Second Ave. Sagas

Category: MTA Economics

  • DiNapoli: Transit wasting millions on gas contracts

    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 “They squandered more than $39 million of taxpayer dollars due to outdated, expensive contracts and delayed decision-making.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.

  • Controlling costs by targeting overtime, sick days

    Earlier this morning, the various presidents of the MTA’s subagencies and authority COO Charles Monheim gathered with reporters to unveil the next cost-saving measure. As the MTA currently spends $560 million a year — or 13 percent of its total payroll — on overtime, work-rule reform, sick-day abuse and various productivity measures are now on the MTA’s agenda. The authority estimates it can save $22 million in 2010 by acting unilaterally and $60 million a year in 2011 and beyond with union cooperation.

    “Some overtime is needed to put out a reliable service and respond to emergencies, but much of it is unnecessary and can’t be justified,” Monheim said. “MTA leadership is now committed to eliminating unnecessary overtime, and we expect new controls to save millions. We will do our part, but a real partnership with labor is the only way to make a real dent in unnecessary overtime.”

    During the presentation and subsequent Q-and-A this morning, Transit officials in particular highlighted the way their employees take advantage of a lax sick day system and an overtime scale based on seniority to call in sick but make up the money through overtime shifts. “Someone who is truly sick and can’t do the work, we don’t want them to come in,” Transit President Tom Prendergast said. Rather, the agency is looking to, as Prendergast said, “combat unnecessary mental health days.”

    The example Prendergast cited relied upon the above chart. It shows an actual recent schedule from an employee who has been on the job since 1988. As Transit workers are allowed to bank sick days and this employee had no bank, this person has used up his 12 sick days per year since starting in 1988, and MTA officials were skeptical that all were used legitimately. Here, the train operator put in three full eight-hour shifts and an additional 10 2/3 hours worth of overtime work while taking two unpaid days on Wednesday and Thursday.

    Not only does this example highlight the way employees can use sick days to cover missed hours, but it shows how overtime works against the MTA as well. Although the employee did not work 40 hours a week, he is still eligible for time and a half if he works more than eight hours on a single day. The MTA must pay him overtime when he doesn’t deserve it and must pay someone else overtime to fill in for the 16 unmanned hours on Tuesday and Wednesday.

    Beyond these abuses, the MTA is looking to combat sick-day usage in general. In 2009, 25 percent of Transit employees took 15 or more sick days, and Prendergast was skeptical that every single employee missing so much time was truly sick. As workers used banked sick days for vacation, the costs to the MTA increase in the form of overtime spending. “There has to be an enlightened discussion” with the union,” Prendergast said. “Is this the type of employee we want to protect?”

    Outside of sick-day abuse, the officials spoke about work-rule reform and controlling pension obligations through overtime monitoring. As the above chart shows, one Bridges & Tunnels employee was able to take advantage of the way overtime impacts the pension calculation to double the amount he would receive upon retirement. In fact, his annual pension was higher than his annual base salary.

    On the commuter rail side, the authority wants to do away with what LIRR President Helena Williams termed “very onerous work rules.” For instance, if an LIRR train switches from electric to diesel or vice versa with the same engineer, the engineer earns double pay for that day even though this engineer is qualified to operate both types of trains.

    The MTA knows it cannot accomplish the total elimination of overtime. As Prendergast said at length, 24-hour transit agencies require overtime to function efficiently, but the current overtime expenditures are well above acceptable levels. For now, management will try a top-down approach. It will more aggressive enforce sick day abuses, try to prevent continuous and excessive mega-shifts, report overtime so that the public can understand why the agency is saddled with these costs and work with unions to reform work rules. “In every case,” Prendergast said, “it starts with management taking a different stance.”

    The authority heads, however, realize that the unions have favorable contracts and working to streamline operations will be a challenge. “I think we are probably as a whole one of the toughest union environments if not in the city, then in the nation,” Joseph Smith, head of MTA bus, said. “It’s a struggle every day to do a lot of the things that we do, and to do them effectively as we do.”

  • MTA drops Goldman Sachs

    For years, the MTA has worked with financial giant Goldman Sachs on bond sales and other financial matters, but according to reports, the authority has opted to sever its relationship with the scandal-plagued company. Officials contend that Goldman’s recent legal troubles have nothing to do with the decision to drop a company that has made nearly $30 million off of the MTA since 2000. Instead, Board members have grown increasingly wary of Goldman’s handling of MTA assets. The financial giant had invested MTA money in, according to The Times, “assets that are considered more volatile than traditional fixed income arrangements,” and MTA officials did not approve of these risky interest rate swaps.

    The writing was apparently on the wall for Goldman when its contract lapsed last year without a renewal. In February, the finance company dropped out of the Hudson Yards project as well. Said Gene Russianoff of this uncoupling, “The only entity in America that is less popular than the M.T.A. is Goldman Sachs.”

  • MTA takes on experimental theater company over back rent

    As the MTA looks to maximize its revenue streams, the company’s myriad real estate holdings have come under the microscope. The 270 Jay St. building remains controversial, and the reduced payment for the Vanderbilt Yards have left many raising an eyebrow. Another property dispute — this one involving less money — made some headlines this morning. The authority has begun eviction procedures against 3-Legged Dog, an experimental theater and media troupe currently renting space from the MTA at 80 Greenwich St. The group, which signed a 20-year lease in 2002 after its home at 30 West Broadway was destroyed on Sept. 11, owes the MTA $21,666.67 a month and had fallen behind in its rent payments by $306,000.

    The eviction notice did not arrive without controversy. With the company raising a stink, two politicians urged the MTA to reconsider. Supposedly, part of 3-Legged Dog’s debt stems from their need to pay for asbestos abatement on the MTA-owned building. The authority, however, says the troupe is overstating the cost of this work. “I don’t know how anyone can justify letting this tenant rack up hundreds of thousands of dollars in back rent at a time when state cuts and deteriorating tax revenues have forced the MTA to lay off station agents and cut service,” spokesman Jeremy Soffin said to the Wall Street Journal. This move is indeed a prime example of Jay Walder’s efforts to make every dollar count.

  • With more budget cuts, a system begins to slide

    Scratchiti will become more prevalent as the MTA scales back on maintenance costs. (Photo by flickr user rdcapasso)

    Throughout the 1970s and into the early 1980s, New York City’s subways became a dangerous and unreliable system. As the city went broke and the MTA had little money, maintenance schedules slipped. Graffiti took over the system; trash filled the stations; and car breakdowns and track fires were a way of life.

    Since then, the MTA has invested heavily in its rolling stock and maintenance programs. Recognizing that the MTA’s network is one of the — if not the top — drivers of the city’s economy, the authority has spent the last three decades ensuring that trains are graffiti-free and do not break down nearly as often and that stations are relatively cleaner than they once were to minimize track fires.

    As the MTA looks to cut more services and employees, we could see the beginnings of a return to the bad old days. Yesterday, the authority announced a series of austerity cuts that will strike at the heart of the system. While I was taking an exhausting final, the authority heads briefed reporters, and Michael Grynbaum has the story. The MTA will eliminate nearly 1000 positions — some administrative and some maintenance-oriented — in an effort to save $115-$150 million. The authority will still face a shortfall of over $200 million that will have to be closed with a larger-than-anticipated fare hike next year. Grynbaum has more:

    Hundreds of maintenance workers will be laid off, subway cleaning regimens will be reduced and officials will “let an additional amount of scratchiti occur on windows system-wide” under the plan, said Thomas F. Prendergast, the president of New York City Transit.

    The cost-cutting measures are part of an agency-wide plan to close a $400 million budget shortfall, and subway riders will not be the only ones to suffer. Riders on the Long Island Rail Road will be packed into smaller trains on the weekend and occasionally in the morning rush. Football fans will have fewer options for train rides to games at the Meadowlands, and the Metro-North Railroad will place fewer customer assistants in Grand Central Terminal…

    Inconvenience is another matter. One item on the chopping block is a program that created two dozen subway announcers, who alerted riders to delays and train progress over station intercoms. Officials said the program proved to be a poor investment.

    Prendergast tried to assuage the fears of passengers who still remember the system as it was before the capital investments took hold. “There will be no degradation to safety and reliability,” he said.

    Still, programs that improve the underground quality of life are being sacrificed in the name of economics. For instance, anti-scratchiti programs that appeared to be successful are being eliminated due to the expense. Now, the agency will, in the words of Grynbaum, “allow more scratches to accumulate before it replaces windows on trains throughout the system.”

    Additionally, trains will be cleaned less frequently. As Heather Haddon of amNew York reports, cleaners will scrub trains only “at one end of the route — meaning a car can travel for more than three hours before it is scrubbed.” Unless New Yorkers make an effort to clean up, train cars will just be dirtier.

    This is, of course, nothing short of a failure of politics. The MTA, created 42 years ago to isolate the subways from politicians, has always relied on state funding to break even, and as pension, benefit and debt obligations have saddled the MTA with ever-rising costs, politicians have simply stopped coming up with solutions. East River bridge tolls or congestion pricing with revenue dedicated to the MTA remain the most equitable and rational solutions. Yet, New York State politicians can’t see past their windshield perspectives to understand the role transit plays in the lives of countless millions of New Yorkers a day. The system will have to break down before it is rescued, and it is quickly heading that way.

    Site Note: Apologies for the late start this morning. I had a long takehome final yesterday and fell asleep before I could get a post up. I’ll have another one later before the weekend service advisories tonight.

  • Once more unto the overtime breach

    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.

  • Amidst reorganizations and layoffs, an increasing payroll

    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.

  • MTA questions state accounting after more hazy tax projections

    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?

  • Walder: Labor unions must make concessions too

    When Jay Walder arrived at the MTA from England last fall, he was supposed to take the reins of an organization that had finally secured some semblance of financial stability. Although New York State had eschewed smarter congestion fee or bridge toll plans, Albany had delivered a comprehensive package of fees and taxes that, while not perfect, should have provided the MTA with enough money to cover its operating deficit.

    As with all things these days out of Albany, however, the gold turned to dust. First, Albany took over $140 million from the MTA’s coffers; then, the state taxation calculations were off by over $300 million; and then a still-weak economy cost the MTA millions in missed real estate tax revenue. It was the perfect storm of fiscal problems, and it has led to a deficit of nearly $800 million for the authority this year.

    With Walder at the helm, the MTA has tried to make every dollar count, as he is so fond of saying. Since December, when the scope of the deficit has become clear, the authority has instituted on sweeping package of service cuts that will eliminate buses and trains, reduce the in-station employee headcount and lead to longer and more crowded off-peak commutes. Still, that package resulted in savings of just under $400 million with another $350 million gap looming.

    To close that gap, the MTA has searched high and low for inefficiencies. The authority has eliminated nearly $50 million in managerial staffing positions, cut 141 capital improvement projects for a savings of $40 million and renegotiated $17 million in contractor savings. Still, the gap is significant, and before pursuing a politically risky fare hike, the MTA is looking for more internal savings.

    Today, Jay Walder makes his case for union sacrificies in the pages of The Post. He writes:

    As you can see, I won’t shy away from the tough decisions that are needed to drive down costs at the MTA. We are doing our part, but $800 million is a massive shortfall. If we are to succeed, our labor unions must contribute to the solution.

    Before I arrived at the MTA, an arbitrator awarded our largest union 11 percent raises over three years. Our employees work extremely hard and deserve to be well compensated – but that compensation comes with the responsibility to maximize productivity and eliminate waste. The reality is that our labor force costs taxpayers far too much. With families and businesses struggling across the state, it’s time for labor to address outdated work rules, limited employee availability and rising pension and medical costs.

    Deficit reduction wasn’t what I had in mind when I accepted this job. But I believe we have a once-in-a-generation opportunity to make long-overdue changes at the MTA. By creating a leaner, more efficient organization, we can restore the MTA’s credibility and position ourselves to make great improvements to our system when the economy recovers.

    Walder ends his piece on an upbeat note, but it it was encased in an appeal to politics as well. “Here in New York, where transit is more fundamental to our lives than anywhere else,” he says, “it’s something everyone should be rooting for.”

    The MTA CEO and Chairman is, of course, striking the right note, but the unions won’t give in without a fight. In a sense, they’re the last holdouts. The riders are losing service from an organization that is a service providers; employees have been laid off; projects delayed; contracts renegotiated. It’s time for the unions to explore how they can help the MTA save money before we all lose our healthy and vital transit network.

  • Saving millions just by asking

    Toward the end of last week, the MTA announced $40 million in savings through cuts to back-end projects, and in doing so, authority officials said they would next begin to renegotiate vendor contracts. Today, the MTA has announced $18 million dollars in 2010 savings through just that route. By renegotiating contracts with 43 vendors and suppliers, the MTA will rack up the savings in 2010 and reduce costs by $70 million over the life of the contracts.

    According to MTA officials, the savings will come via renegotiated paratransit and IT vendor savings, and the MTA says that riders will not notice the difference. “Companies in financial distress often go back to vendors and ask them to renegotiate contracts and that’s exactly what we’re doing here,” MTA Chief Operating Officer Charles Monheim said. “We took a new approach asking our suppliers if they could do better and in many cases, the answer was yes.”

    Interestingly, as per The Times, those vendors who refused to negotiate will be penalized in the future with fewer MTA business opportunities. “Let me put it this way,” Monheim said to Michael Grynbaum. “They will be given all the rights any contractor would receive. But we may be less inclined, where we have discretion, to be favorably disposed to them.” Meanwhile, the MTA still has to find at least another $300 million in savings to close their 2010 budget gap, and without more massive cuts or a premature fare hike, they will be hard-pressed to do so.