MTA Economics

For the past few months, the MTA has been scrambling to close a budget gap of nearly $400 million. Each week, the authority unveils a new approach to management that will, in the words of Chair and CEO Jay Walder, help make every dollar count, and these measures have included limiting overtime, changing work rules, renegotiating contracts and laying off station agents. Nothing is sacred as the dollars are scarce.

Late last week, though, New York State Comptroller Thomas DiNapoli unveiled the results of one of the numerous audits to which he is subjecting the MTA, and in it, he reveals that the authority could be wasting tens of millions of dollars on fuel contracts for New York City Transit and MTA Bus. Due to what DiNapoli is calling “wasteful practices and improper oversight” along with bad bookkeeping practices, the comptroller believes the authority spent $39 million more than it needed to on diesel fuel costs over a three-year span. At this point, the $13 million annually could be put to better use.

“New York City Transit and the MTA Bus Company are literally running out of gas because of their poor spending practices,” DiNapoli said in a statement. “They squandered more than $39 million of taxpayer dollars due to outdated, expensive contracts and delayed decision-making. Buses don’t need jet fuel, and taxpayers shouldn’t have to pay for it. There are some clear, decisive steps to cut excessive fuel spending. The MTA should work with OGS to lower its fuel bills and maintain accurate records for how the bus fleet buys and uses fuel.”

The audit — available here as a PDF — explores the MTA’s fuel procurement process and basically condemns the agency for negotiating an unnecessarily expensive and environmentally unfriendly contract for diesel fuel in 2002. In 2006, the MTA had to renew this contract at a loss of nearly $30 million because no other company submitted a bid. As I explored last week, the MTA’s contract bid system is a very fault one, and this audit simply reinforces that notion.

As a conclusion, DiNapoli’s suggestions were barely groundbreaking. He urged the MTA to “explore alternative contracting strategies including the use of the OGS fuel contract; finalize new policies regarding fuel accountability and train personnel on the new rules; account for fueling discrepancies on a daily basis; and require fuel to be tested for compliance with contract specifications.” Outcomes such as these make me wonder what the other dozen audits DiNapoli is conducting are truly going to find. Will his examination of the MTA’s overtime practices be more revealing that the authority’s own condemnation of the way overtime is abused or can DiNapoli find savings that amount to real annual dollars instead of token amounts in $10 million increments?

For its part, the MTA said it had already begun to implement changes DiNapoli suggested in the audit, further shining doubt on the utility of these non-stop audits. The report, said the MTA, “did not acknowledge the significant progress that had been made in establishing the necessary policies and procedures for fuel monitoring at the MTA Bus Company prior to the conclusion of the audit.” With the MTA in “general agreement” with the findings, DiNapoli’s audit highlight internal inefficiencies in a massive bureaucratic organization, but it also seems to be a classic example of closing the barn door after the horse has escaped. Unless DiNapoli can find real institutional abuses and shortcomings at the MTA, his audits achieve little.

The latest from The Post on the MTA’s overtime payouts sure sounds familiar. As MTA CEO and Chairman Jay Walder is exploring ways to reduce overtime, the MTA, say Tom Namako and James Fanelli, is doling out dollars left and right. It’s an outrage! Or is it?

First, the story:

As the MTA was announcing plans in 2009 to eliminate two subway lines and 33 bus routes, thousands of employees — from agency presidents to train mechanics — were pocketing millions in overtime and other perks, The Post has learned.

Hogging a stunning slice of the overtime were Long Island Rail Road employees, who benefit from arcane union work rules that allow everyday engineers and grease monkeys to rake in hundreds of thousands of dollars above their salaries while barely lifting a wrench. Railroad employees account for more than half of the top 100 overtime earners in 2009, records show.

Monica Hunter, a supervisor for the LIRR, was the highest overtime earner, pulling in a staggering $155,000 on top of her $79,000 salary last year. Track foreman Vincent Mazzola wasn’t far behind, scoring $148,000 on top of his $82,000 salary. Work rules — some more than a century old — allow employees to game the system. For example, when crew members are switched from one train to the next, they are contractually given another day’s full pay.

The MTA Inspector General, says The Post, is currently conducting a review of these pesky LIRR work rules from another era, but for The Post, that investigation and analysis seems nearly beside the point. Look at how wasteful the MTA is!

But let’s step back from the snarky exclamation points and the initial outrage to ask another question: Did these two reporters actually ask the MTA how much it would cost to fill the vacant shifts without overtime? How much more would the MTA be paying in salary and, more importantly, benefits and pension plans if the authority hired a new worker for every 40 hours of overtime per week? That would, I think, be a vital piece of information to have before slamming the MTA for doling out the overtime. It is possible for overtime to be a money-saver.

When a state comptroller report called for tighter overtime regulations, frequent SAS commenter Niccolo Machiavelli left a very detailed comment with some overtime math. Based upon the numbers, the average MTA worker puts in 4.5 hours of overtime a week, a figure well within range of the national average. While it’s easy to highlight the outliers, the MTA’s overtime isn’t nearly as problematic as it seems.

It makes sense, of course, for the authority to modernize its overtime rules. LIRR employees, for example, shouldn’t draw overtime just because they have to go work on another train to fill out their shift. But it pays to look a little deeper at the problem before proclaiming it to be one.

For those in the upper reaches of the MTA, the key theme of the year is “making every dollar counts.” On the surface, this is seemingly an obvious state of affairs. After all, we don’t want situations in which dollars don’t count or are being flushed away.

But a close examination of the MTA’s recent approaches reveals exactly how the authority is making every dollar, even as market forces conspire against them. For example, the newly re-proposed capital campaign has cut down on $2 billion of proposed expenditures by eliminating those projects that won’t eventually save operating costs and streamlining others. If the authority had original plans to replace old infrastructure simply because of age and not because a modern building would lead to operating cost savings, those plans were scraped.

On Friday, as part of this rearranging of MTA priorities, New York City Transit announced a long-rumored < a href="http://mta.info/news/stories/?story=54">restructuring of the subway division. For all intents and purposes, former Transit president Howard Roberts’ line manager program has been eliminated, and the various functions that were to be centralized under the line managers are being redistributed across various working groups that will focus solely on a specific area or two.

Overall, the five Group General Managers are being scaled down to three, and those three will oversee what Transit is calling the IRT, BMT and IND divisions, maintaining a naming structure that owes its origins to the history of the New York City subways. The line GMs have been cut down from 17 to 12, and those remaining in place will be responsible for customer service and routine station maintenance. Heavy maintenance and car equipment responsibilities will rest with those who are better qualified for those jobs.

“The big change here is centralizing heavy maintenance and giving those responsibilities to the folks who are best equipped to deal with them. But aside from that, the Department of Subways is identifying a leadership team with the capability, know-how and experience to position us to build upon our successes,” Transit President Thomas F. Prendergast said. “This team will stay focused on our customers’ needs and look for every opportunity to improve upon the safe and positive travel experience we already provide.”

It is unclear how much money this restructuring will save the MTA, but at least seven management-level positions are being eliminated via this restructuring. The big question mark, though, remains around the dollars. In an article that should surprise no one, The Post discovered that the MTA’s payroll obligations increased by $70 million in 2009. While The Post highlights some management-level employees who enjoyed significant salary increases, the paper also discusses how the TWU raises imposed significantly higher salary costs on the MTA as well. Across the board, the MTA cannot stop paying higher salaries.

We know that the MTA is cutting administrative pay and positions this year, and last week, the authority announced another round of station agent layoffs. On both sides of the aisle though, the MTA cannot keep salaries under control, and Andrew Albert, a non-voting member of the MTA board, pointed his finger at both sides. “I just don’t know how there is an end to this never-ending [wage] escalation,” he said.

There probably isn’t an end to that problem, and thus, the pink slips will keep on coming. The MTA can reorganize its divisions until fewer people are left. It can eliminate workers until station staffing levels are stretched too thin. But until we see anyone willing to fight for a wage freeze, albeit a temporary one, the expenditures may just outpace the cost-cutting measures.

The MTA has a very difficult relationship with New York State and its elected representatives. On the one hand, the MTA is an authority established to operate outside of the realm of politics in order to better run the city’s transit network. On the other, the MTA is heavily dependent upon the state for both operating and capital aid, and the state has political control and oversight of the public authority. When the two sides clash — as they often have lately — MTA officials must tiptoe around sensitive issues while asserting their needs for better political and economic support.

Yesterday, this conflict started to come to a head as the MTA revealed that state payroll and real estate tax estimates are again looking to be off by approximately $72 million. Michael Grynbaum has the details:

On Monday, the authority said that those revenues were coming in even worse: $41.5 million below even the most pessimistic projection.

Transit officials said that the numbers were fluctuating from day to day, and so they did not want to make hard-and-fast revisions to their budget numbers yet.

Unfortunately, they seemed at a loss to explain the trends. “We don’t know,” said Robert Foran, the authority’s newly appointed chief financial officer, when asked why the numbers were so low. “It’s a brand-new tax,” he added. “We’re looking into it.”

This isn’t the first time this year that state accounting officials have delivered bad financial news to the MTA. In January, state tax revenues were believed to be $104 million less than expected. This time, the MTA is starting to question the state’s ability to calculate tax projections, and authority officials say they are going to take matters into their own hands.

Robert Foran, the MTA’s new CFO, said his office would begin to conduct its own tax projections. “There’s been some talk that we shouldn’t just take numbers from the state and blindly accept them,” he said today. “We should vet them. But would we rely solely on our own projections? I don’t know either.”

For the MTA today, this promise of a check on the state power is bittersweet. The MTA should be conducting its own projections going forward, but the MTA should also be able to rely on the state to provide an accurate accounting of potential revenues. The state, according to Andrew Grossman of The Wall Street Journal, claimed that “the economic downturn has made estimating tax receipts harder.” That’s some excuse.

If these numbers wind up being accurate, the MTA will be out $41.5 million in payroll tax revenues and $30.5 million in real estate tax revenues. The authority’s budget gap will just to $450 million, and the looming threat of a big fare increase will remain despite the MTA’s promise to avoid a fare hike at any cost.

In other MTA financial news, State Comptroller Thomas DiNapoli — who yesterday announced an impending election year forensic audit of the MTA — issued a report last week straight from the desk of Captain Obvious. If the MTA does not find a way to close what was on Friday a $378 million budget gap, the agency may have to raise fares beyond the allotted 7.5 percent next year. No kidding.

DiNapoli found that MTA spending far outpaced both revenue and inflation and that debt service payments are largely to blame for the increased spending. He urged the MTA to be mindful of the need to keep public transit relatively cheap and reliable in New York City. “The MTA has to squeeze out every penny of wasteful spending,” DiNapoli said. “Mass transit has to be affordable for working New Yorkers. The MTA should focus on eliminating waste rather than cutting services and raising fares. My office has found administrative redundancies and outside contracts where savings can be achieved. Chairman Walder has made some progress, but so much more needs to be done.”

And so the MTA is left, once again, in the untenable position of having to bite the hand that feeds it. The fiscal morass is growing deeper each day, and the state, already dysfunctional, is making matters worse. Who will bend? What will break?