Home MTA Economics Just how bad is all that MTA debt anyway?

Just how bad is all that MTA debt anyway?

by Benjamin Kabak

When state officials in Albany announced a budget deal that saved the MTA’s dollars, not all transit advocates rushed to take the bucks with open hands. Although the money will allow the MTA to secure federal transit dollars while finishing Phase 1 of the Second Ave. Subway and the work at Fulton St., among other projects, the structure of the budgetary grant will also lead to more MTA debt, and as those debt figures climb, many are growing wary.

Transportation Alternatives has taken a lead role in warning about the MTA’s looming debt crisis. For the foreseeable future, the authority will devote a significant amount of resources toward debt payments, and as those payments come out of the agency’s operating budget, riders who shoulder a significant portion of that budget through fares, will be paying for debt. Ostensibly, that’s not a good thing for riders.

“This deal is an express train to more MTA debt, higher MetroCard fares and less subway and bus service,” TransAlt’s Executive Director Paul Steely White said last week. “When it comes to public transit, Albany only knows two plays: paying for it with more debt or robbing riders of hundreds of millions of dollars in dedicated transit funding. Both put the 7.5 million New Yorkers who rely on the bus and subway on the fast track to higher fares and more service cuts. Today’s plan doubles down on the State’s dangerous commitment to funding transit through debt. Governor Cuomo and the State Legislature must invest in transit through secure and sustainable sources of revenue.”

Advocates aren’t the only ones sounding the alarm though. As Streetsblog reported yesterday, Senator Gustavo Rivera from the 33rd District in the Bronx bemoaned the state’s actions as well. In calling for new sources of MTA funding, Rivera let it rip: “The great majority of people in my district rely on mass transit every single day. And when we look at what’s happened in the last couple of years, where the state has at different times raided the MTA and taken hundreds of millions of dollars that is supposedly dedicated transit funding, and instead uses it for all sorts of other things, what this has led to, as we know, is that the MTA has gone into a spiraling hole of debt.”

Now, I’m thrilled to see Rivera embrace transit. His predecessor Pedro Espada, Jr. clearly did not. But at the same time, the incessant focus on debt is obscuring some more serious issues. It’s true that the state has taken $260 million in dedicated transit funding away from the MTA over three years, but it’s also true that $86 million a year is barely 1 percent of the MTA’s overall operating budget. Since the MTA operates on razor thin margins, the impact of the reappropriation is magnified, and it should not be excused. It’s not however the only problem.

Meanwhile, for all the talk of alternative revenue streams — congestion pricing, bridge tolls, residential parking passes — the endgoal will not be a fully funded MTA capital plan. Rather, the end goal is to raise enough money to alleviate the pressures on the MTA’s operating budget while providing the agency with a steady revenue stream against which it can bond out more projects. This is the classic model of government spending. Ideally, the MTA would borrow money today to build a revenue-generating project tomorrow, and it would then pay off the bonds with increased fare revenue. That’s what’s happening along Second Ave.

The problem is that the MTA is spending exorbitant amounts of money on State of Good Repair work that has a negligible impact on ridership and costs far more to complete than it can realize through increase ridership and fare revenue. After decades of deferred maintenance, the authority is playing catch-up, and we the riding public are left saddled with the debt.

We shouldn’t excuse Albany for its failures, and we should applaud Gustavo Rivera for raising his voice. But we must recognize that Albany will not simply hand over $4-$5 billion a year for the MTA to invest in capital projects. One way or another, debt will remain in the picture. How the MTA picks what projects to fund through debt-producing bonds though will determine the future of our subway system.

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Larry Littlefield April 3, 2012 - 9:38 am

The question is, not how to pay for “State of Good Repair” or new infrastructure, but how you pay for ongoing normal replacement. Now that the MTA has borrowed so much ongoing normal replacement may stop.

Basically, that’s what the vast majority of MTA capital spending is: components of the system wear out and are replaced. If the replacement happens after there is already deterioration, they call it “state of good repair,” but otherwise they call it “normal replacement.”

The problem is threefold.

First, this is maintenance, not investment, and never should have been borrowed for. They call it capital spending when they paint.

Second, in some cases stuff has been replaced too soon rather than too late. Because of sloth and corruption at the LIRR the M1 trains only lasted 30 years; the R32s really are worth 50 years.

Third, we get charged too much. Far too much.

Larry Littlefield April 3, 2012 - 9:42 am

One more point: the MTA almost never “played catch up” to get to state of good repair. It simply went aheard at the ongoing normal replacement rate, and the system lived with the deterioration until reinvestment caught up.

The reason the signal system is a real problem is this: prior to the 1970s fiscal crisis New York City Transit had been replacing the signal systems at about a once in 60 year rate. Then it stopped for a decade. Then it resumed at a once in 60 year rate, which later slowed down as the cost of signal replacement soared. Now a large share of the system is more than 75 years old, mostly on the IND.

Ben Fried April 3, 2012 - 10:33 am

The $260 million in Albany raids has nothing to do with agency borrowing or debt. The more relevant facts to mention are numbers like $42 billion (the new MTA bond cap), $2.67 billion (projected annual debt service in 2014), and 23 percent (projected share of MTA operating budget going toward debt service in 2014). As recently as 2004, the MTA was spending less than a billion dollars a year on debt, and I believe if you go back a little farther debt service was less than 10% of the budget.

These are huge changes and it’s all on course to get worse. To answer the question posed in the headline, the MTA debt load is very bad. They are borrowing more and more without securing the revenue to offset it. As Larry says, the system will suffer and so will the riders.

SEAN April 3, 2012 - 11:23 am

To paraphrase Michael Douglas, “Debt is good – debt works.” That is the drumbeet of the state funding the MTA.

Chris April 3, 2012 - 11:30 am

“Ideally, the MTA would borrow money today to build a revenue-generating project tomorrow, and it would then pay off the bonds with increased fare revenue. That’s what’s happening along Second Ave.”

No, that’s not what’s happening. You’d need the SAS Phase 1 to create for the transit system more than 100,000 incremental NEW riders a day for the SAS to pay for its own financing out of increased fare revenue. [Roughly speaking, $1bn debt = $30m annual interest service (at today’s low rates) = generously call it 15m incremental rides annually = about 41k incremental rides daily]. And that’s assuming it costs nothing to actually operate the trains, when actually the fares won’t even cover the costs of operation.

Long story short the SAS won’t be paying down the bonds issued to financing it, nor even covering the interest to roll them over.

Benjamin Kabak April 3, 2012 - 11:32 am

The initial estimates say that Phase 1 will create 250,000 new trips per day. That’s not unrealistic, and it’s certainly in line with your debt payment calculations.

Phillip Roncoroni April 3, 2012 - 11:49 am

250,000 NEW trips per day? So these people aren’t already taking other subway lines or buses in the area and plan on shifting over to the new line to reduce crowding?

How are there current 250,000 trips a day being handled? Walking? Cabs? Cars?

Bolwerk April 3, 2012 - 11:59 am

There could be a significant cost savings by shifting people off buses to subways, though I’m guessing the buses are mostly going to keep running as they are now.

Another possibility: induced ridership on the Lex lines as space frees up.

Either way, 250k new transit rides in the region because of this stub does seem pretty optimistic. It’s not even in a place to substitute car traffic, as if that really happens anyway.

Matthias April 6, 2012 - 12:10 pm

Looking into the future, the SAS will certainly cause the UES to grow. New residents will choose to live near the new line and ride it regularly. 50 years from now, there will absolutely be more than 100,000 new riders per day.

Phillip Roncoroni April 3, 2012 - 12:03 pm

I can understand high ridership predictions by building out to an undeveloped area, but this is second avenue. It’s already developed and densely populated. You main gain ADDITIONAL trips on the line from people with unlimited cards because there’s a new line in the area, but I don’t see anyway you get anywhere close to 250,000, new revenue paying (non-unlimited) rides a day.

Bolwerk April 3, 2012 - 1:12 pm

Yes, I agree. Maybe in the long-term, it makes parts of Second Avenue more liveable and could attract ridership over time. But in the short term, I don’t see an immediate net gain that high.

Eric April 4, 2012 - 9:08 am

By shifting UES riders off the 4/5/6, which is currently over capacity, you allow more people to take the 4/5/6 from places like the Bronx. That’s where most of the capacity increase comes from.

Al D April 4, 2012 - 9:11 am

What you’ll get is a few thousand new riders, and some poaching off the Lex and the M15+SBS+ in SAS Phase 1.

Chris April 3, 2012 - 1:27 pm

Just offhand, the 2003 SDEIS says (for the complete T line):

“Upon completion of the Second Avenue Subway, 4,482,000 new riders annually (or 14,700 on an average weekday) would be expected to use the transit system in 2020, according to the MTA’s Regional Transit Forecasting Model (RTFM), compared with the No Build Alternative. These new riders would be diverted from non-transit modes, which include walk only, auto, taxi, and light truck trips.”

It’s hard to quite understand all the projections but the 15k (or ~30k rides) seems the relevant figure – the actual NEW revenue for the MTA. Any other fares paid at SAS stops would be cannibalized from existing MTA platforms. The reality is that the area the SAS will serve is highly penetrated already by the MTA, and as long as you have free transfers through the system new revenue will be hard to extract.

Alon Levy April 4, 2012 - 12:15 am

The problem is that the MTA loses money even if you ignore debt service. The total cost of day-to-day train and bus operations and maintenance, including normal replacement, is (much) higher than total fare and advertising revenue. So just repudiating the debt isn’t really going to help the political problem caused by the MTA’s reliance on state support.

Larry Littlefield April 4, 2012 - 6:58 am

Let’s leave the bus system aside, since I have proposed having the MTA dump it.

Aside from a few toll roads and bridges, roads are paid for by the general public. So are public buildings, which the stations are the equivalent of.

I believe the subway and commuter railroads could, and should, break even on an “auto-equivalent” basis, by covering the cost of buying, maintaining, and operating the trains and collecting fares.

Alon Levy April 7, 2012 - 5:20 pm

The subway system could also direct all bus fares to the subway, call it a profit, and demand that the public pay for all the buses. That would show profits on an auto-equivalent basis.

If instead you want profits on a subway-equivalent basis, you want to have fares (and advertising, but that’s small change) cover the cost of running and maintaining the trains and buses, maintaining the tracks, operating the stations, and managing the whole system.

Bolwerk April 4, 2012 - 12:27 pm

The only political problem here is patronage. While pols are livid about the costs, they steadfastly refuse to do anything.

I still don’t see the MTA getting by on no state support.


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