Home MTA Economics As economics improve, should the MTA stave off planned fare hikes?

As economics improve, should the MTA stave off planned fare hikes?

by Benjamin Kabak
The MTA's debt problem, in handy chart form.

The MTA’s debt problem, in handy chart form.

The MTA is sitting on top of a substantial debt bomb. By 2017, the amounts owed by the agency to its creditors will reach $39 billion, and while much of this debt comes from capital expenditures, debt service payments — which are expected to reach $3 billion annually by 2018 — burden the operating budget instead. These figures do not account for the MTA’s next capital plan of around $28 billion, a significant portion of which will be funded through the issuance of more debt.

Agency officials are well aware of the debt problem. They know that the MTA’s lending capabilities may soon be maxed out, but a perfect storm of conditions have left the agency with few other choices. With drastically reduced direct contributions from the city and state, the MTA has to bond out maintenance projects that keep the system running or else risk a slide back into the conditions of the malign neglect of the 1970s. These problems aren’t new or a secret.

Debt, though, is boring. It’s complicated and abstract, and few people from riders to consumers of the news truly care about the abstract debt on the books of a state bureaucracy. What they care about instead are the fares and the service. In a utopian world, customers pay less for more service; in the real world, customers are paying more for incremental service upgrades. Sometimes, they pay more just to maintain the current service levels. Fare hikes rile up the angry masses and provoke outrage, some warranted and some not, from politicians. Fare hikes, of course, are tied to debt, but that’s a level of complexity that most people don’t need or want to care about.

Still, certain government bodies should rise above the populist calls against fare hikes. Whenever the MTA’s budgetary conditions improve, as they recently have, anyone with a megaphone yells for fare hike reductions. It may make for happier customers and, perhaps, more riders, but it does not make for sound fiscal policy. Today, from New York State Comptroller Thomas DiNapoli, we have one of those calls.

In a generally positive report issued today [pdf], DiNapoli found that, after years of troubles, the MTA budget looks pretty good. A combination of unexpected financial contributions and aggressive belt-tightening has led the MTA to realize nearly $2 billion in resources. Over the past seven months, the MTA has reduced out-year gaps to a total of $240 million (down from $638 million) and did so through higher tax revenues, lower pension contributions, lower energy costs, lower debt service and lower health insurance costs. Internal restructuring and cuts as well as an attempt to lower paratransit expenditures has contributed as well.

Yet, even while acknowledging the MTA’s debt problems, DiNapoli chose to focus on how fare increases have outpaced inflation over the past decade and how avoiding planned fare hikes in 2015 and 2017 should be a priority. It is a truly populist stance from someone who is supposed to be responsible for maintaining the fiscal integrity of state agencies. “The MTA’s financial outlook is much improved,” DiNapoli said in a statement. “While funding the next capital program and improving services are critically important, reducing the size of planned fare and toll hikes must also be considered. There is plenty of time before the next scheduled fare increase for the MTA to refocus its efforts on reducing waste, which could go a long way toward easing the financial burden on commuters.”

The MTA’s problems stem from a history DiNapoli is in danger of repeating. For decades, politicians kept the subway fares artificially low at five and later ten cents. Only through recent aggressive fare hikes have the historical inflation trends matched the five-cent fare in 1904 to the current fare in 2013. Fares over the last seven years have risen 47 percent with no corresponding inflationary jump.

But the agency finds itself between that proverbial rock and a hard place. The best and most reliable way for the MTA to generate more revenue is through fare increases, and without a more stable funding stream, fare increases will continue. It’s also disingenuous for the state comptroller to complain on one page about skyrocketing debt and on the other call for a moratorium on fare increases.

So straphangers and the MTA are stuck. We’re stuck with fare hikes that won’t step and debt obligations that won’t simply disappear. It would be nice to keep fares at current levels for longer than 24 months, but it wouldn’t be a prudent fiscal decision on behalf of the agency tasked with overseeing our transit system to do so.

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BrooklynBus September 27, 2013 - 12:57 pm

So Ben, what you are basically saying is that you believe you know financing better than the State Comptroller. He says we possibly should reconsider the proposed fare and toll hikes, and you say that continuing the course of raising fares would be best financial decision we could make, regardless of its many impacts across the board such as fewer discretionary trips triggering more possible service cuts.

Boris September 27, 2013 - 1:19 pm

If you think fares should not increase, then you must be really happy with the quality and quantity of MTA services. I think most straphangers will disagree with you, however.

The number of discretionary trips won’t go down if the quality of the service improves. If MTA finances are truly in order, any fare hikes should go towards more and better service, not pay raises, pensions, or debt payments. If people see that they are getting something for their money, they will keep riding. There is any number of badly needed projects that can be sped up using the extra money.

On the other hand, there is still much fat that remains to be cut in the bureaucracy. If we manage to both squeeze better efficiency and increase operating income, we can set the stage for something really transformative (light rail? a new subway line?).

BrooklynBus September 28, 2013 - 9:06 pm

The Controller did not say fares should not increase. He said we should think about it again given changing conditions rather than automatically go ahead with plans decided months ago. There is a difference.

Also, for every quarter the fare rises, more people will walk for shorter trips rather than paying a fare for transit or will reconsider not making a trip at all if it is not that important. Also, the entire fare structure needs to be reconsidered such as switching to a time-based system, not merely raising fares and tolls every two years.

Bolwerk September 27, 2013 - 4:12 pm

It doesn’t take a lot of knowledge of financing to know the MTA has a real problem with its finances.

So how many fewer discretionary trips would be triggered? I would think people who take those often would usually have unlimiteds, which the MTA should be pushing people toward anyway.

Larry Littlefield September 27, 2013 - 1:08 pm

It isn’t that Ben knows better. It is that Ben is not a sleazebag. DiNapoli knows damn well.

As a state legislature DiNapoli voted to defund the MTA and increase the pensions of MTA workers, both decisions that led to rising debt and a fiscal crisis. He was put in to that job by Sheldon Silver to keep the lies about the past going, and that is just what he is doing.

Nathanael September 28, 2013 - 2:51 am

DiNapoli is a bad Comptroller. The job of the Comptroller is to fight with the Governor and Legislature, basically — and instead he’s carrying water for them.

The MTA “funding problem” is largely down to the legislature. DiNapoli does not want to admit this.

Larry Littlefield September 28, 2013 - 7:01 am

“The MTA “funding problem” is largely down to the legislature. DiNapoli does not want to admit this.”

Because he is one of them. So is the new City Comptroller. Most people pay no attention to that office, but the hacks know they need to control it.

Rahul September 27, 2013 - 2:21 pm

The comptroller is using 2007 as a baseline. If you use 2003, hikes are right at inflation. If you use the introduction of the metro card, they are less. So baselines are impotent and 2007 is a questionable one. And why are these questions of how much the fare costs never connect with the expenses of the MTA? The percent of costs paid by fares and tolls has gone up only slightly since 2007. This should be part of any discussion.

Finally, the debt outstanding figure there does not include debt for the 2015-19 plan. Debt outstanding is extremely unlikely to go down as projected in the chart above (and in the Comptrollers report) and debt servicing costs, as a result, are extremely likely to continue to go up. This matters when thinking about why set fare hikes are likely to continue.

Nice post, Ben.

JJJJ September 27, 2013 - 2:38 pm

You have it all backwards.

Fares were not kept “artificially low” for decades.

The problem was outside funding was and still is being kept artificially low.

Mexico city runs a cleaner and more frequent subway system that NYC. They just opened a very long new line (line 13).

Their fare is about 20 US cents.

Boris September 27, 2013 - 10:36 pm

70% of transit operations is the cost of labor, and I’m sure the Mexico subway pays its workers much much less than we pay ours. But in any case, what I learned in college economics is that a government monopoly should price it’s services as if it’s a small firm in perfect competition – in other words, a fair price. So both sides are right – our fare should of course be much higher than Mexico’s, but government funding should be higher as well to match what is our understanding of a first-world subway system.

Alon Levy September 27, 2013 - 11:33 pm

The average fare in Tokyo is the same as in New York. It’s enough to make the system profitable.

The average fares in Hong Kong, Singapore, Paris, Milan, Naples, Rome, most German cities, and Madrid are lower than in New York.

Nathanael September 28, 2013 - 2:55 am

Mexico City has One Person Train Operation, if I am not mistaken.

New York has a featherbedding problem.

Jerrold September 27, 2013 - 3:46 pm

…….and later ten cents?

The nickel fare lasted 44 years (1904-1948).
The dime fare lasted only five years (1948-1953).

Is it possible that the SECOND period of “artificially” frozen fares that you had in mind was the fifteen-cent fare (1953-1966)?

Theorem Ox September 29, 2013 - 9:28 pm

As a lifelong New York City resident, I believe that New York City is floating strong (for now)… but only because it is heavily buoyed by the successes of its past legacy. The MTA’s predecessors have played a significant role in that success. That buoyancy has proven to be able to withstand more damage (literally and figuratively) than many other American cities can cope with.

However, I’m more afraid of the city (and our country) reaching its breaking point through tragedy of the commons in one sense and gross negligence in another sense than acts of terrorism per se.

In light of the bad economy and rising inequalities, the MTA should be ever mindful of its expenses and the public who utilize their services. The standard procedure of applying antibiotics (raising fares and cut service) work until one day it doesn’t (the weak have been culled out and resistant strains has set in).

Being a rank-and-file worker myself, workers and retirees should collectively curb some of that unchecked greed and the resultant abuse. A lot of workers and retirees have thrown rocks at the glasshouse ceiling (overtime abuse, false disability claims, unwarranted work slowdowns) hoping to get more fresh air (extra pay, pension inflation) at good times and now, the MTA can’t repair the glass fast enough ahead of a “superstorm”

Why should everyone give a damn and go against supposedly “rational” instincts? Because at this point, the vast majority of the working people (myself included) are seeing our take-home income shrinking in a time of (Fed & government-induced) runaway inflation. Keep pissing at your customers/supporters and it’ll reach a point where everybody will lose everything. We’re much closer to this than we might realize.

Nathanael September 30, 2013 - 12:23 pm

We actually don’t have inflation. If you look at a competitive market, you’ll find that prices are dropping.

What we have is:
(1) wages and salaries for the 99% dropping, while the 0.01% walk off with billions
(2) taxes being increased on the 99% so that taxes can be cut on the 0.01%
(3) monopolies price-gouging on stuff like cellphones, internet access, etc., *because they can*
(4) the price of oil inexorably going up because we’re running out

These are all terrible, terrible things, and they’re going to lead to disaster. But they aren’t inflation.

Bolwerk September 30, 2013 - 1:02 pm

#3 and #4 are. Too bad we don’t have more of it.

Theorem Ox October 2, 2013 - 12:22 am

“We actually don’t have inflation. If you look at a competitive market, you’ll find that prices are dropping.”

Nathanael, I would recommend that you avoid conflating wishful thinking with reality, however unpleasant the latter is.

I get the impression you are doing just that as the four points you raise below seem to suggest you have some grounding in reality. I’ve also heard from people smarter than I am (with minimal conflict of interests) that would agree with you by saying that deflation is the logical progression from the current situation.

But tell me, do you actually see that in your everyday life? Do you actually see “a continual decrease in the price of goods and services”?

I don’t know what you do or how you live, but I can confidently tell you that the only group of people who can legitimately answer “Yes” to those questions are those who can print or mint their own money with impunity for a living. And that’s a very small minority of the U.S. population.

Pay more attention to the actual prices of goods and services around you (many have been holding sales and promotions virtually indefinitely which can mask the actual pricing, but nothing is forever). Compare to the prices as recently as two or three years ago. Ask somebody else who have been paying attention to prices then if you don’t know personally.

Chris September 30, 2013 - 10:28 am

NYC Transit fares are still dirt cheap by Canadian standards. I don’t see why they should be frozen. Up here standard single cash fare is usually $3 or $3.25

Nathanael September 30, 2013 - 12:24 pm

The reason why people campaign to have low fares in the US is because here in the US most people don’t get paid enough.

In Canada most people get paid a living wage, so they don’t sweat the small stuff like the price of train tickets.

Bolwerk September 30, 2013 - 12:58 pm

From my meh understanding of Canada, the middle class was traditionally stronger but the poverty that existed was traditionally more grinding because of higher prices. Canada had a pretty old skool conservative economic regime that encouraged/preserved middle class domination in trade. For instance, you needed a business license to shop at a wholesaler, at least in Ontario, and a wholesaler couldn’t do retail.

You were still fucked if you were unlucky enough to be in poverty, maybe fucked worse. And, of course, thanks to neo-con liberalization policies of their prime minister George W. BushStephen Harper compounding already years of social service budget axing, the poverty is going up and the middle class is eroding.

Welp, they still claim to be doing better than us.

Alon Levy September 30, 2013 - 8:29 pm

No. The median wages in Canada are actually lower than in the US. The minimum wage is higher (it’s 10 bucks an hour here), but proportionately transit fares are about the same as in New York. The only place in Canada that’s richer than the US is the Emirate* of Alberta.

*Emirate describes both the province’s main source of income and the province’s social attitudes.

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