During their last meetings of 2015, the MTA Board on Wednesday took care of one piece of pressing business: The agency’s oversight body approved the 2016 budget with projections for the next few years. For the perennially beleaguered agency, the outlook is rosy. With a boost from what officials call “modest” fare hikes every two years, the MTA has predicted positive balances through 2019 and over $240 million in service increases on the horizon. But one watchdog worries that the agency’s planning could take a serious hit were another recession to arrive, and the riders would bear the brunt of the pain.
As budgets go, the MTA’s outlook is shockingly optimistic. After years of deficits and cost reduction efforts, the MTA is predicting surpluses until 2019 (and those out-year projections never seem to materialize). So with nearly $300 million on hand at the end of this year and with a $123 million surplus predicted for 2016, the MTA plans to add service but won’t eschew biennial fare hikes. It’s also not clear, as I’ve discussed before, if the MTA is adding enough service to meet spiking demand, but more service is on the way.
“The MTA is committed to bringing high-quality service to our customers at a reasonable cost, and our updated Financial Plan shows how we are putting that commitment into action,” MTA Chairman and CEO Thomas F. Prendergast said in a statement last mont. “We are continuing to find new ways to save money, we are making smart investments to serve our growing ridership, and we are doing this while minimizing the impact on our customers’ wallets.”
The new projections are powered by higher real estate tax receipts (which we’ll return to shortly), higher toll revenue. With this money, the MTA plans to do the following:
- Fare and toll increases in 2017 and 2019 will be limited to 4% per increase.
- The MTA will increase bus and subway service, but only by $38 million over the next four years. By contrast, the service cuts in 2010 resulted in nearly $100 million in savings.
- The MTA will spend $13 million on new Select Bus Service routes and $35 million on Second Ave. Subway operations.
- Maintenance backlogs will enjoy $42 million worth of work.
- Capital contributions from the MTA will increase by $125 million annually which allows for $2.4 billion in additional bonding but also leads to more debt down the road.
- The agency will reduce its liability for unfunded pension obligations by around $140 million.
As you can see, this is very much a mixed bag of expenditures, and the agency still needs to receive final sign-off on the 2015-2019 capital plan and has asked Albany to address declining taxi surcharge revenues due to the increase in popularity of Uber, Lyft, Via and other car-hailing services. There is also, according to a recent report issued by the Citizens Budget Commission, an 800-pound gorilla in the room. If another recession hits, they said [pdf], the MTA is ill-prepared to handle it, and riders would be socked by higher-than-anticipated fare hikes and deep service cuts. The CBC worries that the MTA’s revenue growth projections — 2.2 percent annually — are too optimistic and that by relying on real estate taxes and fares, the MTA’s budget is too susceptible to an economic downturn.
If a recession were to arrive during this financial plan, the CBC says we should expect these surpluses to turn into deficits that could be as much as $600 million. Such a deficit would require a fare hike of nearly 12 percent, and the CBC expects the state to turn to congestion pricing to fill the MTA’s coffers. Considering how New York politicians don’t seem to have the appetite for congestion pricing during good times, it’s tough to see them embracing this solution in bad ones. The MTA would also have to further reduce head counts and draw on any reserves they could.
So what’s the takeway? The CBC opines:
Based on the MTA’s response to recent budget gaps created by mandates for higher labor costs, the likely response would not be politically unpopular service cuts or fare increases. Instead resources in its financial plan related to capital funds and retiree benefits would be reallocated to cover operating expenses. This will increase future costs, create risks, and ultimately impose a greater burden for future transit riders and taxpayers.
A wiser strategy is to take other actions sooner to anticipate a future recession. More cautious
economic and revenue assumptions seem appropriate, and new policies regarding reserves would be a constructive step. Accumulation of general reserves should be permitted, and an explicit rainy day fund established covering a larger share of total expenses before releasing future reserves to reduce other long-term liabilities. Greater restrictions on diversion of OPEB funding and a firmer commitment to PAYGO capital allocations would reduce the risks associated with reallocation of those items. Finally, continuing to increase planned efficiency gains beyond current targets for future years would help bring expenditures in line with the revenues available when a downturn occurs.
In other words, even in good years, we shouldn’t grow complacent. It’s sound advice for an agency that has struggled (or even, as some may say, bumbled through various economic crises). For now, though, the footing looks solid, but the fare hikes will come. And that will be the way of things for the foreseeable future.
For the nitty-gritty on the MTA’s budget, feel free to peruse the 2016-2019 Financial Plan Adoption Materials, available here as a PDF.