Category: MTA Economics

How do tabloids in New York sell papers? By splashing a MetroCard and a $3.00 price tag across the front page.

In something of a worst-case-scenario article, Pete Donohue explores the possibility of a $3.00 base fare if the MTA can’t cover the deficit. He writes:

Metropolitan Transportation Authority CEO Elliot Sander said Monday the authority’s budget crisis will force it to impose “Draconian” fare hikes and service cuts without an additional $800 million. Even after making cuts, the MTA will be short about $600 million, agency figures show.

Filling that gap would require a 24% fare hike for MetroCards, train tickets and tolls – if the MTA applied the increase evenly across every category. The agency hasn’t tended to do that in the past, however. Instead, the MTA is expected to take aim at the base fare for the biggest percentage increase – bumping it to $2.50 or even $3, a Daily News analysis shows.

What this article fails to mention is that now, even with a base fare of $2, a whopping 89 percent of riders pay less than that. The average fare per ride is under $1.40.

So in reality, this doom-and-gloom scenario is unlikely to happen and will not impact a lot of riders even if it were to come to fruition. Rather, the MTA will probably significantly raise the prices on Unlimited Ride cards and scale back the bonus system while raising the base fare to $2.50.

That increase of course isn’t one any of us want, and now is the time to start pressuring legislators to find the money for the MTA.

We’ve talked a lot about money this week, and with Richard Ravitch’s report due in less than three weeks, we’ll be hearing more about the MTA’s fiscal woes well into December.

We know that the MTA will soon be facing a $1.2 billion deficit. We know that the agency may cut service, services and excess bureaucracy. We also know that the Ravitch Commission is going to issue a series of recommendations focusing around tolling the East River bridges and a congestion pricing scheme. The fun is just beginning.

Both the East River toll plan and congestion pricing are fraught with political difficulties. City politicians — our so-called leaders — have already been railing against the calls to toll the river crossings while Albany has shot down congestion pricing once this year. Our state representatives aren’t going to be too shy about killing it again, Richard Ravitch’s imprimatur or not. Meanwhile, transit advocates have been couching this debate in either/or terms. Either the MTA enjoy the revenue benefits from congestion pricing or tolls or the MTA will jack up the fares well beyond their current levels.

The mathematical truth, it seems, is not quite that simple. To whit: East River tolls will probably draw in approximately $500 million annually. Ccongestion pricing could bring in another $400 million. A fare hike will bring in around $200 million next year and approximately $384 million annually.

What does that add up to? Well, if each plan were to go into effect on January 1, the MTA would be able to raise, optimistically, $1.284 billion next year. Funny; that’s the precise amount of money the MTA needs in 2009 to cover its deficit.

Do you see now where this is going? For the MTA to enjoy a balanced budget, the Ravitch Committee will have to recommend tolling the bridges and implementing a congestion charge and substantial fare hikes. If not this precise mix, then the report will contain some mix that adds up to a similar total. Otherwise, the MTA will not be able to cover the gap or look forward to its future capital plans and its $30 billion price tag.

Politicians won’t like it; some drivers won’t like; in fact, most New Yorkers probably won’t like it. But unless the government ponies up the dough, the rest of us are going to have to pay in more ways than we’d like to admit if we are to enjoy a healthy MTA.

As the MTA is facing its worst financial crisis in decades, New York’s politicians have begun to speak out in droves. These comments could serve as a primer in assessing politicians’ attitudes toward transit. For example, we’ve already seen that John Liu, the chair of the City Council’s Transportation Committe, doesn’t get it, but what about a few other big names?

Curbed has Brooklyn Borough President Marty Markowitz’s reactions to the East River tolling proposal:

“Haven’t we been down this road before? I have said it before and will say it again: East River tolls are discriminatory, impractical, and impose an unfair ‘tax’ on the outer boroughs—especially Brooklyn. Three of the four un-tolled bridges—the Brooklyn, Manhattan and Williamsburg…Additionally, even with advances in E-ZPass technology, tolls will create even worse traffic backups for communities such as Downtown Brooklyn, Williamsburg, DUMBO, and the ‘Brownstone Belt’ of Carroll Gardens, Cobble Hill, Brooklyn Heights and Boerum Hill, which already suffer.”

I hate to break it to Marty, but a financially crippled MTA would be far, far worse for Brooklyn than some tolls. In fact, two of the three lines up for service cuts run into Brooklyn too and serve many more people than the bridges on a daily basis. Unsurprisingly, Marty doesn’t get it.

But not everyone is as blind to reality as Markowitz. Richard Brodsky, a Westchester assemblyman who oversees the MTA, gets it, as William Neuman noted in The Times:

Assemblyman Richard L. Brodsky, a Democrat from Westchester County who is the chairman of a commission that oversees the authority, said he was worried that the authority’s long-term spending needs would be forgotten in a discussion of its more immediate fiscal woes.

“You look back at the generation of leaders in the ’60s and ’70s and say, ‘How could they let the subway system deteriorate as much as it did?’ ” Mr. Brodsky said. “We are going to be faced with precisely the choices that they faced.” He added, “The real question here is do we repeat those mistakes?”

As Brodsky noted, the region cannot afford to let the MTA slip back into the hell it became in the 1960s and 1970s. That would be far, far worse for our economy that some tolls on the East River. Brodsky also gives me hope that not every politician will have a knee-jerk reaction to inconvenient truths the Ravitch Report will contain next month. We need to look forward for a solution. If that means higher tolls or a congestion fee or higher taxes, then so be it. A New York without a functional MTA with the ability to expand to meet the demands of a 21st Century city would be a bad place indeed.

It’s hard to wrap your mind around $1.2 billion. What exactly does it mean to face a $1.2 billion deficit?

In New York terms, it would take A-Rod 44 years at his current salary of $27 million a season to earn $1.2 billion. For Mayor Bloomberg, $1.2 billion is approximately six percent of his pre-stock market crash net worth.

But for the rest of us — the subway- and bus-riding public — that $1.2 billion figure is a harbinger of bad things to come. While Richard Ravitch may have a few politically untenable aces up his sleeve, the reality is that the MTA is going to have to cut, baby, cut to chip away at this massive deficit.

Pete Donohue has the news as it will impact riders:

Metropolitan Transportation Authority officials wouldn’t release details of a still-developing doomsday budget plan, but sources said bus riders – particularly on express routes – would likely see the biggest cuts.

Subway riders would see fewer trains, especially on lines with parallel service, such as the Broadway line in Manhattan, where N, R and W trains run, sources said.

Layoffs also are on the table, officials said.

William Neuman has the bad news for fare-watchers:

The preliminary budget also called for an 8 percent increase in fare and toll revenues, starting in July, which would generate an additional $200 million.

Each 1 percent increase in fare and toll revenues would generate slightly more than $4 million in income each month.

Of course, the problem with that fare increase and the additional $200 million is that those are simply replacement funds. The MTA doesn’t think that city and state, also facing significant budget crises, will come through with a promised $200 million contribution. So the MTA will still be left with rising costs and debt payments while the fare hike will simply offset money they should have gotten in the first place.

Meanwhile, for the first time, MTA officials, off the record, are talking about cutting service and increasing the fare at the same time; there is no plan in place to fund the next $30 billion capital campaign; and other services — maintenance workers, station cleaners — may face the axe as well. This is a sorry state of affairs for a vital transit agency.

One day, when it’s too late, our legislatures will wake up and realize that we as a city are doomed to repeat the recent past when the subways weren’t properly funded. But by the time we reach a point analogous to the 1960s and 1970s, it will be far too late. This week’s news should serve as a warning shot. For some reason, I don’t think it will.

Earlier today, the MTA Finance Committee held a special meeting to update the MTA Board on worsening financial projections. According to reports from the meeting, the MTA could be facing a crippling $1.2 billion deficit if the agency cannot find economic relief from the city, the state, a fare hike or measures suggested by the Ravitch committe.

Sewell Chan and William Neuman filed a report on City Room:

The Metropolitan Transportation Authority faces a $1.2 billion budget deficit in 2009 — $300 million more than it had projected in July — that will very likely require new fare and toll increases or service reductions unless it gets new state and city aid or finds new sources of revenue, officials warned on Monday morning.

At a meeting of the finance committee of the authority’s board, the authority’s chief executive, Elliot G. Sander, said the authority faces a dire fiscal situation that could influence riders across the subway, bus and commuter-rail networks. The deficit was caused, he said, by the collapse of revenues from real estate and corporate taxes, which until just a few years ago had given the authority a string of healthy surpluses…

The magnitude of the fiscal challenges confronting the authority was evident in a PowerPoint presentation presented at the meeting and posted to the authority’s Web site. Real estate transaction taxes, which represent an important share of M.T.A. revenue, provided the authority with more than $1.4 billion in 2006 and nearly $1.6 billion in 2007. This year, the authority is on track to collect only $995 million in such taxes — about $50 million less than had been projected in July. And the situation is expected to get even worse. The authority now expects to collect $895 million in real estate taxes next year, and $877 million in 2010.

The PowerPoint presentation is available here, and in the next day or two, an archived video of the committee meeting will be posted on the MTA’s website.

“They will be very, very significant,” Sander said during the hearing. “Whatever that mix that we come up with, in terms of fare and toll increases and service reductions, there’s no question that they would have an impact, significantly, on our customer and on the functioning of that region.”

Right now, the financing mechanism for the MTA is clearly broken, and it’s up to the government to fix it. While the feds are working on a $700 billion bailout plan for the rest of the U.S. economic, it wouldn’t be out of the realm of the ordinary to suggest that less than 0.2 percent of that money be siphoned to ensure a healthy MTA. The New York Metropolitan Area’s transit infrastructure is probably at least that valuable to the national economy on the whole.

Meanwhile, the Ravitch Commission’s recommendations — discussed at length this morning — loom larger now. Somehow, someone will have to pay to fix the MTA. It will come out of taxpayers’ pockets either at the expense of everyone or at the expense of drivers who opt to enjoy the luxury of driving. In all likelihood, the end result will be some combination of both.

But no matter the solution, the government cannot allow the fortunes of the MTA to raise and fall on something as unstable as real estate tax revenues. It’s hard to underestimate the city’s need for a healthy public transit network. I’d hate to see New York learn the hard way a lesson we all should have picked up from the 1970s.

This morning, at 9:30 a.m., the MTA’s Finance Committee will meet in a special session to update the MTA Board on revenue and expense projections for the agency’s operating budget. While the news out of this meeting will not be good for the MTA’s bottom line, help, in the form of the Ravitch Commission is less than a month away.

In a few short weeks, Richard Ravitch will unveil his recommendations the city and state could adopt to save the MTA. Yesterday, the Post broke the unsurprising story that Ravitch is going to strongly urge the city to toll the East River bridges with the proceeds heading into the MTA’s depleted coffers. David Seifman and Bill Sanderson broke the story:

A state commission is proposing slapping tolls on the Brooklyn, Manhattan, Williamsburg and 59th Street bridges to plug a gigantic, $1.5 billion hole in the MTA’s budget, sources told The Post. In a report expected on Gov. Paterson’s desk next month, members of the Ravitch Commission – a 13-member panel appointed in June to identify solutions to the agency’s financial crisis – will recommend collecting tolls at all or some of the city’s East River bridges.

All of those bridges are owned by the city and currently have no tolls. But motorists now pay $5 each way on the MTA-owned East River crossings, which include the Triborough Bridge and the Brooklyn-Battery and Queens-Midtown tunnels.

Higher subway, bus and train fares and a new payroll tax – to be imposed on employers – will also be suggested by the commission, which is led by former MTA chief Richard Ravitch, the sources said. Because the non-toll spans are owned by the city, and the Metropolitan Transportation Authority is a state agency, both City Hall and Albany would have to OK the controversial idea.

The Daily News reported that congestion pricing would also be included in the Ravitch report.

On the surface, supporters of mass transit are going to find it tough to object to this idea. The City has often floated the idea of tolling the East River crossings as a way to generate more revenue for the MTA, and if indeed this suggestion appears in the Ravitch report, it will be hard for Albany and City Hall to ignore it. As with congestion pricing, it would serve two needs: The plan would both generate more revenue for the MTA and encourage commuters to seek out more environmentally friendly means of travel within New York City.

Of course, the Post went straight to New Yorkers who could find some way to complain about this plan. Business owners who rely on inter-borough travel decry it as another form of taxation with some even claiming that they won’t be able to stay in business if they’re charged $400 more a month in tolls. These drivers should be able to pass off the costs to their customers in the form of higher delivery fees. That’s not the issue.

The real issue I have is with people such as Walter Winds, mentioned in this graphic, who drives his wife to work over the Williamsburg Bridge. I can’t side with him in this great debate because subway trains already cross the Williamsburg Bridge. If Winds and fellow commuters who view cars as a luxury don’t want to pay, then they can take the train.

Meanwhile, John Liu, the chair of the City Council’s Transportation Committee and the man supposedly in charge of advocating for mass transit, is already campaigning against the tolls. “The mayor tried to impose them during the dire fiscal straits in the wake of the 9/11 attacks, and even then it went over like a lead balloon,” Liu said to The Post This plan, he said, will wind up on “the bottom of the East River.”

Thanks, John. Way to take a good idea and toss it under the bus for a change. One day, the head of the Transportation Committee won’t hate the idea of funding transportation in the city. For now, we’ll just have to hope that something Ravitch suggests — tolls, congestion pricing, money laundering — provides the MTA with the relief it needs.

On Monday morning, when I ran a piece on the MTA’s global investments, I leveled some fairly serious charges at MTA CFO Gary Dellaverson and his investment strategy. Relying on information from an article in The Times, I questioned the MTA’s decision to pursue some high risk, high reward investments and in doing so, overstepped my bounds without discovering the full story.

I wrote, as my analysis:

Basically, in a nutshell, the MTA got greedy…All of this economics mumbo-jumbo leads me to believe that perhaps the MTA needs some new fiscal leadership. Perhaps Dellaverson, the man who invested the MTA into this mess, needs to go. Perhaps he just needs new economic advisers who don’t play fast and loose with rather important public infrastructure funds.

Yesterday, the MTA rightly accused me of spouting forth on a topic about which, at the time, I knew little. Jeremy Soffin, MTA spokesman, wrote me a correction in the form of a letter submitted to — but not yet published by The Times. It reads:

To the Editor:

While it is important to your readers to know how the global credit crisis is impacting government services, the November 2 article “From Midwest to M.T.A., Pain From Global Gamble” confuses the issue by comparing the MTA’s successful use of variable rate bonds to riskier investment schemes.

The story implies that the M.T.A. was “wooed by bankers” to pursue variable rate bonds, but the agency has used these bonds to diversify its traditional fixed-rate debt since the 1980s. This mix provides the most cost effective financing for the MTA’s capital program of over $23 billion, with variable rate bonds saving the agency nearly $44 million just this year alone.

The M.T.A. did what was prudent for any governmental issuer of its size – it compiled a list of qualified banks, selected not on the quality of the sales pitch, but on market acceptance and ratings of the institution. The M.T.A. currently uses fourteen major domestic and international banks in its variable rate portfolio, of which Depfa is but one.

As the MTA continues to grapple with the volatility in the financial sector as well as the impact of the economic slowdown on the ‘real’ economy, it will keep its riders interests first and foremost by managing risk with supplier and product diversification.

In my post, I didn’t take the full economic picture into account. What the MTA did in investing in variable rate bonds was what millions of Americans do with their 401(k) plans. They diversified their holdings to spread out the risk in an effort that should have achieved maximum growth. If this one investment didn’t work — and that is a point I’ll get to soon — it has nothing to do with irresponsible investing or greedy officials and everything to do with the fact that, sometimes, investments don’t work out.

But on the other hand, while The Times article didn’t focus on this, as the MTA stresses, these investments works. The variable rate bonds saved the agency $44 million alone.

The other piece of this post and The Times article focused on concerns about the MTA’s debt payments, but these payments aren’t increasing because Depfa — the bank holding just one of the MTA’s many investments — is suffering. The debt is increasing because the MTA has had to borrow to finance its much-needed capital campaign.

While the article mentions a potential $12 million in fees to Depfa, the MTA believes this figure represents a worst-case scenario, and authority officials do not believe it will come to that. The MTA’s financial team is much more concerned with higher interest rates on their recent bond issue and the current disruption in the credit market than with what figures to be a relatively small payout to Depfa, if it even comes to that.

So in the end, I have to issue an apology to the MTA and Gary Dellaverson. I took the information from The Times’ article at face value when the MTA had a story to tell about their investments too that doesn’t make the authority look nearly as bad as I made it out to be. In reality, Dellaverson has done an admirable job spreading the risk at a time when the MTA really needs an outside infusion of cash. Monday’s post represented sloppy reporting by me, and my readers and the agency about which I write deserve better.

For the non-economists among us, variable-rate bonds are not very easy to understand. In sum, these stem from adjustable-rote loans in which the initial payments are low but can change over time. As we’ve recently learned, this change can be for the worse.

In Sunday’s New York Times, Charles Duhigg and Carter Dougherty explored how these adjustable-rate loans and variable-rate bonds from one bank in Ireland are impacting the MTA. The tale they weave is one of fiscal recklessness and global impact:

For years, municipal agencies like the M.T.A. had raised money by issuing plain-vanilla bonds with fixed interest rates. But then bankers began telling officials that there was a way to get cheaper financing…

The transportation authority, guided by Gary Dellaverson, a rumpled, cigarillo-smoking chief financial officer, had $3.75 billion of variable-rate debt outstanding. About $200 million of that debt was backed by Depfa. When the bank was downgraded, investors dumped those transportation bonds, because of worries they would get stuck with them if Depfa’s problems worsened. Depfa was forced to buy $150 million of them, and bonds worth billions of dollars issued by other municipalities.

Then came the twist: Depfa’s contracts said that if it bought back bonds, the municipalities had to pay a higher-than-average interest rate. The New York transportation authority’s repayment obligation could eventually balloon by about $12 million a year on the Depfa loans alone.

Basically, in a nutshell, the MTA got greedy. They could have plodded along with their regular bonds with fixed interest rates. These bonds, backed by the U.S. Government, could have served the MTA well even if they were not quite as efficiently sexy as the Depfa bonds. Now the risks are coming back to bite hard.

For their part, the MTA alleges that, for this year, it is within its debt-payment budget, but as we’ve seen time and again over the last six months, those debt payments could cripple the MTA over the next few years. While this year’s payments may be on pace, the subsequent years’ payments will be impacted by this financial crunch.

All of this economics mumbo-jumbo leads me to believe that perhaps the MTA needs some new fiscal leadership. Perhaps Dellaverson, the man who invested the MTA into this mess, needs to go. Perhaps he just needs new economic advisers who don’t play fast and loose with rather important public infrastructure funds. There is, after all, no such thing as a free lunch whether you’re a homeowner looking for a cut-rate mortgage or a cash-strapped public transit system beholden to millions of passengers each day.