Home MTA Economics An obvious point from DiNapoli but one that bears repeating

An obvious point from DiNapoli but one that bears repeating

by Benjamin Kabak

When I read New York State Comptroller Thomas DiNapoli’s release about his latest report on the MTA, I rolled my eyes a bit. DiNapoli, picking up on the MTA’s $15 billion capital funding gap, noted that while the MTA’s finances are better, the riders could wind up shouldering a huge portion of the next five-year plan, and the Comptroller said, riders shouldn’t be expected to pay for everything.

We could debate for hours whether or not that last statement is true, but DiNapoli’s point isn’t a new one. “The MTA is in better financial condition thanks to its own efforts and a stronger economy,” DiNapoli said yet again. “Over the coming months, the MTA will have to work closely with its funding partners to close the $15 billion gap in its capital program. Additional borrowing could increase pressure on fares and tolls, and while the MTA should look for opportunities for savings, deep cuts could affect the future reliability of the transit system and jeopardize expansion projects.”

Overall, DiNapoli’s report regurgitates MTA talking points. He notes that subway ridership has hit highs not seen since the late 1940s and that the MTA’s debt burden will continue to increase for the foreseeable future. He highlighted the new labor deals, unfunded pension obligations and steep fare hikes. It’s basically a summary of the last six months’ worth of news. (You can read it here as a PDF if you need a primer.)

Despite the mundane nature of DiNapoli’s report, one part is worth a deeper dive. His report “cautions that every $1 billion borrowed would increase debt service by an amount comparable to a 1 percent increase in fares and tolls.” Thus, if the MTA needs to borrow that $15 billion to cover its capital funding costs, it could do so simply by raising fares by an additional 15 percent. That’s a big fare hike. The MTA’s current plan for 2015 — once it gets released some time after Gov. Cuomo’s upcoming Election Day — calls for only a 4 percent hike, down from an originally planned 8 percent.

So while it’s easy to dismiss DiNapoli’s report for being nothing more than a news aggregator, the point he makes about the fares is a political chit for the MTA. If no one steps up with a different funding scheme and the MTA is serious about this $30 billion plan, the riders will be footing the bill for a substantial portion of it. Maybe that’s OK; maybe the people who use the system should pay for more of it. But now we know it’s a choice that Albany will make willingly. Is it the right one? I don’t think so.

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26 comments

lop October 22, 2014 - 12:09 am

1% increase in fares for five years to pay for the five year capital plan? Or for thirty years of debt service on the five year capital plan?

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Adimitri October 22, 2014 - 12:42 am

The way it reads in the report, it seems to suggest that it would be the annual debt service for the lifetime of the bonds that are issued.

OSC estimates that each $1 billion borrowed would increase debt service by about $70 million annually, which is comparable to a 1 percent increase in fares and tolls.

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johndmuller October 22, 2014 - 8:37 pm

I am taking this to mean, in even plainer speech:

For every $1 billion in borrowing we pay $70 million per year in interest.

That does not include ANY repayment of the #1 billion; the bonds would likely have to be rolled over ad infinitum when they came due at the then prevailing interest rates.

Not being very compulsive on the math, but if the fare increase were 2% per billion instead of 1%, the money should be fully repaid in 10-15 years. It would obviously be a much larger spike, but there wouldn’t be such an ongoing forever-continuing pile-up of debt and there would be at least a glimmer for the future.

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JAzumah October 22, 2014 - 12:51 am

I would support a 20% fare increase to get this stuff done. The MTA could retroactively apply for FTA funds and pass the savings along in increased and higher quality service. This is probably the last capital plan that the MTA can borrow any real money. Some of the banks they depend on won’t be in the shape to lend next time around.

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lop October 22, 2014 - 12:57 am

So raise fares 15% to pay for the five year plan over the next twenty years? Then on top of that and the 4-8% hikes every two years for operations add a 60% hike to pay for the next plan with cash?

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Larry Littlefield October 22, 2014 - 7:48 am

No, there would have to be a 15% pay hike in excess of inflation for each five year plan to pay the debts from continued borrowing. Plus the fare hikes to pay for employee raises and benefits, which also increase by more than inflation.

The same will be said for toll or tax increases to pay for the plan. They will be ongoing to infinity as long as they are just enough to service five years worth of bonds.

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JAzumah October 22, 2014 - 1:57 pm

Parts of this system are over 100 years old. Most of the subway’s shops and yards are not in a good state of repair. This system is not going to last forever. Either you pay to keep it or we start to lose the functionality of the system.

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Alon Levy October 22, 2014 - 1:42 am

Is DiNapoli asking why the MTA wants $2.5 billion for SAS Phase 2 but doesn’t tell people how much the project is going to cost in total? Or does he leave that to people on social media?

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Larry Littlefield October 22, 2014 - 7:45 am

Comptroller DiNapoli continues to “fight for the people” by being opposition to the future that State Senator DiNapoli repeatedly voted to create.

Without making the link between the situation we are in and what his generation, through his generation of politicians, has done — which is why he was put there by his crowd.

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JJJJ October 22, 2014 - 10:10 am

Can someone explain this to me?

Subways are supposed to be the most cost efficient form of transportation (after your initial construction costs of course). You can carry 1,000 people with 1 driver, and the electric costs are minimal. Also, your vehicle lasts 50 years.

Compare that to a bus, where you have one driver for every 60 people, and highly variable gas/cng costs. You must replace the vehicle every 15 years.

So why is it that NYC, running what should be the most cost-efficient system in the country, has the highest fares…and keeps demanding they go up? No other system has trains that are as full. No other system is distributing costs among so many people.

And yet no other system feels the need to charge nearly as much.

I just dont get it.

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Larry Littlefield October 22, 2014 - 10:34 am

“So why is it that NYC, running what should be the most cost-efficient system in the country, has the highest fares…and keeps demanding they go up?”

It has the highest paid transit workers. In retirement benefits, no cash wages. In the suburbs more than the city. And among the capital contractors rather than the employees.

The low subsidy of the subway cross subsidizes high subsidies for everything else.

And it is a big system. Thus a small subsidy per ride still amounts to a whole lot of money, compared with other places where transit is very limited relative to the number of (driving) taxpayers.

For all the details, read this and follow the subsequent posts at the very bottom.

http://larrylittlefield.wordpr.....-for-2012/

Rather than just have me explain it to you, why not download the spreadsheet, look at the tables, and make up your own mind?

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JJJJ October 22, 2014 - 11:31 am

“It has the highest paid transit workers. In retirement benefits, no cash wages. In the suburbs more than the city. And among the capital contractors rather than the employees.”

But it also has one of the highest cost recovery ratios.

That means the problem isnt the fare, which is too high. Its the subsidy, which is too low.

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Larry Littlefield October 22, 2014 - 11:40 am

Measured one way, per ride, it is low. Measured another way, per $1,000 of the personal income of the taxpayers who need to support it, it is quite high.

The difference is fully explained in the post. Metro St. Louis only has one small light rail line. Even if its fare was zero, metro area taxpayers would barely notice that 100 percent subsidy in their state and local tax bill. Obviously, NY is different.

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Bolwerk October 22, 2014 - 12:20 pm

If we ignore fixings transit shouldn’t be paying for, perhaps NYCTA has over 100% farebox recovery!

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Larry Littlefield October 22, 2014 - 12:43 pm

Not exactly.

But if you accept the idea that society should pay for the rail infrastructure as it does for cars for motor vehicles, and should pay for stations like other public buildings, it is pretty close on an “auto-equivalent basis” (the purchase, maintenance and operation of the trains).

Bolwerk October 22, 2014 - 7:47 pm

I was being facetious, but it may be true. It’s a bit hard to justify a lot of things they do based on any objective criteria based on the fact that they don’t meet operational goals.

Either way: the anti-transit crowd imposes high costs on transit, and then blames transit for those high costs. That stuff should be broken out of the budget.

lawhawk October 22, 2014 - 10:41 am

Even though the MTA has the largest subway system in the country, and runs one of the largest bus and heavy rail systems in the country too, the size and scope means that even efficient operations cost a lot of money.

Subways are more efficient uses of money, but the MTA operates 5,712 buses (meaning at least 5,712 drivers at any time). Those buses go about 5,000 miles between repairs – which is about typical for motor vehicle servicing. Each day, more than 2 million people use those buses.

http://web.mta.info/nyct/facts/ffbus.htm

We aren’t going to get rid of buses anytime soon, and BRT/SBS is the way that politicians are going to push for more mass transit in the interim, even though it’s not cost effective over the long haul. Subways have much more up-front costs, which no one wants to explain how they’ll pay for.

The capital costs are far too high when compared to other comparable transit systems, and that’s something the MTA, city and state must demand happens – whether it’s a combination of concessions by unions, the contractors, or both. There’s no reason that a deep tunnel or cavern should cost several times as much as a similar line in Europe (which has similar levels of unmapped and tangled utilities at the surface).

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Brandon October 22, 2014 - 10:42 am

1) The per ride fare isnt that much higher than other systems, particular in major high income cities. Our monthly passes are pretty damn high though.
2) No other system has the farebox recovery we do. Riders actually pay for a majority of operating costs.

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Larry Littlefield October 22, 2014 - 2:53 pm

“The per ride fare isnt that much higher than other systems, particular in major high income cities. Our monthly passes are pretty damn high though.”

Blame Gene Russianoff and the Straphangers. Part of the debt explosion is the result of a huge CUT in real inflation-adjusted fares from 1995 to 2002,associated with the Metrocard. Tolls were frozen at the same time, tax support for the capital plan was cut off, and pensions were increased. Everybody wins! Debt exploded.

Rather than credit the MTA for their piece sucked out of our future, the Straphangers’s propaganda focused on increases in the nominal per-ride fare. Outrageous! And ignored the introduction of unlimited ride cards, the addition of free transfers, the discount for adding more than $10 at a time to the card, etc.

So the MTA responded by limiting the increases in that nominal fare, but slashing the Metrocard purchase discount and jacking up the unlimited ride cards. I don’t blame them.

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Alex October 22, 2014 - 11:04 am

We have a bargain compared to London. But for us the biggest burden aside from operation is debt service used to pay for bloated construction costs. On the operational side, pension costs for the MTA – as with any public employee sector – are ballooning.

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Alon Levy October 22, 2014 - 3:18 pm

Everyone has a bargain compared to London. To say “fares here are cheaper than in London” is like for London to say “the construction costs of Crossrail are cheaper than in New York.”

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Erik October 22, 2014 - 12:53 pm

Not that this isn’t a universal phenomenon, but it is due in large part to the policies under Gov. Pataki which decided to shrink state funding and pay for the system with debt. It made his budgets look better but we’re still paying for it!

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LLQBTT October 23, 2014 - 1:46 pm

And no governors since have tried to correct.

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Nathanael November 4, 2014 - 10:40 pm

The problems date back to the Wagner mayoral administration in the 1950s. Nobody in power in NYS or NYC has been willing to take public transport seriously since then.

I think it’s a generational thing. We need more elected officials born in 1976 or later — then we’ll start getting people who *get it*. People born in the 1950s who think of cars as the default and public transit as “optional” are still being elected.

Now, I’m sure there are some people from the 1950s who get it, but they’re a minority. Once you start electing people born in the 1980s, you’ll have much greater odds of electing people who consider cars an annoyance, and consider public transit *important*. Garcetti in LA is a start.

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Rando October 22, 2014 - 11:25 am

When will there be another podcast? It’s been quite a long time…

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Benjamin Kabak October 22, 2014 - 11:48 am

Probably not any time soon. Eric couldn’t perform the hosting duties any longer, and I don’t have the capabilities to do it on my own.

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