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The Empire

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

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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]