Capital Program 2010-2014

The MTA has launched its push for capital funding today with a report that pledges an additional $2 billion in cuts to its current five-year plan. With Albany gearing up to assess the immediate future of New York City’s public transit system and its short-term capital future, the MTA is out to prove that it can spend money efficiently and wisely while acknowledging that cuts to the funding grant are necessary to move forward.

“The critical importance of the MTA’s Capital Program to protecting the transportation system and creating New York jobs doesn’t excuse the need to implement it as efficiently and effectively as possible,” MTA Chairman and CEO Jay H. Walder said. “We cut $2 billion from our Capital Program last year by planning our program more effectively. Today I’m committing the MTA to doubling the savings we’ve achieved in our Capital Program to $4 billion, not by deferring vital projects but instead by finding better ways of delivering benefits.”

Continuing the long-term theme of “Making Every Dollar Count,” the plan — available here as a PDF — cuts the total five-year bill to $24.2 billion, down from an initial request of $28.2 billion. The 15 percent in savings is a substantial amount for an organization not known for keeping costs down, and the commitment to costs along with a fear of public-private partnerships could spur Albany to act.

The MTA has top-lined the savings, and it looks a little bit like this:

• Slash Administrative Costs ($150 million savings): Similar to the cuts put in place in the operating budget.
• Create Project Approval Gates ($800 million savings): The MTA will review every capital project through approval gates at each stage of its development to ensure that the agency is moving forward at the lowest cost. This strategy, combined with a softer construction market, has already delivered savings of $800 million.
• Make Changes to Track Work ($300 million savings): The MTA and its agencies are taking steps to overhaul the way employees and contractors perform work on tracks, saving more than $300 million.
• Change Rolling Stock Acquisition and Maintenance ($300 million savings): The MTA is reducing costs of buying and maintaining trains and buses by changing design specifications, increasing competition among suppliers, getting more life out of existing units, and embracing new technologies. These changes will save $300 million.

Of course, with these changes, riders lose some benefits. Older rolling stock models will have to last longer, and station components may not be upgraded as quickly as we would like. We may also see fewer shuttle buses replacing shuttered subway routes as the report itself says the MTA will “use replacement bus services only when there are no alternative services available.”

Still, the alternative — shutting down the capital campaign until money materializes and slowing down work on big-ticket items — isn’t acceptable. The MTA has shown a clear willingness to operate at more efficient levels. Will Albany acknowledge the effort with a proper investment?

The MTA’s $10 billion gap in its current five-year capital plan has been much publicized of late. With only five months and change remaining in 2011, the time for action is dwindling, and Albany is going to have to confront this 800 pound gorilla when the state legislature returns in the fall. With rumors of a renewed effort to initiate a congestion pricing plan and fears of a capital works shutdown that could impact the MTA and construction industry percolate, authority officials are trying to be as flexible as possible while seeking out new ways to fund construction initiatives.

Yesterday, at Crain’s Future of New York City event, MTA CEO and Chairman Jay Walder spoke on a panel about the future of infrastructure investments. While I could not attend the session this year, Crain’s own reporters were on hand to hear the talk. Shane Dixon Kavanaugh has the skinny as various government officials spoke of the need to explore public-private partnerships:

Mr. Walder of the MTA also conceded that private funds may be necessary to help close the yawning budget gap on the authority’s five-year capital plan, which remains unfunded by about $10 billion. “Private capital may play a part [in the plan],” he said.

But Mr. Walder maintained the MTA’s primary focus would be to continue to lower costs through innovation and efficiency measures, which he hopes will increase public support for large infrastructure projects in the future. However, Mr. Walder noted the authority needed more. “By themselves, efficiency and innovation won’t be enough,” he said, after the panel discussion concluded.

Which is where infrastructure funds, like the one Felicity Gates runs, could step in and fill the void. Ms. Gates said the average return on such funds in Europe and Australia, where they are most prevalent, can run as high as 12%. These long-term investments, however, can take up to 20 years to see a return. Historically, U.S. pension funds have not included infrastructure, according to Ms. Gates, because the municipal bond market has made it easy for governments to finance these projects. While that’s beginning to change—Ms. Gates predicted infrastructure investments could eventually equal the level of real estate investment in a pension fund—it will be a slow evolution. “Everyone expects it to happen overnight,” Ms. Gates said. “But it will not.”

By and large, I’m hesitant to embrace these public-private partnerships. Internationally, they haven’t been very successful, and oftentimes, the government granting the partnership in the first place has had to step in to resume control. That is, at least, what happened when London tried to institute a PPP for parts of the Underground. Some in Australia, India and Canada have been successful though.

In New York, if the MTA has to resort to a PPP, we can only speculate at the form, but it would likely involve ceding some amount of fare revenue to the private entity in exchange for money to float bonds for construction. As far as I’ve heard, the MTA cannot issue more bonds without additional financial support. Whether this model would represent a sound investment for a private entity or a safe financial move for the MTA remains to be seen. After construction, too, the MTA’s operating costs will increase as the authority will have to provide additional service to the new stations.

Right now, these are all just ideas, but they’re ideas coming to a head. The MTA needs action on its capital plan, and it needs money. Walder knows that state representatives are listening, and he knows that some legislators won’t be too keen on public-private partnerships. The onus then is on Albany to keep the transit system afloat and expanding to meet demand without sacrificing its autonomy.

Over the past few months, as the spring legislative schedule has inched closer toward summer recess, I’ve beaten the drum about the MTA’s current capital funding. The five-year plan is short $10 billion, and it’s only funded through the end of 2011. As Albany has struggled with the state budget, it must also turn its attention to the capital program, and it’s no stretch to say that the city’s economy depends upon it.

Without a properly-funded capital plan, the MTA’s physical infrastructure will further erode. Without a properly-funded capital plan, tracks will break down, trains will be delayed and business will suffer. Without state support, the riders will have to pay more and more so that the MTA can simply maintain the current levels of service.

Today, in the latest edition of Crain’s New York Business, the trade mag talks about the need to fund the capital plan. While the city’s commuters and straphangers are relying on MTA investments, so too is the construction industry. I’ll excerpt the editorial as it touches upon these various issues:

State lawmakers, who congratulated themselves two months ago for closing a $10 billion budget gap, have made no progress in filling another hole that is just as big. The Metropolitan Transportation Authority has no capital funding in place for the next three years and needs the state to identify revenues this year to issue bonds. That will be controversial, so Albany needs to get moving.

Gov. Andrew Cuomo and legislators must undertake the mission knowing that the capital plan cannot be shrunk significantly. MTA contractors could reduce construction costs by a few hundred million dollars by negotiating new work rules with their unions; the MTA could pare the price tag a bit more by delaying nonessential improvements. But if there’s one thing we’ve all learned about the transit system over the years, it’s that postponing vital work backfires…

Maintaining a state of good repair, improving service and finishing large projects—East Side Access, the Fulton Transit Center and phase one of the Second Avenue subway—are crucial in order for the regional economy to grow. It won’t happen without money.

Funding for the MTA is not an expense but an investment with proven returns. Unfortunately, some lawmakers prefer to portray the agency as a cesspool of waste and to use it as a scapegoat to distract voters. It’s time they acknowledge the MTA’s role in reviving the city and its suburbs, and the efficiencies Chief Executive Jay Walder has found in the past two years. He shaved $525 million from the operating budget, including $93 million in service cuts to underutilized bus and subway lines. He lopped $2 billion off the capital plan without killing important projects.

It’s Albany’s turn now. Legislators must identify at least $750 million in annual revenues to finance 30-year bonds. Fares have been increased for three straight years and are scheduled to rise 7.5% in 2013, so riders ought to be spared until then. Businesses funded most of the 2010-11 capital plan with a payroll tax that generates $1.5 billion annually.

How does Crain’s propose finding the funding then? Through road usage fees: “One option is to raise more revenue from drivers. A variable fee on vehicle trips that congest Manhattan’s central business district is logical, since they impose large costs on the economy. Also, the payroll tax mechanism should be improved to lessen its political toxicity and increase compliance.”

As Crain’s notes, transit ridership has surged by 50 percent over the past 15 years as capital investment in the system has grown as well. The state and its subways are heading toward a turning point, and while Albany may have to make some tough choices, it cannot leave 5 million daily subway riders out in the cold. The city’s economy simply cannot take the hit.

The MTA’s current five-year capital program, unfunded after 2011 and facing a $10-$13 billion funding gap, will live or die this fall, according to a report today by Crain’s Insider. The city’s daily newsletter reports today that Cuomo Administration will wait until the fall to attempt to usher through a political and economic compromise that will save the MTA’s ambitious capital improvement budget.

The brief report aptly sums up the state of things. “Transportation advocates are anxious but not panicked,” it says. “The Legislature rarely acts before it must, and the MTA’s capital plan is funded through 2011.” After 2011 remains a black hole of uncertainty, but Crain’s sources are cautiously optimistic with a few caveats. The report details:

Funding talks will coincide with contract negotiations with the MTA’s largest union, Transport Workers Union Local 100. That will add an extra wrinkle to discussions, perhaps creating a perception that the MTA is “getting squeezed from all sides to make ends meet,” said one transportation insider.

Binding arbitration could neutralize the contract’s politics. If Gov. Andrew Cuomo wrests concessions in a new contract with state workers, arbitrators might award the MTA a similar deal…

It remains unclear exactly how much the MTA will need to borrow, but insiders say bonding could require $750 million to $1 billion in new annual revenue starting next year. Fares have been raised for three consecutive years, and a fare hike is already scheduled for 2013, so another one in 2012 is unlikely. The Legislature will instead have to vote on new taxes or fees during a special session late in the year or early next year.

A few things: I’ve heard from a few people that the MTA’s borrowing capabilities are completely maxed out right now. Without an additional revenue source, it cannot bond out more money for the capital plan. Additionally, while Crain’s suggests binding arbitration for the MTA’s looming negotiations with the TWU, the last time the authority agreed to such a plan resulted in the 11 percent raises. The MTA is already under intense pressure not to go binding arbitration without wresting concessions from the TWU, and I’m surprised Crain’s would even suggest it.

The report notes that state Republicans may resist an effort to identify a revenue source for the MTA without an ironclad promise to fund the next state Department of Transportation capital plan as well. Such a compromise would likely lead to increased state spending, but by keeping these capital budgets funding, the state will guarantee jobs for the construction industry as well. For now, this looming political fight is on hold, but come the fall, the fight for funding will grow tense.

When the MTA introduced its new “Improving, Non-Stop” house ad campaign earlier this year, they did so, as I wrote at the time, with an eye toward Albany. The authority knew it had a an unfunded capital program with a $10-$13 billion gap, and officials knew they had to convince those who control the purse strings that the MTA is both moving forward and badly in need of that money. The PR campaign is going haltingly.

On the one hand, straphangers have taken to vandalizing the posters. They aren’t going unnoticed, but the message has been met with skepticism. After all, no matter how many improvements the MTA makes, people always want more. They want more frequent trains, better technology, cleaner stations, the works. On the other hand, the MTA still needs its money.

And so, the authority is upping the message. New placards have gone up in trains throughout the system with the tagline “What’s New?” They promote the real-time bus-tracking pilot along the B63 in Brooklyn, the cashless tolling system on the Henry Hudson Bridge, the Select Bus Service routes and consolidated agency phone numbers, to name but a few. Of course, riders are taking just as kindly to the new campaign as they did the old.

As Michael Grynbaum wrote last week, a few intrepid editors have determined that the answer to “What’s new?” is higher fares. He writes of the disconnect between the message, the medium and those reading it:

The graffiti points to the vast public relations difficulties of an agency whose very nature — operating a system that virtually every New Yorker depends on — makes it a lightning rod for all manner of criticism, deserved and not.

The agency, increasingly wary of politicians’ criticism and less than flattering news coverage, has been trying a direct-marketing approach in making riders aware of the work it is doing to improve the transportation experience.

The new slate of promotional posters, to be displayed in subways, buses and commuter rails and on some station walls, is a complement to the agency’s “Improving, Nonstop” campaign, started earlier this year. The idea was to remove outdated slogans — “Going Your Way” is now gone — and create a more streamlined, simpler aesthetic for the agency to inform its clientele.

“There was a feeling that the M.T.A. hadn’t been as effective as we could be in communicating things that are going on to our customers,” said Jeremy Soffin, a spokesman for the transportation authority. “This is a way of trying to improve that.”

Some of this conflict stems from years of underinvestment. Because the MTA had a huge infrastructure deficit in the 1980s, it couldn’t keep up with the technological advances of the day. Thus, when the money started to flow, the capital investments were made primarily to save a decrepit system. Now that the system is halfway between decrepit and Good Repair, riders want more.

Meanwhile, Albany isn’t too willing to give more. The city and state have reduced their fiscal commitments to the MTA over the past 15 years, and with money tight across the state, that trend isn’t stopping any time soon. But without a capital plan and funding, the transit system will slide. Hopefully, the answer to “What’s New?” will soon be “a fully funded five-year capital plan.” We can’t afford to go forward without one.

As the 2011 calendar pages melt away, the MTA and Albany are no closer to a solution on the authority’s capital budget woes. As we know, the agency has a hole in its five-year capital plan that is at least $10 billion deep, and the authority has essentially reached its bonding limit. Yet, before it heads north this summer to argue for the dollars, Jay Walder is looking for ways to cut costs, Crain’s Insider reports today.

Many of the ideas are basically just common sense. Take a read:

Cuts resulting from the talks are intended to show legislators that state funds will be used efficiently. The New York Building Congress board of directors told Walder in a March meeting that their top cost-savings priorities included streamlining procurement and paying contractors damages if the MTA delays a project, President Dick Anderson said. “If you sign a contract that says you are responsible for delays no matter who causes them, what do you do?” Anderson asked. “You factor it into your contract.”

Some MTA agreements allow contractors to collect damages for delays, which helps them manage risk and puts pressure on the MTA to approve construction changes more quickly…Jay Simson, executive director of the New York American Council of Engineering Cos., said a pilot project to select project designers based primarily on qualifications rather than the lowest bid could produce savings.

In exchange for any changes, many of which would require legislative approval, builders would be expected to reduce fees on already contracted projects. “We hear you, and we expect this to be a two-way street,” Walder told contractors, according to Anderson.

The emphasis is mine, and it’s a change long overdue. For too long, the requirement that the MTA automatically select the lowest bidder has led to too many shoddy construction jobs, delayed projects and cost overruns. Reforming that system would do wonders for the authority’s capital project.

In addition to these changes, the authority may also consider delaying some less important projects currently slated for 2012 and beyond. Doing so would ensure funding for the big-ticket expansion efforts currently under way beneath Second Ave. and the East River, and overall, these changes could lower costs by as much as 20 percent.

For now, Albany hasn’t yet taken up the issue of capital expenditures, but it should become a major political issue throughout the summer and into the fall. As hyperbolic as it sounds, the future of our transit system depends on it.

Everyday, New York City Transit moves over seven million people around New York City, and the MTA’s commuter railroads bring 550,000 commuters into the city. It’s not stretch to say that, without the MTA’s transportation offerings, New York City would not exist as an economic force in the region, state or country. Yet, according to a panel of transit officials who spoke last night, politicians at all levels have no idea how to best appreciate or fund the MTA, and most have little sense of long-term transportation policy planning.

That message — one concerning politics and transportation — was on full display at the Museum of the City of New York last night. In a panel discussion led by Times transit reporter Michael Grynbaum, four transportation experts — Jeff Zupan of the RPA, Michael Horodniceanu of MTA Capital Construction, Denise Richardson of the General Contractors Association and Joan Byron from the Pratt Center — spoke about the challenges facing long-term transportation planning in the area. While the panelists disagreed on certain topics, they all agreed that politicians do not understand how transportations fits into the economic structure of New York City.

Zupan, who spoke at length about changes in transportation’s political climate over the last twenty years, spoke vehemently about the ways in which politicians approach transit. “We expect something for nothing,” he said, “and it doesn’t work that way.”

Grynbaum opened the discussion with a somber. “Where were you heard the ARC Tunnel was canceled?” he asked. “And what was your reaction?” To a group of panelists who each have a stake in seeing improved transportation in the region, it was a loaded question, and it elicited a strong reaction across the board.

At the RPA, Jeffrey Zupan has spent decades working with officials in New Jersey to realize the ARC Tunnel, and he was particularly dismayed to see the project cut. Calling it “the kind of short-sighted thinking” that has plagued the region’s transportation planning for decades, he worried about the future. “We’ve lost the opportunity,” he said, “and I don’t expect it to come back any time soon.”

Richardson, who represents the contractors, used the ARC to draw a comparison to private investment. The tunnel, she said, would have created 6000 construction jobs and 10,000 ancillary support jobs. If a private company announced plans to bring that level of economic activity to New Jersey, officials would be beside themselves with glee. “The governor would turn cartwheels to make sure this business would locate in New Jersey,” she said, citing potential tax breaks and real estate deals.

But Horodniceanu was willing to take this criticism to the next step. He called the move to cancel ARC a “totally political decision,” and he discussed how Gov. Chris Christie did not conceive of the project and would not be around to participate in the ribbon-cutting. Even though now is the best time to build, Christie had to show his fiscal conservativism, and the ARC Tunnel had to play the role of the victim.

Of course, it’s easy for people in New York to lob stones at Christie, and we’ve certainly debated the death of ARC over the last five months. But the panelists equated New Jersey’s sins to New York. Politicians aren’t willing to take that extra step to fund transit become it involves long-term thinking and planning with few short-term rewards for fickle constituents. As the panelists explained, what motivates a politician to fund a ten-year project that might not wrap until they’re long out of office? The chance to get a name or photo in the paper at a ribbon-cutting ceremony is too remote, and the rewards too slim.

We’re living through this problem right now as the MTA’s five-year capital plan has been funded for only two years. At the end of 2011, if the money isn’t there, Horodniceanu said the authority would have to prepare for a slow-down. Megaprojects would continue at a slower rate until the funds pick up, and regular maintenance may get deferred. Noting that he is “absolutely” concerned about the fate of big projects, he urged politicians to act. “We do need a concerted effort to push for this,” he said of a fully funded plan.

What transit planners and much-maligned bureaucrats can see are the pieces. We know how the 7 line extension will spur development at Hudson Yards and how the Second Ave. Subway will lead to an East Side renaissance. Politicians see complaints about construction disruption and money being spent far off into the future. Without the political commitment today, the city will suffer into the future. It will suffer without increased access, and it will suffer as construction costs begin to climb with a recovering economy.

Ultimately, as Joan Byron noted, the problem is one of media perception. “We,” she said of the transit community, “talk in an echo chamber and we talk amongst ourselves.” It is incumbent upon those setting the policies that require political support to explain how the benefits are broadly distributed to others, and in that sense, transit experts aren’t ready for a media campaign promoting their cause. Still, the area’s transit infrastructure grows not at all and suffers under the weight of age because politicians can’t see beyond their own self-interest. When foresight is en vogue, perhaps funding commitments and growth will follow.

MTA crews worked in late December to dig out snowed-in subway tracks. (Photo courtesy of MTA)

When the MTA faltered during the December blizzard, a few sources mentioned concerned over costs as a reason why the authority was slow to adopt a Plan IV response. While those charges were vehemently denied, other long-term cost concerns have led to deferred investment in show removal equpiment, Pete Donohue reported yesterday.

In his weekly column in the Daily News, Donohue delved into these financial difficulties:

One of the biggest mistakes that hampered the MTA during the December blizzard might have been a failure to act – years before the first flakes fell. At least as far back as 2008, Metropolitan Transportation Authority managers in charge of subway equipment deemed the fleet of snow-clearing trains too old and too small.

An MTA planning document from February 2008 stated that the authority should spend $9.5 million to buy eight new and powerful snow thrower cars “in order to ensure the tracks are kept clear, and service is not compromised in winter storms.”

The authority, however, moved as quickly as an A train stuck in a snowdrift. It still hasn’t purchased the big rigs. A spokesman last week cited “financial constraints” as a reason for initial delays, but he also said the current administration does intend to buy the equipment. “We’re moving forward,” the spokesman said.

This has now become a familiar refrain from the MTA. As I explored last week, the MTA knew about structural deficiencies at 181st St. years before the ceiling collapsed, but the authority simply did not have the dollars to address the problem. Now, we’re hearing the same thing in regards to the authority’s weather response preparedness and 30-year-old snow blasters that are due for replacement.

These are, in essence, early warning signs of a system on the brink of disaster. It costs money — a lot of money — to maintain an extensive network of subway tracks, trains and stations. Even as the MTA pares down its administrative costs, it still needs enough capital money to fulfill those maintenance demands, and right now, with a $10 billion hole in the capital budget, that future is murky. Will it take another monstrous snow storm or ceiling collapse before the people controlling the purse strings start paying attention?