Streams

For the MTA, current crisis is 30 years and a governor in the making

Thursday, August 25, 2011 - 08:45 AM

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Jay Walder’s resignation as head of the MTA last month caught city and state officials totally by surprise. It also added another thing to sweat about during a brutal heat wave. The man that had guided the transit agency through the fiscal crisis fallout by implementing harsh but largely unavoidable cutbacks—fare hikes, and budget gouging—was leaving. He’s taking a gig in Hong Kong that pays three times as much, running a system that is posting sizable profits.

A few days later, Walder and the rest of the MTA board dropped the latest budget numberson riders. The agency’s five-year capital program—the money pool that pays for big projects, like construction on the 2nd Avenue subway line and the 7 train extension, as well as overall maintenance—was underfunded by $9 billion for the final three years. The agency is adding a fare hike in 2015, on top of the scheduled fare increase next year. It also wants to borrow $6.9 billion to help cover these costs.

This is a sorry song that straphangers have been listening to for years now. The public response was less of an outrage than an exhausted sigh. Given the perennial state of crises the MTA finds itself in, and the continued financial burdens being passed along to riders, it’s worth rememberingthe immortal words of David Byrne: “You may ask yourself, ‘Well, how did I get here?’”

How DID we get here?

There are many factors that have led to the abysmal fiscal situation of the MTA. Tax receipts vanishing in the wake of the 2008 financial crisis didn’t help. Neither does Albany legislators’ stealing funds from the agency to pay for other things.The agency’s debt obligations alone take 20 cents from every dollar it pulls in.

Likewise, many people could—and should—be held responsible, from elected officials to appointed board members, unions to business leaders. But out of this pool of transit tragedy one person bears a disproportionate responsibility for the current mess the nation’s largest public transit system is in.

That person is former Governor George Pataki.

Understanding how the Pataki administration is culpable for today’s problems requires heading back to the beginning of 1980. To be fair to the Pataki people, the former governor was in many ways just following the trail blazed by his predecessors. For the 20 years prior, the MTA had borrowed to finance its upkeep and improvement, a decision that saved the system. But what started as a fiscal pill to quiet the immediate pain of a system nearing collapse turned into a budget addiction that has torn the agency apart.

An initial rescue

After decades of negligence, Governor Hugh Carey —seen by many as a savior of New York City and state — followed the advice of Richard Ravitch, the man Carey tapped to head the MTA in 1979, pushing through a financial package to upgrade the ailing transit agency.

Along with a series of dedicated taxes, the package included $800 million in fare-backed bonds. The money allowed the agency to buy new cars, improve lines, expand service and to get the overall quality of the system out of the sewer.

The MTA started planning its capital program in five-year increments, beginning with the 1982-1986 period. At the time, Ravitch warned that taking on debt to improve the system should not become a permanent part of the MTA’s budget math. But that’s just what’s happened.

“Every capital program since then has been made up of funny money, in one way or another," said Peter Derrick, a former MTA manager and scholar at the Rudin Center for Transportation Policy and Management.

Under the (first) Cuomo administration in the mid-1980s and early 1990s, direct funding from the state to the MTA stopped. At the time it was replaced by over $1 billion in funds from the defunct Westway highway program, as well as through additional bonds backed by bridge tolls.

Derrick defends the state’s move  in the late 80s, saying the system needed to move from being saved to being modernized.

A polarized Pataki era

“Cuomo understood the importance of the MTA and the transportation system," he said. The difference after Pataki took over, he said, was a “politicization” of the agency.

“The MTA basically set the transit budget and the governor didn't stick his finger in the pot," Derrick said. “Pataki came in and totally brought his own people in who were not transit people."

The crux of Pataki’s culpability was the desire to float large capital programs without finding new streams of revenue. “Pataki said, ‘Oh no, I don't have to do that. I’m going to be the governor that doesn’t have to raise taxes or raise fares," said Derrick.

“It’s very tempting to put stuff on the credit card," said William Henderson, executive director of the Permanent Citizen’s Advisory Committee to the MTA. “That’s essentially what we did. The result is the kind of debt and debt service we have now."

Peter Kalikow was Governor Pataki’s MTA chief for most of his administration. He says that, in fact, Pataki was willing to allow fare increases, but the reality is that paying for capital needs through debt is actually a good thing.

“A lot of guys yell that there's so much debt. That’s nonsense. What you have to do is keep the fares at the level that you can pay the debt service,” Kalikow said. “If the state doesn't give you the money, you’re going to have to do bonds. I don't think that's a terrible thing to do.”

Victim of recession

The current state of things is the result of political cowardice, according to Kalikow. He says, had the fares increased in small, regular increments as he had planned, the improvements he had worked for would have continued. “I was really proud of the way things are going,” Kalikow said. “But the only thing that sustains that is fare increases.”

While many transportation advocates and former MTA officials agree fares rising is an essential and natural piece of the fiscal pie, the MTA’s budget woes today are the direct result of the other ways the agency is funded. In short, there’s a perpetual hole of about $10 billion in the agency’s budget—that’s after dedicated funds from the Federal government, fares and tolls are counted. The agency has to fill this hole with either tax revenue or borrowed money.

During the flush years in the middle of the last decade, tax revenues were good, especially real estate ones. These taxes papered over a growing problem with the agency’s finances. All those billions of dollars in refinanced bonds from the beginning of the decade were requiring more money to pay back.

Then the recession started. Taxes dried up and the agency became underfunded. Meanwhile, the debt service now stands at nearly 20 percent of the agency’s budget. It will soon be equally to the total amount of money the agency collects in tolls and fares.

“We’ve been saying as an organization for over a decade: the [MTA’s] revenues need to be stable, reliable and inflation-sensitive," said William Henderson. “We need to have a revenue base that year-to-year you know it's not going to drop off the edge of the earth so you can plan."

A dangerous path

The Pataki administration isn’t the only culprit.

“The legislature and governor—and to a certain extent mayor of New York City—have for a number of years taken the easy way out, asking the agency to take on more debt instead of contributing more to the system, " said Kate Slevin, the executive director at the Tri-State Transportation Campaign.

The reviled payroll mobility tax shows how treacherous this situation can be. It was enacted in 2009 to bail the agency out after tax revenues—and a raid by the legislature—left them financially stranded. Suburban legislators have campaigned since then on the promise to repeal the tax, even as a New York City Independent Budget Office report earlier this month showed that, without the tax, the agency would be in even worse shape than it is now.

What happens now?

The simple truth, though, is that this can’t go on. But more importantly, as Robert Yaro, President of the Regional Plan Association, points out, it doesn’t have to. The biggest step towards that is to realize another basic truth: the MTA’s story over the past 30 years is actually one of incredible success. Billions of dollars have gone into making North America’s largest transit system one of the safest, most attractive, convenient and—comparatively—cheapest commutes in the world.

“The region's economy has recovered along with the transit system," Yaro said. Tying the fate of the city and state’s economies to the transit system, he said the next MTA chief needed to focus on finally heeding Richard Ravitch’s words from three decades ago.

“The next person is going to have to focus on the agency's restructuring how the MTA is financed,” he said. But, as Yaro pointed out, this will only happen if the man who hires the next transit chief—Governor Andrew Cuomo—is willing to make that a priority.

[Thanks to Gene Russianoff for straightening out a few kinks. -- CH]

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Comments [7]

Larry Littlefield

"There is nothing wrong with borrowing for capital improvements. Businesses do that all the time."

Businesses go bankrupt all the time, often after leveraging up the way the MTA did.

Aug. 26 2011 01:23 PM
Benjamin Kabak

Zeev: It's fine if you want the MTA to run the system as a normal business, but then fares and tolls will be significantly higher. If you think it's expensive now, wait until you see how much a ride actually costs.

The reason Albany hasn't allowed that is because they view transit as a public good that should be subsidized. The problem is that they're not willing to subsidize it enough or properly.

Aug. 26 2011 05:25 AM
Zeev Neumeier

I will grant the MTA that the system itself is in good shape. But it is NOT cheap. Fairs are high compared to the rest of the country and don't forget the MTA has all those toll bridges which should be just money machines to help subsidize the trains. There is no reason why the MTA can't run the system like a normal business , i.e. revenue from fairs and tolls pays for costs.
There is nothing wrong with borrowing for capital improvements. Businesses do that all the time. The thing is that you have to plan on paying back those loans with revenue generated from said capital improvements, somthing the MTA does not bother to consider.

Alas the MTA sucks at actualy managing its own money or, more impotently, its own costs.
That is the beginning, middle, and end of the problem.
In that respect a change at the top might do some good.

Aug. 25 2011 09:54 PM
John s

The one thing you left out was that when tax revenues rose the TWU local 100 and other union extended their hands for huge raises and a continuation of the status quo of work rules. The politicians were all to happy to go along with this as the campaign contributions kept rolling in.

The average MTA worker makes more money than the same position at other city and state agencies. We kept thousands of station agents(token booth clerks) on the job more than a decade longer then when they were no longer needed at cost of nearly a billion dollars. These agents rolls should have changed to fare enforcement and code enforcement reducing fare evasion and vandalism in out stations. The cleanup of said vandalism is astronomical in cost.

Conductors(door operators)  on trains such as the L that since 2005 have not needed them at a cost of $50 million . 90% of the subway fleet can run OPTO. this would save the mta hundreds of million per year .

The union fought efforts to deploy GPS bus monitoring that would improve service and cut costs. In the 1990's mta mechanics refused to service a part on the bus that would have allowed a primitive system to track bus location. This has cost the mta tens of millions in extra costs and poor service to riders

Also with last steep 12% raise that was awarded based on the mta bailout tax plan, we now have train sweepers that make $26 an hour cash an hour and over $80,000 a year if you include benefits.

There are many changes that need to be made at the mta. Reworking union contracts to be fair to riders and workers needs to be at the top of the list. There are many work rules that can be changed that can save hundreds of millions of dollars per year. This can help pay down the mta debt.
The mta needs to negotiate project labor agreements for each construction contract to reduce the sky high trade union labor rates.

New revenues need to be raised but only if the labor unions agree to massive changes in there pay, work rules and benefits packages. We can not have three people with job descriptions that are so narrow that are idle most of the day when one person can do the job. We need management that actually tracks what there workers are actually doing and make sure things get done that we are paying for.

Ticket people who break the law
1) Roll out more red light cameras with 75% of the revenue going to the mta
2) Increase enforcement of mta rules such as riding between cars, fare evasion and littering. If you free the money currently wasted on two man train crews and hire code enforcers you will improve the rider experience and increase revenue.

We need to utilize technology to redefine the way the system operates. one simple solutions
1) use sealed garbage compactor cans at stations to reduce the number of people needed to handle station trash. Right now we are many paying workers at $26 an hour plus benefits($80,000 a year) to roam from station to station emptying cans and then a trash train nightly to pick up the black bags manually one by one. Have an lift arm on the train to empty the can at night. Some stations that currently have nightly pickup will no longer need it. this simple change would save $3-5 million a year.

Aug. 25 2011 04:12 PM
Colby Hamilton

Thanks for commenting on this part of the issue Larry. Certainly pieces of the overall puzzle.

I think the point was, more, to speak directly to the political decision making. In my conversation with Kalikow, he spoke at length about the battles he had with the union and what, he felt, was handed back to the unions after he left.

There are many smaller issues that go into the big tent of problems with the MTA, which I tried to hint at. You've helped illuminate more of those, now and over the years.

Aug. 25 2011 03:57 PM
Larry Littlefield

By the way, each of the assertions I make is backed by data, from the National Transit Database, finance data from the Governments division of the U.S. Census Bureau, etc.  The spreadsheets and descriptions are available in past Room Eight posts.

Aug. 25 2011 02:16 PM
Larry Littlefield

Speaking of someone who knows quite a bit about this, what you say is true but there are quite a few pieces that need to be added.

The actual fare was in fact slashed from 1995 to 2002 -- in nominal dollars not even adjusted for inflation -- by the addition of Metrocard discounts.  It is still well below its 1995 level.  The Straphangers, the purported riders' representative, opposed increases by spreading and legitimizing the idea that the MTA had "hidden $billions."

The public employee unions got a series of retroactive pension enhancements from 1995 to 2008, all of which were described (if at all) as costing nothing.  Their cost was in fact huge.  In addition to running up debts in the late 1990s and early 2000s, moreover, the MTA wasn't paying enough into the pensions provide for what workers had been promised to begin with, another cost shifted to the future.  Other state and local governments did the same. 

To top it all off, the TWU went on strike in 2003 to demand retirement at age 50 after just 20 years of work, instead of 55 after 25 years of work.  The state legislature had passed 20/50 twice, unanimously, but Pataki had vetoed it.  The cost of a retroactively granted 20/50 pension plan was a big factor in the collapse of the transit system in the 1970s, too.  The TWU is resentful that the transit system is being destroyed again while they get a smaller share of the pillaging.

The TWU also fought against productivity improvements that would have allowed more to be done with less.  And three years ago, an arbitrator awarded the TWU wage increases at double the rate of inflation, even as most workers were having their fares cut.

In addition to reduced tax support and lower fares, part of the debt was driven by soaring prices paid to construction contractors.  For signal projects, for example, the price doubled for similar work over a decade as all the signal installation firms in the U.S. merged into one which then went bankrupt -- despite using profits in New York to pay for the rest of the U.S.

The construction unions also got retroactive pension enhancements that were supposed to cost nothing, and contruction contractors also underfunded their "multi-employer" pension funds, during the late 1990s.  With construction down and fewer paying in, those multi-employer pension funds are on the brink of collapse (a federal bailout was discussed at once point) and contractor pension costs are soaring.  Unlike taxpayers, developers don't have to pay, so New York's contractors raised prices in New York and gouged the MTA.  (The pension collapse is one reason for the big fight over construction worker contracts that is going on, a reason neither labor nor the contractors want to talk about).

You may recall outrage years ago that the MTA didn't do a good enough job informing people of service changes.  You might recall outrage more recently that the MTA is spending $millions on a huge PR staff.  Guess what they do?  To minimize inconvenience, moreover, capital projects and maintenance are also done very inefficiently, and generally during off hours on overtime.

It's been 20 years of grab, grab, grab.  And not just at the MTA.  There is also a "dedicated state transporation trust fund" for roads and bridges.  It has been repeatedly pillaged for other things, and borrowed against.  Now all the money is going to past debts, and road and bridge maintenance is suffering all over the state.

Look to the big picture.  This is just part of it.  And Pataki is just one person who make a career out of pandering to Generation Greed at the expense of a future that is now the present.

http://www.r8ny.com/blog/larry_littlefield/generational_equity_and_the_legacy_of_today_s_politicians.html

Aug. 25 2011 02:11 PM

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