Second Ave. Sagas

Category: MTA Economics

  • Moving toward a payroll mobility tax repeal

    Some news from Long Island: State Senator Lee M. Zeldin, one of a group of Republican representatives from outside of the city, is thrilled to announce that a recent Senate Budget Resolution is an “important first step” on the road to a repeal of the payroll mobility tax. The resolution, which will still need to get through the Assembly and past Gov. Andrew Cuomo’s desk, ends the tax on public and private school. It is, said Zeldin, “the first steps in my efforts to completely eliminate this job killing tax. Exempting schools also removes a school district operating cost, which is paid for by property taxes.”

    In addition to this new exemption, the resolution would demand the MTA submit to a full-scale forensic audit within 60 days of its enactment. Allegedly, the audit will find “hundreds of millions more in savings that can be used to support complete repeal of the MTA payroll tax for every employer in the MTA Region.” The MTA, of course, has long embraced a forensic audit, and if such an examination reveals that much savings, it would be a welcome development.

    Ultimately, this road to repeal can be a dangerous one for New York and the MTA. As Jay Walder said a few weeks ago, “It would be impossible for the MTA to replace $1.4 billion.” Zeldin and those who support repeal have their constituent interests in mind, but the money is going to have to come from somewhere lest our transit network and regional economy suffer the consequences.

  • Mr. Walder goes to Albany

    When Jay Walder spoke to reporters following the December 2010 MTA Board meeting, he discussed the MTA’s looming capital problem. The authority’s five-year construction plan that works to both maintain and expand the existing system has been funded only through the end of 2011, and it still suffers from a $10 billion gap. Without action from Albany well before the end of the year, the MTA will have a crisis on its hands.

    “We would need, in going forward with any contracts, to ensure that we have any money not just to start a contract but to complete a contract,” he said. “I do not believe we have the capacity to bond out further off of our existing revenue sources.”

    Walder added that by the latter part of the year, the authority will need funding commitments from the state. If not, as Michael Horodniceanu, president of MTA Capital Construction reiterated last week, the authority will have to begin slowing down its projects. They won’t cease work entirely, but things will not move ahead on schedule.

    Yesterday, the MTA CEO and Chairman went to Albany for what seems like his monthly grilling session. Apparently, our state senators don’t get tired of repeating themselves because the hearing quickly devolved into familiar territory. Suburban representatives went after the payroll tax that their own legislative body approved while city reps rightly expressed concern over the future of the MTA’s capital funding problems.

    As the Wall Street Journal reported, Sen. Marty Golden, a new representative on the state’s capital oversight board, asked Walder if the MTA had begun to talk with Gov. Andrew Cuomo’s team. While I’ve given Golden a tough time in the past for his unwillingness to support revenue-generating measures, he understand the importance of the capital project and recognizes that it will both keep our subways running and lead to jobs for city construction workers.

    Walder said he has broached the topic with Cuomo’s team, but funding solutions are not yet on the horizon. “I have not had conversations as to avenues of funding for the capital program,” he said. The ever-present panacea of congestion pricing or East River bridge tolls would generate enough revenue to bond out the capital plan. Will the state follow through?

    As the MTA head though spoke about the funding challenges on the operating side as well, he again vowed to keep service levels and fares constant. “We will not look to service cuts and we will not look to fare increases. We will look, as we have been doing, for ways that we can continue to reduce our cost structure,” he said. “Well we’ve said and I’ll continue to say is that we’re working on a plan right now to be able to deal with that.”

    But suburban politicians again grilled him on the payroll tax as though it were a creature of Walder’s creation. In fact, the MTA CEO wasn’t in the country when the state legislature approved the controversial plan. But this is a point oft repeated that Albany doesn’t seem to understand. Three weeks after the Senate performed a similar farce, the Assembly went at it. “We are paying greater freight in the suburbs for the services that are basically New York City services,” Assembly rep Nancy Calhoun said.

    The Rockland County representative wasn’t the only one raising a stink. “It’s killing businesses and it’s making Long Island harder and harder to afford to live there,” Al Graf, an assembly rep from Long Island, said.

    Walder though laid out the case for the payroll tax. It isn’t that New Yorkers enjoy the tax; we don’t. But the MTA has been left by Albany with no choice. The Senate and Assembly could have pushed for a more equitable congestion pricing plan, but they opted to close a budget hole that isn’t going away with something far more controversial. “I do not believe that you can take that resource out of the MTA without having a devastating impact upon the region and regional economy,” Walder stressed.

    The solution is almost too simple: In exchange for lowering or even eliminating the tax in suburban counties, the city should implement some form of tolling across the East River and into Manhattan’s so-called Central Business District. That money could be used to offset the gap in the operations budget created by a reduced tax revenue.

    Of course, then we arrive at the problem of congestion pricing. The MTA needs money for both the capital budget and its operations ledger. The same dollars can’t go to both. Which side will give out first?

  • On lawsuits, raises and rational economics

    If you had a 10 percent chance to save $80 million, how much would you pay to do so? What if you had a 25 percent chance to save $300 million? In a traditional economic model, the right answers are $8 million and $75 million respectively. Why then are Pete Donohue and the Daily News so surprised by the MTA’s legal bills?

    In his column today, Donohue slams the authority for “paying hired-gun lawyers more than $540 an hour to deny token booth clerks earning $18 an hour a modest raise.” The MTA, he notes, is trying once again to overturn the third year of raises awarded to the TWU by an arbitration panel in 2009. After an unsuccessful lawsuit and appeal to stop the first set of raises, the MTA racked up a legal bill of nearly $700,000 after claiming a victory would have saved them close to $300 million.

    Riders, of course, are “baffled” by what one man called “a clear example of the MTA wasting hundreds of thousands of dollars of public money on something they agreed on anyway.” Yet, they shouldn’t be. The MTA, which can’t really afford to dole out more money in raises, can save $80 million, and if it feels its chances of winning — admittedly slim due to the precedence of courts upholding binding arbitration awards — are worth the expenditures, then it’s a cost that makes economic sense. Despite Donohue’s portrayal of the challenge as a class issue, it is simply one of economics through and through.

    That said, the real issue here concerns the bigger picture. Later this year, the MTA and TWU will again sit down to negotiate a new contract, and while the MTA won’t accept an arbitration offer so quickly this time, they do plan to dig in for a long fight. It might make more sense to save those labor bullets for later in the year and avoid this uphill cost. The MTA may be doing its legal due diligence, but this is a battle it will likely lose in court while courting bad press as the larger labor war with more at stake looms on the horizon.

  • Report: Apple definitely coming to Grand Central

    The world’s largest Apple Store is definitely coming to Grand Central Terminal, Leander Kahney of Cult of Mac reported this morning. Just a week after we first heard rumors of Apple’s interest surface, Kahney says the store will likely open in “early September,” and it is supposedly set to be “Apple’s largest retail space in the world.” The MTA and Apple, however, are still not confirming this report, and where in the terminal any potential store will go is anyone’s guess.

    As Kahney notes, 2011 is the tenth anniversary of Apple’s first retail store, and the computer giant wants to “make a big splash.” To do so, it’s looking to develop over 16,000 square feet of Grand Central, but two questions remain: Where? And how? The largest retail store in the terminal is a Rite Aid tucked into the walkway near the Shuttle, and it’s only 10,000 square feet. Initial reports in The Observer said that Apple would build “right in the terminal,” and Kahney’s source said Apple “may be taking walls down” in the landmarked building.

    Despite the sure tone of these reports, neither the MTA nor Apple is commenting, and I’m intrigued but still somewhat skeptical. Landing Apple would be a huge get for Grand Central, and Apple would certainly draw headlines if they can find over 16,000 square feet in the terminal. I’ll keep my eye on this story over the next few months.

  • House GOP budget could cut MTA aid

    As MTA appropriations come under fire in New York State, the GOP-controlled House could attempt to take money away from New York’s transit agency as well. As amNew York reports today, a House budget proposal under consideration this week could take $1 billion in federal aid away from the city. Included in those cuts are $73 million in grants the MTA would have used for “rail and bus infrastructure and security projects.”

    I’m working on tracking down the text of this bill, but needless to say, this development is not a welcome one. By and large, though, I’m surprised to see any cuts in security funding. The subway system remains one of the most vulnerable and attractive terrorist targets in the nation, and we shouldn’t wait for an attack to make sure the system is protected.

  • The pesky political economics of the payroll tax

    For the past few months, I’ve been enmeshed in the MTA’s finances stretching back to 1970, and I can see now why politicians have such a tenuous grasp on how the authority is funded. The MTA is made up of various constituent agencies that each operate essentially for 24 hours a day, seven days a week. It has a massive payroll, an extensive operating budget and a separate capital budget. For state legislators who must balance competing demands, understanding this financial structure isn’t — and probably shouldn’t be — a top priority.

    Yet, yesterday, while watching MTA CEO and Chair Jay Walder respond to questions from the State Senate Transportation Committee, I was reminded again just how poorly Senators understand how their own actions impact the MTA and downstate regional transportation. Throughout the committee hearing, the State Senators repeatedly spoke out against the payroll mobility tax. It’s somewhat odd that these representatives chose a hearing with Walder to attack the tax because Walder wasn’t even in the United States when the tax was approved as part of the funding package. Plus, the Senate — and not the MTA — was the driving force behind the tax, and if anything, they should debate amongst themselves the best way to fund transit. But I digress.

    As the hearing wore on, the Senators ramped up the rhetoric. One from Long Island called it a “draconian” measure that has allegedly crippled the downstate economy. Another wondered why the MTA is so adamant about the millions generated by the tax now if, three years ago, it operated perfectly fine without one. “We didn’t have a payroll tax a few years ago. Why can’t we go back to that?” asked one Senator who later said that it “may be difficult” for the state to replace the $1.4 billion the tax generates.

    Walder was unequivocal in his statement in response. “It would be impossible for the MTA to replace $1.4 billion,” he said. He calmly and forcefully explained that the service cuts instituting in June saved the MTA $100 million while the fare hikes raised another $350 million and internal belt-tightening led to $500 million in recurring savings. To go through that process again would hinder the authority’s ability to deliver the subway service its riders demand, and it can’t raise fares 33 percent to cover a potential billion-dollar operating gap.

    So why do these myths that the MTA could do without the payroll tax persist? It is in fact a myth of Albany’s making. The reason why the MTA saw its operations budget deficit jump precipitously toward the end of the last decade is debt. As Albany scaled back its direct contributions to the MTA’s capital plan, the authority turned to bond financing instead, and the repayments started coming due. Thus, debt service payments jumped into the $1-$2 billion range, and the MTA had to scramble to pay for both the transportation services is must provide and the debt service it is contractually obligated to repay.

    State Senators seem to have a myopic view of MTA financing. If it worked three years ago, why can’t it work today? The problem is that MTA’s economic obligations have increased because of Albany action from decades ago. When past leader try to make future generations pay for their capital work, the bill will eventually come due, and that’s what our current Senators don’t seem to understand.

    To take away the payroll tax would starve the MTA of funds it needs to operate. Albany could find other funding mechanisms, but it now must lay in the bed it made. The MTA didn’t ask for this exact tax, but it needs the money. Anyone have a better solution?

  • Retail Thoughts: An Apple Store in Grand Central

    Newsstands dominate the underground retail scene. (Photo by flickr user lornagrl)

    The MTA’s retail offerings are making headlines this week as one of the era’s most iconic computer brands is eying retail space in the country’s most iconic train terminal. As The Observer reported earlier this week, Apple may be gearing up to open a store in Grand Central.

    As is often the case with rumors about future Apple Stores, none of those with any knowledge of the deal could talk to reporter Laura Kusisto, but ifoAppleStore confirmed Apple’s interest in the landmarked terminal. The process to rent space from the MTA is a long one involving stringent RFPs and tight control over the space by the landlords. Still, as Apple looks to siphon customers away from its crowded 5th Ave. store while tapping into the crowds that pass through Grand Central, it’s enticing rumor at least.

    For its part, the MTA said little to Kusisto about a next potential tenant, and we’ll just have to wait out the RFP process. “We select tenants through a public process that features a formal request for proposals,” said Aaron Donovan, a spokesman for the MTA. “We don’t comment on prospective tenants outside of the process.”

    Even if no one wants to talk, this rumors got me thinking about the MTA’s retail division. A frequent charge leveled by politicians at the authority concerns the way it does or doesn’t make use of its extensive holdings. As I walk through the subway system, I’m often struck by how little space is actually used. While some stations see peak crowds too overwhelming to squeeze more onto a platform, most have open areas to spare, and yet, retail is sparse.

    Those stations that do sport stores do not seem to feature much in the way of use or creativity. A few storefront ATM locations populate the 42nd St./Times Square terminal while a record store earned headlines when it reopened a few years back. By and large, though, newsstands are all that we see in the subway, and even those are only set up at the big hubs.

    The headlines about subway retail aren’t particularly pretty. A long-standing dispute in Jackson Heights simmered over during the fall, and that type of coverage is more representative of the MTA’s retail reality. They want to attract more stores, but something about the subway doesn’t work. Perhaps it’s being identified with something New Yorkers consider dirty and inconvenient, rat-infested and unclean. Perhaps its the ebb and flow of crowds that aren’t looking to shop and don’t notice the store.

    Still, as Stephen Smith pointed at Market Urbanism this week, retail in the subway is a great missed opportunity. While urging transit agencies to maximize their real estate holdings, he ponders the economics of it all. “Does anybody know how much money such schemes can generate?” he asks. “Obviously allowing vendors to set up shop in train stations isn’t going to obviate the need for a thorough reform of the way this country does mass transit to make it profitable and sustainable, but can it amount to anything more than a drop in the bucket?”

    As San Francisco’s BART looks to develop its retail offerings, here in New York, Jay Walder would like to do the same. The guys in charge answer Smith’s question by proclaiming profitability. The MTA CEO and Chair discussed underground retail with me in November. “We will make more money if we can improve the retail environment in the subway system, get greater value out of the spaces that we have there, improve the ambiance and the customer satisfaction,” he said while praising new retail initiatives at Times Square. “We’ll make more money than all of the naming rights deals.”

    Ultimately, though, the rest of the system doesn’t carry the passenger volume of Times Square or the cachet of Grand Central that has seemingly enticed Apple to ask some questions. It might be possible to milk some money out of constantly crowded stations, but subway travel is so fleeting. Neighborhood stations are crowded for an hour or two every morning and serve as ghost towns after that. Would a up-market retailer take that risk? I don’t think so.

  • Cuomo removes $100M in dedicated transit dollars

    Click the image to see Gov. Cuomo's proposed budget.

    Gov. Andrew Cuomo has, as feared, removed $100 million in dedicated funding from the MTA’s budget as part of his effort to close a state spending gap that reaches the billions. For the authority, this is the second year in a row that the state’s chief executive has striped money intended for downstate transit, and while the MTA says it will not raise fares this year, history is not on the agency’s side.

    Basically, the net losses to the MTA will be $100 million overall but such a relatively slim cut was accomplished only through an accounting sleight-of-hand. Essentially, Cuomo is removing $200 million in dedicated operating funds and granted the MTA’s capital fund — with its $10 billion gap — a meager $100 million in economic development money. The loss to the operating side far outpaces the $143 million Gov. David Paterson removed from the budget in late 2009.

    John Petro from the Drum Major Institute has some analysis. Despite the potential for another $194 million infusion in capital funding only, Petro warns of the looming spectre of future service cuts if operating dollars aren’t restored. He writes:

    Essentially, Cuomo’s budget transfers money from the operating to the capital budget. Of the $200 million being cut from the operating budget, $165 million will be used to pay down the state’s past borrowing on transportation bonds. The remaining $35 million will go to the state’s general fund.

    While it is essential that the governor and legislature find ways to fully fund the MTA’s capital program, which has a nearly $10 billion hole, taking critical funds used to maintain good service is not appropriate. Nor is $100 million, or even $294 million if the Bond Act funds are included, enough to begin plugging the capital budget hole.

    The governor has repeatedly insisted that he would not raise taxes or implement new taxes. But without a new source of revenue for the capital program, there will be more pressure placed on the MTA’s operating budget. The MTA can trim its costs only so much before more service cuts or fare hikes are on the way. Some of these service cuts will only be slightly perceptible—dirtier train cars and stations, abandoned bus runs. If this trend of cutting operating funds continues, more severe service cuts will need to be considered.

    In its own statement, the MTA pledged to avoid service cuts or fare hikes. The authority had said the same thing a few years ago, but in mid-2010, it was forced to axe two subway lines and countless bus routes. Here’s their statement:

    We understand that the State’s fiscal crisis requires sacrifice from every area funded by the State, including the MTA. Because the MTA has already taken unprecedented measures to reduce costs, finding an additional $100 million in 2011 will be very painful, especially with sizable deficits still projected for 2012 and 2014. As we continue cost-cutting, further reductions become harder and harder to achieve.

    But we must fill this gap, and we will fill it without resorting to fare and toll increases or service cuts, because our riders have already been hit with these painful measures over the past year. Instead, we will work to find additional cost-savings through efficiencies and improved productivity throughout our company. We are hopeful that this year we can work with our labor unions to find productivity improvements that protect jobs even as we reduce costs.

    Making these cuts will be painful, but we can only spend as much money as we have. Given the financial pressures facing the State, local governments, and every New Yorker, our only choice is to manage the MTA so that every dollar counts.

    The Straphangers Campaign, meanwhile, applauded the MTA for avoiding service cuts and fare hikes — or at least promising to — and urged the state to use dedicated transit money only for transit. “In the view of the Straphangers Campaign and many other groups, those funds should be used to meet transit needs. However, the MTA says it will not have to turn to service cuts or fare increases to make up the shortfall. That’s very welcome after an unprecedented three years in a row of higher fares – as well as last year’s service cuts, the worst in memory,” Gene Russianoff said in a statement. “The MTA says that it will have to take ‘painful’ actions. The Straphangers Campaign and other groups will monitor the agency’s response closely to see that the transit system has adequate resources to provide safe, reliable, well-maintained, secure and clean service.”

    Transportation Alternatives was even more direct in its statement. “Governor Cuomo campaigned on restoring honesty and ethics to Albany, but when it comes to transit nothing much has changed,” Paul Steely White, the group’s executive director, said.. “Cuomo is taking dedicated funds away from the riders.”

    It’s hard to take this as anything other than bad news. It’s not a surprise, and every agency in the state is suffering under Cuomo’s budget. But the MTA has had it bad lately, and if stations get even dirtier and personnel begin to disappear from those stations again, we’ll know why. This is Albany’s doing through and through, and now it’s up to the MTA to minimize the impact of these cuts.

  • Report: Cuomo to cut state transit funding

    Governor Andrew Cuomo hasn’t ridden the subway since “last year, and now he’s planning on removing some state funds for the MTA when he unveils his budget tomorrow. According to a report in The Daily News, Cuomo will attempt to limit the cuts to “an amount the Metropolitan Transportation Authority will be expected to absorb while maintaining both the current MetroCard prices and level of service.” Color me skeptical.

    Pete Donohue has the bad news:

    Gov. Cuomo soon will propose a reduction in MTA funding – but he doesn’t want to trigger an increase in what riders pay to ride the subway, buses and commuter trains, a source close to the administration said. The figure will be limited to an amount the Metropolitan Transportation Authority will be expected to absorb while maintaining both the current MetroCard prices and level of service, the source said…

    MTA executives cut $500 million in spending last year. About 3,500 positions were eliminated, many through painful layoffs. But the Metropolitan Transportation Authority remains in a constant state of fiscal crisis. Its 2011 budget plan has a $75 million reserve – lunch money for an authority operating the largest subway system in North America and the country’s two largest commuter railroads.

    Whatever its shortcomings, the MTA’s money problems aren’t the result of corrupt transit executives, bungling bureaucrats or greedy workers, as some critics contend. There never was an illegal “two sets of books,” a myth that emerged after an ethically challenged state controller released a scathing report on MTA finances. The real shell game takes place in Albany. Much of the MTA’s funding comes from a series of taxes the state Legislature enacted over time specifically to help pay the cost of transporting millions of people to their jobs every day – a public service one has a right to expect is both safe and affordable. The state collects the dough – but doesn’t always pass along the full amount to the MTA. It quietly skims off the top and uses it for other purposes.

    In my opinion, Donohue is glossing over some key facts. He’s right to shoot down the claims of two sets of book; that’s one of the more infuriating myths that just won’t die. But a bloated bureaucracy, an inflexible union and some poor contracting practices that may or may not resemble corruption are certainly to blame, in part, for the MTA’s structural and economic problems. The MTA is not a blameless victim here.

    That said, Donohue hits on a few key points here. The MTA has made a concerted effort to save money over the past 12 months, but that doesn’t mean the authority can absorb another funding raid. Had Albany not removed $143 million from the MTA’s budget last year, the service cuts could have been averted. Another cut will require the MTA to scale back on either services — such as station cleaners or in-system eyeballs — or transportation service, and neither of those choices is a desired outcome. If Gov. Cuomo truly believes he can cut the MTA budget without impacting service levels or the fare structure, he may be in for one unpleasant surprise.

    Meanwhile, the very idea of dedicated funding is under attack. When the state legislature approves a tax with revenues dedicated for transit, that shouldn’t be an option appropriation. Those monies should never come under attack from politicians who aren’t responsible in their other spending decisions. Money for collected for transit should always be redistributed to transit.

    Advocates are worried about the impact cuts will have on the MTA’s bottom line because those cuts will be passed onto the riders. How much more can New Yorkers take before holding Albany responsible for this mess?

  • How much is that snow storm in the window?

    The December’s blizzard that struck the city and left much of the subway system paralyzed cost the MTA a pretty penny in lost revenue and unplanned overtime expenses. According to MTA officials, the storm cost $30 million overall. As amNew York’s Theresa Juva details, the authority estimated $16 million in lost fare revenue and $14 million in overtime. As The Post noted, the authority lost “nearly the same total amount in rider revenue for all of last winter” — during storms worse than December’s — “spent much less in overtime.”

    As the papers note, in February of 2010, during two different storm, the MTA lost $17 million in fares and spent $8.3 million in overtime. The late February storm saw over 20 inches of snow fall on the city while December witnessed 19 inches blanket New York. These revelations have, of course, led to some more hand-wringing over the MTA’s snow response. Two board members told The Post that costs were so high due to the MTA’s delayed response over Christmas weekend.

    James Vacca, chair of the City Council’s Transportation Committee had more choice words for the authority as well. “If they had acted sooner with more intensity of response, their overtime would have been less and more people would have been able to get on and use mass transit,” he said yesterday.