MTA Economics

Things did not look good for me when I arrived down on the platform at 7th Ave. in Brooklyn at around 8:40 a.m. yesterday morning. A Q train was pulling in, and I thought I’d hop it to DeKalb and switch to my W. 4th St-bound B.

There was but one catch. This Q train was far too crowded to board. When the B then pulled up, it too was far too crowded to board, and a subsequent Q suffered the same fate. When a second Q pulled up moments later, I was able to cram my way in for the short hop to DeKalb. Then, I had to wait nearly 15 minutes for a B train. As usual, at no point did the MTA announce a problem, and it wasn’t until I arrived late to class that I learned I suffered through some good old “residual delays.”

Except I hadn’t really. A steady stream of Q trains kept arriving, but they were too full. Simply put, the demands of the ridership could not, for a morning, keep up with the supply of the trains New York City Transit had to offer.

This overcrowding to an extreme isn’t a new phenomenon. The MTA’s ridership levels over the last few years have approached records set over fifty years ago, and overcrowded trains have become a major problem.

Perhaps, though, the end is in sight. With thousands of people losing their jobs due to the recent economic slowdown, the MTA expects ridership levels to end their climb. Marlene Naanes has the report:

Transit ridership is at a 40-year high, continuing a steady increase since 1996. However, this month City Comptroller Bill Thompson predicted more than 150,000 job losses in the next two years, which could affect the number of people taking trains and buses or being able to afford fares.

An MTA spokesman, however, said that it is unclear if the number of straphangers will decrease. “There will be some reduction in the pace of growth, not necessarily a drop in ridership,” MTA spokesman Jeremy Soffin said.

In all likelihood, actual ridership won’t decline, but it won’t increase either. The MTA will lose some revenue because they won’t have the projected money from increased ridership, and the agency will still have to deal with overcrowding.

But, to find a silver lining to this cloud — or perhaps it’s the other way around — the trains won’t be even more crowded. This morning, as I crammed myself into a Q train packed to the gills with people, I could barely move. I doubt it could actually get much worse.

Along with everyone else, the MTA is trying to stave off financial doom. Unlike with Lehman Brothers and the other failed financial institutions, though, the MTA’s fiscal troubles stretch back decades, and the transit agency has been trying to come up with a fix long before Wall St. headed south last month.

For the last few months, Richard Ravitch and his commission have been trying to assess the MTA’s financial situation. The panel’s recommendations are due in approximately six weeks, but it may be too late to solve some of the MTA’s more crushing problems before the agency must adopt a strict budget with cuts to services — but not, as far as I can tell, cuts to train and bus service quite yet.

William Neuman, writing in today’s Times, has more on this alarming story:

When Gov. David A. Paterson created a commission last spring to recommend a solution to the Metropolitan Transportation Authority’s financial troubles, the panel’s head, Richard Ravitch, a respected former chairman of the authority, quickly took on white knight status, with officials and politicians hoping he would ride in before the year was out to save the authority from disaster….

But the stock market’s troubles and the global banking crisis have accelerated the authority’s financial slide to the point that officials are now working to carve deeper cuts in their budget plans for 2009. And it appears likely that there will be insufficient time for the State Legislature to act on the Ravitch commission’s proposals, meaning the authority will be forced to adopt an austerity budget with both service cuts and fare increases by late December, an official said.

Further, because of sharply falling revenues, an even larger increase in fares and tolls might have to be considered than in the authority’s earlier budget plan, which called for an 8 percent rise in revenues from those sources, the official added. All that sets the stage for a winter of wrangling among the governor, the Legislature, the mayor and authority officials, who will be under intense pressure to rescue the region’s mass transportation system.

“We clearly are going to be laying out some very painful stuff,” MTA CEO and Executive Director Elliot Sander said to Neuman. “We are going to have to balance the issue of fare increases and service cuts and also see how we can cut our budget further. Those are the three pieces to the puzzle and we’re just in the process of dealing with those trade-offs.”

From what I’ve heard, the MTA is loathe to cut actual service, and when The Times and officials start talking about “service cuts,” everyone gets worried. In reality, the first services to go will be bureaucratic in nature followed by maintenance and cleaning staff. Only after the agencies are pared to their bare essentials will the MTA brass consider reducing the frequency of trains.

But the MTA and New York City can ill afford these cuts. In a bad economy, the government should be investing in its infrastructure. Spending on the subways could spur on job growth and economic development in areas awaiting investment. Ensuring safe, reliable and steady access to the city’s core business areas via public transportation is just as important for the region’s economic health as anything else.

In the end, we’ll have a clearer picture of the MTA’s short-term financial outlook when Ravitch drops his report during the first week of December, but early signs are not favorable. It could be a cold winter for the MTA.

The MTA may be facing a cash-flow shortage over the next few months.

Earlier this week, amidst a collapsing economy, the MTA issues a $500 million bond request. The cash-strapped transportation agency had hoped to generate cash flow by selling off bonds. This money was destined for high-profile, big-ticket projects such as the Second Ave. Subway.

Well, it turns out that the middle of an economic crash is not a good time to attempt a bond issue. According to WNYC, the MTA has already scaled back its request by $300 million, and it’s unclear how this turn of events will impact the transit authority and its bottom line. WNYC has more:

The turmoil in the bond market has forced the MTA to rethink a half-billion dollar bond issue.

The transit agency delayed selling the bonds for two days because of weak demand. This morning, it got into the market, but reduced the amount it wanted to borrow to $200 million.

The bond’s high-yielding interest rate — up to 6.5 percent — will force the transit agency to devote more of its budget to financing costs, but it’s too early to say how much. The MTA’s Gary Dellaverson says he assesses the market every day to determine when to put the other $300 million worth of bonds on sale.

Dellaverson issued a cautious warning. “If it were to be a long-term condition, it would be something of great concern because MTA relies heavily on the bond market to finance its capital projects,” he said.

In the short term, Dellaverson will keep his eyes open for a better time to issue the other $300 million in bond requests the MTA would like to fulfill. In the meantime, though, this MTA will be hoping for a break in the market. Any delay in this bond issue could result in a slowdowns in construction on the East Side or the 7 Line extension, and we could be in for yet another delay in the long and tragic history of the subway along Second Ave.

The MTA is not immune from the nation’s current economic woes. According to a story with alarming consequences in today’s Daily News, the transit agency could be facing a budget crisis when and if its debt payments increase due to rising interest rates.

Pete Donohue has the details:

Skyrocketing interest rates caused by the Wall Street meltdown could raise the MTA’s annual payments by tens of millions of dollars above what was anticipated in its budget plans, experts told the Daily News.

The latest financial headache for the debt-heavy Metropolitan Transportation Authority comes as the authority faces a huge 2009 budget gap and is trying to avoid service cuts. “The potential impact could be significant,” one expert said.

The best-case scenario would be for government bailout efforts to free up credit and lower interest rates soon. “If that happens soon – very soon – our budget target for interest cost has a prayer of being met,” said Doreen Frasca, chairwoman of the MTA’s transit committee and the founder of a financial services firm.

The MTA issued a statement to Donohue about potential debt payment problems, and while the agency has stabliized some long-term bonds, short-term, variable-rate certificates pose a problem. “The situation is in such flux that the full impact on our bottom line cannot yet be assessed,” the statement said.

In short, the MTA could be facing a massive budget crisis if their debt payment plans don’t steady. The agency will not have the money it needs to pay off its massive debt, and if creditors call in the money, bankruptcy would be the worst case scenario.

While the federal government is busy bailing out investment banks and financial institutes that made a number of unnecessarily risky investments, will they extend the courtesy to institutions like the MTA whose long-term financial health is just as vital to our economy as the failing banks? I doubt it.

During the hullabaloo over the fully-wrapped Shuttle last week, MTA CEO and Executive Director sneaked in an interesting tidbit about the agency’s future advertising plans. According to the MTA head honcho, the agency is seriously considering offering up station sponsorship packages to willing advertisers.

Pete Donohue of The Daily News reported this development late last week:

MTA CEO Elliot Sander said the MTA is mulling the “complicated issue” of having corporations “adopt” or sponsor subway stations for a price.

“It’s something we are looking at potentially for the future,” Sander said. “It’s incumbent on the MTA to look at all possible avenues to increase revenues given the financial challenges we have.”

In the past, transit officials have described station adoption as an arrangement that could involve granting a corporation certain exclusive rights, like controlling ads there.

This is not a new idea. In fact, I first suggested this rather unoriginal idea back in July of 2007, and I will stand by my words. The subways have never been a pristine, ad-free environment. In fact, from the day the IRT first opened in 1904, the walls were adorned with ads. Even then, the system’s operators knew that fare revenue alone would not sustain the system.

Today, this idea makes even more sense. The MTA could sell high-traffic stations to top corporate clients who would then be free to brand the stations, respectfully, as they see fit. Not every space of wall needs to have a Disney ad at Times Square, but if every ad in the station were a Disney ad, the MTA could stand to draw in a pretty penny. The issue of naming rights, of course, opens up a whole different can of worms.

Advertising, of course, is but one way the MTA could start licensing aspects of their stations. A few months ago, the NYC Transit Riders Council suggested a modified adopt-a-station program. While the MTA shouldn’t necessarily outsourcing station maintenance programs, the agency needs the money. It might not be pretty; some people might complain; but, as they say, money is money. If it takes some more advertising, I won’t complain.

Thomas DiNapoli, New York State comptroller, has delved into the MTA’s books, and he doesn’t like what he has found there.

Three months ago, amidst talks of regular fare hikes and budgetary concerns at the MTA, DiNapoli announced he would conduct an audit of the MTA’s books. This week, he released his report on the MTA’s financial outlook, and the picture is not pretty. While the authority’s internal budget gap-trimming measures have been relatively successful, DiNapoli still sees budget gaps climbing to $1.8 billion by 2012. The financial future of the nation’s largest public transit authority has never been more in doubt.

In the report — available here as a PDF — DiNapoli urges the MTA to wean itself off government funding and warns that the recent economic problems coming out of Wall St. may spell financial doom for the agency. In fact, DiNapoli goes one step further and warns the MTA not to expect any additional government funding. Additionally, with the MTA so dependent on taxes and fare revenue, any widescale loss of jobs — such as the collapse of Lehman Bros. or the banking crisis in general — could significantly impact the future finances of the transportation authority.

“The turmoil on Wall Street has created serious fiscal challenges for the City and the State, which will likely limit their ability to provide additional assistance to the MTA,” DiNapoli said, in a statement. “To its credit, the MTA has directed its agencies to develop contingency plans, but the focus must be on administrative costs, not service cuts. Like everyone, the MTA has to learn to do more with less.”

DiNapoli’s office summed up the vital parts of the report in a press release:

In July, the MTA projected operating budget gaps, on a cash basis, of $1.1 billion in 2009, $1.9 billion in 2010, $2.1 billion in 2011, and $2.3 billion in 2012. These gaps represent 11 percent of revenue in 2009 and more than 22 percent of revenue by 2012. The DiNapoli report found that while the MTA’s budget gap estimates were reasonable when they were presented in July, the State has lowered its forecast of dedicated transit taxes by $381 million over the financial plan period.

To balance the 2009 budget and narrow the budget gaps for subsequent years, the MTA has proposed a $6.4 billion gap-closing program. The report found that the gap-closing program is risky because it relies so heavily on actions that are either outside the MTA’s direct control or are still unspecified. Nearly half of the resources are expected to come from additional State and City aid. Less than one quarter would come from internal actions, and 37 percent of those savings remain unspecified.

After assessing the gap-closing program and other risks, the report concluded that the MTA still faces budget gaps of $522 million in 2009, $1.4 billion in 2010, $1.6 billion in 2011, and $1.8 billion in 2012. DiNapoli noted that even if all of the MTA’s gap-closing measures were successful, it would leave a gap of $250 million in 2010 – or the equivalent of a five percent fare hike.

Basically, the MTA, which already relies more on farebox revenue than any other transit system in the nation, will have to keep pushing riders to pay more or else they’ll have to cut service to meet financial expectations. No organization — outside of the federal government — can operate by racking up $4.8 billion in debt over three years, and I have to wonder if the MTA is going to collapse under the weight of its borrowing before the next few years are out.

Meanwhile, as the MTA has increased fares at a rate outpacing inflation by 52 percent, the capital budget is still facing a seemingly insurmountable $15 billion gap. The MTA is also facing the prospects of unfunded pension liabilities reaching nearly $2 billion.

In the end, DiNapoli’s report is long on the doom and gloom and short on answers. He warns the agency not to expect state and city money, and he urges the agency to consider cutting services. From a practical, governmental perspective, DiNapoli’s suggestions are sound, but from a customer service viewpoint, the MTA — enjoying sixty-year ridership highs — can’t really cut service. How this plays out is anyone’s guess.