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The State Budget’s $38.5 Billion Transportation Program

by Bruce Schaller, Apr 12, 2005
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The on-time New York State budget approved by the legislature on March 31 included a $38.5 billion transportation program covering the next five years, to be split equally between transit and highways.

Legislative approval – assuming the governor does not use his veto pen to make any substantial changes – means that the Second Avenue Subway and the Long Island Rail Road link to Grand Central Terminal will begin construction. The budget also means that the transit system will continue to be maintained and upgraded, although possibly with a stretching out of some projects. It also means that while bridge and pavement conditions on state bridges and highways will not deteriorate, congestion will continue to worsen. Finally, the way the budget was financed means that in 2010, New York will face the same hard financing issues that it confronted this year.

Let’s look at how the $38.5 billion breaks down, starting with funding for the Capital Program of the Metropolitan Transportation Authority and then the Highway Program of the New York State Department of Transportation. (NYSDOT).

MTA CAPITAL PROGRAM

System Improvements

Let’s start with the MTA’s “Core Capital Program.” The core program covers what is artfully termed “state of good repair” and “system improvements.” These refer to normal replacement and maintenance of rail cars, buses, tracks, signals, stations and the host of infrastructure items required to keep the subway, bus and commuter rail systems in good running order. The benefits of many “state of good repair” elements are readily seen by transit riders. New subway cars, for example, improve the riding experience and are less likely to break down.

But much of this program is unseen – until disaster strikes. The Chambers Street fire late last year illustrated the importance of modernizing signal systems, for example. Sometimes unnoticed, the system-improvement component of the program goes well beyond keeping the system in good repair. New train control and communications systems, for example, now being tested on the L line and scheduled for installation on parts of the F in the next few years, include signage that will announce when the next train will arrive.

Last September, the MTA requested $16 billion for the core program and $500 million for security, for a total of $16.5 billion. The legislature approved $15.4 billion. In discussions with the legislative leaders, the heads of New York City Transit and the commuter railroads apparently said they could live with the lower amount. How they will do so remains to be seen and thus, whether there are real impacts from this $1.1 billion reduction is unclear. The agencies may stretch out certain program elements, for example, or find ways to cut back on project scopes. Megaprojects

Next up are the widely-heralded expansion projects. These include the Second Avenue Subway and East Side Access, which would bring Long Island Rail Road trains into Grand Central. The MTA requested $1.4 billion to begin construction of the first phase of the Second Avenue Subway, which will run from 125th Street to connect into the existing subway line at 63 Street. The MTA also requested $2.3 billion for East Side Access. The legislature approved $2.1 billion for the two projects -- $1.1 billion for East Side Access and $1.0 billion for Second Avenue. The $2.1 billion assumes that the federal government contributes $1 billion.

The approved funding level for these megaprojects means three things.

First, it means that the projects are moving forward. Construction will start during this Capital Program so you can expect that the Second Avenue subway will be built in your working lifetime (unless you are very close to retirement).

Second, don’t buy your tickets quite yet. The funding reductions mean that the projects will open somewhat later than had been planned. East Side Access will open probably in 2015 instead of 2011 or 2012. Second Avenue will also be pushed back, although it’s not clear how far or to when.

Finally, the way the funding is structured will create greater financial pressures down the road. The Federal Transit Administration (FTA) requires that funding be identified up front before it approves federal assistance. In this case, state officials will request permission to “pay as you go,” having just enough money identified to meet the cash needs of the project. The federal agency appears likely to accept their request, although positive action is not certain. What this arrangement means, however, is that state officials will have to identify additional funding sources by the time the next Capital Program comes up for approval.

The legislature also approved $2 billion for the #7 extension, but that entire sum is to come from New York City sources. Finally, there is $400 million for the proposed rail connection between JFK Airport and lower Manhattan, a project that is still substantially unfunded.

MTA PROGRAM FUNDING

Transportation Bond Act

The most-publicized aspect of program funding is the $2.9 billion Transportation Bond Act that will go on the ballot for approval this fall. Proceeds from the Bond Act will be split equally between the MTA and the Highway Program.

Unlike in 2000, when advocacy and civic organizations were lukewarm toward a $3.8 billion Bond Act that failed to win voter approval, these groups are now solidly behind this proposal. They are likely to mount a strong publicity campaign to gain voter approval. The electoral calendar is also in their favor. The mayoral contest is likely to draw voters to the polls in New York City, where voters are likely to back the Bond Act by a large margin.

Tax and Fee Increases

The legislature also approved about $300 million in tax and fee increases to help finance the MTA program. These increases include a 1/8 percent increase in the sales tax, which will end up being 8.375 percent in the MTA service region after a temporary increase expires. The increases also include hikes in vehicle title fees and the mortgage recording tax.

Proceeds from these increases will leverage $4.2 billion in new bonds to be used in the MTA Capital Program.

Financing – A Fare Increase? Jets Stadium Sale?

The legislature also approved just over $3 billion in MTA bonds, a sum that is apparently in the MTA’s financial plan from last fall. Thus, as expected, the MTA’s debt burden will continue to grow, placing continued pressure on the fare. Warnings of a fare increase every two years could easily come to pass.

Other elements of MTA funding are $1.4 billion in asset sales (West Side rail yards/Jets stadium, Brooklyn rail yards/Nets stadium, and some other asset sales and revenues), the $1 billion from the federal government for system expansion, and several hundred million dollars in assistance from the city.

Looking Over A Cliff After 2010

Perhaps the most notable aspect of the financing is that only about $5 billion of the $17.9 billion program is continuing funding. In 2010, the MTA will once again be looking out over a cliff, wondering how in the world it can come up with roughly $12 billion for the next Capital Program. Once again, options will be to further increase the debt load, increase taxes, sell assets, etc. So, while the legislature has squeezed out enough funding to get the MTA through the 2005 to 2010 period, funding issues are by no means going away. Each time, of course, the issues become more difficult because some of the options were used up in the previous round.

HIGHWAY PROGRAM

In March, New York University released a report that I wrote assessing highway and bridge conditions and congestion levels in the New York area and capital funding needs for 2005-2010. The report showed that at current funding levels, bridge and highway conditions are likely to deteriorate and congestion will continue to worsen. The assessments of funding needs were striking – an additional $1.3 billion in the New York area alone just to prevent worsening of bridge and pavement conditions and a doubling of the program to meet a reasonable definition of “state of good repair.”

The governor proposed a $17.4 billion statewide program, although funding sources were identified for only $15.4 billion. The legislature approved $17.9 billion, matching the MTA program. (As the notion of matching took hold in Albany, highway advocates suddenly became advocates of transit funding as well.) With few details available, it is not clear how much of the $17.9 billion will be allocated to the New York area. Assuming allocations similar to historic patterns, however, it appears that the funding is barely sufficient to keep road and bridge conditions the same as they are currently.

That would leave only a few dollars for the “mobility” program, which includes added highway capacity, elimination of bottlenecks, bus lanes and similar steps to reduce congestion. While many New York City residents can avoid highway congestion by taking the subway, congestion is unavoidable for the movement of goods in the city and for most suburban residents. By not dealing with the problem, state officials are allowing congestion to be an increasingly significant drag on the region’s economy.

ASSESSING THE BUDGET

There are good reasons to be pleased with the Legislature’s transportation budget. The legislature provided sufficient funds to keep the transit system in good condition and prevent highway and bridge conditions from worsening. Two megaprojects, the Second Avenue Subway and LIRR link to Grand Central Terminal, are going to proceed. In a state where an on-time budget makes front page headlines, these achievements are worthy of praise.

But as Elliot Spitzer recently noted, the budget does not solve New York’s long-term financial challenges.

While coming up with the cash to start the megaprojects, for example, it leaves until the next round in 2010 how to pay for them fully. It loads increased debt on the MTA, ultimately to come out of fares paid by transit riders. And it fails to address long-ignored problems with congestion on the region’s highway network.

So while this budget can be seen as a step forward, the journey won’t be any easier from here.

Bruce Schaller is head of Schaller Consulting, which provides research and analysis about transportation, and is also a Visiting Scholar at the Center for Transportation Policy and Management at New York University.

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