessions, they’re less likely to see tax revenues drop to a degree seen in the U.S. Finally, most other developed countries don’t immediately turn to inefficient, ineffective tax cuts to solve economic problems.
In other words, the declining state of American transit operations today is more a reflection of a general lack of political will to maintain public service stability. If it is disappointing to watch agencies reduce services dramatically now, it is downright depressing to note that nothing is being done to ensure that a similar situation won’t occur again.
Early last year when the MTA was facing another budget crisis, Freemark explored the state of MTA financing. Two aspects of our transit agency — very high payroll costs and an over-reliance on taxes that fluctuate with the economy — left the MTA high and dry. Paris, for example, relied upon some robust payroll taxes and heavy local subsidies along with a reduced payroll to avoid these economic problems while maintaining control of its fixed costs. New York now has that payroll tax, but it’s such a small part of the MTA’s overall budget that it can’t act as a countervailing measure to a bad real estate and sales economy.
Right now, the MTA’s funding problems are those of a lack of political will. Albany and City Hall have left the MTA with fewer subsidies than ever before, and payroll obligations are starting to spiral out of control. Before the MTA moves stimulus funds to cover operating deficits — a move that may bring the MTA to break-even this year but will leave them with the same problems next — the major players must try to contain these costs and find a more stable annual revenue source. The city and the MTA can’t keep playing this same economic game year in and year out.
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My main issue with the Russianoff plan is that it flows from a false, or at least overly rosy assumption. Russianoff believes that using stimulus funds now would give Jay Walder the year he needs to get the MTA’s financial house in order. In theory, by that time the MTA would be running efficiently, and better sources of government funding would be secured. The Doomsday Cuts would never happen, and starting in 2011 we would have a fully funded capital program.
If you actually his assumptions, then Russianoff’s plan makes sense. Many riders will be harmed by the cuts, and it is difficult to restore a service once it has been eliminated. As he sees it, the problem is merely getting through the one-year transition from the current fiscal emergency to a new world where Everything Is Right.
The trouble is, you’d have to be living in fantasy to believe that. The state and city governments have been under-funding transit for years. How could anyone actually suggest with a straight face that, in a matter of one year, suddenly all of these problems will go away?
No, all the Russianoff plan will do is divert much-needed capital spending, and a year from now transit will remain under-funded.
Marc Shepherd says:
February 1, 2010 at 1:00 pm “My main issue with the Russianoff plan is that it flows from a false, or at least overly rosy assumption.”
Absent such rosy assumptions, what incentive exactly is there for the MTA to EVER get its cost structure under control? If the perpetual reward is that you get underfunded annualy at ever lower service levels, Walder is wasting his time in cost containmet efforts. Better he should focus on maintaining service at all costs.
Just a note on payroll taxes as a dependable source of funding: a payroll tax is still subject to economic downturns as businesses lay off workers and reduce their payrolls (at least in the U.S.). Paris is a different case because firings and layoffs are very heavily regulated and difficult to achieve in France, so a transit-dedicated payroll tax is probably a more stable revenue stream in France than it would be here.
That isn’t to say that a payroll tax, or some other business-based revenue stream isn’t justifiable, as these businesses receive economic benefits from a well-functioning transit system. Ideally, public transit would be funded proportionately by those who benefit from it: riders, businesses, motorists, property owners, etc. Unfortunately, there is little hope that a fair and sensible funding structure would ever be considered by a legislature that understands little of the value of public transit and even less of economics.
If the MTA replaces its most unstable tax funding sources with ones that are more stable, and nothing else is done, they will have mitigated, but not eliminated, the problem of budget shortfalls during economic downturns.
As I see it, there are two things that can solve their problem, and I don’t believe that either are politically feasible.
One would be a Keynesian mechanism, funded at the federal level, that would kick in every time that there is a downturn to fill the budget gap. While I could see this implemented, I don’t believe that it would a safe measure. Such a mechanism would probably be perceived as rewarding financially irresponsible entities. That perception, which I imagine would have some element of truth, would make the long term viability tenuous.
The other thing that I’m thinking about is a rainy day fund. I don’t believe that this would work either. Fare hikes, which ideally would happen in good times, would be far more difficult to implement when the size of the rainy day fund is reported in the press. Another problem is union negotiations. The unions will look at the rainy day fund as their booty. When the rainy day fund is actually needed, I doubt that much will be available.
In addition to new or better funding sources, greater operational efficiency will free up funds. The greatest savings, of course, would come from improved work rules, such as the eventual elimination of conductors. There is an additional benefit to getting such improvements. If the public sees the MTA spending money efficiently, there will be greater public support for new dedicated revenue sources.
Along the lines of greater operational efficiency, a deep dive into capital expenditures could yield enormous potential savings.
The MTA probably just needs to smooth out their revenue sources as much as possible, and simply deal with each downturn as they happen.
The MTA probably just needs to smooth out their revenue sources as much as possible, and simply deal with each downturn as they happen.
So I generally agree with your entire comment, Russell, but I think we need to examine an assumption underlying this suggestion. Doesn’t that assume that the MTA is purely private company supplying a luxury good? In reality, the MTA is a public benefit corporation that’s supposed to be supplying a badly-needed public good. To a certain level, we can and should ask the MTA to streamline their revenue sources and eliminate waste and redundant spending. But on the other hand, the political bodies ultimately responsible for establishing this PBC and overseeing something as basic as transportation have to come through with the money.
“Doesn’t that assume that the MTA is purely private company supplying a luxury good?”
Well, my sentence that you quoted has more to do with my political assumptions. I don’t believe that providing a rock steady revenue stream is politically viable.
“In reality, the MTA is a public benefit corporation that’s supposed to be supplying a badly-needed public good.”
I would characterize the MTA as a quasi-public agency supplying a vital good from a naturally occurring monopoly (on the rail side.) I’m hesitant to call it a public good, but it is closer to being that than a private good. Politically, making such economic distinctions between mass transit and automobiles strikes me as too nuanced for the general public. Treating mass transit as a pure public good opens up a can of worms.
“To a certain level, we can and should ask the MTA to … eliminate waste and redundant spending.”
I’m not sure what limitation you’re implying here, if any, but I believe that until service (quality and quantity) is reduced, with the possible exception of reducing wages (but not benefits) of needed labor, cut away!
“But on the other hand, the political bodies ultimately responsible for establishing this PBC and overseeing something as basic as transportation have to come through with the money.”
That’s easier said than done. The parent entities don’t acknowledge such a responsibility. Its especially difficult to get the money when the money isn’t there. The MTA might need to be restructured so that accountability is not so divorced from responsibility.
Why the assumption that the MTA is underfunded? That is taken as incontrovertible truth on this site, and I don’t get it. If an organization is always, always wrong about its budget projections, why assume that it is underfunded? Why should we ever trust the MTA’s own budget estimates? If it had to make do with less money than it demanded, then maybe it would finally begin to operate efficiently. Seeing the SAS debacle up close has been eye-opening. The MTA has never once presented an honest assessment of how much this project would cost or how long it would take. It started digging holes knowing that the thing couldn’t be done for less than 7B and in less than 10-12 years. How do we, or better yet, why should we, fund an entity that is so callously indifferent to the public?
Diverting capital funds to the operating budget reduces the funds available for capital expenses. (The capital budget is in no better shape than the operating budget.)
Perhaps that’s a good idea – but Russianoff and friends haven’t addressed what should happen on the capital side to address the shortfall there.
Of course, some of the proposed “cuts” could be better described as streamlinings – making more efficient use of the infrastructure. Saving money isn’t necessarily a bad thing if most riders aren’t unduly hurt (and especially if some riders benefit). Perhaps those should be implemented regardless of the funding situation.
And as others have pointed out, this isn’t a temporary, one-time problem. Our elected officials and rider advocates should be working hard to identify a permanent solution to the transportation funding problem rather than relying on quick fixes that push off the problem to next year. Perhaps it would also help if they were willing to work with the MTA rather than portray the MTA as the villain.
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Are payroll expenses spiraling out of control or pension expenses? It depends on the subsidiary. LIRR workers may be overpaid, but NYCT workers are not — just over pensioned.
In any event, the Obama Administration will propose that “Build America” bonds be allowed to be used for operating costs. Not only will the federal government borrow billions and have it diverted from investment, but the MTA could do so itself.
Quinn has no kids, Russinaoff will be gone from the city when the 1970s return. What do they care about the future? It is based on 30 years of similar decisions that Doomsday is arriving.