As the clock on March expired and the calendar flipped to April, New York State legislators passed a $155 billion budget. The state has a lot of money to play with, and as interest rates remain low, it’s very easy to borrow. It would be, in other words, a great time to fund mass transit through direct contributions, and even $3 billion in annual direct contributions would lead to a guaranteed $15 billion for the MTA’s five-year capital plan. This money would lessen the MTA’s need to borrow and then fund borrowing through fare revenue. Less than 2% of the state budget should go toward MTA capital improvements. But that’s not what happened.
As I explored shortly after the budget passed, the MTA didn’t get much out of it except for some funding earmarked toward future phases of the Second Ave. Subway and, apparently, a vague promise to approve the capital plan following a second round of amendments. Meanwhile, Cuomo has promised to fund a sliver of the MTA’s current five-year, $28 billion capital plan only when the agency has exhausted all other revenue streams. To that end, no one expects the MTA to realize any of this money until the mid-2020s, and Cuomo has insidiously allowed the MTA to raise its debt ceiling. Thus the agency can borrow even more before the state’s obligations to pony up a few billion dollars come due.
Over at NY1, Zack Fink broke the story:
After staying up all night, the New York State Senate finally voted on the last budget bills before 9 a.m. Friday. One of those bills raised the debt ceiling for the Metropolitan Transportation Authority (MTA), allowing the agency to borrow up to $55 billion. “What kind of message does that send, that we’re allowing one state authority to issue more debt than the entire state of New York is allowed to?” said State Assembly Member Nicole Malliotakis of Staten Island and Brooklyn. “It’s going to lead in the future to higher tolls, fares, and service cuts.”
…Observers said the new MTA debt ceiling explains how Cuomo will fund the agency’s ambitious capital program construction, which includes East Side Manhattan access to the Long Island Rail Road and the Second Avenue Subway. “Cuomo said he’s going to give $8.3 billion to MTA; he only showed up with $1 billion,” said Nicole Gelinas of the Manhattan Institute. “And so where is he going to get the rest of this money? Obviously there’s your answer.”
Critics say commuters will ultimately get hit with the bill. “Somebody has to pay for this. The MTA already has budget gaps over the next several years, so people’s fares and tolls will go up to pay for all this debt,” Gelinas said. “It’s just that the governor probably expects that this will happen after he leaves office.”
It is my understanding that the MTA’s debt will come in the form of so-called moral obligation bonds and not general obligations bonds. Thus, if the MTA defaults on its bond obligations in order to force bondholders to the table, the state will not step in to cover any outstanding debt service payments. In other words, by hook or by crook, we the subway and bus riders of New York City (along with the Metro-North and LIRR riders and those paying bridge and tunnel tolls) are stuck with mounting debt and mounting debt service obligations that would put more pressure on fares and the MTA’s ability to provide and expand service. That’s Gov. Cuomo’s New York.
Meanwhile, the Governor has promised upstate drivers parity and breaks on New York State Thruway tolls. It seems unlikely that they will be saddled with debt this high that could be easily avoided for a small percentage of the overall budget. Cuomo too has proposed a series of transit projects that aren’t in line with what the city needs. He’s singularly focused on improving the way people enter and exit New York City rather than on improving how they get around New York City once they’re here, and even some ideas — such as the Willets Point Laguardia AirTrain — are worse than doing nothing.
It’s easy to saddle future generations of New Yorkers who will never have the opportunity to vote for Cuomo or the current batch of legislators will the debt that arises out of transit ideas built today, whether they’re good or bad ideas, and that is exactly what our politicians have done. It’s a devious way to make decisions that affect us all for decades to come.
32 comments
The distinction between the moral obligation bonds of the MTA and the general obligation bonds of the state is only on paper. If/when the MTA collapses under the debt load the state is coming down with it. For example, it is completely bogus to think that a subway tunnel can collapse without indefinite closures of the whole subway system. If that was to happen the city, the sate and possibly the whole nation are in for a recession from which the region is unlikely to recover, ever, so the state and possibly the Feds will have to bail out the MTA. There is no way around it. The only question is what the details are going to be. On that my advice is look at Detroit for something that has already happened, but also to Puerto Rico (about to happen) and later the states of Illinois and/or New Jersey.
“The Feds will have to bail out the MTA.”
Who is going to bail out the Feds, which has promised far more to seniors than those seniors were willing to pay for and will either be taking ALL Americans far more, slashing the old age benefits younger generations receive to the point where they end their lives in suffering and poverty, or some combination of the two?
“I don’t have to worry, because ‘they’ will ‘have to’ come up with something.” Perhaps not.
The Feds will be bailed out by the “printing press”, e.g. inflation and certain segments of the population will get the short stick of it. The question is not if, but when that happens. Predicting when that happens is hard, but those who succeed in it will avoid the short stick. The rest …, well, too bad for them.
It is unfortunate, but that is what will happen. You and I might not be around to see it though.
The reality is that the distinction between MTA debt and the state debt is for show. It pleases the rating agencies and gives politicians a convenient way to avoid blame, by blaming some entity that is supposedly different (but in reality they created). Once again, it is all show, timing the blow up correctly makes you the big winner, betting too early makes you a looser as does mistiming the bet. For somewhat different scenarios playing out without the Feds on a smaller scale look at Atlantic City and Chicago Schools. The end game is that they all get bailed out by their states. When time comes for the states to be bailed out, the Feds will do the honours. The Feds will bail themselves out eventually with inflation.
Watch this segment of Last Week Tonight from 4/10/16, it’s quite timely.
[youtube https://www.youtube.com/watch?v=aRrDsbUdY_k&w=560&h=315%5D
Thank you so much for bringing him up SEAN: I love John Oliver; I always take things seriously when it comes with my own millennial generation.
I thank my friend Alyssa for turning me on to this show since she hates Trump or Drumpf with such pashon. And don’t get her started with Clinton either.
I believe we are at the point where Generation Greed is realizing it has screwed things up so much there is no “solution” at any level of short term sacrifice it is willing to tolerate. So it is merely hoping to slither away after grandfathering itself from any downside. Witness.
1) The Fed wants inflation, but can’t even get it up to 2.0%.
2) Chris Christie reneging on his own, insufficient pension deal and not proposing an alternative.
3) No Illinois state budget for LAST year, an a bet by the local business publication that the Cubs will win a World Series before one is enacted, even as the non-seniors of Illinois fact terrible consequences.
In addition to our own MTA.
This is beyond the “children are resilient and have time to adjust” rationalization. Our Generation Greed leaders, and those to whom they have pandered, can’t face up to what they have done and admit the consequences to those coming after, so they can begin the adjustment.
Larry, me and my family, who are working-class citizens, were used to live in a century-old, walk-up building in Williamsburg. However, because of the overall costs of living went up thanks to gentrification and the creation of Business Improvement Districts, we went to the NYCHA operated public housing project in Bed-Stuy, where there, the cost of living continues to skyrocket as well. We will this close to be either in a crowded homeless shelter or on the streets, begging for clothing, food, money and shelter. I guess my millennial “Generation Apathy” will be a long-term struggle for decades to come.
Larry, I don’t think you quite understand the way money-printing works.
Suppose the Feds decide to print money to get rid of all the debt — which they can just do at any time. They probably will do so eventually. It’s a good idea.
One of two things happens:
(1) If we still have high unemployment and a weak economy, NO INFLATION. The debt goes away. Poof! Like magic! The main side effect is that everyone who was in debt gets richer, everyone who was poor gets richer, and the billionaires (who have the same amount of money as before) have less power. It’s great!
This is of course why the federal government *has not done this*. The federal government wants to create debt because debt is a giant sucking mechanism to move wealth from the poor to the rich. Printing money moves wealth back from the rich to the poor.
(2) If we do have full employment, then we actually do get inflation.
—–
Anyway, now you perhaps understand the actual political situation here. The feds can print money to get rid of all the debt — any time — but that has the practical effect of moving wealth from the rich to the poor, so the feds won’t do it (the billionaires keep a lot of Congressmen in their pocket just to make sure this doesn’t happen).
When we elect someone like Bernie Sanders, which will happen eventually, the Feds *will* print the money and get rid of the debt.
Thanks for bringing it out Larry: I am a recent college graduate with a Bachelor’s Degree in History, who is unemployed, on welfare, and legally disabled. I guess that me and my younger generation, as well as future generation will have to foot the more the bill than the previous generations combined.
Based on the trend I expect, if your disability isn’t too terrible I expect you will eventually be able to get a job. With so many Boomers retiring, there will be a labor shortage.
Not at much pay, however. Businesses won’t raise wages because they can’t raise prices because their customers — the workers — are broke. They’ll shut down instead if they can’t attract workers at what they are paying.
Which leads to the next broader issue: THE WEALTH GAP, especially between generations such as the Baby Boomers, Generation X, Generation Y (my generation) and future generations. What kind of democracy are we lining in in the local, state and federal levels, even with the 2016 Presidential Political Season in full swing?
If we print a bundle of money, use it to pay off everyone’s school debt and personal debt, spread it around, we can fix the wealth gap.
Only one candidate this year is even considering this. Bernie Sanders, obviously.
We’ll have to elect someone like Bernie sooner or later; the alternative is bloody violent revolution like the Russian Revolution.
“It’s easy to saddle future generations of New Yorkers who will never have the opportunity to vote for Cuomo or the current batch of legislators will the debt that arises out of transit ideas built today, whether they’re good or bad ideas, and that is exactly what our politicians have done. It’s a devious way to make decisions that affect us all for decades to come.”
Unless younger people let it be known now that they have no intention of paying. And not just at the MTA.
Unless people are willing to start talking about generational equity en masse, even with every politician and the MSM doing all the can to avoid the subject. Across society, with the MTA just one example. Instead of future drivers seeking to shift the cost of what was done in the past to future transit riders, and vice versa.
“That’s Gov. Cuomo’s New York.”
Again, if there is actually $1 billion in actual money in this year’s budget, then Cuomo and today’s state legislators are not worse than those they replaced, but better.
Except for this. By not leveling with people about how screwed they are, Cuomo and today’s legislature show themselves to be in league with the Omerta, on the side of their fellow pols and those who benefitted from past deals against the future. And they are clearly expecting the same favor from those who will replace them.
I will tell you this Larry: Governor Cuomo do this to get votes for his campaign in 2018 and to make a better prospective presidential candidate in either 2020 or 2024. This also applies to his political buddies in 2016, 2018, 2020, etc.
It will be a cold day in hell before I would vote for Coumo. His policies have made a bigger mess of NY than it already was, and the new mandatory $15 minimum wage (~2020) will cause rapid inflation and unemployment.
Unfortunately, democrat and republican politicians, for the most part, are more like each other than the constituents they purport to represent. If all you do is pander, you don’t get my vote.
Jedman67, realistically speaking, if this happens, then a lot of small businesses in NYS will be either shutting them down or move to another state. This is especially true to businesses in Upstate New York. Meanwhile, the fiscal crisis, which could lead to an economic recession, will be possibly inevitable thanks to the corruption of politics on the local, state and federal levels. This despite more people are moving to NYS, mostly to the NYC Metro region, according to the 2014 US Census.
I remember during his campaign the single best idea: mandatory civil service for state subsidized university education. Too bad that went to hell with everything else.
Have you looked up the complete and utter disaster Cuomo caused by his changes to “Medicaid transportation funding” upstate?
The result was the destruction of all rural bus systems, a large increase in property taxes in rural counties, *and* Medicaid patients can’t get to their medical appointments (which was the entire point of the funding).
Every single upstate county legislator, from every party, is absolutely furious at Cuomo for this lose-lose-lose change. Cuomo refuses to reverse it.
I would vote for a random person off the street before I would vote for Cuomo. Cuomo is simply a walking disaster. He’s just *incompetent*.
Cuomo appears to be focused solely on devoting his administration to the redevelopment of western and upstate NY. Why he is focused on where the minority of state residents are, whilst relying on NYC and surrounds for his base of support is a true mystery.
He may as well tell us to “Drop Dead”.
It is HOW Cuomo wants to redevelop upstate that’s the problem. Upstate has become financially unsustainable, with too much stuff (infrastructure) and not enough people to pay for it. Instead of focusing money on rebuilding the inner cities and towns, he is just writing a $22Billion blank check for the roads that led to upstate sprawl.
Here’s a great piece on upstate sprawl: http://joeplanner.blogspot.com.....-case.html
fwiw, I’d be happy to see Cuomo spend money upstate. There are some great, traditional cities and towns with grids built before the automobile, and transit agencies barely hanging on. They could be significantly boosted with small-footprint investments in transit, cycling, and pedestrian infrastructure and TOD.
Instead, Cuomo destroyed the local rural bus agencies and damaged the upstate urban transit agencies. He also has done absolutely nothing for the upstate high speed rail, which would link us to New York City effectively.
Cuomo is awful.
Cuomo has done jack shit for upstate NY and has actually damaged upstate NY a lot.
Have you looked up the complete and utter disaster Cuomo caused by his changes to “Medicaid transportation funding” upstate?
The result was the destruction of all rural bus systems, a large increase in property taxes in rural counties, *and* Medicaid patients can’t get to their medical appointments (which was the entire point of the funding).
Every single upstate county legislator, from every party, is absolutely furious at Cuomo for this lose-lose-lose change. Cuomo refuses to reverse it.
I would vote for a random person off the street before I would vote for Cuomo.
Cuomo is simply a walking disaster. He’s just *incompetent*.
May I say further this is what happens when people decide to “not talk about the past” and just focus on the future. Generation Greed keeps taking.
Unless there is a psychological and reputational price for the financial gang rape of the next generations, the result behind closed doors will always reflect how good it feels and how painful it will be to stop.
Thank god I am a history major: “History will repeat itself,” which could lead to a possible fiscal crisis in NYC and NYS in the considerable, which could lead to a recession, which could lead to a depression.
There’s a similar issue with the TZ bridge in that Fios 1 reported the other day that tolls won’t rise when the new bridge opens in a few years. My first reaction was … that is impossible since it’s still unknown how the bridge gets paid for.
I suppose they could use Westchester’s MTA taxes for the bridge the way they use Rockland’s MTA taxes for Rockland’s roads. And then cut NYC subway and bus service to fund Metro North.
And here’s another issue: The feud between Governor Cuomo and Mayor de Blasio; and yet, they don’t care about improving public transit. Another issue to consider is the issue between Upstate New York and Downstate New York, or NYC vs. NYS.
I think the feud is kind of childish for the mayor and governor to be engaging in.
Nothing wrong with investing in upstate; Rochester and Buffalo could use some incentives for attracting more people. Many people are sick of NYC (I’m considering moving to LI, but if it’s not financially feasible there are other states with lower cost of living) and would love to have a viable “big city” option with decent transit thats smaller than NYC.
Realistically, I will take several years to possible a decade to get these Upstate New York cities to get back on their feet, since most of the manufacturing jobs were lost during the Great Recession about a decade ago. With more than a couple of dozen of billion of dollars in transportation infrastructure improvements, the need for more gods through freight become more important than ever. BTW, NYC could get back on their feet up to a couple of years after a recession, especially during the most recent one.
Cuomo refuses to invest in public transportation upstate, and has in fact damaged it massively. See above.
Didn’t this city already live through the stupidity of currying people around on highways in thoughts of entering and exiting the city without actually improving inter-city travel during the 1940s-70s and Robert Moses? It’s amazing to me that this is allowed to go on.