MTA Economics

December is always a harsh mistress for the MTA. As the authority gears up to cope with inclimate weather and all of the challenges feet of snow can bring, up in Albany, the New York state legislature tries to pretend it isn’t totally inept as it rushes to wrap up end-of-year work. Included in that work are appropriations measures that usually mean a raid on MTA funds and of course, new tax measures.

This year has been a particularly tough one for the MTA. The authority is losing $320 million annually in a cut to the payroll mobility tax with only a vague promise from Gov. Andrew Cuomo that he will somehow find a steady or not-so-steady source of replacement funds. The state reappropriated another $100 million that was supposed to fill the MTA coffers while the governor stripped the transit lockbox legislation of any teeth. Now, we find out that the New York State beancounters once again over-estimated the MTA’s tax haul.

As Pete Donohue reported, the New York’s Mass Transportation Operating Assistance account, a key MTA funding mechanism, will be $87 million short of initial estimates as tax revenue was less than expected. For an MTA that was, a few weeks ago, looking forward to a semblance of financial stability in 2012, the news comes at the end of a few long weeks.

To make matters worse, as Donohue relates, this drop comes after two MTA Board members had lobbied hard to set some money aside next year to restore buses lost to the 2010 service cuts. Now, those plans are off the table. Donohue reports:

The Metropolitan Transportation Authority’s financial outlook has worsened since just last month, when two board members proposed setting aside money to bring back some of the axed service – which included 36 bus routes — sources said. The state Division of Budget has told the MTA to expect an $87 million drop in projected subsidies from the Metropolitan Mass Transportation Operating Assistance account next year because certain tax revenues are coming in lower than anticipated.

MTA subsidies from the account also are likely to be lower than previously projected for the following three years – 2013, 2014 and 2015 – by $58 million, $45 million and $47 million, the state has told the MTA. “We’ve been saying all along how fragile the budget is, and you can see we’re nowhere near out of the woods,” one source at MTA headquarters said. “Now is not the appropriate time to be talking about restoring service,” the source said.

The MTA budget going before the board next week for a vote will include tapping some of the MTA’s small reserve and finding other savings to make up for the shortfall. Additional service cuts won’t be in the mix, sources said.

That last bit of news, at least, is a welcome development, but it’s a small consolation for a cash-starved MTA that is also facing some tough labor negotiations. (Their current contract with the TWU ends on January 15, but no one is expecting a repeat of the 2005 transit strike.)

Meanwhile, to drive home the point, the Straphangers Campaign released their annual top ten lists of subway stories yesterday. They focus on both the ten best and ten worst stories of the year, and while the ten good items concern technology upgrades and better bus service, the ten worst are all about the dollars. The MTA has lost upwards of $400 million over the past few weeks as it eyes debt funding for the remainder of its current capital plan. At some point, the system and the authority will reach its fiscal breaking point.

If the MTA is unable to attain a net zero wage increase for unionized workers, operating deficits could top $500 million by 2014. (via)

The MTA Wednesday unveiled its final 2012 budget and the latest set of projections for 2013-2015. Although the budgets still rely on revenue generated by fare hikes in both 2013 and 2015, the authority does not currently anticipate cutting services to balance its books. However, the long-term outlook remains debt-heavy, and the MTA admitted that its four-year projections rest on a precariously balanced dime.

“The MTA has achieved a fragile fiscal stability by reducing expenses and operating more efficiently,” Joseph Lhota, MTA Executive Director, said in a statement. “It’s clear, though, that we’re still feeling the impact of the economic crisis and must continue to reduce costs even as we work to improve service.”

The details, available in full as a PDF here, remain substantially the same as they were in July. Thanks to aggressive cost-cutting measures instituted while Jay Walder was the CEO and Chair, the MTA anticipates annual savings of at least $850 million by 2015. By freezing non-unionized worker pay for three years, reducing administrative overhead and reining in overtime, the MTA has begrudgingly become a leaner organization.

Yet, the long-term outlook is rife with potential problems. Even still, the MTA is relying on two fare and toll hikes that will be designed to increase revenue by 7.5 percent, but those are the safe figures. The MTA is counting on $323 million in what they’re calling “net zero wage savings for represented employees.” In other words, unionized workers will either by taking pay freezes for the foreseeable future or the MTA will have to resort to layoffs. I don’t think John Samuelsen will be too happy to hear that.

The MTA, meanwhile, warned of inherent risks in their rosy projects. For now, the authority anticipates an operating surplus in 2011, a balanced budget in 2012 and a smaller surplus in 2013 before the MTA lands over $200 million in the red by 2015. Much of this deficit, the authority says, is driven by increasing costs of retiree and healthcare benefits that will eat up nearly all of the additional revenue generated by the anticipated 2013 and 2015 fare hikes.

Furthermore, the MTA warns that a variety of factors could turn this rosy outlook sour. Among those factors are a stagnant overall economy; reductions in state subsidies and dedicated taxes; a failure to achieve desired expense reductions; an increase in labor costs due to bargained-for agreements that do not attain the “net zero” wage level; less funding for the capital program. As far as projected budgets go, then, the MTA’s current plan may be a final one that needs approval but it’s hardly set in stone.

The other 800 pound gorilla in the room involves debt on the operating budget and funding for the capital plan. As the MTA seeks to close a significant funding gap in its five-year capital plan, it will do so through a series of measures that will increase its long-term debt obligations. Even as the authority retires debt from the 1980s, more will hit the books. Future New Yorkers will have to pay for both our desired maintenance and theirs.

“In the context of the ongoing economic crisis in New York State, this proposal advances our critical capital investments in an affordable way,” MTA CFO Robert Foran said. “It relies on revenues already dedicated to capital expenses and keeps debt service at a manageable level, with the percentage of debt to capital investment the lowest in 15 years.”

And what of the surplus and budget flexibility? Two MTA Board members have proposed reinstituting services lost to the 2010 cuts. Mitch Pally and Allen Cappelli both called up on the MTA to include a $20 million item in its $12 billion budget that would restore some of the old service. “I don’t believe we can restore all of them, but I believe a portion of them should be – and can be – funded in this plan,” Pally said during yesterday’s MTA Board meeting.

Everyone is fighting for a piece of the pie, and those who inherit the most are those who will have to face the MTA’s mounting pile of debt. For now, the authority will stay afloat, but the long-term outlook is not comforting.

Over the past few years, I’ve been rather critical of New York State Comptroller Thomas DiNapoli’s reports highlighting MTA efficiencies. He’s been targeting small potato issues that wouldn’t result in major cost savings without highlighting how a comprehensive reform effort involving Albany, MTA management and its labor unions would streamline efficiency and economics at the authority. Telling the world that service changes are annoying and debt is a bad idea hardly seem like game-chargers.

Now, though, a glimmer of useful information has emerged from DiNapoli’s office. In a highly targeted forensic audit of the Signal Construction Unit for Metro-North, DiNapoli has found “systemic overtime abuse” that may rise to the level of fraud. The audit — available here as a PDF — explores how 28 workers in a 30-employee division took home an average of $42,000 per employee in overtime in 2010 and how pension padding may balloon to $5.5 million.

“MTA management has tolerated a manipulation of the system by both supervisors and workers who have enjoyed the perks of having a daytime shift for jobs that need to be done at nights and on weekends,” DiNapoli said. “In 2010, in one 30-member unit at Metro North, over one million dollars was paid out for avoidable overtime and rest shifts. Federal laws implemented to protect riders were exploited to enrich employees at the expense of taxpayers. There’s no place for this type of abuse in New York and it must stop.”

In a press release, DiNapoli’s office summed up the technical findings:

Supervisors boosted employee incomes and pensions by regularly assigning overtime work to be done at night by workers whose normally scheduled shift was during the daytime. These extra overtime shifts in turn triggered a requirement (the federal Hours of Service statute) that they rest – at full pay – during their next day’s shift.

DiNapoli’s auditors calculated that the shift manipulation for 28 of the 30 employees in the Unit cost Metro-North $991,208 in overtime and $216,128 in pay for rest shifts in 2010. For six of these employees, the additional payments inflated future projected pension benefits by $5.5 million. One worker was able to increase his projected total pension amount by $1.5 million above what would have been earned at his regular salary.

The Signal Construction Unit supervisors, who are not covered by the statute, also improperly enriched themselves by scheduling their own overtime and paid rest shifts. The Comptroller’s office believes the supervisors’ actions are potentially fraudulent because they did not perform job duties expressly set forth in the statute. In addition, the audit also found that supervisors improperly approved their own time records and charged payroll costs to unrelated capital projects to avoid detection.

While Metro-North officials in a letter appended to the audit disagreed with some of DiNapoli’s findings, the comptroller has referred the case to the MTA Inspector General for further investigation. A finding of corruption or legally-actionable fraud could be quite revealing for both the MTA and Metro-North workers.

In fact, the audit itself could be troubling without further investigation. Two rank-and-file crew members did not disguise their ability to exploit the job for more pay. “I’m entitled to it,” one said. “It’s my turn now.”
Another employee added, “I know I have a good gig going on. If I had to name the top five jobs in the country, this would have to be, hands down, number one.” DiNapoli claims these MTA workers “exemplify the sense of entitlement and culture that is likely pervasive throughout the MTA.”

Ultimately, DiNapoli’s suggestions seem rather obvious. Stop unnecessary overtime pay; don’t allow supervisors to sign their own attendance records; stop improper payments. Yet, despite this seemingly mundane outcome, DiNapoli’s audit is an eye-opener. In one department of 30 workers, 28 of them took home an extra $42,000 in overtime pay last year. How deep does this run?

The MTA and New York City’s property owners have a complicated relationship under the current transit financing scheme. Developers and property owners rely upon the MTA’s services to increase the desirability and, of course, the value of said property while the MTA relies upon real estate transfer taxes to help fund their operating budget. When it comes to capital investment, though, property owners owe nothing to the MTA but stand to benefit.

Earlier on Wednesday, while catching up on some transit news, I came across an intriguing article that brings this divide to light. It’s a short piece in Columbia Daily Spectator about a proposed renovation to the 168th Street station. This Washington Heights stop, a key transfer point between the Eighth Avenue IND and the IRT local 1 train, also serves the Columbia University Medical Center, and the station complex is looking a little unloved. While not on the level of, say, Chambers St. on the BMT Nassau St. line, 168th St. features your typically dingy conditions and cracked platforms. It needs some work.

Soon though the MTA will begin a partial rehab for this station. The authority will be replacing the brick arches with Glass Fiber Reinforced Polymer and will shore up some columns while repairing beams. This station, after all, is one with structural concerns with the ceiling.

According to The Spectator then, Columbia officials are pleased. In fact, the school’s board has long requested the MTA gussy up the station so visitors are not turned off by the grime. The way the article is presented though speaks volumes of how Columbia, which is currently building a massive complex in Manhattanville, wants to be involved. Luke Barnes writes:

University Trustees don’t like the look of the 168th Street subway station—and the MTA plans to do something about it.

The Metropolitan Transportation Authority is planning a renovation of the No. 1 train station that services New York-Presbyterian Hospital and Columbia University Medical Center. Although still in the planning stage, the project is slated to begin in December and wrap up before the end of 2014, according to a MTA representative. “It’s probably the worst looking subway station I’m aware of in the city and it is a Columbia-related station,” professor Ronald Breslow, the chair of the campus planning committee, said at a University Senate plenary meeting last week. He added that the subway station came up at a recent meeting of the Board of Trustees, and several said that they were concerned…

Columbia officials said they agree that the station needs a renovation, but there are currently not any plans for the University to work with the MTA on its planned renovations. “For many of our students, patients, faculty and visitors, the subway station is the first thing they see when coming to CUMC,” said Ross Frommer, associate dean for Government and Community Affairs in a statement to Spectator. “As the largest destination for subway riders in this part of the city, we would work with the MTA in any way that we can to make improvements to the station.”

So a wealthy institution wants its subway stop to look nicer, but they also want someone else to do the work. If they contribute anything to the project, it will be to cover the costs of signage promoting Columbia. Otherwise, they are content to pressure the MTA to do something while they sit back and complain.

Now, I don’t think the MTA should be in the business of asking for handouts. It would be an absurd commentary on the state of transit funding if the MTA had to go, hat in hand, to private property owners in order to fund capital expansion. But if Columbia wants to see a station rehab that badly, they should be willing to do something about it. After all, they’re going to benefit materially from the MTA’s efforts. Why shouldn’t they be expected to contribute to it as well?

Now and then over the years, I’ve written about “adopt-a-station” plans as a way to draw resources to subway station cleanliness efforts, and I wonder if a similar program would work with the capital program. Why didn’t developers around 41st and 10th Ave. who would benefit tremendously from a subway station there figure out a way to contribute the effort? Why isn’t Columbia required pony up the bucks to help clean up a station they claim is “the first thing” visitors see? Subway improvements and system growth, after all, don’t just happen.

* * *
Updated (10:00 a.m.): From what I’ve heard from sources at Columbia, the issue at 168th St. is perhaps not as clear cut as The Spectator made it out to be. There are those on university committees who believe the institution should consider picking up some of the tab, as they did with station rehab projects at 116th, 110th and 103rd Streets in the past.