MTA Economics

No one ever expected Andrew Cuomo to be, as governor, a particularly strong advocate for transit. After all, this is a politician who is known more for his muscle cars than anything else. Lately, though, he’s let the top spot at the MTA remain empty for the past 38 days, and, oh, his budget has reappropriated — or stolen — $20 million in funding from the agency as well.

The report on the theft comes to us via TSTC. In an early report, Lemmon raised questions concerning the following line item:

“The Budget will use surplus mass transportation operating assistance funds to pay for a portion of the debt service associated with previously issued MTA service contract bonds. (2013-14 Value: $20 million; 2014-15 Value: $0).”

In yesterday’s post, she elaborates:

This $20 million diversion of funds comes from a pot of money that is statutorily dedicated to cover the operating needs of the MTA. The Executive Budget, however, declared that this $20 million diversion is “surplus,” but there is no explanation of how funds are determined to be surplus. Because of increases in revenues from taxes dedicated to the MTA, the MTA did receive a 7.4 percent increase in the executive budget over last year’s budget. But given the volatility of the economy over the last few years, these days it is hard to say that anything is “surplus.”

Streetsblog lays clear how this sweep is working: “What the budget summary doesn’t say is that the state’s general fund would have paid this $20 million if the administration hadn’t stepped in and diverted the MTA’s $20 million. How transparent!” Streetsblog also notes that while the lockbox would not necessarily have blocked this raid, it would have forced Cuomo to explain the why and how of it. As it stands, the administration can put forward whatever nonsense it wants as an explanation.

The MTA hasn’t yet acknowledged this cut and has yet to say how it will otherwise find the $20 million. The service restorations planned for 2013 add up to around $29 million, but there are no plans to scale back on these increases. Meanwhile, fares are going up in less than a month, and readers will be expected to shoulder even more of the burden as the state has once again stolen from the MTA and its paying customers. But, hey, at least the roads are paved.

Rockland County is at it again. The perennial anti-MTA leaders of this exurban region are once again making noises about transit policy. This time, County Executive C. Scott Vanderhoef, who, earlier this year, proposed withdrawing from the MTA, believes his area should be exempt from fare hikes, and his reasoning is just as spurious this time as it was in March.

In a letter to MTA officials, Vanderhoef argues that Rockland County pays more to the MTA than it receives in services. It must be subsidizing something, but what?! Let’s find out. First, Vanderhoef’s argument:

Regarding the proposed fare increases: I believe the suburbs need to pay their fair share for the MTA services they receive both in their communities, and for those services that residents use when they are in the City. That said, Rockland County residents pay $108 million each year to the MTA. The problem is this: Rockland County’s “share” is far from “fair” because we only get about $68 million in value back from MTA each year. That leaves us with a $40 million value “gap” [MTA Value Gap Analysis (February 2012)]. Public documents, commissioned studies and MTA’s own reports have consistently shown that Rockland County has been overpaying MTA in this manner for more than 25 years.

Perhaps a few of you may feel inclined to dismiss Rockland County’s $40 million value “gap”, believing we should pay more because we are suburban and we benefit from and use other MTA services. Well, the value gap reports account for that, and there is still a gap. The latest report includes not only the “value” of rail services Rockland residents receive on the West side of the Hudson, but also the value of services on the East side, the value of NYC Transit services such as buses and subways, the value of the MTA’s bridges and tunnels, the value of MTA’s capital investments throughout the entire region, the value of MTA’s police department, and even the value of MTA’s administrative services. All told, about $68 million in annual “value” – a figure that actually (ironically) almost rivals our annual $40 million “gap”…

Common sense financial fairness would dictate, therefore, that Rockland County be exempt from the proposed fare increases. During my 20-year tenure as Rockland County Executive and a NYMTC Principal, it is with a deep conviction rooted in justice that I have fought for Rockland County’s fair share from the MTA. Rockland County is burdened by its orphan status as a New York community on the West side of the Hudson River – deep in NJ Transit territory. Rockland County’s “bi-state” political circumstance has resulted in decades of sub-par train service along with neglected and sub-par stations.

To make this argument Vanderhoef is relying largely on a study he commissioned earlier this year that supported his belief that Rockland County would be better off without the MTA. The MTA just laughed. In a statement to Capital New York, the Authority opined as such:

“Metro-North Railroad and the MTA’ss transportation network connect Rockland County to a $1.26 trillion regional economy, bringing enormous value to its residents and businesses in ways that are ignored by the flawed study referenced by County Executive Vanderhoef. Rockland residents enjoy higher property values, Rockland’s Metro-North commuters bring home higher salaries, and Rockland’s overall economy benefits from the regional economy and its robust transportation system. Rockland’s contribution to the M.T.A. supports its entire system, benefiting even the Rockland residents who commute to NYC by car and who wouldn’t be employed as police officers or firemen or construction workers or teachers in New York City if there were no MTA to make the City run.”

But what of this so-called value gap? To a certain degree, it exists, and that’s where Cap’n Transit comes in. The answer, you will be not at all shocked to hear, involves debt. Here’s his take:

Sure enough, Rockland’s share of the MTA’s $1.91 billion debt service comes out to $41.9 million. The so-called “value gap” is just Rockland’s share of the bond payments. The Cambridge Systematics report didn’t pick up on that because they decided from the beginning to ignored debt service. Oh, and all this debt was racked up under Vanderhoef’s comrade in arms Governor George Pataki, who Rockland voted for in 1994, 1996 and 2002.

As Rubenstein pointed out, Vanderhoef has been complaining that the MTA short-changes Rockland since 1997. It probably wasn’t true then, and it’s definitely not true now. I’m glad she’s found people to call him on this, but none of them seem to pick up on the point that the entire “value gap” is nothing but payments on the debt that Vanderhoef himself supported.

Should Rockland get better transit service? Absolutely. But not to make things equal, just to fix the county’s broken transportation system.

There’s no value gap; there’s just a debt gap.

So what do you with Rockland County? Vanderhoes has been the County Executive since 1994 and shows no signs of leaving any time soon. Should we let Rockland County secede from the MTA and remove its transit service? That could send a lesson but would harm its residents. Perhaps, then, we should just let him rant, knowing that no one is listening or taking him all that seriously.

AT&T's Philadelphia deal included the rights to be the exclusive wireless provider for SEPTA. (Photo by flickr user Saturdave)

As transit agencies across the country have struggled to find adequate amounts of money over the past few years, the promise of lucrative naming rights deals hovers at the edges of any discussion. On a practical level, our own MTA secured $200,000 a year for 20 years to append the Barclays Center moniker to the Atlantic Ave./Pacific St. stop, and in Philadelphia, AT&T paid out $5 million for a five-year deal to completely rename SEPTA’s Pattison Ave. stop. Beyond that, naming rights have remained a mirage.

Across the country — as a simple Google Search shows — transit agencies have been seduced by the allure of dollars for names. Boston has explored potential naming rights deals and so has Austin. Dallas is currently working to market its stations, and Chicago has tried various approaches with limited success. Apple paid to overhaul a CTA stop near one of its Windy City stores, but the CTA hasn’t shopped naming rights. Simply put, there isn’t a lot of money in these agreements.

That doesn’t, however, stop potential politicians from trying. Tom Allon, the CEO of Manhattan Media and potential GOP mayoral candidate (that is, if Joe Lhota doesn’t step in), penned a piece during Thanksgiving week calling upon the MTA to sell station naming rights. He wrote:

The MTA runs more than 400 subway stations and more than 5,000 bus stops. That’s very valuable — and visible — real estate that should be monetized. If we sold the naming rights to each bus stop for, say, an average of $5,000 per month and subway stations for an average of $10,000 per month (based on my own experience and estimates), that would generate $360 million per year in new revenue — the lion’s share of the current $400 million deficit that is precipitating the fare increase proposal.

Would you rather pay an extra $120 per year to commute or start referring to the Times Square subway station as “Pepsi Times Square”? Not a tough choice for me, especially since our transit system is already covered in ads.

Moreover, we routinely sell naming rights in the private sector to stadiums (Citi Field in Queens, Barclays Center in Brooklyn), hospital wings (NYU’s Langone Medical Center), university buildings (the Arthur L. Carter Journalism Institute, also at NYU) and other institutions. For that matter, now that the Barclays Center is open, the subway station beneath it has been renamed “Atlantic Avenue – Barclays Center.” Nobody seems outraged by the change so far. Sure, some will call this crass, charging that we are commercializing some of our public spaces. However, such criticisms would be misplaced.

In my mind, privatizing the names of stations is a small price to pay to keep fares down for working-class New Yorkers, who depend on mass transit each day to get to their jobs, at a time when median wages are not rising nearly as fast as the cost of living here.

Allon went on to suggest a series of (unfortunate) names: There’s Time Warner Marcy Ave., Nike Union Square, and Ray’s Pizza 68th and Broadway. No word if he meant Famous Original Ray’s or Ray’s Original Pizza.

If only it were that easy though. Unfortunately for Allon, it takes two interested parties to complete a naming rights deal. Someone has to want to sell those rights, and someone else has to want to buy them. The second someone else hasn’t been as forthcoming as the first. For starters, transit infrastructure does not have the best reputation in the world, and may companies are hesitant to append their names to something not safe. Imagine if this past Monday’s horrific incident had happened at M&M’s 49th St. station instead of just the 49th St. station.

Furthermore, will anyone really pay $10,000 per month? The MTA’s only current naming rights deal is for $16,666 per month, but it’s also at a station that saw a pre-Barclays Center average of 33,000 passengers per day. Marcy Ave., used in Allon’s example, has a daily ridership of around 11,000, and a large number of stations see well under 5,000 passengers per day. Allon’s revenue projections aren’t just optimistic; they’re flat-out impossible to attain.

It’s notable that Allon, ostensibly a serious candidate for mayor, is talking transit. That’s seemingly more than many of his Democratic counterparts have done so far. But his idea isn’t based in reality. It’s a populist trope with no money behind it. Naming rights aren’t some panacea for funding woes, and the more time politicians spend dallying on the idea, the less time they devote to truly transformative and revenue-generating policies instead.

Repairs from Sandy will add to the MTA's debt load. Image via RPA/ESTA.

As we well know, the MTA has a debt problem. By the end of the decade, the MTA’s annual debt service payments should top $2 billion, and debt — as opposed to transit expenses and true operating costs — is the largest growing portion of the MTA budget. Even as the authority has engaged in historic cost-cutting measures over the past few years, the debt problem just doesn’t go away.

Now, the MTA has a Sandy problem as well. With the cost of repairs and some — but not all — hardening projects pegged at over $5 billion, the MTA has to find a way to fund these repairs. Eventually, federal money and insurance dollars will help cover the costs, but you know how these things work. It takes negotiations and time to get the checks cut and the dollars distributed.

Earlier this week, at the monthly board meeting, MTA officials spoke about the funding options for the repairs, and the MTA’s favorite four-letter word came up. To fund immediate repairs, the MTA will borrow money and take on more debt. If only my credit limit were as high as the MTA’s. While discussing the funding, MTA head Joe Lhota vowed to find ways to pay for it that don’t involve fare hikes. “The burden of Sandy will not be upon our riders,” he said.

Still, with the numbers the MTA is throwing around and their plans for funding, the riders will somehow, someway feel the pain. Before Sandy, the MTA’s financial picture was improving. Small surpluses for 2012 and 2013 were to lead to service enhancements — which the MTA says are still on the table — and further savings were on the table. The storm threw that plan fully out of whack as the MTA lost $268 million on fare revenue and increased operating costs and has to fund capital work worth $4.75 billion, the equivalent of a year in the capital budget.

In documents released this week, the MTA says it expects to receive federal reimbursement over a period of three years beginning in 2013. To fund the repairs sooner, the MTA will issue $2.9 billion of debt in 2013 and $1.9 billion in 2014. The MTA also anticipates that it could be left footing the bill for over $900 million in repairs without federal assistance. If the MTA has to bond out that difference, borrowing costs would add $62 million a year to the MTA’s already-substantial debt load.

That’s where Lhota’s statement comes into play. He feels the MTA could, if necessary, fund the difference through internal costs. The agency will not raise fares more than it is already planning to do to pay down this debt. But even if riders aren’t subsidizing the debt, they’re still paying for it. With more debt on the books, the MTA’s credit rating could suffer and borrowing costs may increase. With more debt on the books, the MTA will have less leeway in its tight budget for transit services. With more debt on the books, the riders are left in a very precarious position. Worse yet, we’re still not even contemplating ways to improve and eliminate flood-prone areas.

As is often the case, it’s all about the money for the MTA, and that dollar will just be stretched tighter and tighter as the transit network struggles to recover from the worst natural disaster in its 108-year history.

Uptown & The Bronx, if you have a boat or submarine handy. (MTA New York City Transit / Leonard Wiggins)

Since getting wind of the MTA’s $600 million request for funds to repair and restore the South Ferry/Whitehall St. station complex, I’ve had a tough time wrapping my head around the exceedingly high figure. The total — which may not include repairs to the Montague St. Tunnel or nearby Broad St. station — is over ten percent higher than the cost of constructing the new South Ferry station, and a time when budgets at any level are maxed out, it seems on the surface to be just another example of the MTA’s inability to rein in capital construction costs.

The South Ferry price tag isn’t the only shocking number from the MTA’s Sandy Impact List. Restoring the A train’s Broad Channel connection to the Rockaways will cost $650 million, and repairing the damage to the signal system will run up to $770 million, nearly as much as initial estimates for a full CBTC treatment of the Queens Boulevard line. While we can argue that emergency dollars from the feds represents an untapped revenue stream of which the MTA should take full advantage, something else might be at work here. The MTA may be overestimating it needs.

After facing a rumbling of shock over the cost estimates, officials at New York City Transit have repeatedly stressed that the figure is just a guess for now. They don’t know how much it will cost and hope to get the total well below $600 million. Ted Mann of The Wall Street Journal followed up this argument with a piece on South Ferry this evening. He writes:

The Metropolitan Transportation Authority is still in the earliest phases of assessing the damage to its facilities, including how much it will cost to rebuild South Ferry, which filled with flood water and debris carried in by the tidal surge of superstorm Sandy…The MTA will seek to repair damage to South Ferry for less than the $600 million asking price, Transit Division President Thomas Prendergast said on Tuesday.

The transportation agency is keeping its damage estimates high enough to account for potentially high costs of reconstruction–especially if the station suffered serious structural damage–or for expensive components like escalators and elevators that could need to be replaced. “You don’t want to pad” damage estimates in seeking federal aid, Prendergast said. “If you destroy your credibility by padding numbers, that’s bad too. But you start with a number that you think is going to capture all your costs and you work back from that. And if we find we end up delivering it less, we’re not going to bill anybody for more.”

There is the possibility — though no guarantee — that some damage estimates will fall as evaluation continues and repair work begins in earnest, Prendergast said. “When you’re dealing with third parties who may reimburse you, you never want to start low and then work high,” he said.

In a sense, the MTA is following a practice it rarely pursues: By overestimating the costs now, the agency may look better in the public eye when repairs come in below target. They also may not know the full extent of the damage, and it is possible as well that the repairs will cost that much. After all, the entire South Ferry station was flooded, and salt water mitigation and subsequent repairs and hardening efforts will be substantial.

Still, these estimates bring to light a problem that has bedeviled the MTA for decades: Construction costs in New York City cannot remain this high if the MTA wants to continue to expand its network to meet growing demand. We can’t pay $600 million to repair a single subway stop just like we can’t pay $4.5 billion to build barely two miles of new subway. The MTA has needed to engage in a serious discussion of its capital construction spending scale for years. Maybe Sandy can push that dialogue in the right direction. After all, New Yorkers are beginning to suffer from subway repair-induced sticker shock.

MTA List No Mitigation

Earlier this morning, I posted on the steep costs of repairs in the aftermath of Sandy, and this afternoon, the Governor’s list of fiscal requests for the MTA hit the net. Via Transportation Nation comes the above list with the detail breakdown. You can also download it from here in PDF form, and the line items are shocking.

We already heard of the $600 million request for the South Ferry/Whitehall St. station, and now we know restoring A train service to the Rockaways will cost even more. The MTA Impact List requests $650 million for the restoration of the Broad Channel service, a figure that will embolden those wondering if restoring the line is the best use of resources. Overall, tracks and signals suffered $300 and $700 million worth of damages respectively, and the Hugh L. Carey (nee Brooklyn-Battery) and Queens-Midtown Tunnels suffered a combined damage total of nearly $800 million.

Further down the line, while the MTA’s major capital projects — the 7 line extension, Fulton St., the Second Ave. Subway and East Side Access — escaped major flood damage (in some cases by 25 feet or so), construction delays have mounted as well. East Side Access suffered $20 million worth of delays while the other three projects totaled around $5.6 million.

All in all, it adds up to $5.022 billion in repairs, and with these figures, it’s safe to assume that it will be awhile before 1 trains return to South Ferry and the A crosses into the Rockaways.

According to Governor Cuomo, it may cost up to $600 million to repair the South Ferry-Whitehall St. subway station. (Photo MTA New York City Transit / David Henly)

It’s been four weeks since Hurricane Sandy swept through New York City, and the storm and its aftermath has been our main focus since then. Fare hike hearings have become an afterthought for the MTA as storm clean-up and repairs have become the authority’s top priorities. Monday marked the first MTA Board committee meetings since the storm, and now the costs of the cleanup are coming into focus.

As the Board met — and more on that shortly — Gov. Andrew Cuomo discussed the state’s needs with its Congressional delegation. The price tags are steep. Overall, Cuomo believes New York needs $32 billion to recover from the damage inflicted by Sandy, and the MTA’s needs are considerable. Cuomo in a summary (pdf) noted that the MTA needs over $5 billion for repair work. As a comparison, one year of the MTA’s capital plan is also around $5 billion. The damage, clearly, was extensive.

“The devastation caused by Hurricane Sandy is of unprecedented proportions, ranking among the worst natural disasters in our nation’s history in terms of loss of life, property damage, and economic impact,” Governor Cuomo said in a statement. “Today’s meeting with our state’s Congressional delegation builds upon the close cooperation between local, state, and federal partners that has existed throughout Hurricane Sandy and in the storm’s aftermath. Working together, we will rebuild stronger and better than ever before, so New York State is better prepared and has the infrastructure in place to handle future major weather incidents.”

The specifics of the destruction are tough to come by, but some early estimates are leaking out. Thomas Kaplan of The Times tweeted:

This is mind-boggling: the MTA says repairing the South Ferry-Whitehall Street subway station will cost $600 million.

— Thomas Kaplan (@thomaskaplan) November 26, 2012

That’s a mind-boggling figure consider that the new South Ferry-Whitehall Street station opened three years ago and cost $530 million then. Kaplan later said the Governor’s Office confirmed that this line item was simply for the station and not, say, for the damage caused to the Montague St. Tunnel as well. In a statement to me, on Monday afternoon, though, the MTA said they “cannot confirm at this time” that the $600 million figure is a correct or final one. Still, repairs will not be cheap.

Also in Cuomo’s budget was a request for nearly $9 billion in prevention and mitigation investment projects. That’s a comforting request, but it’s probably not enough. During those Monday committee meetings, New York City Transit President Thomas Prendergast spoke at length about Transit’s needs and desires. In a PDF, he put forward his agency’s non-exhaustive wishlist for investment improvements. These run the gamut from stair and vent closures to elevator hardening to bladders or floodgates and “pre-engineering and site mobilization for temporary mitigation structures.” At the very least, Transit needs more than three pump trains, power redundancy systems and significant protection for its low-lying depots and vulnerable signal and communications equipment. None of this will be cheap.

Meanwhile, in addition to mitigation costs, the long-term outlook is bleak, and the MTA will have to accelerate its component replacement program. As Prendergast’s presentation noted, “general failure rates are expected to accelerate in system elements that experienced flooding.” These elements include electrical equipment, cable sheathings and even track beds that were inundated with garbage from the storm run-off. It was a mess.

So right now, it’s unclear how much money will flow our way and when. The MTA said on Monday that the R train will soon run to Whitehall and back through the Montague St. Tunnel to Brooklyn. J and Z trains will again reach Broad St. within the next week or two as well. But the outlook for that South Ferry-Whitehall St. station is hazy. The 1 trains will be turning through the old South Ferry loop for the foreseeable future, and the Whitehall St. station won’t take passengers until significant station repairs are completed. The Broad Channel washout too will take months to repair.

With these clean-up efforts under way and the monetary requests in place, we simply play the political waiting game. Despite astronomical cost projections, the MTA has a sense of what it needs to do to protect its infrastructure. Will Congress respond before the next storm hits? That’s a question perhaps better left unanswered as we hope for the best.