MTA Economics

When yesterday’s news broke that the state would reduce its funding commitments to the MTA by $140 million, the F word emerged. Two MTA Board Members mentioned fare hikes as a way to meet any potential budget gaps brought on by the latest round of state cuts. Jay Walder, the MTA’s CEO and chairman, downplayed those fears.

Walder, talking after a hearing on the MTA’s ambitious 2010-2014 capital plan, stressed the agency’s commitment to its current plan. He did, however, hedge his bets. “It is my intent to stay with the schedule of fare hikes that was agreed with the Legislature in May, which does not call for a fare hike in 2010,” Walder said to reporters. “It is my intent to stay with that.”

By using “intent,” Walder is certainly keeping the option to raise fares on the table, but he stressed the MTA’s need to streamline their internal operations. “We have a responsibility now to be able to try to show how we can tighten our belt and how we can do things more efficiently and productively,” he said.

If the agency begins to run low on cash, as Michael Grynbaum and Colin Moynihan noted, the MTA will have few options. The decision to eliminate station agents system-wide saved just a few million dollars. To find $140 million worth of service cuts would result in a death blow to efficient subway service. Hopefully, the economy will hold, and we will be saved a small fare hike before a larger one arrives, as scheduled, in 2011.

Meanwhile, as the bad news from Albany overshadowed Walder’s appearance in front of the State Senate on Thursday, the MTA head tried to forge ahead with his vision to bring technological innovations to an agency sorely lacking in that field. “I have to tell you, when I first arrived at the MTA, people kept telling me the MTA doesn’t do technology,” Walder said. “Well, that’s simply not acceptable.”

The State Senators were far more skeptical and questioned the need for basic transit technologies such as train and bus arrival boards. Sen. Craig Johnson, a Democrat from North Hempstead called these clocks “a very nice idea” but was otherwise dismissive. “New Yorkers, whether you’re a suburbanite commuter or you live in the five boroughs, have been living without time clocks for a number of years,” Thompson said. “It seems a little bit like a luxury.”

According to our elected officials, then, a modern transit network and up-to-date infrastructure technology is a luxury. No wonder it has become a struggle to secure sensible funding for public transportation in New York.

More ominous, though, were Senate warnings about the MTA’s proposed $28.8 billion five-year capital plan. For the first time since these capital investments dragged the MTA out of the mire of the 1970s, the Senate does not know how it will fund a proposed five-year plan. The agency has secured money for all but $10 billion, but that gap represents a third of the planned spending. “Do you have a way to come up with the $10 billion? I don’t think Albany is coming up with $10 billion,” Johnson said.

For the MTA, a less-than-fully funded plan will lead to some serious capital soul searching. The next five-year plan includes money for the East Side Access project and another $1.5 billion for Phase I of the Second Ave. Subway. The MTA simply cannot cut those projects. The Second Ave. Subway, in particular, has burned through too much money, has taken too much time and has disrupted too many lives for the MTA to yet again seal up Second Ave. without a subway underneath it.

So we are left with another sorry reflection on the state of politics and economics in New York City: no money for transit; no will to explore modern-day technological innovations; and no respect for the future development of the city. The cuts may come; the fare hikes will definitely come; and because the state will not adequately fund the underground engine that drives New York’s economy, the MTA is left spinning its wheels and begging, time after time, for more money.

Earlier this morning, the MTA released its $11 billion proposed budget for 2010, and although the agency plans to raise fares to match inflation in both 2011 and 2013, the document contains nary a mention of service cuts or fare hikes next year. During the MTA Board meeting, Jay Walder explained how the agency would engage in a significant overhaul to improve operations efficiency and why the agency is setting aside $85 million in reserve.

Despite the good news on fare hikes and service cuts, Walder cautioned that the authority is not yet on a sound financial footing. “From a narrow context, we see increased stability and are grateful that we can present a balanced budget without impacting our customers,” the new MTA Chair and CEO said. “But the MTA remains in a very fragile position with a number of risks on the horizon. This fiscal reality demands that we permanently overhaul the way the MTA does business. The bottom line is that there is no more money for us in Albany, and we will learn to do more with the funding we have.”

Walder will soon chair a working group designed to explore MTA efficiently. It will examine the ways the agency can “fundamentally change its business model to operate more cost effectively, improve performance and provide better value to taxpayers and customers,” according to an agency press release.

For those interested, the budget documents can be found here on the MTA’s website. The two piece go in depth into a budgeting process that requires the MTA to pass a balanced budget by the end of December. For now, the biggest piece of news is the $85 million reserve the MTA has in place to cover cost overruns.

The money for this reserve, according to MTA CFO Gary Dellaversoncame from three sources. Although real estate taxes were lower than anticipated, ridership figures, as I noted earlier today, have been higher than exepcted this year. Furthermore, summer belt-tightening measures have led to lower-than-expected spending.

To that end, the $85 million reserve will play an important role in avoiding a budget crunch next year on two fronts. First, the state and city are faced with significant fiscal problems and are threatening to cut contributions to the MTA further than they already have. Second, if the MTA loses its appeal of the TWU arbitration award, labor costs will eat up almost the entirety of this reserve.

I’ll have more on this proposed budget later tonight after I have some time to read through the materials. For now, though, Straphangers can breath a sigh of relief. For the first time since 2007, the MTA believes it will not have to raise fares.

Today is Collection Day for the MTA. As the agency continues along without drastic fare hikes and service cuts after last year’s Doomsday budget scare, they do so at the expense of all of us. Taxi fares rose by 50 cents yesterday, and car registration and driver licensing fees increased a few months ago. Today, though, is the first day of collection for the payroll tax, and no one is happy about it.

To recap: After nearly six months of warnings, hearings and general politicking about the MTA’s $1.9 billion budget gap, the New York State legislature averred a 33 percent fare hike and some very steep service cuts by enacting a piece-meal bailout package. Although congestion pricing and East River bridge tolls were a few of the more equitable options on the table, the state tried to spread the pain around. by levying a 0.33 percent payroll tax, an MTA taxi surcharge, an auto-rental tax increase and, as I mentioned above, higher registration and licensing fees.

With those taxes and fees now a reality, Michael Grynbaum explores how few find them acceptable in practice. In theory, of course, bridge toll opponents claimed those tolls would harm the economy, but in reality, these taxes are far worse. Reports Grynbaum:

But the payroll tax has prompted the most animosity so far, most of it coming from suburban business leaders in the 12-county region who argued that their tax burden greatly outweighed the benefits they receive from the transportation authority. The tax also has drawn strong objections from private and religious schools whose officials say they are being forced to cut services and possibly raise tuition while public schools in the area get a pass.

Under terms hammered out in May by state lawmakers, public school districts will be reimbursed for the tax, which costs businesses 34 cents for every $100 of wages. The unusual provision was intended by the bill’s backers to win over reluctant legislators, but other nonprofit groups were not exempted.

“It’s really an issue, I think, of basic fairness,” said James Cultrara, education director for the New York State Catholic Conference, an advocacy group that represents the state’s Catholic schools. “Certainly we can understand why the Legislature would want to reimburse the public schools. Why not then also reimburse the Catholic and other private schools?”

Grynbaum notes that Albany may eventually allow reimbursement to independent schools as well, but for now, there is no relief in sight. With donations down to due to a slumping economy, schools are among the hardest hit. One school in Harlem will shutter its after-school basketball program to make up for the payroll tax short fall while others will try to hit up potential donors for more money.

Still, some government officials noted that the alternative — a drastically reduced MTA — is worse. “The MTA is part of the economic lifeblood of the region itself,” Tom Bergen from the state’s Department of Taxation and Finance, said. “Businesses benefit substantially from having the MTA serving as a transportation infrastructure.”

Some advocates called for a better solution from Albany and an end to unfair taxes. The answer is simple: Toll the East River bridges or institute a form of congestion pricing. The technology exists so that bridge tolls do not slow down traffic. Meanwhile, since numerous transit options exist in between the geographical landmass of Long Island and Manhattan, the tolls would simply be the cost of driving as opposed to the cost I pay to ride the subway.

Small businesses will object, but those owners will benefit from decreased traffic due to less congestion. Meanwhile, they are also better positioned to pass the incrementally higher costs on to consumers. Bridge tolls would, in fact, increase revenues for those people who rely on the roads and cross the river numerous times a day.

For now, everyone will suffer with this payroll tax. The MTA alternative was worse, but tolling the bridges would be a way out of this mess for all involved. Who has the political will to make it a reality?

For the last few weeks, Jay Walder has been preaching responsible investment and an increased attention toward improving surface transit. He knows that the agency he heads has long been plagued by an inability to manage its capital projects, and a CBC report issued last week confirmed a history of cost overruns and missed deadlines.

Today, in a short piece in The Post, Walder talks about his new approach toward cost overruns: They will not be tolerated. The first thing to go is a $2 million overrun for a public plaza at South Ferry. Tom Namako reports:

Hands off straphangers’ wallets! That was the message new MTA chief Jay Walder had for agency and city officials yesterday when he vetoed any move to spend an additional $2 million in cost overruns at the new South Ferry station.

Walder said he would rather scale down the last part of the project — an outdoor plaza connecting Staten Island Ferry service to the subway station — than lay out any more dough. “If we need to reduce the scope to stay within the budget, then we should reduce the scope to stay within the budget. But there is no more money,” Walder told the MTA’s head of construction at a public meeting.

Allan Cappelli, one of the board members from Staten Island, worried that ferry riders would be stranded “out in the rain.” That seems to be a bit of a stretch. But as Walder threatened to downsize other costly projects, I have to wonder if this is the right approach.

Currently, the MTA is facing capital funding gaps in the billions of dollars. The agency is facing cost overruns of the same magnitude along Second Ave. and at Fulton St. Does skimping on a public plaza for a mere fraction of the savings make sense?

The MTA needs to take a good hard look at the funding for its major billion-dollar projects and figure out ways to save. It makes sense to put forward a consistent approach to cost overruns, and for that, $2 million will be cut from the South Ferry project. This is but small beans compared to the MTA’s true fiscal problems.

On Friday afternoon — a very good time to deliver some bad news — Gov. David Paterson did just that. The state, he said, faces a projected budget deficit of nearly $50 million over the next three and a half years, and to close a gap of $3 billion for the current fiscal year, the Governor has proposed a slew of cuts that include pain for the MTA. The state may cut $113 million in MTA subsidies, and that dreaded F-word may be back on the table.

For the MTA, this news is bad. Although the budget proposal requires legislative approval, it’s hard to imagine the already-stingy state subsidies surviving these fiscal cutbacks unscathed. As William Henderson, the executive director of the MTA’s Permanent Citizens Advisory Committee said to The Times, “I would never bet against the state taking money back from the MTA.”

Meanwhile, the MTA’s finances are precarious as it stands now. With fewer state subsidies, the agency would be thurst again into a politically-charged financial crisis. How, then, would the MTA address th? Why, by foisting into the riders through either fare hikes, service cuts or some combination of both. Michael Grynbaum explores the pain the MTA might have to suffer through:

Any loss of financing means cuts, and the authority would have to choose from a limited list of unpleasant options. Fare increases may be the least likely option. In July, the authority announced a budget with no fare increases in 2010, a reprieve that was characterized as a sort of miracle after the crisis of late spring, when a last-minute rescue plan from Albany closed a gaping shortfall.

An abrupt fare increase could be a political disaster. Still, fare increases of 7.5 percent are planned for 2011 and 2013, so a sudden loss of financing could spur an accelerated schedule. “The money has to come from someplace,” Mr. Henderson said. To make up a $100 million shortfall, the authority would have to raise fares again by roughly 2 percent, assuming no other cost-saving measures. Fares and tolls rose about 10 percent this summer.

Service cuts could also help close the gap, but even significant changes rarely amount to big savings. Removing nearly 300 station agents from the subways last month saved $5.7 million. Overnight closing of four downtown stations on the N line would save $390,000; eliminating the W train would save $3 million; and closing the Z line and shortening the M would save $2.4 million, according to authority projections in March, when those closings were being considered.

Paterson’s office claimed that the budget cuts would not leave the MTA in an untenable financial situation, but a spokesman noted the across-the-board impact of the state deficit. “Whether it’s the state government, or the city government, or the MTA,” Matt Anderson, an Albany spokesman said to The Times, “everyone has to manage reductions in resources responsibly to maintain their credit rating.”

And so we are left right back where we started the year — or the decade. The state is going to try to further reduce the money it sends to the MTA, and an agency straining to meet ridership demand for service is going to see its budget slashed further. We need a true commitment to mass transit funding, and as the state may be in fiscal straits, the MTA will suffer for it.

Since Albany approved a .34 percent payroll tax designed to fund the MTA’s budget gap, the State GOP has protested the tax at every turn. Take, for example, this short Newsday article. Alfonso Castillo reports:

Republican state lawmakers gathered Thursday with business owners and nonprofit groups to call for the MTA to repeal its recently enacted employer payroll tax…The tax was the foundation of a massive state bailout plan that pulled the Metropolitan Transportation Authority out of an unprecedented $1.8 billion operating budget deficit earlier this year.

“It’s an outrage that taxpayers are expected to carry this heavy burden on their backs in order to bailout the MTA,” said Sen. Kemp Hannon (R-Garden City), who joined other members of the Senate’s Republican Long Island delegation at a rally in front of the Roosevelt offices of the United Cerebral Palsy Association of Nassau County – one of many nonprofits hit by the tax.

Representatives from other organizations, including several public libraries and education centers, also blasted the tax, which will first be collected next month.

A few weeks ago, Jay Walder expressed his support for the payroll tax. It is, he said, “absolutely essential” for the future fiscal health of the MTA.

So on the one hand, we have anti-tax Republicans representatives, and on the other hand, we have pro-transit representatives who know that the MTA needs funding. At this point, the pro-transit crowd will win, but the payroll tax has created something of an untenable position for the MTA.

Somehow, transit has become a politicized venture in our city and country. Some politicians support pro-transit, pro-pedestrian measures while others are pro-car and anti-tax. The truth is that without transit, New York City would not be a functional urban center. Our streets could not handle the auto traffic that a sub-par transit system would generate, and businesses would lose time and money to inefficient transit.

Yet, still people protest fees, fares and taxes. At some point, the pro- and anti-transit forces will clash, and it will get ugly. For now, the payroll tax will stand, and the MTA will get its money. What happens when the capital plan comes up for budgeting and when the MTA next has to go, hat in hand to Albany, though may not be pretty. Unless a better funding solution arises, New York City will suffer for it.