MTA Economics

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?

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.

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.