Benjamin Kabak

With the MTA’s release of its 2012-2015 budget, the analysts came out in full force. While most were skeptical of the various assumptions tenuously supporting the authority’s plans, the city’s Independent Budget Office takes a different approach. The MTA revenues, they say in a report released on Friday, are resting on some highly volatile taxes and fees, and small shifts in the economy and political winds could leave the authority flailing for dollars.

For many transit policy wonks, the IBO report simply reinforces what we already know. By relying so heavily on real estate transfer taxes, an unpopular payroll tax and various other subsidies instead of a relatively steady stream of revenue generated by fares and tolls, the MTA risks financial instability tied to the economy. When, for instance, the real estate market collapses as it did in 2008, the MTA’s own financial outlook plunges.

Take a look at the following chart from the IBO report:

It ostensibly showcases the volatility of fees and taxes as compared with fares and tolls, but it tells another story as well. That story focuses on addition. By adding the payroll tax the previous mix of various fees and taxes that support the MTA, the state was able to push its contributions in line with the 2005-2007 trend line after three years of collecting amounts below normal. As the MTA depends upon these revenue streams to stay afloat, how often can they expect Albany to add more? Based on recent responses, the answer is “not very.”

The IBO’s report is short, but it sheds some light on the appropriations process. It walks through the convoluted ways in which various taxes and fees are collected by the start, siphoned into general funds or specific appropriations buckets and then redistributed to the MTA. Along the way, the state often reappropriates funds for other uses, and that’s how the MTA has seen $260 million in supposedly dedicated revenue vanish at the click of a button.

For a sense of the process, take a look at this table. Click to enlarge.

From the IBO’s perspective, the problems involve volatility. The MTA expects to draw in nearly as much in dedicated taxes and fees as it does from fare revenue. Adding the dollars collected from its tolls alters the balance to an extent, but the agency is still depending upon fees and taxes for over 40 percent of its annual budget. The IBO sees these revenue streams as too volatile and would prefer the MTA rely on fares and tolls — which have a tendency to remain constant over the years.

“While dedicated taxes and fees can hold down upward pressure on fares and tolls, the transportation authority’s growing reliance on these revenue sources does not assure fiscal stability. Some of the authority’s largest dedicated revenue sources are among the most sensitive to the ups and downs of the business cycle and the even more pronounced swings in the market for real estate,” the report says.

So what can the MTA do? The IBO clearly wants to see the authority rely more on fares. “Dedicated revenues do not assure stable funding,” they say over and over again. But the MTA’s current fare policies are the result of legislative bargaining. By agreeing to avoid fare hikes more frequently than every other year, the MTA earned the $1.5 billion in payroll tax revenue. If the payroll tax were to disappear, the MTA would have to institute a steep fare hike, and if they institute a steep fare hike off schedule, they risk incurring the wrath of Albany.

Finally, the 800-pound gorilla in the room concerns spending. The IBO report doesn’t delve into the MTA’s expenses, but they do highlight how in 2003, the authority’s overall revenue hit $6.4 billion while in 2010 it was over $10 billion. Even accounting for inflation, a jump in revenue — and concurrent spending — by nearly 50 percent is alarming. A good chunk of that money is going toward debt service on the never-ending capital plans while others are going toward increased labor expenses. Either way, spending has to be curtailed as well. Just as the MTA’s revenue streams cannot keep increasing ever upwards, neither can its expenses.

Ultimately, the issue circles back to the purposes behind mass transit. If the subways and buses are a public good for everyone, fares cannot be too high, and the MTA must depend upon a steady stream of taxes and fees for support. If, however, Albany is reticent about balancing the taxes and fees, the fares must go up, and public transit starts to become to expensive. The MTA has managed to walk that tight rope without falling, but the latest from the IBO seems to pull the safety net out from underneath the precariously balanced authority.

I found myself glancing over a map of the New York City subway and in a sense, marveling over the expansiveness of the subways. The current system may fall short of the dreams from the 1920s and 1930s; after all, where are those grand Second System routes or the Utica and Nostrand subway extensions? But we live in an age in which it takes a decade to build a two-mile, three-stop subway, and the system as it exists represents a fortuitous alignment of political will and corruption, reckless spending and a disregard for the lives of construction workers.

Today, subway expansion moves at a far more leisurely pace. A one-stop extension of the 7 line to 11th Ave. and 34th St. won’t be ready until late 2013, and Phase 1 of the Second Ave. subway is still at least five years away. After that, the MTA’s capital plans slow to a halt. With no long-term environmental studies under way, the best hopes for subway expansion rests on the shoulders of Phases 2-4 of the Second Ave. Subway. We’ll probably find a pot of gold at the end of the rainbow before that comes to pass.

Right now, the MTA is working to find a way to continue even its current meager slate of very expensive construction projects. The authority has put forward a budget for the next three years that rests on assumptions. It assumes that the city will fork over some dollars. It assumes that the federal government will sign a check. It assumes that Albany will do something, anything, to help continue infrastructure construction projects in New York City. Few people are comfortable with those assumptions.

The voices speaking out the loudest have come, of course, from the advocacy arena. The politicians have been deadly quiet. Kate Slevin of the Tri-State Transportation Campaign expressed her concerns that the MTA’s proposed spending plan relies on too many assumptions, and already those assumptions are breaking down. “If any of them,” she writes, referring to and listing the various assumptions, “don’t play out as the agency hopes, the whole plan could fall apart.”

The first to go, as TSTC itself noted, is federal funding. In the latest infrastructure bills making the rounds in the House, the MTA comes out behind. TSTC provided this dire summary: “In particular, House Transportation & Infrastructure Chairman John Mica’s proposal for the next federal transportation bill would cut federal funding to the state by $7.2 billion over the next 6 years and would cost the state almost 45,000 jobs in the first year alone. If the House bill is enacted, federal transportation aid to the state would be cut by about a third, which would decimate both the MTA and the New York State Department of Transportation’s unfunded capital construction plans.”

The MTA’s current funding plan assumes over $4 billion in federal grants. If even $1.2 billion of that is stripped away, as TSTC notes, the impact could be devastating. That cut would be the equivalent of canceling all Metro-North maintenance and improvement work for the next three years; or canceling all subway station renewal, rehab and accessibility work for the next three years; or delaying much of the East Side Access project indefinitely. That is a future no one wishes to contemplate.

Streetsblog sees these assumptions and fears that the MTA will take on more debt to fund projects whose revenues cannot truly support bonded debt. A financial crisis then is ticking ever nearer for the MTA. Forget, then, about dreaming big; forget even about dreaming small. We likely won’t see any semblance of a fantasy map pass for reality any time soon, and the system we have soon — along with the few additions currently under construction — are all that we’re going to get for some time. That’s a shame.