Second Ave. Sagas

Category: MTA Economics

  • Vacca, advocates: Keep state hands off of transit money

    James Vacca, chair of the City Council’s Transportation Committee, is quickly becoming transit advocates’ most vocal supporter in New York government. Today, Vacca along with Gene Russianoff, Paul Steely White and Kate Slevin issued a call for New York state, mired in a budget crisis, to keep its hands off of money ostensibly earmarked for transit.

    The letter comes on the heels of the news that the state is facing a $315 million tax revenue shortfall, and the situation is eerily similar to the one that developed last fall. In 2009, when faced with a similar crunch, the state opted to take $143 million in funds earmarked for transit away from the MTA. Earlier this year, the state did the same when federal medical assistance payments came up short. To combat yet another financial move, Vacca and his co-signers are urging Gov. David Paterson, Sheldon Silver and John L. Sampson to respect the transit lockbox.

    Says the letter, which I’ve embedded after the jump:

    Out concern is stoked by the events of last December. Confronted with a midyear budget deficit, the State diverted $143 million from our mass transit “lockbox” to the general fund, in effect raiding a pot of dedicated taxes that were specifically enacted to support the MTA and New York straphangers. This budget “sweep” shook the MTA’s already-unstable fiscal house. As a result, the authority implemented the most severe service cuts in its history, eliminating dozens of bus and subway lines and reducing service on over 100 others. Those cuts stranded tens of thousands of New Yorkers and saddled thousands more with longer waits, additional transfers, and more crowded commutes.

    Despite the drastic service cuts anda 7.5% fare and toll hike scheduled for January — the third in as many years — the MTA’s budget outlook remains bleak. the MTA projects an operating deficit of $87 million next year and substantially higher deficits in the out-years. Its five-year capital plan is short nearly $10 billion with no funding provided by the State past the second year. Straphangers face the real possibility of additional service cuts or fares hikes if the MTA cannot identify steady funding sources. At a time when the State should be focused on shoring up the future of mass transit funding — and restoring the $143 million that was diverted last year — conducting another “sweep” would send a terrible message.

    The MTA’s subways, buses, and trains are the engine that drives New York’s economy. New York City cannot survive without a vibrant mass transit system, and our mass transit system cannot survive without a stable source of funding. Denying the MTA any additional funds from its dedicated tax stream at this time would be a short-term fix with severe long-term consequences. We urge you to take a different route.

    I’ll have more on the idea of a transit lockbox in the coming months, but the real problem here is that the lockbox doesn’t exist. The state and city taxes that are ostensibly earmarked for the MTA are deposited into the state’s general fund, and the legislature is then supposed to redistribute the receipts to the MTA. This set-up makes it way too easy for the state to divert transit dollars to other areas of the budget, and in times of crisis, the MTA’s coffers make an appealing target.

    California’s transit funds are now constitutionally protected. It’s time for New York to take the same plunge before the MTA’s dollars are diminished even further.

    After the jump, read the letter in its entirety. (more…)

  • Tales from the economics of transit

    The fallout from the MTA’s June service cuts has continued into the fall, and today, I have two stories that highlight both the politics and economics behind the service cuts. The first came from last week’s issue of The Brooklyn Paper, and it involves the dollar vans that have replaced some eliminated local bus routes. Sulaiman Haqq, the businessman running the van service along the defunct B71 route, has found that he is bleeding money as few people ride the service. During the first two weeks of service, he averaged 1-4 passengers during his 16-hour shift and certainly isn’t covering even his costs. “This is the reason why public transportation is subsidized,” he said. “It is not profitable.”

    The second story comes from yesterday’s Brooklyn Daily Eagle. Sen. Marty Golden, Councilman Vincent Gentile and Assemblywoman Janele Hyer-Spencer led yet another protest against the elimination of two express buses in advance of a lawsuit alleging that the MTA’s cuts violated the Americans with Disabilities Act. I’ve profiled Hyer-Specner and Golden in the past, and these two are offering up nothing new. “Let’s return the X37 and the X38 back on the FDR Drive, exiting at 23rd Street. That is the best way to transport people quickly and efficiently from my district to uptown Manhattan,” Golden said yesterday. Neither he nor Hyer-Spencer have done anything to help return the $143 million Albany took from the MTA late last year. With that money and a little help from the right people in Albany, the MTA could theoretically look to restore service along these two highly unprofitable express bus routes.

  • Solving the problem of skyrocketing costs

    Costs for the Second Ave. Subway could skyrocket before Phase 1 is completed.

    Over the last four years, I’ve burned a lot of pixels writing about the MTA’s capital budget woes. One of the major problems with which the authority has grappled, seemingly unsuccessfully, involves cost overruns. Nearly every capital project — from the station rehab at 59th St./Columbus Circle to the Fulton St. complex to the Second Ave. subway — have suffered cost overrun ranging in dollars from the tens of millions to the billions. As the MTA struggles to convince Albany that it deserves more money for the next five years of capital investment, keeping costs on par with initial estimates has become a priority.

    Yet, there’s a missing piece to this puzzle. Although the authority has pledged to keep spending under control, it hasn’t yet been able to explain why costs soar. Why does the Second Ave. Subway cost nearly $1.5 billino more today than it did when first proposed seven years ago? Why has the price tag for the Fulton St. complex doubled in five years?

    In the Wall Street Journal today, Numbers Guy Carl Bialik tackles that question. Why, he asks, has budget-busting become “the norm for infrastructure work”? According to a 2002 study, planners understated construction costs in nine of ten projects, and Bialik offers up a few explanations:

    Economists and behavioral scientists say the pattern of budget excess echoes findings in other areas where people allow their best hopes to dominate the planning process. Irrational optimism afflicts even individuals who have experience with a given situation, and should know better. Researchers have linked it to business analysts’ earnings forecasts and to students predicting when they will finish assignments. Irrational optimism, for example, is at work when a commuter is consistently late for work because she estimates her travel time based on the assumption that traffic and transit always will run smoothly…

    Prof. Flyvbjerg, who now heads the University of Oxford’s BT Centre for Major Programme Management, sees another factor in problems with cost estimates—the political process for project approval. “Government agencies like to justify what they do [with] numbers,” he says. And sometimes officials engage in what he calls “strategic misrepresentation” when producing those numbers.

    Other researchers have identified similar levels of inadequate monetary estimates but disagree with Prof. Flyvbjerg’s explanation. Dr. Merrow has compiled a database of thousands of projects, and finds a similar pattern of cost overruns. This extends to the private sector, he says, even though corporate employees who botch a budget might suffer more as a consequence. Among large private-sector projects with some tricky building element, the average cost overrun was 32%. Dr. Merrow’s firm advises clients to increase their forecasts by a factor roughly equal to the typical historical cost overrun of similar projects.

    Other experts say that the public demand for more amenities as projects are built can also lead to increased costs. Yet, that’s not really the problem in New York City because we see our projects’ budgets balloon before the first shovel breaks ground.

    While speaking with Bialik, Neysa Pranger of the Regional Plan Association called for a third-party auditor, and that appears to be the path New York politicians will take. “An independent validator should be established,” she said. “But they’ll need to establish a track record.” Anything has to be better than the track record of skyrocketing costs and delayed timelines we’ve seen lately.

  • State again reappropriates dedicated transit funds

    Earlier this week, the MTA released its September 2010 Budgetwatch Monthly Flash Report — available here as a PDF — and against it appears as though New York State has taken dedicated funds from the Authority. Here’s what the report says on the first page of the authority’s overall latest conditions:

    August monthly passenger revenue was on target while toll revenue was slightly higher by 1.1%. On a YTD basis, passenger revenue was slightly unfavorable by -0.4% and toll revenue was slightly favorable by 0.4%. Operating expenses were less than Forecast by $16.6 million, or 2.5%, for the month and 72.3 million, or 1.2%, on a YTD basis, reflecting vacancy savings, favorable timing, and lower energy, health and welfare, and OTPS costs. In addition, Overtime savings have exceeded the reductions that were included in the Mid-Year Forecast. Debt Service costs were 2% favorable due to timing.

    YTD PMT receipts were better than the forecast by $35.8 million or 3.5%, while YTD MTA Aid receipts were $55.5 million or 23.5% unfavorable. September combined real estate tax receipts of $34.9 million were $4.3 million, or 10.9%, below the Mid-Year Forecast. YTD, real estate tax receipts were $13.9 million, or 4.5%, unfavorable.

    The latest funding cuts by New York State, the Federal Medical Assistance Percentage (FMAP) cuts, effective September 15, 2010, are reducing dedicated taxes and subsidies earmarked for the MTA in NYS’ Budget by $16.7 million in 2010.

    The FMAP fund is a bit of a bureaucratic twist and turn. In New York State, the governor can cut medical care expenditures if it does not receive other federal monies, and that, it appears, is exactly what happened here. The state expected $1 billion in FMAP money, didn’t get it and has now removed $16.7 million in taxes and subsidies previously earmarked for the MTA.

    The timing of these cuts is incredibly circumspect. Albany took money from transit riders to balance its budget at contemporaneously with the MTA’s fare hike hearings. While politicians were railing on the MTA for raising fares, they were taking more money away from the transit system. Why, I ask, should the city’s transit riders pay when Albany receives fewer federal funds than they originally — and foolishly — expected to?

  • A Comptroller’s report predicts the wrong kind of MTA doom

    As New Yorkers awoke to their free daily newspapers on Tuesday morning, a poorly-done Photoshop along with an article predicting doom and gloom for the MTA screamed out from the cover of amNew York. According to a report by New York State Comptroller Thomas DiNapoli, the MTA’s budget hole will expand to $2.1 billion by 2014, and everybody should panic! Or at least that’s what amNY’s take on the story was.

    Now, this evening, I checked out DiNapoli’s report, and he paints a bleak picture of the MTA’s financial future. The authority, he says, “faces a budget gap of more than $1 billion next year, which could more than double to $2.1 billion by 2014 unless the MTA begins to drive more efficiencies in the way it does business.” While fares are going up and services eliminated, the MTA must reduce costs and improve worker inefficiency to stave off financial disaster.

    “We’re seeing the effect of the recession and years of undisciplined bloat and inefficiency,” DiNapoli said. “The MTA’s current administration is working to close its budget gap, but commuters and taxpayers are demanding results. The MTA needs to change the way it does business. Repeated fare hikes and service cuts can’t change a culture of complacency. My office has identified more than $296 million in waste and savings opportunities over the last year alone, and we recently began a forensic audit of the MTA’s $600 million overtime budget. These are tax dollars. Inefficiency and complacency just don’t cut it.”

    There’s only one glaringly obvious problem with DiNapoli and the report: The MTA has already acknowledged these funding woes and is already working to close the budget gaps both in 2010 and in the future. While it remains to be see if a bureaucracy famous for its bureaucratic bloat can truly become a lean — or at least a leaner — organization, DiNapoli’s reports are simply rehashing the MTA’s own financial statements and urging the authority to enact measures it already said it would enact.

    The most obvious example of DiNapoli’s doomsaying tendencies comes on pages 2 and 3 of his report. Here, he highlights the deficit but also notes that the MTA is committed to closing the deficit. So despite the fact that his press release leads with the $2.1 billion figure, the MTA doesn’t anticipate a deficit of that size in reality. DiNapoli writes:

    The MTA has moved aggressively to reduce the size of the projected budget gaps and has outlined a comprehensive gap-closing program for the next four years (see Figure 1). It is currently implementing actions (discussed below) that are expected to generate $367 million in 2010 and about $525 million annually thereafter. These actions, even if fully successful, would still leave budget gaps of $200 million in 2010, $500 million in 2011, $803 million in 2012, $1 billion in 2013, and $1.6 billion in 2014.

    The MTA intends to close the remaining budget gap for 2010 mostly with actions that will generate only one-time savings. For subsequent years, the MTA has proposed raising fares and tolls by 7.5 percent in 2011 and in 2013, and has outlined additional management initiatives. In total, the MTA expects to generate more than $700 million in recurring savings through management actions by 2014. If all of these actions are successfully implemented, the MTA forecasts small positive cash balances in 2010, 2011, and 2013, and manageable gaps in 2012 and 2014.

    Considering the MTA’s initial success in reducing overtime costs, there’s little reason to doubt that these actions will be at least partially implemented. Is it skeptical of me to say then that DiNapoli’s $2.1-billion figure is simply a creation of a man running for reelection and trying to gain headlines?

    Despite my dismissal of this report, there are real financial concerns behind the MTA’s budget. As John Mancini reported tonight at NY1, the MTA now anticipates that it will have to raise its pension contributions by an unplanned $150 million next year, and its real estate tax revenues are “no better than last year.” The authority had hoped to see a boost in tax revenue as the economy improved, but that — a true deficit-reducing event — will have to wait for 2011 or beyond.

    There is no doubt that, as DiNapoli charged, the MTA is “inefficient and bloated.” The authority has suffered this problem since the day of its founding in 1968, and after the authority suffered through this problem for 42 years, Jay Walder seems willing to confront it. Yet, threats loom large. A constitutional challenge to the payroll tax or political change in Albany could jeopardize $1.5 billion in MTA revenues, and until the authority is on sounder financial footing — whatever that might be — the threat of financial doom looms large while fares remain artificially low. If the state comptroller paid more attention to that reality, perhaps the right people would listen.

  • Overtime reductions set to reach $54 million

    In late May, as the MTA unveiled its push to trim its massive budget gap, the authority pledged to control overtime costs. The authority’s financial gurus believed that the MTA could save $22 million in 2010 through better policing of overtime abuse and better oversight of sick day use. Yesterday, the agency announced it has exceeded its goal and then some as overtime reductions will reach $54 million in 2010 alone.

    “Reducing overtime is a key part of our efforts to use every fare and taxpayer dollar wisely, and I am pleased that we have been able to achieve real results in just a few months,” MTA Chairman and CEO Jay H. Walder said. “We have a lot of work still to do, but we’ve shown that by focusing in key areas we can earn critically needed savings across our agencies.”

    According to the MTA, various policies and operating procedures have led to these cost savings which will continue in the future. At Transit, for instance, the MTA saved $24 million by limiting overtime to critical activities and filling vacancies that were creating a high need for overtime. At the commuter railroads, the MTA worked to “rebalance workloads” to cut down on overtime, and at Bridges and Tunnels, employees must be pre-approved for overtime and can no longer accrue hours during vacation time. With overtime reductions already amounting to 11 percent, I wonder what more New York State Comptroller Thomas DiNapoli will find in his upcoming forensic audit.

  • State transportation officials bemoan lack of funds

    In an appearance in front of a construction industry event on Friday, New York’s transportation officials said, in the words of Streetsblog, are “so cash-strapped they don’t even have enough money to maintain existing infrastructure.”

    Noah Kazis was on hand to hear this bureaucrats argue for better funding, and the picture for every agency from New York City Transit to the Port Authority to the Department of Transportation is a dire one. “How reliable do you think that is?” Transit’s engineer Frederick Smith asked of the system’s 70-year-old signaling system. The MTA, of course, has funding for its current capital program for only two years and is struggling to maintain a state of good repair underground.

    Kazis’ piece explores some of the avenues available to the state that could generate revenue for transit. He mentions congestion pricing as a possible revenue stream, but with so many state authorities struggling to get by, the money generated by a pricing mechanism would be in high demand. Ensuring that the revenue from a New York City-based pricing scheme it goes toward improving New York City-based transit should be a primary concern for advocates.

    At the MTA, officials are focused on trimming the fat. Kazis reiterates how the MTA wants to reduce its operating budget by $750 million annually, but while those cost savings could hypothetically be transferred to the capital budget, as Hilary Ring, the MTA’s director of government affairs, said, those cost savings will generally work to avoid future service cuts and fare hikes as the MTA comes face-to-face with increasing debt payments.

    Kazis’s indictment of the entire event though highlights one of the problems that authority heads weren’t willing to consider on Friday. He wrote: “One cost-saving device that didn’t get mentioned, of course, was getting tough with the contractors sponsoring the conference. Instead, the too-close-for-comfort relationship between public agencies and the industry was on full display. Describing the head of the General Contractors Association, NYS DOT Director of Civil Rights Warren Whitlock said that ‘her leadership on behalf of her industry is advancing our agenda,’ as if there was no daylight between them.”

    Without a serious commitment to cost reform from the construction industry, the state’s transportation infrastructure costs will continue to be prohibitively expensive. It shouldn’t cost $4-$5 billion to build two miles of the Second Ave. Subway, and yet, that price tag has remained too high for years.

  • The ties that bind subway service and real estate values

    Cutting bus lines can depress real estate values along the entire route.

    Prior to last night’s reportedly tame fare hike hearings, the MTA made a pledge to the City Council. While speaking with the council’s Transportation Committee, officials promised that, despite debt levels that will continue to rise, the agency will not cut service to the extent they did this June any time soon. “There are no,” Hilary Ring, the MTA’s head of government affairs, said, “future service cuts on the table.”

    For New Yorkers who need their subway system but are wary of the MTA’s always-impending financial doom, this promise is good news indeed, but for one subsection of the city, it’s even more welcome. That group consists of those who are buying and selling homes and are searching for certainty in the city’s ever-changing transit landscape. Earlier this year, sellers saw value plummet while buyers saw good deals disappear as subway lines were rerouted and buses slashed. Now, with stability from the MTA, the location-based market can settle.

    It’s no secret that the city’s real estate values are tied in with transit. Any apartment listing will feature proclamations that the place is “just steps” from the nearest subway, and real estate values decline as homes are further away from the nearest subway stop. Last week, Melanie Lefkowitz tackled just this topic in The Wall Street Journal. She explores how the MTA’s June cuts left the real estate market in flux:

    Location, location, location lies at the core of any real-estate transaction. In New York City, mass transit is an equally essential factor. The loss of the V and W subway lines and the scaling back of bus service in all five boroughs hit commuters hard, for sure, but also appears to be affecting the property values of homes in their now-abandoned paths.

    Real-estate data compiled by StreetEasy.com show a dropoff in sales in some neighborhoods along the bus routes since they ended this summer. In Kensington and Ditmas Park, Brooklyn, where condo buildings along Coney Island Avenue and Ocean Parkway can be a half-mile walk from the nearest subway, the X29 stops on Coney Island Avenue could mean a quick ride into Manhattan. That bus was cut. The number of home sales dropped 60% in Kensington and 83% in Ditmas Park between July 2009 and June, when bus service ended, but that is likely due to a spike in June when the first-time home-buyer tax credit expired.

    Not every neighborhood where the buses ran is affected. For example, Jackson Heights, where the QM22 culminated, has been relatively untouched because of easy proximity to several subway lines. Other neighborhoods farther from Manhattan already appeal primarily to those who commute by car to jobs in the other four boroughs or nearby suburbs. But in more far-flung, gentrifying areas, where buyers were willing to accommodate longer commutes in exchange for bargains, brokers say they are already feeling some pain.

    “The buyer who buys in Astoria is looking for a cheaper price and to get into Manhattan quickly,” said Ms. Palmos, adding that she is having the same problem with a condominium building in Upper Ditmars, north of Astoria. Apartments there that she said would have easily sold for $500,000 with the express bus nearby are now languishing on the market at prices about $420,000.

    Some real estate brokers in Lefkowitz’s piece clearly have no knowledge of the topic. Matthew Giordano, a vice president at Massey Knakal, says, “The N and the R, they’re older trains—the Never and the Rarely. They just don’t seem to have that frequency.” Knakal clearly hasn’t seen the R160s even if his gripes about less frequent service — especially along Brooklyn’s 4th Ave. where the R is now the sole local train — may inadvertently ring true.

    But overall, real estate brokers recognize a simple fact of life in New York City. As Charles Sciberras, an Astoria broker said, “The closer to the train the higher the demand. Two to three blocks away from transportation is very easy for me to rent.”

    For New York City, these real estate fluctuations represent the law of unintended consequences at its finest. The MTA doesn’t mean to depress property values by cutting service; it’s just trying to meet its own budget demands. In fact, the MTA says it doesn’t consider the market impact of its potential service changes. Yet, something as simple as a bus cut can knock nearly 20 percent off of an apartment’s price. It is yet again a remainder of how New York City operates because of the subways, and even as the state’s transit policy languish, the subways will rule the city.

  • DiNapoli to target overtime in forensic audit

    After months of political grandstanding by New York State’s elected officials, Comptroller Thomas DiNapoli announced today that he will begin a forensic audit of the MTA’s finances. As DiNapoli recently found systematic abuses of overtime, the comptroller’s probe will focus on work rules and overtime oversight but will explore the entire MTA financial picture. “Something is wrong with a system that allows more than 140 people to double their salaries through overtime,” DiNapoli said on Monday. “It’s hard to justify repeated fare hikes, layoffs and service reductions when New Yorkers believe the MTA isn’t controlling spending and restraining costs. For too long, the MTA has had a culture of acceptance when it comes to overtime abuse. That has to change.”

    DiNapoli says he will target “excessive overtime” in this audit and recognizes that the MTA’s new leadership is committed to fiscal responsibility as well. “There is a relatively new leadership there,” he said. “They said they’re going to do a top-to-bottom review of operations. We want to be sure that overtime is a key part of what they are reviewing.” For its part, the MTA said it won’t resist the comptroller’s probe. “We welcome the controller’s assistance as we continue to fulfill our commitment to reduce overtime,” Jeremy Soffin, MTA spokesman, said to The Daily News.

    DiNapoli says he’ll refer his report to state prosecutors if he uncovers any potentially illegal wrong-doing, but I’m more concerned with the state’s legislative response than I am with its criminal response. A so-called forensic audit that uncovers systematic overtime abuses would be news worthy of a “dog bites man” headline, and New York’s politicians are sure to fault the MTA for any widespread examples of waste. But the true test will be in the state’s actions. Since the MTA is a creature of the state, its politicians can change work rules that lead to rampant overtime — if rampant overtime abuses indeed exist. The politicians can change the structure of the MTA to better consolidate its various subagencies. The politicians can enact better fiscal management and more thorough oversight. They can grandstand all they want, but without real action, the structural problems of the MTA will continue ad infinitum.

  • In the suburbs, an uphill battle to overturn the payroll tax

    As the summer has dragged on, an MTA payroll tax revolt has slowly developed in the suburban counties that ring New York City. Nassau County has filed a suit to overturn the tax, and the future of the levy has become a campaign issue in some of the far-reaching areas that see only minimal MTA service. Even though Gov. David Paterson shifted the bulk of the tax burden to New York City denizens, these suburban dwellers want their transit service but not the costs associated with it.

    In The Wall Street Journal today, Andrew Grossman offers up an overview of the tax revolt. He reports that Suffolk County will file a brief in support of Nassau County’s lawsuit but also stresses how the payroll tax now accounts for $1.3-$1.5 billion of the MTA’s $12 billion budget. Without it, the MTA is sunk. “It was either that or let them raise fares 35 or 40%, cut service dramatically,” Jim LaCarrubba, campaign manager to payroll tax supporter Sen. Brian Foley, said. “To just say you don’t like it and have no solution on how to fix the problems, it’s not being genuine to the public.”

    Republican challengers such as Lee Zeldin highlight the flaws in the opposition’s argument. He though claims the MTA could save $1.3 billion simply by cutting administrative costs and raising fares, but a fare hike to cover such a great deficit would be in excess of 25 percent. Other State Senate hopefuls are more willing to consider East River bridge tolls, but most simply want other people to pay for their services. “Out here on the East End of Long Island people rely a lot less on” the LIRR, Zeldin said. “That’s why there’s so much resentment.” The challenges to the payroll tax, as Grossman reports, have very slim chances of legal success.