MTA Economics

As the MTA struggles with the political fallout of the rampant service cuts the authority may need to implement to cover its budget, officials everywhere are looking for answers. We know that some advocates are pushing a move to cover the operating gap with capital funds — a misguided idea at best — but other officials are searching for ways to provide for a steadier stream of transit funding and not just a one-time fix. The answers are out there, but are any of these proposals a real solution?

Right now, the MTA can look to three sources of potential revenue: the city, the state and the federal government. So far, Mayor Bloomberg has been quieter than most in this brouhaha. He campaigned on transit but has done nothing to support, let alone reform, the MTA since winning reelection next month. He hasn’t pledged to cover student transit costs; he hasn’t tried to renew his calls for congestion pricing or East River Bridge tolls; he hasn’t looked at ways to further fund the MTA. For now, at least, City Hall is a non-starter.

Although the mayor’s silence is disappointing, the words spewing forth from the City Council are downright alarming. As Chris O’Leary detailed at On Transport, the City Council doesn’t have a clue about how the MTA works. After cutting funding for years, City Council members criticized the MTA for a legally required vote this week and claimed that a meeting in the works for months “ambushed” the city. Most of the Council members seem to support the quick fix of moving capital funds.

Up in Albany, things are simply a mess. Sen. Pedro Espada wants the MTA to sell its real estate holdings. In a letter to Jay Walder, he wrote, “The MTA must prioritize fiscally prudent lease and sale of assets before deciding to leave children, seniors and hard-working citizens stranded without a safe, reliable and affordable means to get to and from work, school, grocery shopping and doctor’s appointments.” Selling assets in a down real estate market is a great way to minimize potential gains. I say pass.

Meanwhile, Sen. Brian X Foley is so confident of the MTA’s fiscal state that he is already proposing to roll back the payroll tax. Because the tax provided the MTA less than expected, Foley wants to lower than tax by 68 percent in Suffolk County and 34 percent in Nassau County. Do I really need to tell you how dumb of an idea this is right now? Foley would leave the MTA with even less money than it current takes in.

Sheldon Silver is still a hope, but he hasn’t endorsed tolls or congestion pricing yet. His district stands to lose the most from these service cuts, and I’ll look at him more in depth later today.

For his part, Gov. Paterson, while not proposing any new ideas, seems to recognize the MTA’s limited options. Speaking yesterday with WOR’s John Gambling, Paterson questioned how much the MTA could really save by eliminating jobs and overtime. He echoed Jay Walder’s call to “take the place apart” and noted, in so many words, that reinstating the commuter tax could solve many of the agency’s financial woes. For now, that idea remains the Holy Grail of funding and a political non-starter. I wonder though if Walder and Paterson could succeed in overhauling the bureaucracy of the MTA. It would be a tall undertaking but a vital key to reforming transit in New York.

In the end, for a temporary fix at least, the MTA might be able to turn to the feds. Speaking on New York 1 earlier this week, Secretary of Transportation Ray LaHood expressed the Obama Administration’s support for transit’s future in New York. “It is a priority for President Obama and those of us at the DOT to make sure that cities have good mass transportation,” he said. “We’re willing to work with the state of New York, with the governor with the mayor and others in the legislatures to make sure that New York has a first rate transit system and a transportation system.”

LaHood’s comments suggest to me that the President and LaHood would prefer to see their money go toward expanding mass transit’s reach in New York and not just keeping a struggling authority afloat for a few more months. But if push comes to shove, the feds, with their deeper pockets, just might be, for now, the MTA’s best hope.

At yesterday’s MTA Board meeting, two sides to an important policy battled emerged. On the one hand were those who supported the so-called Gene Russianoff plan, a call to shift 10 percent of the MTA’s available federal stimulus funds from its capital budget to cover its operating gap. On the other side were those who lived through New York City in the 1970s and experienced first-hand what capital neglect meant to the city’s subway system and what it led to.

Doreen Frasca, a 2008 Paterson appointee, spoke out in favor of shifting the funds. She urged the agency to shift its pay-as-you-go funds to cover its operating gap and wanted to make the move to transfer nearly $90 million in stimulus funds, the maximum allowed by the feds, to the MTA’s operating balance sheet as well. “I will vociferously support transferring 10 percent of that money” to cover the gap,” she said.

Others spoke out against the idea. “I have great difficulty in moving capital money to operating,” Mitchell Pally, the Suffolk County representative, said. “That’s the problem we had in the 70s when we did that and it took us a very very long time to change the negative consequences of that.”

Norman Brown, one of the labor reps from the Metro-North Railroad Coalition, agreed. “The fear is that if capital is flexed to operating, that if federal funds are flexed to operating then the state and the city government will not be forthcoming with the funds they were previously forthcoming with,” he said. In fact, he continued, the state’s shifting of capital debts to the operating ledger is exactly why the MTA is saddled with excruciatingly large debts due to come due in a few years. To do the same in reverse would accomplish nothing.

Despite this burgeoning ideological policy debate, these comments only scratch the surface of the why of it all. On Tuesday, the Regional Plan Association released a statement that explained the policies behind its opposition to the funding shift.

First, the RPA says, there are two specific problems with “bleeding particular sources of capital dollars.” The pay-as-you-go fund allows the MTA to both keep the capital plan moving into the new year before the agency’s next five-year plan gets approved, and the capital budget faces a budget gap of 9.9 billion. To take money from capital today would drastically harm transit’s tomorrow.

The release continues:

2. Capital spending is good for long term economic recovery, which the MTA desperately needs given tax revenues are tied to the economic health of the region. Also, we’re in this operating mess because of past lack of investment. Moving these dollars to operating would undercut the system’s reliability and safety and jeopardize the progress that has been made since 1980 in restoring the system to a state of good repair. And by deferring required maintenance, it would actually increase future costs to sustain the system, requiring even larger investments – and putting more pressure on the fare – in the future. Similarly, halting or deferring projects like East Side Access or the Second Avenue Subway would undercut future economic growth and require returning federal funds that have already been committed.

3. The MTA’s riders and taxpayers are already paying a heavy price for past financing practices brought on by underinvestment (lack of capital spending). As a result of the disastrous system of “borrow now, pay-during-the-next-person’s-term-of-office” used to finance capital programs in the late 1990s and the first half of the current decade, starting in 2012, almost one in five dollars of the MTA’s operating budget is expected to be devoted to paying debt service. Cutting capital expenditures is the same as cutting service, just in the future rather than the present.

It’s important to underscore the interconnectedness of the future with the capital budget. It’s vital to recognize that the capital budget is a separate beast so that the MTA can continue to modernize and grow its capacity through a fund more secure than the operating budget. It’s also important to highlight how the MTA would actually have to return federal funds and how thousands of workers in New York’s fragile construction economy would lose jobs if the capital budget were to dry up. That is an immediate future scary to contemplate.

In the end, the MTA will have to escape from this capital mess by the best means on hand. It could raise fares; it could cut services; it could shift funds; it could ask Albany to institute real, permanent, reliable gap-closing measures such as congestion pricing or East River Bridge tolls. Robbing from the capital future — or even from the capital present — is no way to cover an operating debt. The two budgets are separate for good reasons gleaned from recent history and should stay that way, financial crisis or not.

As the MTA financial staff is hard at work readying its budget proposal for Monday’s Finance Committee meeting, transit advocates are trying to come to terms with the latest MTA budget deficit. Although politicians are wrongly blaming the MTA, this latest gap is due to problems in Albany, problems the MTA shouldn’t have been facing if more sensible funding solutions had been implemented in the first place.

To that end, two groups — the Straphangers Campaign and Streetsblog — have proposed two different mechanisms for covering the gap. The Straphangers’ suggestion is a stop-gap aimed at filling this year’s hole while the Streetsblog plan is one with which we are familiar. There’s would be a more long-term solution.

First, the Straphangers plan: In an e-mail yesterday to the MTA Board members, Gene Russianoff expressed his concerns about the looming threat of service cuts. Citing “the harm to riders of service cuts in an already overcrowded system; the new blow to the MTA’s credibility if the agency institutes cuts that the riding public (paying a higher fare since June) were told would not happen; and cuts undermining MTA Chairman Jay Walder’s sensible plans to improve bus service,” he urged the MTA to take some of the uncommitted stimulus money at its disposal to cover the current gap. He wrote:

Use $91 million in federal stimulus funds for service in 2010. The money is there. “The Metropolitan Transportation Authority (MTA) received $915 million in stimulus funds. Contracts have been signed for work covering 89 percent of the total,” according to a December 2009 report issued by Gov. Paterson. Federal law permits 10% of the stimulus funds to be spent on operations. Transit systems like the one in St. Louis pressed for this option to maintain service and jobs.

Reprogram for service $50 million in 2010 in “pay-as-you-go” funds. The MTA is planning to spend $50 million in 2010 in operating funds on capital projects. Pay-as-you-go for capital needs is a good goal, but it should not come at the expense of service cuts.

These two sources total $141 million and would be enough to cover all the subway, bus and commuter cuts originally proposed by the MTA earlier this year.

As short-term solutions go, it’s hard to disagree with Russianoff’s plan. I hate to see money used to maintain and expand the system be taken away from that end, but the MTA is legally allowed to use stimulus funds for operating deficits. Right now, avoiding service cuts should be a paramount concern.

For a long-term fix, Streetsblog’s John Kaehny turned his attention to East River Bridge tolls. His warnings are dire:

The net result is that without a new source of funding, the MTA will soon run out of money and options. Let’s take it for granted the MTA will be forced by Albany to engage in desperate new financial sleight-of-hand and “seed corn eating” (capital money going to operating expenses, borrowing against future fare hikes). Let’s further assume the MTA will have to accelerate the fare hikes planned for 2011. If this comes to pass, in about a year the MTA will be out of options and have to cut service so harshly that even Albany will be forced to care.

It will be a political slug fest worth watching. How deep will service have to be cut before the East and Harlem River bridges are tolled? Are tolls dead, or are they actually inevitable?

I’ve long supported tolling the bridges as the most equitable and environmentally friendly approach to MTA funding. The tolls would provide the agency with a dedicated source of revenue and would cut down on driving through areas choked with cars and pollution. I fear the answer to Kaehny’s question. Only when the MTA is on the brink of a financial disaster would New York’s politicians begin to debate bridge tolls. Then, it might be too late to truly save the system.