Home MTA Economics An MTA budget with ‘modest’ fare hikes, added service and, from CBC, question marks

An MTA budget with ‘modest’ fare hikes, added service and, from CBC, question marks

by Benjamin Kabak

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.

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Larry Littlefield December 21, 2015 - 6:51 am

We have another real estate bubble and will have another real estate bust.

More importantly, we have another stock market bubble, which has allowed the city and state to once again lie about the real cost of the 2000 pension increase and not pay for it. Expect to pay more when stock prices correct to normal. This latter factor will hit even harder outside the MTA, but “money is fungible.”

LLQBTT December 21, 2015 - 9:33 am

In an era of falling commodity prices, deflationary pressures, and with an increase in real estate tax revenue from the current building boom, are the fare increases, while modest, really justified?

Larry Littleefield December 21, 2015 - 9:42 am

Do you want to go back to a decade of no fare increases, as pandering politicians “save the fare” by selling the future…followed by increases in the 20 percent to 50 percent range during a recession, kicking people while they are down?

Look at the history of NYC fare increases. That’s what you see until recently. The change is good news.

“Falling commodity prices, deflationary pressures.”

The income of state and local government workers is inflating, not deflating.

According to the latest Bureau of Economic Analysis data (post coming from me soon), from 2001 to 2014 the average total earnings per worker (including benefits) in Downstate New York increased 17.6% for state and local government workers, after adjustment for inflation. Mostly because of increased retirement costs. The 2014 figure was $108,308.

It fell 13.6% for private sector workers in the Finance and Insurance sector, albeit to an unsustainably high $185,859.

And it fell 1.4% for other private sector workers, to $67,821 — including all the one percenters outside Finance.

You can say that is justified, or not justified, but it’s a done deal and going to get worse and worse. Because a great deal of that increase in government workers earnings relative to the serfs is pension increases in the past that were not paid for at the time, and are irrevocable.

AG December 21, 2015 - 3:36 pm

Correct – but citizens in this city/state/nation get what we vote for. That’s the blessing and the curse of representational political systems in countries like ours. Unfortunately in this particular society most voters just listen to speeches and have zero idea of how policy works or will affect things. Others will even “cut off their nose to spite their face”.

Rob December 21, 2015 - 10:30 am

“Fare and toll increases in 2017 and 2019 will be limited to 4% per increase.”

For the East River Bridges, 4% of Zero is zero.

AG December 21, 2015 - 3:39 pm

Exactly. Absolutely ridiculous those are free while everyone is paying at all the other major crossings.

Rob December 21, 2015 - 10:48 am

Don’t tell me that anybody there is serious abt efficiency or controlling costs as long as they have conductors on 4 car trains. And that’s just what you CAN see.

And if there is a recession, that means ridership decreases, and service should be cut.

rustonite December 21, 2015 - 11:43 am

that doesn’t track. during the last recession, ridership continued to increase, even as service was cut.

Justin Samuels December 21, 2015 - 11:53 am

Public transportation is not going to be free, ever. The riding public has to pay for it, whether through fares, taxes, etc. Actually if you count payroll taxes, real estate taxes and taxi surcharges the non riding public pays for it as well.

Things will be fine. If a recession where to it and if they need the money the MTA will raise fares more than what they would have otherwise. But things will be FINE.

And an expansion in MTA service (more buses, more lines) has to be PAID for. So yes I do support more transit lines but we will ultimately for them via fares and tolls.

AG December 21, 2015 - 3:41 pm

Well it’s not “if”.., unless the world as we know it ends there will indeed be a recession. Just a matter of when.

Kevin Schultz December 21, 2015 - 1:20 pm

Rainy Day Funds are not a good use of money in government. This stems from the ‘Fallacy of the Family Budget’. The government budget is not your house. While you should save for a rainy day, creating a government account full of money for future use is just asking for it to be pillaged and mis-allocated by an opportunist in the future.

If we have extra money in a given year, use it to pay invest in capital expenditures or pay down debt. That requires basically having ‘shovel ready’ projects in the pipeline, but I feel like the MTA has no shortage of things they need to do but don’t have funding for.

Larry Littlefield December 21, 2015 - 3:10 pm

I agree with regard to paying down debt.

But a boom like this one is the worst time to accelerate public construction. Because the cost of construction soars during real estate booms such as these. Better to do more of it in a deep recession.

SEAN December 21, 2015 - 3:33 pm

True, but wasn’t the benchmark interest rate increased 25 basis points last week?

Alon Levy December 21, 2015 - 6:27 pm

You’re misunderstand where government budgets differ from family budgets. The issue is not that the government could waste the money later. It’s about micro- vs. macroeconomics.

In particular, under Keynesian economics (i.e. the only major school that treats family and government budgets separately), the government should behave the exact opposite as families: cut spending and raise tax revenues during growth, raise spending and cut taxes during recession. For national governments, this cycle is funded by debt. State and city governments are more constrained, and in many cases are legally barred from running deficits, so they come up with rainy day funds to engage in the same behavior but without disallowed deficit spending.

What you’re proposing is a pay-as-you-go mechanism, in which every time there’s extra revenue, the government should spend it, and vice versa. This is how families act, and is a bad idea for governments. In times of growth, it leads to an overheated economy, sometimes with inflation, at other times with high interest rates. In times of recession, it makes the recession deeper.

Bolwerk December 21, 2015 - 8:42 pm

Keeping the context on local economic policy, particularly the MTA, I don’t see what’s wrong with what he said. It’s not the MTA’s job to worry about the economy. The only money that should really be set aside by the MTA is managed contributions for defined benefit pensions and it is not fungible. Caveat: manage those funds well. When the MTA needs more money, it can raise fares or the local government can raise taxes. Major capital projects should be debt financed. (I’d apply all that logic to metropolitan local government too, but at least I can see an argument against it. IMHO it’s mostly the national government that should be worried directly about overheating economies.)

Though re Keynesian prescriptions, note how European national governments have similar constraints to US states thanks to useless mandates from the EU. They even apply outside the eurozone, and are reason for some in the “center-left” in the UK to want out of the EU entirely. Basically the EU does economics the way the Jeb and Hillary* segment of American politics wants, with predictably disastrous results.

* pre-Bernie Hillary, anyway

adirondacker12800 December 21, 2015 - 8:49 pm

We are rich enough to cut out the vigorish the banks extract on bond sales. More than one way to achieve that but the most talked about is an infrastructure bank. But then the banks wouldn’t get their fees and rich people wouldn’t be able to buy triple tax free bonds.

Old New Yorker December 21, 2015 - 7:52 pm

Marc Mednick is going to raise fares and “modestly” increase service?

Fat chance. He wants all the smelly people he hates riding bikes instead of subway trains. Better he resign instead. That would improve the NYCTA.


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