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A New Year and a New Fare, But MTA Budget the Same Old Mess

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The 30-day Metrocard went up by $15 on January 1st, and transit riders are wondering why, after last year's elimination of two subway lines and dozens of bus lines, they are being asked to pay more for less service.

On top of $104 Metrocards, there's even more bad news for transit riders: the MTA is projecting that it will be $207 million in the hole by the end of 2012 despite the fare increase. And then there's the $9 billion gap in the MTA's capital budget, which is for new trains and buses, fixing tracks, and system expansions. The State of New York has no plan to fill this gap.

So why is it that even after the third year of fare increases the MTA is still in the same old budget mess? Unfortunately, there are no easy or simple answers.

The MTA collected $150 million more in fare revenue in 2010 than it did in 2009, but this increase isn't enough to offset falling revenue from dedicated taxes and rising expenses. Many of the taxes used to support mass transit services--including real estate-related taxes--have dropped significantly since the Great Recession. The mass transit system received $600 million less in dedicated tax revenue in 2009 than it did in 2007. Only the payroll mobility tax, passed by the state legislature in 2009 and the target of much criticism, saved the MTA from financial collapse in 2010. Without that revenue, the MTA would have been $1.6 billion in the hole in 2010.

As for expenses, it cost $2.1 billion more to run the mass transit system in 2010 than it did in 2005 including inflation--that's a 23 percent increase over 2005 levels. While many are quick to say that labor costs are the culprit, the reality is that other costs are rising much more quickly. Labor costs have increased 16 percent since 2005, but non-labor costs have increased at twice that rate. Particularly troublesome for the MTA is the cost of past borrowing, the payments for which have increased by 54 percent since 2005.

Of course, labor costs make up the largest percentage of the MTA's overall budget, so increases in these costs have a significant impact on the MTA's bottom line. But the fact of the matter remains: non-labor costs have increased more quickly than labor costs in both percentage and dollar terms.

Even pension costs, a target of conservative scorn and anger, have risen more slowly than the cost of the MTA's ever-growing debt. And much of the rise in pension costs can be attributed to the lackluster performance of the pension fund's investments.

Taken together this means that the MTA, which had a surplus of a half billion dollars in 2005, will be lucky to scrape by with eight million in the bank by the end of the year. This is a very slim margin of error for a mass transit system that provides eight million rides a day.

So what can be done? On the expenses side, MTA chief Jay Walder has already made tremendous progress identifying cost-savings. In 2010, the MTA took measures that will save the authority $525 million a year, including cutting administrative positions and renegotiating contracts with suppliers. The MTA's latest budget identified $75 million in new savings for this year which will grow to $200 million by 2014. Governor Cuomo is lucky to inherit such a competent manager at the MTA and should keep him at his post. However, Cuomo has remained nearly silent on MTA-related issues, including whether or not he intends to keep Walder on the job.

As for the MTA's fastest-growing expense, payments on past borrowing, the answer begins with the MTA's capital budget. This is where the money for new train cars, buses, track and station repair, and system expansions comes from. As I mentioned earlier, there is currently a $9 billion hole in the MTA's capital budget. The responsibility of funding the capital program falls directly on the state legislature, the governor, and the City of New York. Unfortunately, for the past twenty years or so, the state has relied on costly borrowing to fund the capital budget. This borrowing has led to higher and higher debt costs, which are paid out of the operating budget.

So because the city and state have not funded the mass transit system's capital needs in a responsible manner, about forty cents of every dollar collected in fares is used to pay down the debt. If the state doesn't find a way to fill the $9 billion gap in the capital budget, one of two things will happen: either necessary repairs will not be made, putting the safety and reliability of the mass transit system in danger, or the MTA will be forced to borrow this money, forcing even steeper fare hikes and more severe service cuts.

But if transit riders are hoping that state lawmakers will come to their aid they might want to reevaluate their chances. Last year the state legislature even went so far as to take $140 million from the MTA's dedicated pot of state funds. And Governor Cuomo, when asked if he would allow the same to happen again this year, said that transit funds were "fungible."

The governor has even refused to support congestion pricing, saying that he would not look to new revenue for the MTA this year.

But with no new funds coming, transit riders are going to be the ones that suffer. That's too bad, because fully funding the MTA's capital budget would not only prevent exorbitant fare hikes and service cuts (there is another hike scheduled for 2013), but would also create jobs in the moribund construction sector. The New York Building Congress reported last October that it is forecasting a rebound in 2012, but only if the MTA's capital budget is fully funded. "According to our estimates, more than 18,000 construction jobs would disappear from the 2012 forecast if the MTA is only able to maintain capital spending at 2011 levels, rather than fully funding its current five-year plan," the Building Congress noted.

A lot has to happen to protect transit riders from the prospect of a deteriorating transit system--one that they would have to pay a lot more for using. Much is dependent on whether state lawmakers take the appropriate action. They should start by vowing to leave dedicated transit funds for their intended purpose. They should then find a way to fully fund the MTA's capital program. Congestion pricing, perhaps?