MTA Economics

These days, the MTA’s federal stimulus grants have become hot topics of conversation. Some would prefer to use the legally permissible 10 percent siphoned from the stimulus grant to help cover the ever-widening operating deficit. Others don’t feel comfortable taking money away from the also financially distressed capital budget. But what if the money isn’t being spent?

According to a report issued recently by the New York Building Congress, few of the city’s $1.57 billion in transportation stimulus funds have spent. In fact, the city itself has spent only $857,000 of that money, and while the MTA has spent more of its allotted dollars, spending is far off pace. Of the MTA, the NYBC said:

According to the State Comptroller’s figures, the MTA has spent $39,000 of stimulus funds on a bridge replacement on South First Avenue over the MetroNorth Railroad. Approximately $10.9 million is earmarked for this project.

At the end of 2009, no federal stimulus money had been spent on the two MTA projects slated to receive the most ARRA funds; the Fulton Street Transit Center, which is expected to receive $423 million, and the Second Avenue Subway, which has been approved for $276 million.

According to MTA, the agency has been allocated a total of $1.075 billion in ARRA funds and has awarded contracts worth $886 million. However, the MTA acknowledges that just $14 million has been spent to date.

This data underscores a point I’ve made about the stimulus grants in the first place. Generally, shovel-ready projects were mostly funded, and the MTA — along with many other state organizations — used its stimulus dollars to cover project deficits. NYBC’s head echoed this sentiment.

“As New York City nears the first anniversary of federal stimulus legislation, we remain greatly concerned about the slow pace of capital spending on transportation projects,” NYBC President Richard T. Anderson said. “Virtually all of the stimulus money spent and received to date has been devoted to programs designed to lessen the impact of the economic downturn on individuals, bolster the operating budgets of local governments, or fund small-scale construction projects. While such spending is important, it does little to stimulate the broader economy, create new jobs and prepare the region for renewed growth.”

So what is to be done? If anything, this latest development strengthens the case for the Russianoff Plan. Congress passed the stimulus money in order to stimulate the economy, and an operating budget crisis at the MTA will lead to job losses that we as a city would prefer to avoid. If those federal dollars can be used to avert some cuts and some staff reductions, then, the money would be going to good use. Of course, some of the payroll fat at the MTA deserves to be cut, and some of the efficiency-based service changes should be implemented anyway. As of now, though, this money is just sitting there.

I’m still not on board with the Russianoff Plan, but I can see where this debate is leading. Eventually, the MTA, faced with a huge debt and a pile of unused cash just sitting there, will take some of the stimulus funds from projects that, in a few years, will need more money. The economics of it all just keep getting more and more muddled as time goes on.

Those in charge of the MTA must be really glad Wedneday is over for it was yet another bad time in the long run of bad days for the MTA finances. As we learned late in the afternoon, revised budget projections from the state have opened up a wider gap in the MTA’s budget. Only later in the day did the extent of the cuts come into view.

Basically, the MTA has been fleeced by the state. Promised enough money to avoid either financial ruin or extreme service cuts and/or fare hikes in 2010, the MTA has not been given the millions promised to it. Rather, the State Division of Budget continues to adjust forecasted revenues from the Regional Mobility Tax downward. A statement from the agency yesterday summed up the bad news:

“The MTA anticipates that it may need to reduce the estimated receipts included in its 2010 budget by approximately $350 million (which includes $179 million of 2009 collections whose receipt was previously reforecast for 2010), with revenue loss of up to an additional $200 million a year thereafter. Combined with additional revenue loss previously projected in the Governor’s Executive Budget, the MTA could be faced with up to a $400 million new deficit for 2010.”

And so when we add the new deficit to the old $383 million deficit, we find the MTA looking at a 2010 fiscal hole of $783 million — or nearly eight billion dimes. Got a few to spare?

For its part, the MTA is “closely following” the state’s budget machinations and “remains prepared to take needed actions in order to maintain a balanced budget.” That’s agency-speak for “we’re screwed,” but the MTA, as I see it, has a few avenues it could pursue in order to gain more funding. Many of these approaches are politically unpalatable while others are generally unfeasible or simply not enough. Still, it’s worth an examination of the five proposals that should be on the table.

1. Adopt the Russianoff Plan
As much as I do not yet support moving stimulus funds from the capital budget to the operating budget, this move is clearly the most obvious one to close a budget gap of this magnitude. The only problem is that it falls woefully short of achieving that goal. Even if the MTA moves the $121 million allowed by law over from the stimulus ledger to the operating balance sheet and even if the MTA takes the $50 million PAYGO reserve and reinstates that into the operating budge, the agency would still be $612 million in the red. Plus, the strained capital budget — a necessary part of any future transit system that we will enjoy when the agency’s finances are stronger — would be further drained.

2. More service cuts
Right now, the MTA has a full slate of money-saving service cuts on the table. Although many of these cuts can be viewed as service reorganizations that better meet demand and costs, the MTA is still cutting train frequency and increasing load guidelines. These costs will save some money, but by themselves, the cuts can’t cover the deficit. If the MTA opts only to cut services, the cuts would be dramatic — think no overnight train service — and would cripple New York City. Still, if Albany doesn’t have or can’t find the money, this is truly a Doomsday option that remains on the table.

3. Raise fares
On Tuesday, I analyzed the debate between fare hikes and service cuts as budget-balancing approaches. In the end, 77 percent of those who voted in the poll supported fare hikes as a way to close the budget gap. For the MTA to cover this new gap, the agency would have to institute the already-planned service cuts and a fare hike that nets another $400 million revenue. To do so by fares would lead to a fare hike of around 10 percent across the board. Despite the MTA’s desires to avoid a hike, it seems almost inevitable.

4. Congestion Fee/East River Bridge Tolls
While one of these proposals could be passed without the other, I lump them into one item because they are, in effect, the same thing. Charging drivers who exact a cost on the city when they use unnecessarily free bridges would result in a guaranteed source of revenue for the MTA. Charging drivers who exact a cost on the city when they contribute to congestion and pollution would result in more funding for the MTA. The real problem here is that no New York politician seems willing to take the bull by the horns even though the majority of New Yorkers have, at times, voice support for either or both of these proposals. They too seem inevitable but not quite as soon as a fare hike does.

5. Market-Rate On-Street Parking
Last July, I ran some numbers and explored why New York should be charging its residents hundreds of dollars for the privilege of on-street parking. As real estate rates remain among the highest in the nation, the city gives away valuable space to cars for free. If the city instituted a residential parking permit program with tiered fees based upon proximity to transit and guaranteed those revenues to the MTA, the transit authority would be able to close a significant portion of its budget gap. Again, though, this proposal is politically unlikely.

So in the end, we’re left with the same options under consideration for the better part of the last two years. Even though more equitable funding solutions exist, when the dust settles, my money is on a combination of fare hikes and service cuts. The auto drivers — a small percentage of New York City’s commuters — will enjoy their free rides as the MTA limps toward financial ruin.

Over the weekend, as part of their campaign to convince the MTA to use stimulus dollars as a quick fix for most of its budget gap, James Vacca, Christine Quinn and Gene Russianoff penned a Daily News op-ed putting forth their plan. By now, we know the argument: It is legally permissible for the MTA to use 10 percent of its stimulus dollars for operating costs. That contribution of around $120 million plus the $50 million in operating expenses reserved for pay-as-you-go capital needs would be enough to take the service cuts off the table while the city and state should work out a funding plan for the Student MetroCard program.

On the surface, their proposal doesn’t sound like a bad one, but I’ve had my reservations. Without exhausting the other options first, I don’t support taking money that should be used for capital resources or the PAYGO fund to cover operating deficits. Furthermore, having spent some time examining Transit’s service cuts proposals, I believe many of these cuts should stay as is. It simply doesn’t make sense for the MTA to run bus services that cost $12-$25 per passenger and service just 1100 riders per week as Staten Island’s S60 bus does.

In the end — at the 11th hour when no better solution is on the table — I would be willing to support this so-called Russianoff Plan, but for now, I want to see New York try to find that better solution. Today at The Transport Politic, Yonah Freemark tackles a similar subject. He explores how transit riders are no longer surprised by Doomsday cuts and questions the way American municipalities fund transit operations. He writes:

If there is no obvious way to avoid these reductions now, governments at all levels of the federal system should learn from this recession in order to prepare for the next one. In most other countries, despite economic downturns similar to the one being experienced by the United States, transit services have not been cut back at all. One explanation, of course, is a more stable source of revenues than the sales tax relied upon by most American transit systems to fund system operations and capital programs. Similarly, other countries have stronger social support networks, ensuring that when they experience recessions, they’re less likely to see tax revenues drop to a degree seen in the U.S. Finally, most other developed countries don’t immediately turn to inefficient, ineffective tax cuts to solve economic problems.

In other words, the declining state of American transit operations today is more a reflection of a general lack of political will to maintain public service stability. If it is disappointing to watch agencies reduce services dramatically now, it is downright depressing to note that nothing is being done to ensure that a similar situation won’t occur again.

Early last year when the MTA was facing another budget crisis, Freemark explored the state of MTA financing. Two aspects of our transit agency — very high payroll costs and an over-reliance on taxes that fluctuate with the economy — left the MTA high and dry. Paris, for example, relied upon some robust payroll taxes and heavy local subsidies along with a reduced payroll to avoid these economic problems while maintaining control of its fixed costs. New York now has that payroll tax, but it’s such a small part of the MTA’s overall budget that it can’t act as a countervailing measure to a bad real estate and sales economy.

Right now, the MTA’s funding problems are those of a lack of political will. Albany and City Hall have left the MTA with fewer subsidies than ever before, and payroll obligations are starting to spiral out of control. Before the MTA moves stimulus funds to cover operating deficits — a move that may bring the MTA to break-even this year but will leave them with the same problems next — the major players must try to contain these costs and find a more stable annual revenue source. The city and the MTA can’t keep playing this same economic game year in and year out.

As the first step in New York State’s complicated budget process, Gov. David Paterson unveiled his executive budget for fiscal year 2010-11 this afternoon, and the news is not good for the beleaguered MTA. The Governor will, on paper, increase the overall value of subsidies by approximately $161 million from FY2009-10, but in real dollars, the MTA may be short $104 million in 2010.

Basically, it comes down to a matter of projections. When the MTA planned its 2010 budget and when Albany passed the funding plan earlier in 2009, state tax officials projected certain revenue totals for the MTA based upon estimated tax intakes. Now, the state is saying these revenue totals will be $104 million short, and the MTA will face yet another year of fiscal crises.

MTA CEO and Chair Jay Walder issued a statement this afternoon:

The proposed Executive Budget Governor Paterson presented today reflects a further deterioration in the tax revenues dedicated to the Metropolitan Transportation Authority. This continued erosion of the MTA’s revenue base amounts to $104 million in this calendar year. We continue to be very concerned about the impact of current economic conditions on the revenues dedicated to the MTA, including the recently enacted payroll mobility tax. The continued uncertainty about the economy underscores the necessity of the course I’ve set for the MTA.

As I have often said, MTA must use every dollar that it receives from taxes, fares and tolls as efficiently and effectively as possible. That is why we are undertaking a fundamental restructuring of the way that the MTA does business. To that end, we have begun to dramatically reduce our administrative costs. We are renegotiating contracts with suppliers. We are re-evaluating how we provide service.

I know that the Governor and the Legislature are acutely aware of the MTA’s importance to the economy of the New York City region and the MTA’s positive economic impact on the rest of the Empire State. I appreciate that the Governor’s Executive Budget does not repeat the MTA cuts enacted in the Deficit Reduction Plan in December. During this budget process, we will continue to work with the New York State Department of Taxation and Finance to better understand the issues related to the dedicated taxes that support the MTA.

Meanwhile, the restoration of some subsidies seems to be a victory for the MTA, but even that is just spin from Paterson. Paterson is proposing to fund just $25.3 million of a Student MetroCard, and while that includes a restoration of $18.9, that’s barely half of the $45 million the state contributed in 2008 and prior years. MTA officials say the agency can reap over $200 million by charging fares and expects that much from the state and city to continue the free student transit program.

All in all, this is yet another transit funding mess. Last year’s funding package hasn’t delivered the funds lawmakers promised, and the MTA is left dangling from a fiscal cliff with no Richard Ravitch to step in and save the day.