Home MTA Economics Paying tomorrow for a hamburger today

Paying tomorrow for a hamburger today

by Benjamin Kabak

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.

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pete July 14, 2010 - 1:10 pm

Fire all TWU workers and replace them with Veolia Transportation or a competitor. Replace lump sum subsidy with a per ride subsidy. Maybe the words “profit” and “loss” will come into existence at the MTA then. 100K per year for high school education is criminal.

Alon Levy July 14, 2010 - 5:05 pm

Veolia is the operator that killed more than 30 people in LA because one of their T/Os texted on the job. Under Veolia’s control, Metrolink became possibly the only railroad in the first world with a higher death toll per passenger-km than cars.

nycpat July 14, 2010 - 2:03 pm

TWU represents hourly workers at NYCT. There might be a dozen or so who make over 100k, (track welders? Workaholic Work Train T/Os?), but almost all would be capped before making that much. They are simplt not assigned overtime at a certain point.
That list that was put out with the high earners had no TWU members in the top couple of hundreds. Managers, supervisors, LIRR, TBTA, MNRR, MTA headquarters are not TWU workers.
So you fire all TWU workers, the people who replace them won’t organize eventually? Also not all TWU workers are pussies and peons. There might be a few problems implementing your scheme.

Justin Samuels July 17, 2010 - 6:57 pm

All states, including NY, are majorly dependent upon selling bonds in order to have money for various projects and expenses. This isn’t limited to NY or the MTA. Our federal government itself has a high deficiet, as it also sells a lot of bonds to cover federal expenses. Basically, the feds and municipal governments cut taxes while not cutting government spending. So they began to rely on debt. Of course, the debt has to be paid, so eventually taxes go up, maybe even considerable, or in the case of the MTA, fees.

Larry Littlefield July 19, 2010 - 9:19 am

“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.”

Wrong example, because you only have to build the SAS once and it provides ongoing benefits. That is an appropriate use of debt.

The problem is, 15 years from now we will be still paying for maintenance of the existing system in the 1990s. And an equal amount of additional maintenance will need to be done to keep the solution from collapsing.

Regular replacement of equipment that wears out, such as subway cars, buses and signal systems, is mainentance. Painting and repairing tiles, ceilings and cement is maintenance. These things need to be done every year. But they have been borrowed against for up to 50 years.

There are only two choices. Default on the debts or end maintenance and let the system collapse. It all comes down to the generation that has done this, and much else like it. Generation Greed.


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