MTA Economics

The MTA unviled its four-year budget plan last week, and inside of this document are a series of somewhat rosier projections than we’d expect. Despite a crushing deficit this year, if CEO and Chairman Jay Walder can realize all of his cost savings plans, the authority will run net cash balances in the black for 2010, 2011 and 2013 with significant but not too costly deficits in 2012 and 2014. To make these projections, the MTA had to rely on economic assumptions from the city and state, but in the past, these numbers haven’t been too far from reality.

In the consolidated statement which features a line-by-line breakdown of MTA costs, one item jumps out at me. That is the authority’s dept service payments. Last year, the MTA made $1.4 billion in debt service payments and is on pace this year to see that number reach $1.8 billion before jumping up over $2 billion in subsequent years. By 2014, debt service will reach $2.555 billion, and it will consist of approximately 13 percent of the MTA’s annual expenses.

Meanwhile, as debt service remains a significant annual cost on the operations ledger, the MTA is moving ahead with another five-year capital plan that will see the authority issues more revenue and construction bonds. Thus, these debt totals will not lessen or disappear from the ledger any time soon, and MTA Board members are growing leery of the capital spending. Every time we spend money on this capital plan, we’re increasing the debt, increasing the debt service, and this is like a time bomb here,” Andrew Saul, the authority’s vice chairman, said last week.

Saul wasn’t the only board member to question the wisdom of maintaining debt-producing programs as the MTA struggles to close a budget gap. “We’re paying interest during the construction periods of projects in part from the fare box, so we are paying for capital with the fare box,” board member Doreen Frasca said. “That means that less money is dropping down to pay maintenance expenses. We’ve cut 20 percent out of many of the agency budgets. We certainly haven’t cut the capital budget by 20 percent.”

For its part, the MTA defended its capital budget and noted that it had reduced its five-year plan by approximately $2 billion. “A series of five-year capital programs have revitalized our transit system,” the authority said in a statement. “While the more than $64 billion spent in that time has helped turn around our regional economy, maintaining and improving the 100-year-old transportation system is an ongoing need and we cannot afford to disinvest. The current $26.3 billion program reflects a nearly $2 billion reduction as the result of a comprehensive review of projects.”

All of this begs an important question: What should the MTA do about its capital spending and the need to take on debt? Once upon a time, the state contributed more money annually to the MTA’s capital plan, and the authority didn’t have to take on the debt. But as New York’s finances went south, successive governors have pulled more funding and have urged the MTA to bond their projects instead. Some of those — such as new subway lines — can be bonded because the revenue from the increase in ridership will cover the debt service payments in the future. But other programs — such as State of Good Repair initiatives and other routine maintenance, upgrade and rolling stock proposals — are funded without that guarantee of future returns. People stop using the subways as the system breaks down but spending billions to maintain it doesn’t lead to an incremental jump in ridership.

What the MTA can’t do is halt its capital program. It would be far too costly to cut back on maintenance and capital repairs while moving forward only on ambitious (and often delayed) expansion efforts only because the economics of bond issuances work out that way. The authority must make sure the system doesn’t slide into a state of unreliability because that would exert a huge cost on the city’s economy.

So for now, the debt system stays as it is. Unless the government can find more money for capital investment, the authority will have to take on more debt, and we’ll be paying tomorrow for upgrades today. It’s not an ideal situation by any means, but when it comes to funding transit, what is these days?

Now that the MTA Board has set in motion the next round of fare hikes, transit advocates have begun to lay out their positions on the MTA’s latest foray into the economic morass. While some people would prefer to lay the blame at the feet of Jay Walder and the rest of the authority, the truth is that Albany has dropped the ball. The legislature in November moved $143 million of dedicated MTA funds into the general fund, and the state’s tax accountants promised more revenue from the payroll tax than the MTA received. Today, fingers are pointed squarely at Albany, and a few groups are clamoring for better solutions.

To highlight the MTA’s plight, the Empire State Transportation Alliance — a coalition of business, civic, labor and environmental organizations that support sound investment in public transportation — voiced its begrudging support for the fare hike. Praising the authority for its “substantial cuts to administration,” the alliance stressed how “the MTA’s financial problems are real.” The organization’s co-chair summed up ESTA’s position. “We support the MTA’s decision move ahead with this scheduled fare increase,” Bob Yaro, also president of the Regional Plan Association. “The alternative would be another disastrous round of service cuts on top of the recent cuts that were necessitated by the Legislature’s decision to divert $143 million in dedicated MTA tax revenues to the state’s general fund.”

Albany’s failures were a key theme to the various statements from advocates and officials from around the spectrum. Paul Steely White, head of Transportation Alternatives, expressed his hope that voters would hold Assembly representatives and State Senators responsible for the MTA’s financial mess. After all, these politicians are the ones who are so cavalier when it comes to transit funding. “The riding public is footing more and more of the bill to keep our transit system running, and all the while the services they rely on are disappearing before their very eyes,” he said. “If our elected officials in Albany think the riding public is going to stomach massive service cuts and a whopping fare hike during an election year, they’ve got another thing coming.”

Kate Slevin, executive director of the Tri-State Transportation Campaign, also stressed voter accountability. “You can’t just blame the MTA,” she said. “Elected officials who simply point fingers are dodging their responsibility to ensure our region’s transit service remains safe, affordable, and reliable. Voters angry about the recent service cuts, especially bus riders on Long Island, should ask candidates how they plan on dealing with the MTA’s financial crisis.”

The more intriguing calls though were from those advocating for a pricing or tolling solution. The MTA, as Slevin said, should not keep foisting more fares on riders while others — drivers — also enjoy the “congestion busting benefits of our transit system.” Many of these influential voices called for some sort of tolling or congestion plan. “Everyone who benefits from a healthy transit system should help pay for it,” Kevin Corbett, co-chair, ESTA, said. “We understand the short-term need to raise fares and stave off further reductions in service but Albany must return funding taken from the transit system and end the practice of shuffling dedicated MTA tax revenues. New, long term revenues such as tolling must be considered as severe shortfalls in capital and operating funding are on the horizon.”

Gene Russianoff and the Straphangers, in a release decrying the fare hikes, wondered the same thing. “Why,” they asked, “should transit riders pay to cross the East River, but drivers on the East River bridges get a free ride?”

At this late stage in the game, I’d support congestion pricing or East River bridge tolls. Congestion pricing targeted to peak hours and only the Manhattan Central Business District seems to be the more equitable of the pricing solutions. It targets the people who drive as a luxury while those who work at off-hours and commute over far distances that aren’t easily transit accessible won’t be expected to pay as much. Lower tolls could be used during off-hours to supplement congestion pricing or variable tolling could accomplish the same goals. The revenue should be placed in a lockbox that Albany cannot touch and that the MTA can use only for operations.

Right now, though, the state’s politicians aren’t willing to take this step, and the rest of us pay. As Denise Richardson of the General Contractors Association of New York, said, “As we evaluate this fare increase proposal, we have to decide what cuts we will accept in lieu of it. No one likes higher fares, especially at a time when the economy has yet to fully recover and the job market remains weak, but we cannot expect the MTA to maintain the system and balance its books simply by making cuts in administrative personnel.”

When it comes to problems plaguing the MTA, billions of dollars of debt isn’t exactly a sexy topic. On the surface, it doesn’t impact people’s lives as service cuts do, and it has little to do with the public mistrust of MTA management. Yet, whether riders realize it or not, the price we pay today in fare hikes and service cuts all comes back to debt.

Recently, as part of Albany’s inspired public authorities oversight law — one of the few pieces of worthwhile legislation to emerge from the state legislature in a while — the state’s new Authorities Budget Office released a report on New York’s public authorities. The report (available here as a PDF) doesn’t make too many sweeping statements or offer up any broad conclusions. Some authorities are more accountable than others, and some are more transparent than others. Not too surprisingly to anyone who has been following along, the MTA appears to fall on the “more” side of that divide.

What the report does offer is a glimpse of the crushing debt that New York State authorities have taken on. Since these authorities are outside the realm of any constitutionally-mandated debt limits, these entities can just accrue loans as long as they have the collateral to do so. For the MTA, that collateral has come in the form of fare revenue and valuation on other physical holdings. As long as people keep riding, the MTA can continue to take out loans.

For 2009, then, the totals are stunning. New York State authorities reported $133 billion in outstanding debt last year, and $28.8 billion of that — or 21.59 percent of the total — belongs to the MTA. Only the Dormitory Authority of the State of New York has more outstanding debt.

Meanwhile, the future picture looks worse. Recently, the state granted the MTA the ability to borrow more money, and the authority will have to do so to continue its ambitious capital project. Bond issues for multi-billion-dollar projects are underway, and the debt level will just continue to climb.

As the MTA accrues debt, outstanding obligations are coming due. In 2009, the MTA had to pay out $1.9 billion in debt service. That total was the third highest expense category in the MTA’s budget, outpaced only by payroll and non-labor spending. That total is set to rise over the next few years unless the MTA again restructures its debt.

So why does all of this matter? Debt service, debt obligations, they’re all just boring economics terms, right? Wrong. The MTA’s debt matters because we’re paying today for things built years ago, and we’re paying through reduced service, higher fares that will continue to increase and strained labor relations. Since the debt on capital expenditures is carried over to the operations budgets, the debt bills are coming due, and that’s bad news for everyone.

A few months ago, the MTA had a deficit of $800 million that needed closing. That total is less than half of the MTA’s debt service obligations for the year, and without that debt, the authority wouldn’t be facing extreme service cuts and a significant fare hike across the board. Twenty years ago, when the state had to find a way to maintain its transit system, the powers-that-be decided that fare-backed bonds were the way to go, and now, we in 2010 are paying for something built in the early 1990s. Had Albany properly funded the capital plan then, as it used to in the 1980s, we wouldn’t be suffering through service cuts and budget crises today.

Despite this from the ABO, there is no end in sight. The authority is still planning on funding its capital projects through debt-generating sources, and the state hasn’t expressed any willingness to help the debt-ridden authorities pare back their spending ways. In 15 years from now, we’ll still be paying for Phase 1 of the Second Ave. Subway, and that is no way to run a transit authority.

The Empire State Center for New York State Policy — a project for the right-of-center Manhattan Institute which has turned out-of-control pension costs into its cause célèbre — released its entire MTA payroll data for 2009 yesterday, and as we can imagine, the hand-wringing has begun. If we want to assign blame, though, a bloated work force could trump inflated salaries.

As the Empire Center reported, the MTA’s total payroll increased by 2.4 percent in 2009. With the TWU, one of the MTA’s largest unions, earning its members a four percent raise last year, some of the MTA’s cost-cutting measures must have been successful. Meanwhile, more than 10 percent of the workforce take home salaries in excess of $100,000. The Center published a PDF list of the top 100 earners, and by and large, these are people who deserve their salaries. Compensation under $300,000 for agency heads seems downright cheap compared to what these workers would make in the private sector.

The Empire Center’s press release offered up some good tidbits. In the $150,000-and-over club were 11 LIRR car repairmen who nearly tripled their base salary through overtime shifts. Others included:

• 65 Long Island Railroad and Metro-North Railroad conductors who averaged $86,837 over their base salaries which averaged $75,970;
• 53 Bridge & Tunnel Sergeants and Lieutenants who averaged $94,962 over the average base pay of $82,594;
• 34 Long Island and Metro-North Railroad engineers who averaged $89,109 over their $77,953;
• 28 MTA police officers; and
• 23 Long Island Railroad gang foremen averaging $81,718 over their base pay rate $82,249.

To drill down on the salary figures, the Empire Center has provided the public with a salary database as well. Things get interesting when we start looking at what train operators made. One took home over $81,000 on a base salary of $28.65 an hour. That comes out to 350 eight-hour shifts in one calendar year or a lot of overtime. Overall, New York City Transit’s 3487 TOs took home a combined $239.7 million last year.

I could go on and on with the numbers; it is, after all, strangely addictive and voyeuristic to see what these public employees make. But lists of not-that-outrageous compensation figures serves little purpose. To identify cost savings, the MTA has to figure out how to reduce not just overtime but man-hours as well. A proposed plan to offer early-retirement packages that the MTA and TWU are discussing could be a good start, but the issue won’t be solved by attacking overtime or adjusting work rules alone.

Rather, one of the problems facing the MTA is the sheer number of people it employs in mostly redundant positions. Metro-North and the Long Island Rail Road pay far too many people to collect train tickets, and Transit has a staff of 3487 train operators that could, with current technology, be chopped in half. While union members protective of their jobs claim that one-person train operation will slow down transit, real-life application of that advancement has done nothing of the sort throughout the transit world. We simply do not need two people driving and controlling the subways any longer.

For its part, the MTA noted its attention to payroll reduction, but the unions were largely silent after the Empire Center released the data. “We are in the process of overhauling every aspect of our business, including the elimination of approximately 3,000 positions this year,” the authority said in a statement. “One key part of this effort is a focus on the work rules, pension padding and management oversight that leads to some of the unnecessary overtime highlighted in today’s report.”

Yet, that approach almost misses the point. As management and its unionized workers square off over cost-cutting measures, inevitably, the debate turns to battles over compensation figures that aren’t too high. It’s time to reframe that debate, and while OPTO and a more efficient commuter rail ticketing system would involve cutting a large number of employees, the MTA is saddled with too many workers at all levels. That’s the real problem.