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MTA Economics

Struggling to pay when the bill comes due

by Benjamin Kabak
written by Benjamin Kabak on March 4, 2010

Once upon a time, in 1991, the MTA’s annual budget clocked in at $2.9 billion. In today’s dollars, that’s approximately $7.6 billion. Yet, for 2010, the MTA’s budget is a whopping $11.9 billion. It is outpacing inflation by nearly 57 percent. No wonder the MTA is going broke.

Just a few years ago, in 2005, the MTA’s operating budget sat at $7.6 billion. That figure was just $800 million over the inflation-adjusted 1991 budget, and it seemed more in line with an expanding transit network that had to hire a few more employees and institute more service to meet demand. What has happened since the mid-2000s, with its origins in the 1990s, goes a long way toward exploring the root cause of the MTA’s current budget.

The problem started with the duel blow of the Pataki and Guiliani Administrations. In 1994, the city cut back massively on MTA appropriations, starving the agency of $100 million or 15 percent of total city subsidies. In 1995, the Pataki Administration cut when the state reapportioned approximately $86 million in taxes that should have gone to the authority. It would be just the beginning.

Over the next 15 years, the city and state systematically withdrew funding for the MTA. Student transit subsidies were cut, and capital funding agreements rescinded. As Fox 5 reported last night, “In 1990, 26 percent of MTA capital projects were paid with state and city funds. By 2004, it was only 2 percent.”

Yet, throughout the years, the MTA continued to build and expand. They continued to pursue a badly-needed State of Good Repair program and began plans to build the Second Ave. Subway, the 7 line extension and the East Side Access project. While some of the big-ticket items are fully funded by the city, in the case of the 7 line, others — including portions of the Second Ave. Subway and many of the MTA’s capital purchases — have been funded through bond issues, and bond issues lead to debt.

The numbers are stark. A 2005 report by the Fiscal Policy Institute highlights the MTA’s debt problem. The 1987-1991 five-year capital plan relied on debt funding to cover 25 percent of the costs. Each successive five-year plan came to depend more and more heavily on debt, and by the time the state approved the 2000-2004 plan, 61 percent of the MTA’s projects were being paid for out of debt. Today, the bill is due.

In the MTA’s overall budget of $11.9 billion for 2010, debt service payments constitute $1.9 billion. Sixteen percent of the MTA’s budget is going toward funding for projects that were built nearly ten years ago. That far outstripes overtime, pensions and health care, and it is the third highest line-item expenditure after payroll obligations and other non-labor expenses.

So what is there to do? We can sit here and blame the state for reducing its capital commitments from a high of 20 percent in the 1982-1986 five-year plan to a low of 0 percent in the 2000-2004 plan. We can finger the city too as its contributions plummeted from 15 percent of the overall bill to 2 percent. But we can’t change the past, and while it’s easy to scapegoat labor costs, those haven’t risen nearly as dramatically as the MTA’s debt obligations have.

Maybe then the MTA needs to reconsider its capital plan. The state’s capital review board recently rejected the MTA’s next five-year plan because it had a funding gap of nearly $10 billion, and the Authority simply cannot afford to take on even more debt. Adequate funding for mass transit in New York City is a must, but that funding must be responsible and thorough. No longer can we saddle the MTA with crippling levels of debt.

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Fare HikesMTA Economics

Is the subway fare too low?

by Benjamin Kabak
written by Benjamin Kabak on March 1, 2010

Take a look at the table above. It’s from the Feb. 22 Transit Committee meeting materials, and it presents an overview of how much straphangers paid for their subway rides in 2009. To me, it almost suggests that the fares are too low.

As you can see, despite a base fare of $2.25, the average New Yorker paid just a $1.41 per ride. Yes, this represents an increase of eight cents over 2008, but in real dollars, New Yorkers are getting a good deal on their subway rides.

This cheap ride, of course, comes from pay-per-ride bulk discounts and the prevalence of unlimited-ride MetroCards. In presenting this fare information, the MTA also provided a breakdown of MetroCards by type. In 2009, 49.6 percent of all subway riders paid with an unlimited ride card, and another 36 percent took advantage of the pay-per-ride discounts. The remaining 14.3 percent of subway and bus riders used cash or didn’t buy enough to qualify for the pay-per-ride discounts. Those are the tourists, the infrequent riders and those who cannot afford to spend more than the cost of the next ride they plan on taking.

For New Yorkers who complain about higher subway fares and fare increases, this real cost of a ride skews just about everything. In the packet, Transit mentions the cost of a subway ride in 1996 before the MetroCard discounts went into effect. That year, the average cost per ride was $1.38. Based on inflation alone, we should be paying an average fare of $1.89 or 33 percent more than what we pay today. Instead, we pay an average fare that equates to $1.03 in 1996 dollars. That’s a cheap ride indeed.

Maybe, then, the MTA’s problems aren’t only declining state subsidies, lower-than-expected tax revenues and the loss of student transit support. Maybe the MTA’s problems are that the fares are just too low. The agency might be in a weaker financial position today than in 1996 because fare revenues have not kept pace with inflation, and as labor, fuel and other costs have risen, the fares have declined markedly since 1996.

So, who wants to advocate for a 33 percent fare hike?

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MTA EconomicsMTA Politics

A student protest with the right message but wrong audience

by Benjamin Kabak
written by Benjamin Kabak on February 24, 2010

Later this morning, at 9:30 a.m., the MTA Board will convene for its monthly meeting. Unlike previous months’ gatherings, February’s will be a fairly routine one. The service cut proposals are being digested, and while MTA CEO and Chairman Jay Walder will field some questions on yesterday’s announcement on job cuts, the big-ticket budgetary items won’t arise again until after next month’s public hearings.

Yet, the meetings will not be without some raucous controversy. Each month, the MTA begins its meeting with a public comment period, and today’s should witness some strident comments. TWU officials will speak out against the plan to lay off 500 union workers, and rider advocacy representatives will again bemoan the cuts. The biggest group there to present demands of the MTA will be the Students for Transportation Justice, an alliance of students seemingly organized with the help of the Working Families Party.

According to a release emailed out to writers last night, this coalition of student groups will attend the board meeting in an effort to gain an audience with Walder and to protest the planned elimination of the free Student MetroCard program. The students, said the WFP, “will attempt to deliver a letter to Chairman Walder signed by thousands of students, parents, and activists asking that the MTA hold an open meeting with student leaders and act to save student MetroCards.”

This isn’t the first time these students have tried to get Walder’s attention. Students for Transportation Justice sent Walder a letter in early February that went ignored, and the Working Families Party volunteered its services in a petition drive. As of this writing, the petition has received 13,391 signatures, and the WFP is trying to drum up support from a total of 50,000 New Yorkers.

There is but one problem with the WFP and its platform: It’s completely directed at the wrong people. Sure, these students can show up at MTAHQ later this morning and speak their minds during the opening minutes of the board meeting. They can also make a show of calling on the MTA to save Student MetroCards, but they will be preaching to the choir. It’s a matter of economics, and right now, the MTA does not have the money to fund free transit for students and shouldn’t be picking up the political slack on student transportation either.

The MTA said as much to me last week. “We agree that school children should not have to pay to get to school, but funding this service is the responsibility of the State and City,” Jeremy Soffin, agency spokesperson, said. “The MTA has been called the yellow school bus for New York City, and that’s a good analogy. All over the state school kids get picked up by yellow school buses, and they don’t pay to ride. But the bus doesn’t show up unless state or local government pays the bus company.”

Still, the Working Families Party, a pro-teachers union organization, is turning to the MTA and not to politicians who control the purse strings. Were the WFP to spend their efforts speaking out about Albany’s and City Hall’s dereliction of duty when it comes to funding for student transportation, attention would inevitably fall on the Department of Education. Why doesn’t the DOE fund student travel as DOEs do throughout the state and country? Eventually, pressure would build on the education officials, and the DOE would have to find more money for transportation. Pressure on the DOE would bring nothing but scrutiny to a beleaguered teachers union, and the Working Families Party can’t have that.

So we’re left with a movement with a message that winds up falling on the wrong ears. The WFP can rile up the crowd. They, as so many politicians do these days, can dump on the MTA. But it will be all for naught. Until activist groups and political parties put real pressure on Albany and City Hall, the MTA will be left flapping in the wind with empty pockets and no plans for free student MetroCards.

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MTA Economics

The psychology of the $100 MetroCard

by Benjamin Kabak
written by Benjamin Kabak on February 17, 2010

As the MTA acts out its political charade of threatening service cuts and the elimination of the student MetroCard program in the hopes of spurring some politicians to action, fare hikes remain the 800-pound gorilla in the room. The Authority could always attempt to avert cuts by drastically raising fares. When I last posed a fare hike solution, 78 percent of my readers said they preferred paying more to suffering through service cuts.

Yesterday, fare hikes and other more equitable funding solutions for the MTA crept back into the news. In a report for the Drum Major Institute on Public Policy, John Petro studied the potential fare hike that will come as early as 2011 and called upon the city to enact congestion pricing. Although congestion pricing remained Petro’s main focus, his fare numbers are alarming. The MTA could have to raise fares by 15 percent or more next year, leaving us with 30-day Unlimited Ride MetroCards that cost over $100.

For the MTA and for New Yorkers, that $100 mark seems to be a bit of a psychological hurdle. The agency, after all, has always had the fare option on the table, and the powers-that-be could have opted to jack up the prices of a ride years ago. By doing so, they should shift the fare burden onto the backs of their riders to a nearly unprecedented level the world over. Already, New Yorkers pay far more through farebox revenue than their international peers do for what is ostensibly a public good. Why not make the system fully dependent upon fares?

The main problem here is one that gets to the very root of the subway system. Is mass transit in New York City a vital part of city life that the government should support or is it an unnecessary luxury that should fund itself? To become self-sustaining, the MTA would have to raise fares to such a degree that ridership would necessarily decline. Many people simply would not be able to afford paying $100, $125, $150 for a monthly pass, and the per-ride cost would soar past $3. Ridership would decline, and thus, to compensate for that missing revenue, the MTA would have to raise prices even more. It would be a vicious, vicious circle indeed.

If the MTA is a vital part of city life and the state economy — which it is — then the government should be assisting it more than it does. If the MTA makes New York City possible, if the subways allow for people to live far from their offices in affordable neighborhoods in commute in over many miles for just the current swipe of a MetroCard, then the government shouldn’t be allowing the MTA’s services to slide, their fares to creep up too high or the agency’s finances to slide into turmoil.

And so we arrive at the threat of a $100 MetroCard. When the unlimited card was first introduced on July 4, 1998, the card cost $63. Today, it costs $89, and that increase is outpacing inflation by over seven percent. When the MTA breaks that $100 barrier, many people will no longer view the 30-Day as a necessity. Rather, a triple-digit price tag makes it a luxury. Even if the card remains a good deal — and it will because the pay-per-ride price continues to ride — many people will be hard pressed afford that $100 outlay every month.

In the end, as Petro details in his report and urges in a Daily News op-ed, congestion pricing should hold the solution. Implementing congestion pricing to avoid fare hikes and the end of the student MetroCard program would save a family of four $2300 a year while contributing to the overall economic and environmental health of New York City. As those prices creep ever higher and the MTA slides closer to financial disaster, it is time again to consider congestion pricing. That $100 MetroCard may be inevitable, but we can try to push it off for as long as possible.

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MTA EconomicsMTA Politics

Times: Albany must find a ‘lasting solution’

by Benjamin Kabak
written by Benjamin Kabak on February 15, 2010

Calling New York a failed state in its current iteration isn’t too much of a stretch. We have a governor with no public support, and a State Senate that can’t stop its in-fighting long enough to pass any sort of legislation. When they do get their collective acts together for a long enough period of time to get something done, the results fall far short of what is promised as is the case with last May’s MTA funding package.

Over the weekend — unfortunately on a Saturday when fewer people are around to read it — The New York Times took Albany to task for its MTA failures. In a scathing editorial, the Gray Lady called upon Albany to find a better solution for the MTA. With a budget shortfall of nearly $800 million, the MTA is on borrowed time, and The Times succinctly outlines the sources of the shortfall. Tax revenues are down; the payroll tax brought in $200 million less than expected; fare revenue is down by $100 million; Albany cut $143 million; the upcoming TWU raises will cost the agency $100 million. It is a perfect storm of bad circumstances.

The Times though is concerned with the machinations in Albany right now. Writes the paper:

Now Governor Paterson is threatening to make things worse. In a clear pander to suburban voters in this year’s governor’s race, he is calling for cutting the payroll tax in seven suburban counties around the city while increasing the payroll tax in the city’s five boroughs.

A Legislature that is heavy on representatives from New York City is unlikely to go along — at least on raising the city’s taxes. The danger is that legislators, also facing voters this year, will decide to cut suburban payroll taxes without making up the loss to the transportation authority.

Some advocates are suggesting the agency shift some of its federal stimulus money — supposed to be reserved for maintenance, subway construction and upgrades — to use for operations. Transportation experts warn that if that happens, the system would deteriorate. Remember the ratty old subways of 30 years ago?

Albany must come up with a lasting solution for the M.T.A. That means leaving the payroll tax alone and finding new revenue sources — starting with tolls on Manhattan’s free bridges that could raise an estimated $600 million a year. It may mean raising fares, although that should be a last resort. It will mean supporting the new Metropolitan Transportation Authority chairman, Jay Walder, including in his plans to lay off workers as he streamlines the system.

What it should not mean is doing away with free passes for needy students. Both the state and city will have to contribute more to help pay $214 million a year to help keep these students in school.

The transit system that feeds the New York City area is crucial to the welfare and commercial vitality of the entire state. Governor Paterson and the Legislature have a responsibility to make sure it has the money it needs to keep working.

In a nutshell, this editorial tracks closely with everything I’ve been writing over the last few months. Albany must find a better solution. It’s time to renew the push for East River Bridge Tolls. It’s time for a sensible solution for transit in a city more heavily dependent on its subways and buses than any other in the nation.

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AsidesMTA Economics

On the brink of bankruptcy, some fingerpointing

by Benjamin Kabak
written by Benjamin Kabak on February 11, 2010

As the MTA rushes headlong toward financial ruin, a few questions have repeatedly popped up in the debate over the authority’s future: Could the agency declare bankruptcy to escape its debt obligations? Who is to blame for the the fiscal state of such a vital part of the New York City (and state) economy? In today’s Post, Nicole Gelinas and E.J. McMahon of the Manhattan Institute tackle those two questions. Although the piece features some of Gelinas’ concerns over the MTA’s escalating labor and pensions costs, it mostly focuses on those who have allowed the MTA to slip toward financial ruin.

The two point fingers at Mayor Bloomberg, Gov. George Pataki, MTA heads, labor heads and the state legislature all for failing to rein in costs, and on that front, they’re right. More important, however, is the discussion on the parallels between the Urban Development Corporation’s fiscal state in the 1970s and the MTA’s in 2010. When the UDC defaulted on its short-term debt obligations, it triggered a crippling financial crisis in 1970s New York. If the MTA has to do the same soon, the outcome could be disastrous for everyone.

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AsidesMTA EconomicsMTA Politics

Pols decry payroll tax changes as advocates push for money

by Benjamin Kabak
written by Benjamin Kabak on February 10, 2010

As the snow blankets New York, the subway system is holding up for now. As we know, the same cannot be said of the MTA’s finances, and as Gov. Paterson’s new payroll tax plan percolates through the political bodies of the area, New York City reps are up in arms. Today’s anti-Paterson rant comes to us from City Council Speaker Chrstine Quinn. Calling the new plan “outrageous” and “twisted,” Quinn slammed business for not complying and the governor for foisting more taxes on the backs of New York City business.

“Why do we have to pay for absolutely everything in the state of New York? It’s outrageous! It’s outrageous! I mean, we’re not a piggy bank! I mean, we’re not an ATM machine for the state. We’re willing to pay our fair share, and we do in greater amounts than our numerical, you know, whatever. But this is just above and beyond,” she said. “And it’s really – while we’re at the same moment talking about eliminating MetroCards, cutting back on disabled Access-A-Rides, cutting back on bus lines and subway lines – at the same time, we’re going to tell New York City workers who are getting less they’re going to pay more. And they’re going to pay more than other counties. It’s just twisted.”

Meanwhile, as Mt. Quinn erupted, the Empire State Transportation Alliance went north to Albany to lobby for better transit funding. Alliance members asked the state to restore $143 million in appropriations cuts to the MTA, to approve the next five-year capital plan and to fully fund the student MetroCard program. These funds, they say, can be found via “congestion management tacits” including tolls or congestion fees. “We are not asking the state for a bailout or handout,” Veronica Vanterpool, associate director of the Tri-State Transportation Campaign, said. “We are asking state legislators to restore transit funds that were taken and to keep last year’s promise for a financially solvent and sustainable funding plan.” Sounds good to me.

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MTA EconomicsMTA Politics

Bloomberg, others blast Paterson’s payroll tax plan

by Benjamin Kabak
written by Benjamin Kabak on February 9, 2010

Late yesterday afternoon, David Paterson unveiled his plan to help cover the MTA’s deficit while assuaging suburban concerns over the payroll tax by shifting more of the tax burden to city-based businesses. Those doing business in the five boroughs would see the tax increase by 60 percent while those outside the city would see it decrease by 50 percent. These tax adjustments will supposedly restore the payroll tax revenue to the amount originally projected last May and deliver another $230 million to the MTA this year.

Last night, I called this move a political one designed to earn the beleaguered Paterson some points outside of the City, but many of my readers believe it to be a more equitable distribution of the tax burden based upon those who benefit from transit. The reality is that city businesses — the major economic drivers of the entire metropolitan area — are not going to look too kindly upon higher tax rates during a bad economy. Already, the Mayor and other business officials are slamming the plan.

The Mayor last night put out a scathing statement that highlighted the now-dead effort to bring congestion pricing revenue to the MTA. He said:

“First the Governor proposed a state budget that slashes support for New York City but not the suburbs, and now he proposes to wallop city businesses with more taxes while lightening the load for businesses in the suburbs. The idea that the State can spare the suburbs while sacking the City is terrible economics, grossly unfair, and contrary to every principle of good regional development. We in New York City saw the MTA’s problems coming and came up with a plan that would have created a steady stream of revenue for capital programs. Now the Governor proposes to shift an extra half billion dollar burden onto New York City taxpayers, who are the economic heart of our region. I will work night and day with our City’s delegation in Albany to stop this wrongheaded proposal from moving forward.”

Business leaders echoed the Mayor’s call but also took the opportunity to question the MTA’s business practices. “A far-reaching and dependable regional transit system is among New York State’s greatest assets,” Kathryn Wylde, head of the Partnership for New York City, said. “[We] remain open to discussing new ways to improve the MTA’s finances, so long as the approach is equitable and balanced. Additional funding, however, cannot be justified unless the MTA gets better control of spending and improves its contracting and procurement processes.”

Streetsblog saves its indictment for the Gang of Four who refused to support Richard Ravitch’s call for East River bridge tolls or congestion pricing. Wrote Ben Fried this morning:

So think of the New York City payroll tax hike, if it comes to pass, as a testament to the obstinacy of Carl Kruger, Pedro Espada, Ruben Diaz, Sr., and the disgraced Hiram Monserrate — as well as their GOP counterparts like Marty Golden and Andrew Lanza who sat idly by and did nothing to help the Ravitch plan last year.

Nine months after these NYC-based State Senators killed bridge tolls and nearly two years after members of the city’s Assembly delegation stopped congestion pricing in its tracks, we now face the distinct possibility that NYC businesses will end up shouldering more than three times the payroll tax rate as suburban businesses. Think back to all the city politicians you’ve heard float make-believe proposals about reinstating the commuter tax or making only non-NYC motorists pay bridge tolls. This new tax on New York City — on their constituents — is their handiwork too.

And so here we are, in another MTA political mess, this one inspired by our accidental governor. The state has a few options at its disposal: It could raise the payroll tax across the board to fund transit; it could push through congestion pricing or East River bridge tolls; or it could further push the pain onto the backs of New York City workers and residents who already pay more than their fair share to subsidize suburban commuter rails. Paterson has chosen to put forward the last and worst option. Can it get past the State Assembly and Senate? Will New Yorkers pay more or will the MTA continue to suffer?

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MTA Economics

More money for the MTA, but at the expense of NYC businesses

by Benjamin Kabak
written by Benjamin Kabak on February 8, 2010

David Paterson taketh away, and then David Paterson giveth. Just over two weeks ago, when David Paterson unveiled his executive budget for the 2010-2011 fiscal year, it contained a shock for the MTA. Payroll tax receipts were project to be $104 million less than originally anticipated, and the MTA’s overall budget hole has grown to nearly $800 million since then.

Today, Paterson announced his 21-day amendments to the Executive Budget, and the MTA should net an additional $230 million in 2010. “The new proposal I am putting forward will provide relief to straphangers, as the MTA makes the difficult decisions necessary to balance its budget during an historic fiscal crisis that is significantly impacting all levels of government,” Governor Paterson said in a statement. “In addition, it also makes key improvements to the current tax structure, promoting regional equity and delivering relief to small businesses.”

Before we rejoice, a few caveats: First, this budget adjustment simply corrects for Albany’s originally overly optimistic revenue projections. In May 2009, the payroll tax was projected to bring in $1.54 billion for the MTA, and prior to this amended budget, the MTA was going to receive just $1.3 billion this year. Paterson may be patting himself on the back with

Basically, New York City businesses will see an increase of nearly 60 percent in the payroll tax to support the MTA while businesses outside of the city who clearly benefit from the presence of mass transit will have to pay less. Paterson claims this to be an “equitable” solution, but it seems to be a prime example of Paterson’s political pandering at a time when his poll numbers are down.

In response, the MTA had this to say:

“The MTA is grateful to Governor Paterson for his continued focus on funding the MTA and the critical service we provide to 8.5 million New Yorkers every day. The MTA’s revenues have taken two significant hits since December: a nearly $400 million deficit was closed in December with administrative reductions and service cuts; and just last week we learned of a new approximately $400 million shortfall due primarily to reduced State projections of the payroll mobility tax. Based on the estimates provided by the Governor’s office, the changes to the payroll mobility tax proposed today would provide $230 million to recover much of the latest $400 million in deterioration and could lessen the need for additional cuts on top of those passed in December. It would not eliminate the need for the service cuts and administrative reductions included in the MTA Budget passed in December.

“The proposal also changes the structure of the payroll mobility tax, which is a decision to be made by the Governor and the Legislature. Even if this restructuring is enacted, the MTA will remain focused on overhauling how it does business to reduce costs and operate within the funding provided.”

For now, at least, we can breath a sigh of relief as the agency should see some of its deficit reduced. Unfortunately, that increased state contribution will come at the expense of those who live and work in New York City.

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MTA EconomicsTransit Labor

Bloomberg: No free rides for anyone

by Benjamin Kabak
written by Benjamin Kabak on February 8, 2010

As the MTA rushes headlong toward economic Armageddon, free rides have become a major political issue. In the face of a lack of political support, the MTA — rightly so — has refused to fund student transit. While the state has pledged some money and the city is trying to find the funds for the Student MetroCard program, the authority is holding students hostage as collateral for the potential of a political rescue.

Yet, as these machinations go ahead behind the scenes, Mayor Bloomberg has called for an end to all free rides. If New York City students can’t have free rides, said, the Mayor, neither should MTA employees. Pete Donohue and Kate Lucadamo of the Daily News had more:

The mayor called into question the policy of giving retired transit workers free bus and subway rides since free and reduced cards for city students are on the chopping block.

“Does it make any sense to give retirees passes for the rest of their lives and not give our kids passes so they can go to school? No,” Bloomberg said during his weekly radio show. “It’s pretty hard to argue that that is an intelligent policy.”

About 20,000 former retired bus, subway and commuter train workers get travel passes for their twilight years as a retirement benefit. Some 585,000 students also have free or discounted MetroCards – but they could lose them because of the MTA’s budget woes.

Bloomberg here is picking on a benefit that has been in the TWU contract for years, and, as expected, union officials are none too pleased. “After years of fiscal irresponsibility by the state government and the MTA, Mayor Bloomberg wants to hang the current fiscal woes around the necks of the elderly, our retirees, and that’s not right,” current TWU head John Samuelsen said.

Of course, if the world were in two shades, this would be a fight in shades of gray. Bloomberg is right in picking on the MTA’s giveaways for retirees, but Samuelsen has a great point too. The city — and state — simply has not lived up to its funding expectations. Fifteen years ago, the city promised to help fund free student rides, and yet, since 1995, the city hasn’t upped its monetary contributions at all. The $45 million the city paid last year is the same $45 million it paid in the mid 1990s.

So what to do? The workers who toil for decades in harsh conditions deserve some benefits after they retire. Do those benefits include free MetroCards along with health insurance and a solid pension plan? That’s not a bad question to ask, but until the city can find more money for student cards, it’s not one Mayor Bloomberg should be asking.

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