STATE BUDGET DOES HELP MASS TRANSIT, BUT MTA CAPITAL PLAN UNCERTAINTY RISING

The MTA received two significant infusions of new money in the State Budget adopted effective this April 1st. The first is a full $836 million to be provided to the MTA by December 31st of this year, to fund the Phase One Subway Action Plan developed last July by Chair Joseph Llota and the MTA management. The second is a new tax on for-hire vehicle trips by taxis, Uber, and other for-hire vehicles, that starts Jan. 1,2019, to be imposed on trips in Manhattan south of 96th street. The tax revenue will put an estimated $400 million a year into the MTA  budget to provide regular, ongoing support for the increases in maintenance related to the Subway Action Plan. The new money is very welcome for the beleaguered transit system, but major policy and funding questions like the MTA’s long-term capital construction program and whether congestion pricing will become integral to future sources of funds remain unanswered.

The $836 million to be delivered in 2018 is a combination of about $500 million in operating funds to cover the expense of several thousand new maintenance positions in subway car overhauls, replacing track and signals, deploying emergency personnel, and other staffing, with the rest investments in related physical assets. Half the money for the 2018 infusion was initially put into the proposed Executive Budget submitted by the Governor to the Legislature from State funds. The State Legislature agreed to compel the City of New York to come up with the other half of the funds, $418 million, despite Mayor De Blasio’s objections to the City being required to provide the money when proposed last year after Governor Cuomo declared the Transit Emergency. The ongoing deterioration of subway service that led to the emergency declaration impelled the Legislature to agree that both the State and the City must provide additional support to the MTA.

Two other proposals in the budget by the Governor to force the City to pay even more money to the MTA were rejected by the Legislature, with the Assembly specifically denying the approvals in both its One-House budget and later in its summary of the Enacted Budget. These proposals were viewed as far more onerous than the Subway Action Plan mandate. One required the City to pay the full cost of the New York City Transit Capital Plan, which is supposed to be $17 billion over the five years of the current 2015-19 MTA Plan. Right now the City’s scheduled contribution is $2.5 billion. The second proposal gave the MTA the authority to determine how much property tax revenue in New York City it could take from “Value Capture “. This budget bill allowed the MTA to decide how much property tax value is added due to transit improvements it makes around the City, and then direct the incremental property tax revenue to itself without the City having a right to approve it, or even have a say in how much money is involved.  The Citizens Budget Commission called this proposal “confiscatory “. Although rejected, versions of these proposals are likely to resurface in the future as the Cuomo administration tries to find ways to shift financial responsibility from the State to the City to fund the MTA.

The State Assembly deserves thanks from the public for the $400 million for-hire vehicle trip surcharge for mass transit. Governor Cuomo never put legislation to create a congestion pricing plan into his proposed budget, despite endorsing the concept last summer and creating the FixNYC Advisory Panel, which offered a congestion pricing framework in a report that was released at the time of the budget. However, in early March the State Assembly, in its one-House budget, proposed the surcharge to fund the recurring maintenance program. A similar surcharge had been a lesser part of the FixNYC Report, the main element of which consisted of the charge to enter Manhattan south of 60th street for most vehicles, and was designed to yield up to $1 billion a year. But both the main entry fee and the trip surcharge had not actually made it into the Governor’s budget.

Governor Cuomo had the good sense to rapidly endorse the Assembly’s trip surcharge, and it was approved by the Senate after the tax was limited solely to Manhattan, with no new charges in the outer boroughs or the suburbs. The new tax, however, has not included a congestion pricing set-up. There is no funding for any infrastructure to electronically record entries into the Manhattan business district. Existing technology in the taxi and for-hire vehicle industry will pinpoint when those vehicles traverse Manhattan south of 96th street.

A congestion pricing plan remains in limbo, even as the MTA’s long-term capital construction budget may unravel. In March of this year Standard & Poor downgraded the MTA’s bond rating one notch after an MTA report showed the agency would have a $400 million operating deficit in 2020 and a $600 million operating deficit by 2021, even after two fare and toll hikes. The primary cause of the deficit was reported to be a drop in real estate transaction revenues like the mortgage recording tax, which in part are dedicated to mass transit. The $32 billion 2015-19 MTA Capital Plan, to which the MTA is now committing significant funds as it finally wraps up the prior plan, includes $11 billion from the MTA itself, primarily from money it will borrow. The forecast deficits, however, are very likely to constrain the ability of the agency to actually borrow that much money. Not only that, but the State government’s share of the 2015-19 Capital Plan, $ 8 ½ billion, included $7 billion for which there was only an I.O.U. with no stream of revenue to back it up. Shortfalls in the 2015-19 Plan could materialize soon.

The MTA also has to propose its 2020-2024 Capital Plan in October 2019. The recent five-year plans have cost about $30 billion each- but if the current plan begins to unravel the 2020 plan will be in trouble. A fall 2017 State Comptroller report expressed concern that the 2020 plan might have shortfalls ( meaning lack of sources of funding to pay for projects) similar to the $15 billion shortfalls that plagued decision-makers for both the 2010 and 2015 plans before funding schemes were patched together.

The public and the State Legislature need critical information from the MTA very soon to determine the agency’s ability to sustain a meaningful capital program. In 2007 the Legislature made the MTA accelerate submission of its Capital Plan at that time earlier than the law had provided – and it could do so again, scheduling a submission for early 2019 rather than the end of the year to get a better handle on what the problems really are.

Congestion pricing involved rational policy proposals to deter vehicles from entering Manhattan to reduce pollution and congestion, and provide a long-term funding stream for the MTA. But this is the second time in ten years a push for congestion pricing has not been successful in the State Legislature.  If congestion pricing won’t fly there is no shortage of possibilities for taxes to fund the mass transit system. There are payroll taxes, personal income taxes, corporate income taxes, sales taxes, millionaires’ taxes, mansion taxes, you name it. The issue is the political will. A consensus on funding this most vital of services remains frustratingly elusive, along with the leadership to forge that consensus.

 

STATE BUDGET MASS TRANSIT UPDATE: NEGOTIATIONS BEGIN AS DEADLINE DRAWS NEAR; S & P CUT MTA BOND RATING

With the New York State budget deadline of April 1 fast approaching, the Assembly, Senate, and the Governor are now actively negotiating to adopt the budget on time. Despite the Governor’s Fix NYC Advisory Panel proposing a congestion pricing plan in January, Governor Cuomo never actually submitted legislation, either as part of the budget or in the ensuing months, to implement the main proposal, to charge private vehicles entering a Manhattan business district zone.

The Assembly did advance a major funding proposal for the MTA. Its one-House proposal included $488 million in new funds for the MTA, divided between a small surcharge on for-hire( cabs, Uber,etc.) vehicle trips in the metro region, with a larger surcharge for trips south of 96th street in Manhattan. It also proposed an additional levy on real estate transactions of more than $5 million. The Assembly proposal is similar to a part of the Fix NYC report that advocated a for-hire vehicle surcharge. The new money would be sufficient to fund the Subway Action Plan developed by MTA Chair Joe Llota last summer to add mostly maintenance improvements to cut delays and breakdowns in the subway system. The Assembly rejected several of the Governor’s proposals to force New York City to pay more to the MTA. The rejected budget bills include requiring the City to pay the entire New York City Transit Capital Plan( $17 billion over 5 years), giving the MTA unilateral authority over determining how much of the City’s property tax revenue to take for transit projects that add real estate value, and forcing the City to pay half the cost of the Subway Action Plan.

The State Senate proposed no new funding at all for the MTA in its one-House budget. Instead, it rejected the Governor’s revenue proposals, intended to balance the budget, and actually threw $750 million more in tax cuts on the table for the short term. For the long-term the Senate proposed removing senior citizens from having to pay property taxes at the end of ten years. While the Senate offered little specifics on this idea, a plan of this nature would likely cost school districts and local governments at least $4 billion a year when fully implemented. The State would either have to make up the difference or the schools and local communities would lose the money or raise taxes on everybody else. Where the State would get this extra revenue is not clear. The Senate proposal is on top of a plan advanced by the Senate to cut income taxes by $4 billion a year by 2025, which was adopted by the Legislature just two years ago and is being phased in.

Earlier this month Standard & Poor downgraded the MTA’s bond rating one notch, to A-plus, and issued a negative outlook for the agency. This action was likely related to a Feb.25 quarterly budget update to the MTA Board. This report stated that the MTA would face a $400 million deficit in 2020, and $600 million by 2021, notwithstanding fare and toll hikes in 2019 and 2021. The main cause of the deficits was reported to be declines in real estate transaction revenues like the mortgage recording tax, a part of which is dedicated to the MTA within the region.

Left unsaid in the bond rating downgrade and the MTA deficits is the impact on the agency’s capacity to borrow funds to meet its commitments to the 2015-19 Capital Plan. Those commitments are scheduled to be $13 billion of the $32 billion adopted in 2016-17. A $600 million shortfall in available cash flow could translate into an inability to sustain, or borrow, about $9 billion of its $13 billion commitment.

Adoption of the funding plan advanced by the Assembly would help mass transit in a meaningful way, funding both maintenance improvements and some essential capital improvements like signals. These funds still do not address long-term issues like the 2020-2024 Capital plan or shortfalls in the current 2015 plan that seem likely to materialize, but would be a big step in the right direction. We will know the outcome of the budget shortly and can take stock of the next steps needed to address deepening challenges for the mass transit system.

CONGESTION PRICING TRAIN ALREADY RUNNING LATE IN ALBANY

There is plenty of debate ongoing in Albany now about the pros and cons of congestion pricing-but little discussion yet about the purpose of creating such a large flow of money($1-1.5 billion a year), which logically must be a way to fund the next MTA Capital Plan. That plan is due out in the fall of 2019 for a five-year cycle from 2020-2024. The MTA had estimated that both the existing plan(15-19) and the prior plan(10-14) would cost about $30 billion each. But the Agency, the Governor, and the Legislature had trouble figuring out how to raise the money to cover the immense costs of both plans, and the 2010 plan was ultimately downsized. The next cycle will have the same problem-where to find money to pay for it. In fact, the problem of paying to keep the mass transit system in a state of good repair and pay for expansion projects will continue for decades.

In 2013 the MTA put out its 20-year Capital Needs Assessment for 2015-34. This assessment identified system needs which would cost $106 billion to keep mass transit in a state of good repair, without even considering the cost of the expansion projects. In the current plan, the big expansion projects like East Side Access and Second Avenue Subway cost $7 billion. The State of Good Repair( regular replacement of track,signals, stations,subway cars and buses, etc.) for the existing system costs $25 billion.

Governor Cuomo, MTA Chair Joe Lhota, and legislative leaders have said very little about just how problematic the MTA’s long-term funding needs really are. There is a proposal in the new State budget to force New York City to pay half the recurring maintenance costs of Lhota’s Subway Action Plan, estimated at $300 million a year by 2020, but that is primarily for a step-up in regular maintenance, not capital projects. Mayor DeBlasio has refused to support the idea. The current capital plan had a shortfall of half, or $15 billion, of the $30 billion in needed funds. The Governor and the Legislature patched up the problem in 2016 by promising in State law in 2016 that the MTA would get the money when it needed it, meaning it would have to spend down what it had available first.

There is still no congestion pricing bill to accompany the Fix NYC Panel report released by Governor Cuomo at the same time as his January budget,that gave a framework for a congestion pricing setup. The Legislature has already left Albany for its annual Presidents’ week break and will not return until the end of February, at which time it will have to begin the process of negotiating with the Governor and adopting the main budget, due April 1. The main budget itself is controversial, as always, with the Governor seeking $1 billion in new revenue to plug the deficit, and Mayor DeBlasio protesting cuts and cost shifts of $750 million to the New York City budget, excluding any MTA-related costs shifts.

Each house of the Legislature will adopt its own preliminary one-House budget in mid-March, and must decide what will be in those budgets by the end of the first week in March. With so many tough issues to resolve just for the regular budget, it is very possible that resolving major mass transit issues will be delayed until after the budget, with congestion pricing still an open question. This will leave the mass transit debate to continue until the end of this year’s legislative session in June.

State Comptroller Tom DiNapoli reported last fall the MTA was likely to face another $15 billion shortfall for its 2020-24 Capital Plan, and possibly much more because the MTA’s Subway Action Plan Phase Two indicated a need for another $8 billion for New York City Transit. But right now the State’s leadership is not articulating this problem. It is an election year and if congestion pricing fails there would be a shortfall for the MTA of the sum of money congestion pricing would raise. If that was the case, there would be no place to go to except tax increases or fare hikes to fund the long-term needs of the mass transit system. The City of New York can only raise its property tax. Only the State government can raise the payroll tax, the corporate income tax, the personal income tax, the sales tax, the real estate transaction taxes, and others. The City must get approval from the State to raise any of its own taxes except the property tax.

Chair Lhota claimed the City is responsible for the capital needs of the New York City Transit Authority ( $16-17 billion in the current 5-year plan) on the grounds that a 1953 law said so. That law, Section 1203 of the Public Authorities Law, did in fact say that but added that the City was responsible for a limit of $5 million a year without approval of the New York City Mayor. That $5 million cap has not been changed since 1953, making the law obsolete; an anachronism.

The concepts that have funded mass transit since have radically changed and are connected to the fact that New York City can only raise its property tax and is responsible for the City’s basic services and much of its social welfare and health care funding. When the MTA was created in 1968 the Legislature allowed the City to draw down bridge and tunnel surpluses to fund New York City Transit. In 1981 the Legislature began passing new State taxes within the MTA region to dedicate to the MTA because of the obvious limitations on the capacity of the City government.

Back to the obvious: it’s an election year and in my considered opinion the Governor and the Legislature are not likely to raise taxes, and the MTA will not do a fare hike. That means it’s congestion pricing or bust this year as far as mass transit is concerned.

With MTA Facing Massive Shortfall, A Lot Riding on New Congestion Pricing Push

Governor Cuomo’s “Fix NYC” Commission produced a framework for a congestion pricing plan, released just after the Governor’s Executive Budget for the 2018-19 Fiscal Year, whihc begins April 1. The congestion pricing framework outlines a three-year phase in that would provide revenue of $1 billion to $1.5 billion a year by 2020, most of which would be intended for the MTA Capital Plan.

That is also the year the MTA must begin its next five-year capital plan for continued investment in the upgrade and preservation of the subway, bus, and commuter rail systems. The current $30 billion plan, the 2015-19 plan, faced a shortfall of $15 billion when initially proposed in 2014, and it was not until 2016 that the Governor and the Legislature finally adopted a framework for that plan. The 2020-2024 Five Year Plan likely faces a similar funding shortfall of $15 billion, so money flowing from a congestion pricing plan for the MTA in 2020 would arrive just in time to fill much of that shortfall, although the Fix NYC framework did not outline a specific disposition of the money from a congestion pricing setup.

A November 2017 report by State Comptroller Tom DiNapoli, “ Financial Outlook for the MTA,”  stressed that the MTA’s capital funding shortfalls could be even larger than $15 billion because more than $7 billion in the 2015-19 plan that the State government committed to providing the MTA still does not have an identified funding source.

Beyond that, Chair Joseph Llota’s Subway Action Plan Phase Two indicated a need to add $8 billion in capital funding for the subway system. The MTA is not under an obligation to offer the details of its 2020-2024 Capital Plan until the fall of 2019 so it is not clear how all these unmet needs and proposals might fit together. But a shortfall of more than $20 billion is likely.

The Comptroller’s office suggested the MTA accelerate the release of the details of its 2020-24 plan to enable greater public engagement in the process of coming to terms with these important decisions. The MTA should do this- the Governor, the Legislature, and the public need to get a handle on what the MTA thinks is needed sooner rather than later. ( The Comptroller’s report confirmed the concerns raised in my September 30 Gazette column, “The MTA’s Long-Term Financial Problem is Severe and May Soon be Worse. “)

If the Legislature does not enact a formidable congestion pricing plan, worth $1 to $1.5 billion a year, enough revenue to support $10 billion or more in bonded funds for the mass transit system, or find some other alternative, it will be catastrophic for the subway, bus, and commuter rail systems, the fundamental infrastructure that allows for the wealth of the New York City metropolitan area. In fact, even if the congestion pricing plan was adopted, the MTA’s greater than $20 billion shortfall  would only drop by half, $10 billion, and there would still be $10 billion to find unless the Federal government stepped in to provide much larger amounts of money than at present.

Mayor DeBlasio’s proposal to tax millionaires was envisioned to raise ¾ of a billion a year, with $500 million to fund $8 billion worth of bonds for the MTA, and $250 million to subsidize low-income New Yorkers’ subway and bus rides with ½ Fare Metro cards. Together the congestion pricing plan and the millionaire’s tax might raise nearly $20 billion for the MTA, coming close to closing the gaps in meeting mass transit capital needs.

Both proposals face significant opposition in the Legislature, from State Senate Republicans opposed to the millionaire’s tax, to everyday legislators of both parties who simply don’t wish to impose new charges or fees on their constituents to drive into Manhattan, either because they feel the charges are unfair or won’t solve the congestion problem.

Governor Cuomo has not yet submitted a bill to the Legislature that provides the details of the congestion pricing plan or how the money would be used. He has said he wants to discuss the issue with the legislature first, although he has embraced the concept advanced by MOVE/NY that the tolls on the outer borough bridges that don’t feed the Manhattan Central Business district should be reduced. That means some of the FIX NYC revenue would be diverted to reduce those particular tolls and not available to the MTA for its capital needs.

The Governor has also submitted bills in the budget to force the New York City government to come up with much more money for the MTA, a move the de Blasio Administration is strongly opposing.

One bill would force New York City to pay the 50% of Chair Llota’s Subway Action Plan that the Chair had demanded of the City and that Mayor DeBlasio had refused to pay. Another bill would give the MTA the power to create special districts in New York City where subway expansions add property value, and allow the MTA to obtain portions of New York City’s property taxes related to the new value created, for the MTA Capital Plan. The concept was used to pay for the #7 Train Extension by dedicating revenue from property in the Hudson Yards area to cover the costs, although that plan was a creation of the City of New York and the City controlled the dispositions of funds, unlike the Governor’s proposal here, where it does not appear the City has a say in the matter.

Another budget bill is perhaps the most dramatic of all- it says the City of New York must pay the full cost of the New York City Transit Authority capital plan. The City of New York has a seat on the MTA Capital Program Review Board and a vote on the New York City Transit Authority Capital Plan, so it has the power to veto that part of the plan. This power does not quite fit with the obligation to fund the plan, nor does it square how parts of the New York City Transit Authority Capital Plan might get funded from other sources of revenue and how the City negotiates the package. The MTA’s capital needs are so immense it is reasonable to ask the New York City government to increase its contribution- perhaps even in a major way- but the Governor’s proposals are orders rather than requests and may simply be opening gambits in what must come from a negotiation, not an order from the State.

Another major issue is the gargantuan expense of the MTA’s construction programs and purchases. A recent New York Times series described the immense wastage of funds in the projects. The MTA, the Governor, and the Legislature cannot ignore the problem- the size of the MTA’s needs just costs too much money and the City and State just can’t afford to just write checks to cover $20-30 billion shortfalls.

Right now congestion pricing is the main issue on the plate. Mayor DeBlasio and the Legislature should support it.

Governor Cuomo and Mayor DeBlasio should bury the hatchet- at least as far as the mass transit system goes. There needs to be a consensus about addressing the giant shortfalls faced by the capital needs of the system. It’s also worth mentioning that both former Mayor Bloomberg and the newer MOVE/NY Plan sought to use congestion pricing funds to improve express bus service in areas of the City poorly served (or even not served at all ) by the subway system, and that issue, among others, certainly needs to be taken into account.

The MTA needs an astonishing $2 billion a year in new sources of revenue for the cash and debt service on bonds to cover more than $20 billion needed through 2024-25. If congestion pricing fails and there is no meaningful replacement the prosperity and public safety of the metropolitan area will be threatened

The MTA’s Long-Term Financial Problem is Severe and May Soon Be Worse

Summer 2017 saw a political breakthrough for mass transit riders when Governor Cuomo declared a “ Transit Emergency “ after the Harlem subway derailment, effectively acknowledging the State’s responsibility for addressing the deteriorating and delay-plagued subway, bus, and commuter rail system. Within a month, the MTA’s new Chair, Joe Llota, proposed an $836 million “ Subway Action Plan “ to address the emergency, meaning major upgrades to the MTA’s maintenance operations and other investments to attack the constant delays and bring some meaningful relief to the riders. He proposed the MTA and the State split the cost of the new program 50-50 with the City, which drew a near immediate rebuff from Mayor De Blasio .

The MTA began implementing the plan, deploying massed late-night work crews on system segments to clean debris and fix track and signals, without a clear answer to where it will get the money. The money for the Subway Action Plan became part of the MTA’s constant dilemma- where can it pull together resources for both its short-term and its long-term needs, which are far larger than the $836 million subway action plan. But the Emergency Declaration and the Subway Action Plan response precipitated another move by Governor Cuomo.

In mid-August Governor Cuomo endorsed “ CONGESTION PRICING,“ claiming it was an idea whose time has come. Congestion pricing puts a toll on the free East River Bridges into Manhattan, as well as a toll for vehicles crossing 60th street toward the City’s business district. The money from the tolls would provide the cash to repay money the MTA generally borrows for its capital needs. Those needs include buying new subway cars and buses, replacing track and signals, rebuilding stations, elevators, escalators, and railyards, continuing expansion projects like the Second Avenue Subway and East Side Access, and installing computer-based train control, which could increase the number of subway trains running during the crowded rush hours.

MOVE New York, an advocacy group, has a detailed plan, which includes vehicles paying one round-trip at the same rate as the Battery and Midtown Tunnels($5.76 easy pass, $8- no easy pass), and lowering tolls on many of the non-Manhattan destination bridges in the rest of the boroughs

The Governor does not yet have his own specific plan, and imposing these tolls must have approval of the State Legislature, which is not in session and will not return to Albany until January. This means Cuomo will likely submit a congestion pricing plan with the budget, in January, with the hope it would be approved by April 1,2018. Mayor Michael Bloomberg made a congestion pricing proposal in 2007 and 2008, but the Legislature would not approve it, although it consumed a year’s worth of debate. It never even came to a vote.

Meanwhile, Mayor De Blasio said he opposes congestion pricing because it is “regressive” by which he means that it is a tax on ordinary working people, not the rich.

I served in the New York State Assembly for 32 years, and in 2007 I was Chair of the Assembly Cities Committee, which dealt with the internal workings of the State’s 62 City governments. I had regular dealings with the Bloomberg administration and endorsed congestion pricing. Most of the debate, however, was not about funding the MTA, but about whether the tolls would really deter cars from driving into Manhattan, and whether the neighborhoods in Brooklyn and Queens near the bridges would fill up with cars parked by drivers looking to avoid the tolls and then taking the subways into the City for the last leg of their trip. Of course, unfairness to people of modest means was another major concern. My point of view was that the MTA Capital Plan needed a major new source of funding but that perspective was less of a priority then than it is today.

Several years later I became Chair of the Assembly Committee on Corporations, Authorities, and Commissions, which has jurisdiction over laws affecting the MTA. I also helped lead the Assembly’s negotiations with the Governor and the Senate over the mass transit aspects of the transportation budget. By 2014 the MTA’s 2015-19 Capital Plan had become the subject of extensive discussion, and the MTA had a $15 billion shortfall in funding for the $32 billion plan that was in the works. Move New York had made its new congestion pricing proposals by then, which I supported. Concerned that congestion pricing might never be approved by the Legislature, I also introduced about six bills intended to help meet the MTA’s shortfall. Some of the bills addressed road and bridge funding as well. But the Governor’s office argued that providing specific additional funds to the MTA would not work because they could not spend more money (which the MTA leadership did not agree with but would not disagree publicly with Cuomo).

Governor Cuomo vetoed the MTA’s initial Capital Plan proposal in October 2014, which ended up forcing the MTA to cut the plan from $32 billion to $29.5 Billion. In the 2016 budget, the Legislature approved the Governor’s plan to commit the State to $7 billion in new funding for the Capital Plan, while New York City would supplement the funding with $ 2.5 billion of its own. With those commitments in place, the MTA proceeded with its approved plan. The problem then, as now, is that the $7 billion from the State was just an IOU. There was no identified source of funding for the $7 billion, only a commitment in law that the State would provide the funds after the MTA ran out of its own resources.

In late 2019 the MTA will have to submit a proposal to the Capital Program Review Board for the 2020-2024 plan, which is expected to be similar to the past several plans, needing $30 billion for full funding. In the current plan, the MTA had identified about ¼ of the funding from the Federal government and about 1/3 of the funding from its own resources, meaning either cash upfront or enough cash to cover the interest on borrowed funds, before the State government settled on the 2016  plan that passed.

For 2020-24 it is not known how much more cash the MTA can squeeze out from its current resources. The MTA’s Financial Plan adopted by the Board in July showed rising deficits because revenue from real estate taxes is showing a decline, meaning its ability to generate more cash resources internally will be very limited. A reasonable person could foresee a shortfall for the 2020-24 plan similar to the one that affected early planning for the current Capital Plan, namely $15 billion. When you combine that with the unidentified resources for the State share of the current plan, some $7 billion, the total shortfall going into 2020 would be $22 billion. Does this suggest the MTA needs a new source of revenue?

A shortfall of more than $20 billion going into the 2020-24 capital plan is pretty catastrophic. Not all the cash is needed  right away, of course, but the Governor and the Legislature, I think, should probably do something meaningful pretty soon.

 

The Mayor’s Best Argument on Transit System Funding

Governor Cuomo’s declaration of a state emergency after the Harlem subway derailment in June offered hope to suffering transit riders because it was an acknowledgement there was a crisis and the Governor was taking responsibility for addressing it.

An emergency declaration  in New York law requires an affected agency to develop plans to deal with whatever disaster the Governor has declared. After a review, new MTA Chair Joseph Lhota proposed to spend an additional $450 million in maintenance programming and $380 million in capital investments to reduce delays and breakdowns. The Governor and Lhota also are seeking half the new money from New York City, reigniting public rancor between the Governor and Mayor DeBlasio and raising anew the question of responsibility for the transit system between the State and the City.

Both the State and the City have billions of dollars in reserve funds available now and can afford to make the contributions. Whether DeBlasio makes a decision to contribute to the plan or not, an understanding of who is paying for the transit system is essential.

The basic facts are that the City and its suburbs already pay virtually all of the MTA’s costs, either directly or indirectly.

The budget adopted by the MTA for 2017 reports that 57%, more than $4.5 billion, of New York City Transit’s costs(excluding debt service) are paid by the fares from riders of the subway and bus systems. The next largest amount, about $3.5 billion, came from a group of dedicated taxes which, although imposed by the State, are levied within the 12-county MTA region, and not in the rest of the State.

These dedicated taxes include a payroll tax, a corporate profits surcharge, a sliver of the sales tax, the New York City real estate transfer tax, and others. The New York City government directly contributes $362 million to New York City Transit, including a required match of a corresponding State subsidy, as well as reimbursements for paratransit, students, and the elderly. New York City Transit also receives a cross-subsidy from excess cash available from the tolls of the Bridge and Tunnel system of $287 million.

The State’s General Fund provides about $356 million, including a contribution to compensate for a cut in 2011 of an unpopular payroll tax enacted within the region during the recession. While these funds derive from the general taxes of the State, a Rockefeller Institute study in 2011 reported that New York City and its suburbs were paying 72% of the State’s tax revenue in 2009, and that study did not reflect the fact that most economic growth in the State has occurred downstate since then.

The bottom line is that all this means that only about 1% of New York City Transit’s operating funds come from outside the MTA region.

All these resources together don’t just fund the operating budget, they also pay for the debt service on the tens of billions of dollars the MTA borrowed to pay for the capital programs of prior years as well as the ongoing borrowing for the new one. About $1.3 billion a year goes to pay interest on debt associated with New York City Transit from these flows of funds, with another $250 million a year covering New York City Transit-related debt from Bridge and Tunnel toll surpluses.

The New York City government also pays substantial subsidies to other parts of the MTA system. It provides $460 million a year to MTA Bus, the express bus system taken over by the MTA during the Bloomberg administration;$58 million for the Staten Island Railway; and $98 million for station maintenance for Long Island Railroad and MetroNorth facilities located within the City.

New York City also pays the cost of the New York Transit Police, more than 3,000 police officers who patrol the subways and other mass transit facilities. The Police Department budget is $10 billion a year, meaning the 10% of the police force committed to safety in mass transit costs the City roughly $1 billion a year. This large level of support is barely reflected at all in the MTA or New York City Transit budgets. Embedded within the State and City budgets are also payments for interest on bonds issued by State and City government for the benefit of mass transit, with $301 million paid by the City and $180 million paid by the State, according to a 2015 report by the New York City Comptroller.

Commuter rail system support is comparable to New York City Transit. Fares, excess cash from Bridge and Tunnel tolls, and dedicated taxes collected from the suburban counties around the City pay for the costs of Metro-North and the Long Island Railroad. The commuter rail systems receive more generous subsidies from Bridge and Tunnel tolls than New York City Transit, about $400 million a year compared to $287 million a year. Long Island Railroad fares contribute only 47% of the costs of that system, compared to 57% for New York City Transit and 59% for MetroNorth. Money from the General Fund of the State provides just a very small portion of the commuter rail budget, just like New York City Transit. The MTA Police patrol the commuter rail system, but their costs are included within the commuter rail system budgets.

Governor Cuomo has said that the State was adding a historic level of funding to the current MTA 2015-19 capital plan. There is but a scintilla of truth to that pronouncement. That is because, of the $8.3 billion claimed to be committed, sources for $7 billion of the contribution have yet to be identified, and the State law providing the support says that the State does not have to come up with the $7 billion until the MTA exhausts all its own resources first, with a deadline of 2025 for the State’s $7 billion to be found.

Even when the State finally comes up with the money, it will likely come from within the MTA region, either some form of congestion pricing or a diversion of some current tax receipts from the region. The City’s promised $2.5 billion contribution to the plan, part of a deal with the State, is to be paid on a schedule concurrent with the State’s schedule, and the City’s own budget does not forecast the City’s contribution being paid until after 2019.

If the Mayor wants the public to understand why the City won’t contribute further funds to the MTA, he needs to clearly explain that the City’s residents and businesses already cover the costs.

 

 

 

The Governor cannot duck a reckoning for mass transit’s decline

New York’s mass transit riders are experiencing a serious and rapid decline in service.  The negatives are palpable and documentable; ever-worsening delays are aggravating and angering the millions of New Yorkers who need the subways, buses, and commuter rail systems to move them around. A State Comptroller’s audit found on-time weekday performance for the subway system had declined from 80% in 2013 to 74% in 2014; the MTA’s investor disclosure documents show OTP declined to 70% in 2015, to 67% in 2016, and the MTA website shows OTP through March 2017 at 63%. Increases in equipment failures are real too. The subway mean distance between failure improved dramatically with the capital program reinvestments of the 80s and 90s, from its low point of 7,000 miles in 1981 to a peak of 178,000 miles in 2005, but since 2011 has declined from 172,00 mdbf to 112,000 in 2016, another rapid deterioration.

Explanations for these serious problems include difficulties in loading and unloading passengers as the trains and platforms become more and more crowded, delays due to emergencies like sick passengers and police actions, the aging of the subway car fleet, and capital and maintenance work being conducted on the rights-of-way even as the trains are running.

The overcrowding is palpable and documentable too; ridership increased 58% between 1996 and 2016. Employment in New York City grew by more than 630,000 between the end of the recession in 2009 and the end of 2016, and is continuing to grow. New York City’s economy is successful, but its infrastructure is choking. The MTA announced a 6-point improvement plan in May, including adding EMS and other personnel directly placed at major stations to address emergencies more rapidly, accelerating subway car replacements, especially on the 8th Avenue Line, and increased track maintenance. These improvements sound hopeful but will take time. In part they are just about adding resources to the operations and maintenance budget.

Governor Cuomo nominated Joe Llhota, the former MTA Chair and Giuliani Deputy Mayor, to the Chair and President position on June 21, and the New York State Senate confirmed him in one day. The Governor is also seeking governance changes. Cuomo has asked the legislature to give him more seats on the MTA board to create an outright appointed majority of the seats for the Governor, as if he did not already have effective control. He is also proposing separating the Board Chair from the President to strengthen executive leadership. The former Chair and President, the widely respected Thomas Prendergast, retired several months ago, and the Llhota appointment brings in someone of stature and competence. More than a decade ago,then Governor Pataki and the Legislature had combined the Board Chair and President positions for that same purpose, stronger leadership. While Llhota may be a positive choice, the notion that Governor Cuomo has not been in charge is ridiculous.

In a June 8 blog,” Cuomo Gave MTA Chump Change…”, I discussed how the Governor had allocated less than 5% to the MTA of a $9.9 billion windfall to the State from financial settlements with Wall Street Badguys due to pre-recession wrongdoing. Only $278 million is left unallocated; in addition, $1 billion is authorized for cash to the Javits Convention Center Expansion. I pointed out that the hotel industry and the giant “ New City “  being developed in Hudson Yards offered  ready- made alternatives for financing Javits, and the money might better be spent to help the straphangers.

Extra cash for critical operations, maintenance, and capital work won’t provide miraculous relief, but ought to help. Even getting these funds assumes Cuomo will step up to the plate and the record is pretty bad so far. In the current $29.5 billion capital plan the State has committed $1.3 billion in identified resources, with an I.O.U. written in State law that the State will provide another $7 billion by 2025 or whenever the MTA runs out of current resources, meaning many years before the State has to come up with more money. This year Cuomo even reduced the State’s commitment in replacement funds to the MTA, authorized when the MTA lost revenue when its dedicated payroll tax was cut in 2011, by $67 million.

When Cuomo became Governor in 2011, both the State and the MTA were emerging from the financial crises that had confronted them during the recession. The 2010-14 MTA capital program, originally conceived at $32 billion, had been proposed in 2009 at $28 billion but scaled back to $26 billion that fall, with only two years of identified funding. As a last resort the MTA indicated it could borrow heavily.In July 2011 the MTA, lacking large commitments from outside parties, scaled the capital program back further, to $24 billion, and would borrow $14.8 billion to provide the resources. The State would contribute a meager $770 million. The huge borrowing would assure continued substantial fare hikes as the interest on the debts would be paid.

Fortunately economic growth, improved ridership, and low interest rates allowed the transit system’s finances to stabilize for several years and fare and toll hikes dropped from 7 ½% every two years to 4%. By 2014 the review process had begun for the new 2015-19 capital program, which once again was proposed at $32 billion, the same amount as had originally been contemplated for the 2010-14 program. Transit advocates proposed a new Round II version of Congestion pricing, imposing tolls on the East River bridges and below 60th street in Manhattan, but lowering tolls on other City bridges, as a way to fund the capital program, but Governor Cuomo never supported it. Instead,his appointee to the MTA Capital Program Review Board vetoed the MTA’s $32 billion plan in October 2014. It was 17 months before a plan would finally be adopted. Legislation submitted by my office to divert a tiny fraction of existing revenues from the personal income tax within the region to fund a large portion of the plan drew no response from the Governor, even after Senate Republicans latched onto my proposal by linking funding for roads and bridges within their districts.

The recession was a financial catastrophe for the MTA, and was a factor in funding setbacks. Hurricane Sandy proved a physical catastrophe, causing major setbacks while repairs were made and are continuing, along with diverting much managerial attention.  New York City’s substantial employment growth is a good thing but is straining the mass transit system. On the political front, Governor Cuomo has been a catastrophe for this huge State agency.