When it comes to problems plaguing the MTA, billions of dollars of debt isn’t exactly a sexy topic. On the surface, it doesn’t impact people’s lives as service cuts do, and it has little to do with the public mistrust of MTA management. Yet, whether riders realize it or not, the price we pay today in fare hikes and service cuts all comes back to debt.
Recently, as part of Albany’s inspired public authorities oversight law — one of the few pieces of worthwhile legislation to emerge from the state legislature in a while — the state’s new Authorities Budget Office released a report on New York’s public authorities. The report (available here as a PDF) doesn’t make too many sweeping statements or offer up any broad conclusions. Some authorities are more accountable than others, and some are more transparent than others. Not too surprisingly to anyone who has been following along, the MTA appears to fall on the “more” side of that divide.
What the report does offer is a glimpse of the crushing debt that New York State authorities have taken on. Since these authorities are outside the realm of any constitutionally-mandated debt limits, these entities can just accrue loans as long as they have the collateral to do so. For the MTA, that collateral has come in the form of fare revenue and valuation on other physical holdings. As long as people keep riding, the MTA can continue to take out loans.
For 2009, then, the totals are stunning. New York State authorities reported $133 billion in outstanding debt last year, and $28.8 billion of that — or 21.59 percent of the total — belongs to the MTA. Only the Dormitory Authority of the State of New York has more outstanding debt.
Meanwhile, the future picture looks worse. Recently, the state granted the MTA the ability to borrow more money, and the authority will have to do so to continue its ambitious capital project. Bond issues for multi-billion-dollar projects are underway, and the debt level will just continue to climb.
As the MTA accrues debt, outstanding obligations are coming due. In 2009, the MTA had to pay out $1.9 billion in debt service. That total was the third highest expense category in the MTA’s budget, outpaced only by payroll and non-labor spending. That total is set to rise over the next few years unless the MTA again restructures its debt.
So why does all of this matter? Debt service, debt obligations, they’re all just boring economics terms, right? Wrong. The MTA’s debt matters because we’re paying today for things built years ago, and we’re paying through reduced service, higher fares that will continue to increase and strained labor relations. Since the debt on capital expenditures is carried over to the operations budgets, the debt bills are coming due, and that’s bad news for everyone.
A few months ago, the MTA had a deficit of $800 million that needed closing. That total is less than half of the MTA’s debt service obligations for the year, and without that debt, the authority wouldn’t be facing extreme service cuts and a significant fare hike across the board. Twenty years ago, when the state had to find a way to maintain its transit system, the powers-that-be decided that fare-backed bonds were the way to go, and now, we in 2010 are paying for something built in the early 1990s. Had Albany properly funded the capital plan then, as it used to in the 1980s, we wouldn’t be suffering through service cuts and budget crises today.
Despite this from the ABO, there is no end in sight. The authority is still planning on funding its capital projects through debt-generating sources, and the state hasn’t expressed any willingness to help the debt-ridden authorities pare back their spending ways. In 15 years from now, we’ll still be paying for Phase 1 of the Second Ave. Subway, and that is no way to run a transit authority.