MTA Economics

The make-up of the New York Metropolitan Commuter Transportation District has long been a point of contention for those counties on the outskirts of the region. Rockland County, in particular, has long objected to the MTA. They say they pony up more money in subsidies in taxes than they receive back in services, and now, the county, armed with a study that shows as much, is ready to push forward for a break from the MTA.

The recent trouble started, of course, with the payroll mobility tax. It served as the final straw for many of the outerlying counties who have seen their fares increase, their service decreases and their bill spike. Some think they may be able to provide similar levels of service for less while others are interested in assessing the fairness of the MTA’s current set-up. In a study released yesterday by Rockland County and presented to the area’s Economic Development Committe []pdf], the county highlights that inequity.

According to the study, conducted by Cambridge Systematics, Rockland County forks over $110 million to the MTA through various taxes, tolls and fares while the MTA provides just $68 million in transit services for the area’s residents. This divide has Rockland County officials calling for an MTA withdrawal. “The report provides the solid foundation and updated data we need to now explore the realities of withdrawal,” County Executive C. Scott Vanderhoef said. “Realities which include two major unknowns – legislative approval at the State level, and the value of MTA’s Commuter Rail Revenue Bonds (CRRB), which given legislative history may have to be undertaken by the County.”

The study goes through a rather technical examination of services provided vs. the amounts charged and subsidies levied. The meat of though focuses on the practicalities of an outer-county withdrawal. It’s not as easy as simply asking out. First, the state legislature must approve such a withdrawal, and it’s tough to envision a Sheldon Silver-controlled body approving a GOP-lead effort to remove monies from the MTA’s pot. Second, it’s unclear what happens to the various fiscal contributions in the event of a withdrawal. While some tax money is earmarked for the MTA, others go into a central pot and are redistributed to the authority. Would Rockland County be guaranteed that money for transit operations? Would the MTA still get some of those dollars? Would the payroll tax disappear or be reapportioned?

Next, Rockland County is worried too about bond obligations. The MTA has a series of bond obligations for overall capital work, and for Rockland-specific work. If the county must assume those obligations, withdrawal saves less money than it otherwise would. No matter, though, withdrawal would likely save the county some money. The study’s conservative estimate features savings of around $23 million.

But what if withdrawal is not approved in Albany? The county could seek to reduce payments to the MTA; receive a greater share of operating funds for transit service; ask the MTA to increase service to the area to better align with fiscal contributions; or request a greater return of dollars through funds similar to the DORF payments. The state, as I mentioned, has not authorized withdrawal, and a deficit-reducing measure may be more palatable in Albany.

As much we in the city would love to take in that extra $50 million, it’s tough to argue with Rockland County’s analysis. Sure, having transit service increases property values in areas that are rather far from the Manhattan Central Business District, but these areas do not get what they pay for. As they make noises about the payroll tax, perhaps the best solution is to provide more services. After all, better transit access should be a goal for the region, and then they wouldn’t be as quick to take their money and run. No matter the looming outcome, I doubt this is the last we hear of such discontent.

When the MTA announced last week that it was hoping to refinance its debt, the Bloomberg News reporters who covered the story let slip an oft-overlooked fact. Because of an obscure provision at the end of the New York State Public Authorities Law, the MTA must pay to the state $8.40 for every $1000 it borrows through the sale of government-backed bonds. In other words, if the MTA borrows $1 billion, it owes the state $8.4 million.

When we actually stop to think about that, it seems a bit contradictory. Public Authorities exist, to some degree, to allow states to escape constitutionally-bounded debt limits. States are often banned by their founding documents from taking out too much debt, but public authorities, quasi-state entities, can avoid those debt limits. Thus, the MTA can become one of the nation’s largest debtors while the New York State books are technically clear of these debt obligations.

On the other hand, the state is charging the MTA for its own ineptitude. Why is the MTA looking to issue another few billion dollars in debt? Because the state hasn’t come up with a better funding scheme and is happy to put paying for today’s upgrades on the shoulders of tomorrow. In a way, then, the MTA is paying double: It has to pay this so-called “cost recover” fee now while paying down debt later.

In The Daily News today, Pete Donohue reveals a shocking figure: The MTA has paid $105 million to the state in debt issuance fees since 2006. That’s enough to fund the 2010 service cuts and restore bus service for millions of New Yorkers. “These unnecessary fees add to our total debt and strain our ability to provide bus and subway service,” Allen Cappelli, an MTA board member, said. “Our riders deserve relief so that this money could be used to provide restorations and improved service.”

Donohue has more:

In the last fiscal year, the MTA paid the state nearly $20 million in bond issuance fees, according to data provided by the state controller’s office. In the fiscal year ending in April 2009, the MTA paid the state more than $30 million. Since 2006, the MTA has paid $105 million in fees. But the agency borrowed extra money to cover the cost of those fees. That debt adds up to $6.5 million in interest payments annually, authorities said.

The MTA this year plans to sell an unusually large amount of bonds to raise new money and refinance existing debt. It potentially could wind up paying the state another $75.4 million in fees. MTA Chairman Joseph Lhota has asked the state budget director to grant a waiver lowering that amount by tens of millions of dollars.

State controller Thomas DiNapoli said the bond issuance fee also is “an issue for other public authorities that issue debt. As the State moves toward greater fiscal discipline, this is a practice that should be reviewed.”

That’s a rich one: Not only must the MTA pay these unnecessary fees, it also has had to borrow additionally money to pay the state to borrow more money. If you think about it for too long, it becomes a blackhole of terrible and irresponsible fiscal policies.

This is a broken system. The state won’t adequately fund transit maintenance and improvements, and in fact, the state is levying a penalty on the MTA for trying to do so. The authority can ill afford to see Albany remove another $20 million from its budget, but without reform of this law, straphangers will continue to pay for political mismanagement by and from those we continuously send to Albany.

The MTA is in trouble. A creature of the state that runs the city’s most vital transportation network, it has enjoyed nearly no support for New York’s current governor, and those who have argued for its long-term health have been marginalized at best and exiled to Hong Kong at worst.

The brouhaha this week started when Jay Walder finally broke his silence on his tenure in New York. As I reported on Wednesday, he did not have kind words for the MTA’s condition or Albany’s treatment of the network. We’ve heard that Walder and Gov. Andrew Cuomo did not have a great working relationship, and Walder’s statements seem to bear that out.

Two days ago, I excerpted just a part of Walder’s statement but later learned what more he had to say. “New York, when I arrived there, was in a financial crisis,” he explained. “The system simply did not have enough money to continue to operate. The assets were not being renewed. And the infrastructure was in terrible condition. What I did was to be able to right that financial basis and to be able to put the system back on firm financial footing.”

That so-called “firm” financial footing may have been a mirage. The state stripped to the MTA of some expected dollars by reallocating supposedly dedicated funds, and a partial repeal of the payroll tax has left a good chunk of the MTA’s budget in a state of flux. Furthermore, that “firm” financial footing relied on assumptions concerning debt financing and labor expenditures that could still turn out to be far from the eventual reality.

Walder wasn’t the only one speaking out on the MTA though. More immediately, Mayor Bloomberg has joined the fray. In a press conference yesterday, Bloomberg essentially punted on helping transit secure better financing. “We gave it our best shot,” the mayor said of his congestion pricing plan. “We came up with an idea. We worked very hard to get every good-government group behind it, every union behind it, the public behind it, every newspaper behind it, and then when it got to Albany, it didn’t get passed. So I think at this point it behooves us to just stay out of it.”

Speaking directly to Walder’s comments, the Mayor elaborated: “Keep in mind, it’s all relative. When I came to New York in 1966, the subway cars were covered in graffiti, they broke down all the time, they had no signaling. Having said that, if you compare today’s MTA system here to modern systems — and I have been on the Hong Kong system — it’s an order of magnitude more modern, and that’s what we have to do. It’s a state problem. They’ve got to find the monies.”

A state problem. Even though Bloomberg appoints four of the MTA Board members and city taxes fund the MTA, finding a long-term solution has become a state problem. Ironically, that’s why the MTA first came about all of those decades ago. Somehow, the city had to remove politics from transit fare policy, and a state agency that could reappropriate road tolls to fund transit while unifying Metro-North, LIRR and NYC Transit seemed the way to do it. It no longer seems to be working.

If it’s a state problem then, the state should do something, but instead, we have a governor with no real appreciation for transit. After avoiding much mention of the MTA in his State of the State speech, Cuomo drew heavy fire from transit advocates.”While the Governor is right to call for greater investment in infrastructure, Albany cannot continue to give short shrift to funding transit across our state,” Transportation Alternatives Executive Director Paul Steely White said. “Public transit projects create a jobs dividend that stretches from the five-boroughs to Upstate New York. From manufacturing jobs in the North Country to construction jobs in the metropolitan area, fully funding public transit not only helps get millions of people to work every day, it creates good-paying jobs for New Yorkers.”

Ultimately, then, what remains for the MTA? The state won’t tackle this difficult challenge; top transit experts and executives willing to do so have been pushed out; and the mayor, the last public figure who could affect real change by demanding more city control of the TA, is effectively wiping his hands of the matter. It’s looking bleak out there, and those fighting for better transit know it.

“The State of New York’s public transit is poor,” TransAlt’s White said. “From Buffalo to Brooklyn, New Yorkers are losing affordable public transit options because of the fare hikes and service cuts that are the result of a chronic lack of transit funding. To protect businesses and jobs in this state, Governor Cuomo would do well to consider the millions of businesses around the state that are wed to transit.”

But is anyone else listening?