The MTA has a very difficult relationship with New York State and its elected representatives. On the one hand, the MTA is an authority established to operate outside of the realm of politics in order to better run the city’s transit network. On the other, the MTA is heavily dependent upon the state for both operating and capital aid, and the state has political control and oversight of the public authority. When the two sides clash — as they often have lately — MTA officials must tiptoe around sensitive issues while asserting their needs for better political and economic support.
Yesterday, this conflict started to come to a head as the MTA revealed that state payroll and real estate tax estimates are again looking to be off by approximately $72 million. Michael Grynbaum has the details:
On Monday, the authority said that those revenues were coming in even worse: $41.5 million below even the most pessimistic projection.
Transit officials said that the numbers were fluctuating from day to day, and so they did not want to make hard-and-fast revisions to their budget numbers yet.
Unfortunately, they seemed at a loss to explain the trends. “We don’t know,” said Robert Foran, the authority’s newly appointed chief financial officer, when asked why the numbers were so low. “It’s a brand-new tax,” he added. “We’re looking into it.”
This isn’t the first time this year that state accounting officials have delivered bad financial news to the MTA. In January, state tax revenues were believed to be $104 million less than expected. This time, the MTA is starting to question the state’s ability to calculate tax projections, and authority officials say they are going to take matters into their own hands.
Robert Foran, the MTA’s new CFO, said his office would begin to conduct its own tax projections. “There’s been some talk that we shouldn’t just take numbers from the state and blindly accept them,” he said today. “We should vet them. But would we rely solely on our own projections? I don’t know either.”
For the MTA today, this promise of a check on the state power is bittersweet. The MTA should be conducting its own projections going forward, but the MTA should also be able to rely on the state to provide an accurate accounting of potential revenues. The state, according to Andrew Grossman of The Wall Street Journal, claimed that “the economic downturn has made estimating tax receipts harder.” That’s some excuse.
If these numbers wind up being accurate, the MTA will be out $41.5 million in payroll tax revenues and $30.5 million in real estate tax revenues. The authority’s budget gap will just to $450 million, and the looming threat of a big fare increase will remain despite the MTA’s promise to avoid a fare hike at any cost.
In other MTA financial news, State Comptroller Thomas DiNapoli — who yesterday announced an impending election year forensic audit of the MTA — issued a report last week straight from the desk of Captain Obvious. If the MTA does not find a way to close what was on Friday a $378 million budget gap, the agency may have to raise fares beyond the allotted 7.5 percent next year. No kidding.
DiNapoli found that MTA spending far outpaced both revenue and inflation and that debt service payments are largely to blame for the increased spending. He urged the MTA to be mindful of the need to keep public transit relatively cheap and reliable in New York City. “The MTA has to squeeze out every penny of wasteful spending,” DiNapoli said. “Mass transit has to be affordable for working New Yorkers. The MTA should focus on eliminating waste rather than cutting services and raising fares. My office has found administrative redundancies and outside contracts where savings can be achieved. Chairman Walder has made some progress, but so much more needs to be done.”
And so the MTA is left, once again, in the untenable position of having to bite the hand that feeds it. The fiscal morass is growing deeper each day, and the state, already dysfunctional, is making matters worse. Who will bend? What will break?
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How about having the State and City Hall assume direct responsibility for funding the MTA’s debt payments? It was their unwillingness to fund the MTA’s Capital Construction plans in the 90’s and early 00’s is what got the MTA into this mess to begin with. Bruno, Pataki, Guiliani and Silver have stuck the MTA with a tab everyone knew it could never afford. They believed that real estate would always just keep going up, up, up. It’s as bad as the Wall Street firms giving sub-prime adjustable rate mortgages to people they knew wouldn’t be able to pay it off, yet turning around and giving the bundle of crappy mortgages a “AAA” rating.
If the MTA itself didn’t have to take the money for debt payments out of their operating budget, they’d be fine. I think the MTA has made some serious strides to dig itself out of this hole. Sure they could do more, but most of what there is to fix is only a drop in the bucket compared to the larger problems caused by Albany and City Hall. Without the city and the state stepping up to the plate, we’re faced with the options of less service, aging infrastructure, no expansion or a combination thereof.
Why would the State Legislature fund the MTA’s debt after they stole $118 million of the MTA’s “dedicated” funding?
“Who will bend? What will break?”
In my mind, the answer to this will be the big-ticket capital projects. We all know the ones. They may be needed to keep the agency afloat ten years from now, but right now, even with the tremendous financial help from the federal government, it’s still a huge expense, one which does nothing to keep the Authority running in the sort term.
Sure, we could reassign ownership of the agency, rework city and state budgets and taxes, and reorganize management. Or we could take the politically expedient route and can the projects. If I were a betting man, I’d say the powers-that-be will choose the latter.
The way these projects have been funded, even if they canned the projects, they couldn’t use the money to cover their operational budget issues. The SAS is paid for with a large amount of Federal matching grants. The MTA’s portion is paid for with capital construction bonds. Neither of which can be used for operational budget issues. It’s against the law for the MTA to use capital bond money to cover operational short falls. Any change to that law would have to be made in Albany. If the MTA pulls it’s portion of the money, then they lose federal matching funds, which compounds the problem. Without the new revenue to be generated by the SAS and ESA the MTA will continue to have problems covering debts.
Up to 10% of the stimulus funds could be used for operational budget shortfalls, but that’s only like $50 million or so in a $700 million plus shortfall.
In addition, if they canned these projects, thousands of construction workers would be out of jobs, doing further damage to the region’s economy and further straining the MTA’s revenue base. The court costs from the contractor lawsuits would also be enormous. Think the public opinion of the MTA is bad now, imagine if they failed to deliver these projects after all the money spent and hassle caused for residents?
The solution is for the state to institute a tax on derivative trading and other Wall St. activities. The financial sector, being located on the southern tip of Manhattan is incredibly dependent on the subway system and stands to benefit from these expansion projects. If the Albany had just instituted steady tax revenue streams back in the mid-90’s that would have covered the MTA’s capital program, there wouldn’t be any debt payments, which means that that 20% of the operational budget would be available for covering this gap.
This another symptom of the illness and not the illness itself. The entire organizational structure of the MTA needs to be rethought. At the top level, having the agency report into Albany, although to whom exactly nobody seems to really know, is not working. On the agency side, Walder may finally be looking at some sensible options, such as MNR and LIRR sharing infrastruture and thus saving money. Walder seems that kind of manager and personality where sheer force of will will move this bureaucracy forward at last. And that is what’s needed. I hope that the new governor keeps Walder.
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“My office has found administrative redundancies and outside contracts where savings can be achieved.”
I have no doubt he’s referring, in part, to the portion of the MTA that I work with. That sounds good, but keeping transit affordable for a whole bunch of people who don’t have jobs (my office!) isn’t really helpful, now is it?
Sounds like *somebody* is keeping two sets of books. (Hint: not the MTA).
Aw shucks, you beat me to it.
“Mass transit has to be affordable for working New Yorkers.”
Well, yeah, that’s a nice idea, but as we’re finding out, sometimes good intentions conflict with economic reality. As long as we continue to treat transit like social welfare rather than a business, we’re going to see the same pressure we see on all other forms of social welfare when times are tough: endless political battles for funding and persistent refusal of anyone to take responsibility for any problems, served up with lots of corrupt nibbling around the edges.