MTA Economics

It’s Comptroller Week on Second Ave. Sagas. Hot on the heels of his report that the MTA is spending frivolously on contracts, New York State Comptroller Thomas DiNapoli has issued another report on the state on the MTA. In this one, he tells us something that we already know: The MTA’s latest capital plan proposal faces a funding gap of $9.9 billion and will depend too heavily on debt.

While I first explored this problem when the MTA announced its capital plan a few months ago, DiNapoli explores the issue in depth. According to the comptroller, only 67 percent of the plan has funding, and this figure does not include any money for the Second Ave. Subway. “Maintaining and expanding the MTA’s public transportation system is vital to the region’s economy, but finding adequate resources to meet demand will be difficult in the current economic environment,” DiNapoli said. “The MTA plans to close the funding gap with debt if it does not receive any additional aid, but that much new debt would strain the operating budget and increase pressure to raise fares and tolls.”

According to DiNapoli’s report, available here as a PDF, the budgeting and funding plan for the capital program is rather problematic. His office released more in a press release:

DiNapoli’s report indicates approximately 75 percent of the MTA’s proposed $28 billion capital program is allocated to maintain and modernize the existing system (i.e., the core program). Of this amount, the New York City Transit Authority would receive 65 percent, the Long Island Rail Road would receive 13 percent, the Triborough Bridge and Tunnel Authority would receive almost 12 percent and the Metro-North Railroad would receive about 8.5 percent. Another $5.7 billion would be allocated to complete East Side Access and Phase 1 of the Second Avenue Subway.

While the MTA has identified funding for the first two years of the program, the program has a funding shortfall of $9.9 billion over the following three years. DiNapoli’s report found that the funding gap could grow because the MTA is counting on a 56 percent increase in federal funding compared to the current five-year program.

The MTA’s July 2009 four-year financial plan assumes it will sell $16.5 billion in new debt to help finance its 2010-2014 capital program if it receives no additional financial assistance. This assumption is based on the planned issuance of $6 billion in bonds backed by new State revenues and another $9.9 billion in debt to cover the funding shortfall. Under such a scenario, debt service would more than double to $3.5 billion in 2020 from $1.5 billion in 2009.

Debt service is expected to consume 16.6 percent of revenues in 2009 and DiNapoli projects that it could consume 24.6 percent of revenue by 2017, assuming no future fare hikes, if the MTA undertakes a borrowing of that magnitude.

As DiNapoli analyzed the MTA’s current financial state, his findings are fairly drastic. The MTA, he says, will need $128.8 billion over the next twenty years simply to “restore and modernize the existing system.” Additional funds, he says in the understatement of the year, “would be needed to expand the system to meet future needs.”

On Wednesday, the MTA Board is going to approve the next five-year capital plan. It will then head off to the state for a Senatorial debate. It is missing funding for Phase II of the Second Ave. Subway; it includes debt service that will grow from $1.5 billion this year to $3.5 billion by 2020; and it is vitally necessary for the MTA to maintain a state of good repair. And that is one bad financial bind.

New York State Comptroller Thomas DiNapoli issued a report yesterday exposing billions of dollars of MTA waste over the last four years. DiNapoli’s office examined the MTA’s spending on personal and service contracts and discovered numerous inefficiencies and redundancies in the process that has cost the agency approximately $2.9 billion in unnecessary spending.

“The MTA has raised fares and received more tax dollars to cover its deficits and debt,” DiNapoli said in a statement. “At the same time, the MTA expanded its use of personal service contracts without a thorough evaluation of the need or cost-effectiveness of those contracts. Now more than ever, every dime counts, and the MTA needs to manage public resources more carefully. Consultant contracts should only be used when absolutely necessary, and there has to be documented justification of that need.”

According to the state audit, these contracts now consume nearly 15 percent of the MTA’s operating budget, and expenditures have increased from $315 million in 2006 to $881 million last year. Oftentimes, the MTA could not prove that the outsourced services — including contracts for engineering and architecture, waste management, consulting and information technology — represented the most cost-efficient option. DiNapoli also urged the MTA to establish a way to determine “whether these contracts were still necessary or if they could be suspended or scaled back to help manage fiscal constraints.”

Hand in hand with this recommendation was the comptroller’s finding that “the MTA contracted for some services that would appear to be within their in-house capabilities.” DiNapoli wants the MTA to document “the need to contract out for such services.” That’s being diplomatic. If the in-house capabilities exist, the MTA shouldn’t be paying anyone else to carry out its tasks.

As examples, DiNapoli’s audit cites 244 contracts worth $513.6 million for engineering and architecture services, 387 contracts totaling $203.9 million for maintenance services, 183 contracts worth $149.5 million for consulting services, and 46 contracts $99 million for waste removal. Furthermore, the MTA contracted out for real estate management services, tree trimming operations and bus engine repair efforts. All of these tasks could be and oftentimes are completed in-house.

In a press release, the Comptroller’s Office nicely bulleted its other findings:

• MTA records showed that the agency initiated or completed consultant contracts valued in excess of $4.5 billion between January 1, 2005 and October 16, 2008;
• Spending on miscellaneous contracts consistently exceeds $1 billion per year and is rapidly approaching $2 billion per year;
• The value of awarded contracts nearly tripled between 2006 and the first 10 months of 2008, while the actual number of contracts declined by 35 percent during the same period;
• New York City Transit alone accounted for 776 contracts worth $1.8 billion during the audit period; and,
• Nearly one-quarter of all service contracts were non-competitive, including awards to sole contractors and well as emergency purchases.

DiNapoli also issued a set of recommendations for the MTA:

• Improve documentation of compliance with the MTA’s “All Agency Guidelines for Procurement of Services” by determining whether agencies can collaborate on contracts, or fulfill their needs by using another agency’s in-house expertise or existing contract;
• Periodically re-evaluate personal and miscellaneous contracts after they begin; and,
• Take steps to scale back or suspend reliance on service contracts, where appropriate.

The MTA took few issues with the findings and created a subcommittee on service contracts while the audit was ongoing. Whether any financial streamlining comes of it remains to be seen. This audit was one of nine on the MTA DiNapoli has released recently, and his office promises more to come. No matter how much posturing the State Senate does, this is real financial oversight, and the MTA should listen to these recommendations.

You can find a copy of the Comptroller’s Report in PDF form along with the MTA’s response to it right here.

It’s hard these days to miss Mayor Bloomberg’s call to reform the MTA. His brochures land in my mailbox, his ads on my TV. His plan — details here — has become a ubiquitous attempt to tap into populist unrest with the MTA. Nothing he offers is too ground-breaking; much, such as the F express, is old hat; and all of it requires more money than the transit agency has.

Yesterday, John Petro of the Drum Major Institute for Urban Policy, took Bloomberg to task for exactly that last problem. While the mayor can call for MTA reforms until he is blue in the face, if he doesn’t give the MTA more money to enact these reforms, his calls will come off as nothing more than the pandering of a politician.

Noting that the mayor doesn’t really have enough control over the MTA or its Board to effect the changes in his proposal, Petro highlights the one thing the mayor does control: the city’s substantial capital budget. He writes:

The capital budget is huge–$60 billion dollars over ten years. It includes a wide range of different city capital needs, like school construction and rehabilitation, expansion and repair of the sewer and water systems, and housing preservation and development. It also includes money for mass transit, but not nearly enough.

The Mayor’s capital budget allocates a measly $60 million a year toward mass transit. This equals about one percent of the MTA’s capital budget, which is much less than the city has allocated to the MTA in the past. Historically, the city’s contributions equaled about ten percent of the MTA’s capital budget.

The MTA has said that it needs about $100 million every year from the city to support the transit system’s program of rehabilitation and expansion. Why is the Mayor shortchanging the city’s mass transit system? If the Mayor is keen to improve mass transit in New York City, he should begin by making a larger commitment from the city’s huge capital budget.

From 2005-2009, the city was contributing much more to the MTA. But that money went towards the #7 line extension, a project that will be a huge boon for real estate developer Related Companies. The #7 line will be extended to the Hudson Yards on Manhattan’s far west side, where Related Companies has plans to build office and condo towers. (This is the same Related Companies that refuses to pay living wages at the Kingsbridge Armory redevelopment in the Bronx). Meanwhile, communities in the outer boroughs continue to deal with rapid population increases and inadequate levels of service.

I’ve argued before that Albany and the federal government need to step up to the plate to fund long-term investments in the city’s mass transit system. For New York City to meet its full potential, we need to expand and improve our current levels of mass transit service. The federal government has prioritized highway and road projects over transit projects, and the Mayor, as well as the state’s Congressional delegation, need to lobby Congress for a more significant contribution to New York City’s mass transit system. After all, New York is the center of the largest metropolitan economy in the country and mass transit is the backbone of that economy. But the Mayor also needs to get his priorities in order. The city will be devoting $8.9 billion to roads and bridges over the next ten years, but less than one-tenth that amount to transit. In a city where most people don’t drive, these priorities seem out of whack.

No further comments, your honor.

A rainbow-colored 7 train. (Photo by flickr user bitchcakesny)

On Saturday night, I hopped on an A train at Broadway/Nassau and found myself sitting on some hard-molded blue seats that looked out of place amidst the red and orange that dominated the rest of the car. It was not the first time I had seen these seats, and yet, I still wondered why Transit was going for a rainbow look.

Today, the Post reports on the new color scheme. It is, unsurprisingly, a cost-savings measure initiated by the MTA. Soon, all of the cars will feature these dull blue seats, and the vibrant reds and oranges will be but a memory. Tom Namako reports:

MTA workers who repair broken seats were told to do away with the old color scheme in favor of the newer gray-blue on nine lines: the 1, 3, 7, B, Q, D, W and two shuttles.

The idea was to cut costs by saving on the amount of paint that has to be bought — and to save time by not having to use masking that creates the white trim on the older car seats, said NYC Transit spokeswoman Deirdre Parker.

The newer color matches the seat scheme on the latest subway cars, like those used on the N and L lines. Ideally, the entire subway fleet will eventually feature those cars or similar ones. “They’ll be repainted this color forever,” said Charles Seaton, of NYCT.

Namako did not report just how much money the MTA would be saving on these seats, but in this age of little transit investment, any money saved is good money. Meanwhile, as the new R160s and R142s no longer feature different colored subway bullets and the colored seats are going the way of the dodo, the subways are losing another part of their colorful identity. How blue that makes me.

As part of my efforts to expand the dialogue on transit funding solutions and the measures for which advocates should push, I jumped into the fray Monday with a call for market-rate on-street parking spots. The proposal generated a lot of talk with most in favor to a tiered on-street parking system that somehow does not encourage more driving.

Today, I want to look at another approach — a very extreme approach at that — to the MTA’s funding problems: Is it possible to fund the system solely through farebox recovery? In other words, how high would the MTA’s fares have to go for the agency to cover its deficit by itself? The answer is rather terrifying.

During the fare hike debate and the discussion over the MTA’s fiscal future that unfolded for nearly four months this year, various numbers concerning farebox revenue were bandied about. The widely accepted formula centers around the idea that, counting passengers who opt out of mass transit, for each one percent the fare goes up, the MTA captures an additional $50 million in revenue. A ten percent increase nets $500 million, and that 23 percent increase with which we were threatened last November would have resulted in a $1.15 billion windfall for the MTA.

This is some easy math then. If the MTA were to attempt to cover their $1.8 billion revenue through farebox money alone, the agency would have to raise fares by 36 percent. The prices would contain a certain element of sticker shock. Those 30-Day Unlimited Ride MetroCards would cost $110. The base fare would have jumped from $2 to $2.75. Tolls and commuter rail fares would seem equally as steep.

Now, on the one hand, those fares sound expensive. On the other, by tying fare hikes into the cost of inflation, we’ll be there soon enough. Meanwhile, is a $110 30-day ride card that out of the realm of the ordinary? Based on the numbers from my two MetroCard Challenges, my average fare would wind up at around $1.50. That’s what it cost to ride the rails from November 12, 1995 until May 3, 2003.

As I’ve mentioned in the past, maybe one of the real financial problems is that New Yorkers are expecting a cheap and subsidized subway fare but put pressure on the MTA to make that a reality. Straphangers are barking up the wrong trees. The MTA can impact those financial indicators that are within its jurisdiction. That includes fares and services. Politicians though can ensure that the MTA is getting a subsidy that allows it to avoid this hypothetical 36 percent fare increase.

Last year, I proposed doubling the fares and a lengthy and contentious discussion ensued on this site. This proposal — a 36-percent increase and a budget relying nearly 75-90 percent on farebox recovery revenue — is equally as absurd. Maybe, though, it needs to happen before our politicians become wise to the ways of mass transit. Don’t worry, though; I won’t be on the steps of City Hall pulling for this one.

This is a rather confusing, confounding and interesting article in today’s Daily News. In it, Pete Donohue reports on and seemingly criticizes a few MTA divisions for health care spending. Take a look:

Nice perk if you can get it.

Three MTA divisions will pay up to $600,000 over five years for an executive medical program providing head-to-toe physicals and sophisticated tests – free of charge. In addition to basic medical plans, suits at NYC Transit, MTA Bus and MTA Bridges and Tunnels get more comprehensive health care for which other staffers have to pay deductibles or co-payments.

“I’m all for preventative care but you shouldn’t offer something to managers that the workers can’t get,” Gene Russianoff of the Straphangers Campaign said.

I’d say that’s a perk of being the manager. Upper level managers at private companies enjoy perks, and if the MTA wants to compete for the services of qualified people, they’ll dole out the perks too. In defense of the health care, Paul Fleuranges, a spokesman at Transit, says that this preventative health care expenditure outweighs the cost of treating illness later on.

In the end, this seems to me to be much ado about nothing. The $600,000 is but a drop in the MTA’s financial bucket, and the agency — as it should be — is spending far more on health care and pensions for its union workers as well. If anything, this story just makes the case for cheaper universal health coverage than it does for a poorly-run MTA. Still, anything to generate some populist outrage, right?

One of the many charges leveled against the MTA concerns the amount of money those at the top get paid. It’s outrageous that former CEO and Executive Director earned $290,000 in 2008, right? It’s crazy that upper level management should get fairly compensated! Let’s cut their salaries before raising the fares.

Frankly, that’s an illogical line of reasoning. Sander in 2008 oversaw an agency that consisted of 78,393 paid employees. His successor will oversee one that features nearly as many, and a CEO working in the private sector would receive well more than ten times what Sander’s take-home pay amounted to last year. Sander and the agency presidents each making $200,000 a year or more aren’t overpaid.

That isn’t to say that all is A-OK with regards to the MTA’s payroll. Now that the Empire Center for New York State Policy, an off-shoot of the Manhattan Institute, has publicized salary information for all MTA employees, we can better understand what the MTA’s labor costs and challenges are.

The information for the MTA is available here as a searchable database. It includes, per the See Through NY Web site, “names, positions, wage and salary rates, and total pay (including overtime and other extras) of every individual who worked for the MTA during the 2008 calendar year.” While searching through it can be more than a little overwhelming, the Empire Center has put out a press release with some top-line information:

More than 10 percent of the MTA’s workforce–8,214 individuals in all–took home $100,000 or more in total pay, including overtime. The MTA’s six-figure club included:

• 10 employees who earned more than $250,000, averaging $102,000 over their base salaries;
• 44 employees who earned between $200,000 and $250,000, averaging $89,000 over their base salaries;
• 600 employees who earned between $150,000 and $200,000; and
• 7,560 individuals who earned between $100,000 and $150,000.

Eleven of the 654 employees who earned more than $150,000 in 2008 were Long Island Railroad car repairmen who earned an average of $206,000—which was $143,000 over their average base pay rate of $63,000. Other popular titles in the $150,000-and-over category included:

• 62 Long Island Railroad and Metro-North Railroad conductors who averaged $83,000 over their base salaries which averaged only $82,000;
• 40 police officers averaging $79,000 over their average base pay of $90,000;
• 39 gang foremen averaging $87,000 over their average base pay of $79,300; and
• 30 Long Island Railroad engineers averaging $103,000 over their average base pay of $73,000.

It seems as though the MTA could save on labor costs simply by hiring more workers and eliminating overtime. How many hours must these workers be putting in to nearly double their salaries? That is a prime example of poor upper management and oversight.

In the end, the MTA’s fiercest critiques will decry this information as yet another sign that MTA workers are overpaid. That isn’t really true. This people are paid at levels that are fairly compensatory. The problem is that there are just too many of them. The MTA needs to cut internally, but a true slicing and dicing of the authority’s payrolls would require a complete reorganization of the seven-agency beast that is the MTA. I just don’t know, though, who has the clout to fight the unions and Albany. It would be quite the uphill battle.

That’s right! It’s the MTA.

Per Pete Donohue, the cash-strapped agency needs to borrow $600 million to cover its operating expenses for the rest of the year. While Albany passed a rescue package last month before devolving into chaos, the MTA won’t see any of that money until the end of the year, and the transit authority must continue to pay out its expenses. Donohue has more:

The MTA has to borrow a mountain of cash because the state won’t fork over the agency’s transit funds until the end of the year, officials said. Adding insult to injury, the MTA will have to pay the state a fee as high as $5 million when the agency borrows the $600 million needed to pay expenses, officials said…

The Metropolitan Transportation Authority expects to pay $2 million more in interest and other expenses. The Catch-22 stems mostly from the Legislature taking so long to adopt the MTA bailout, which contained a new payroll tax, and subsidies for buses, subways and commuter trains.

That’s brilliant. Stall well beyond a deadline for the rescue plan; pass something that doesn’t really solve any long-term problems; and without the money while charging high interest until the end of the year. Mass transit funding in New York is broken, and this is just another indication of that sad reality.