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MTA Debt


Over the past decade, New York’s subway and bus system has shown phenomenal success in attracting increased patronage and helping spur the revitalization of the city. But that success may be imperiled by the Metropolitan Transportation Authority’s coming financial woes. Although the MTA is projecting a budget surplus for 2007 due to booming revenues from taxes on real estate transactions, its long-term financial situation is dim. A $1.3 billion budget deficit is projected for 2008, growing to $2.2 billion in 2010.

The deficits are driven by ballooning costs of debt service and health insurance. Together with other expenditure increases, these more than offset growth in fare revenues from higher ridership and the fare increases of 2003 and 2005. The agency's debt is projected to increase from $13 billion in 2000 to $32 billion in 2010. These increases stem from borrowing approved over the past half dozen years to finance maintenance and capital improvements to the system.

No one is in a hurry to head off rising budget deficits as long as the Metropolitan Transportation Authority shows a surplus, however transitory it may prove to be. MTA Chairman Peter Kalikow announced in September his opposition to $20 million in cuts to bus and subway service that had been planned when forecasts showed budget deficits next year. Likewise, Kalikow said that a planned 5 percent fare increase in 2007 would not be necessary, again citing the rosier-than-expected 2007 budget picture.

In fact, recent Metropolitan Transportation Authority decisions on development of Manhattan’s West Side risks further exacerbating future deficits. In September, the MTA Board approved a deal with the city to develop the railyards just west of Penn Station in Manhattan and extend the #7 train to 34 St. and 11 Avenue. The city agreed to pay up to $2.1 billion to build the extension and also to pay for any unplanned costs for land acquisition and design changes. The agreement does not specify who would pay for other cost overruns, however. If the MTA is forced to pick up the tab, its financial difficulties would only deepen.

Many observers think that the agency is taking on a considerable risk. The State Comptroller, Alan Hevesi, released a report pointing out that the MTA’s East Side Access project is over budget by $2.4 billion and the Fulton Street Transit project is already over budget by $94 million. Both are also behind schedule, with delays contributing to higher costs.

Nevertheless, Kalikow commented that, “I was comfortable leaving the cost overrun question to another day.”

It’s not that the MTA’s critics are any more eager to impose service cuts or fare hikes. Although Hevesi’s report clearly outlines the MTA’s long-term budget problems, Hevesi argued at the same time for postponing the 2007 fare and toll increases “for as long as possible” until the MTA develops a long-term strategy to close the budget gaps.

The MTA’s financial problems are thus going to arrive on the desk of the next governor. Transit advocates are hoping that, following Hevesi’s thinking, the new governor will take a comprehensive approach that would achieve a balanced solution to the MTA’s financial needs. Gene Russianoff, staff lawyer for the Straphangers Campaign, was quoted in the Times as saying, “All the big issues are now squarely in the lap of the new governor: fare hike, service cuts, more state aid, MTA efficiencies. … The whole menu of options should be there as a whole and enacted as a package.”

Will the new governor adopt a comprehensive plan, even if that means supporting fare and toll hikes and tax increases? Or will he try to muddle through as his predecessor did, whatever the longer-term difficulties that would create? Stay tuned.

Bruce Schaller, who has been in charge of the transportation topic page since its inception in 1999, is head of Schaller Consulting, which provides research and analysis about transportation. He is also a Visiting Scholar at the Rudin Center for Transportation Policy and Management at New York University. 

Transportation And The New Governor


How would New York City’s transportation system fare under a new governor?

Of the three major candidates for the office, Eliot Spitzer, the state attorney general, has laid out the most developed transportation agenda. The most publicized foray into transportation issues by Spitzer’s opponent in the Democratic primary, Nassau County Executive Thomas Suozzi, was to suggest putting a toll on the Long Island Expressway, which was the target of intense criticism. The Republican candidate, John Faso, former minority leader of the state assembly, talks on his Web site of “directing all state sales taxes on gasoline (over $600 million) to be used for pay-as-you-go financing for road, bridge and transit projects.”

Both Faso and Suozzi criticize the transportation policies of Spitzer, who is widely touted as the front-runner in the race. They accuse Spitzer of being vague on how the transportation projects he favors will be funded.

SECOND AVENUE SUBWAY, LONG ISLAND RAILROAD LINK, TAPPAN ZEE BRIDGE

Spitzer has signaled that he would push three transportation mega-projects to the top of the agenda: the Second Avenue subway in Manhattan, the Long Island Rail Road (LIRR) link to Grand Central Terminal and replacement of the Tappan Zee Bridge.

The Second Avenue and LIRR projects, Spitzer says, are “essential” to providing transit capacity for job growth in Manhattan and accommodating increased commuting both from Long Island and reverse commuting to Long Island. Eventually, Spitzer would also like to see the Second Avenue subway extend into the Bronx and Brooklyn.

In a July 25 debate, Suozzi challenged Spitzer on promising to “spend over $20 billion in new transportation projects” while refusing to give “specific details” on how the projects will be funded.

Spitzer replied that the Second Avenue and LIRR projects are fully funded through 2009 in the Metropolitan Transportation Authority’s (MTA) capital program. In an earlier speech to the Regional Plan Association, Spitzer called on the federal government and Port Authority to help fund these two projects after 2009 when most of the construction expense will occur. He also suggested that a new Tappan Zee Bridge could be paid for through bonds backed by future toll revenues or through public private partnerships.

JFK RAIL LINK AND FREIGHT TUNNEL?

Left off Spitzer’s list of top priorities are two other mega-projects: a rail link from lower Manhattan to JFK airport, and a cross harbor freight tunnel that would connect Brooklyn with either New Jersey or Staten Island. Both projects are controversial because of doubt about whether they are worth the$5 to $7 billion pricetage for each. Spitzer urged further study on the costs and benefits of both projects, potentially paving the way toward eventually setting them aside.

PASSENGER RAIL TUNNEL

Spitzer also supports a proposed new passenger rail tunnel connecting New Jersey to Manhattan. The new tunnel would enable New Jersey Transit, which currently shares tracks with Amtrak, to increase commuter service into Manhattan. Support for this project from a New York gubernatorial candidate gained little fanfare, a remarkable commentary on how much competition between the two states has eased as both states increasingly recognize that their main economic threat is not each other, but other cities around the globe. There may also be a measure of self-interest since Spitzer also wants the Port Authority, which has never funded MTA projects, to help pay for the Second Avenue and LIRR projects.

REPLACING MTA CHAIRMAN PETER KALIKOW?

More controversially, Spitzer said in the debate that if elected governor he would “absolutely” act to replace Peter Kalikow, the MTA chairman. Governor George Pataki recently reappointed Kalikow to a second term that runs until 2012. Kalikow has indicated that he wants to finish projects currently underway. Some Democrats and transit advocates respect the job that Kalikow has done under Pataki, who has exercised an unprecedented level of control over the agency during his 12 years as governor. Yet Spitzer and others oppose letting Kalikow continue in office, citing his lack of independence in decisions such as rejecting the transit workers union ratification of a labor pact in a revote after initially rejecting it.

In the same debate, Suozzi said he would not try to force out Kalikow.

SALE OF PENN STATION RAIL YARDS

Another hot MTA issue concerns the sale of the Penn Station rail yards. With the Jets stadium deal off the table, Mayor Michael Bloomberg has offered to buy part of the rail yards from the MTA for $500 million. Spitzer criticized the city’s offer as “grossly under market value” and called for “fair and open” bidding process for the property. Kalikow wants to use the money to help offset future projected MTA budget deficits. The MTA board voted in late July to negotiate the sale of the development rights to the city. Whether a deal could be consummated before the next governor takes office remains to be seen.

7 LINE EXTENSION, BUS RAPID TRANSIT, FERRY SERVICE IMPROVEMENTS, ETC.

In his RPA speech, Spitzer also announced support for:

• Bloomberg’s proposed extension of the 7 line to the west side;

• Bus rapid transit;

• Expanding ferry service “where it is financially feasible;”

• Integrating ferry service with rail and bus systems;

• Maintaining core infrastructure as a first priority;

• Weaning the MTA from financing transit improvements with borrowing; and

• Restoring professionalism in the state’s transportation agencies.

What is this campaign talk likely to mean for New York City if Spitzer is elected governor in November? Those who recall Bloomberg’s 2001 promise for a “Subway on the Surface” on the East Side – an idea that the city is still only mulling over – may want to take this candidate’s promises with a tablet of salt. Nevertheless, it is worth noting Spitzer’s willingness to prioritize three big projects over projects such as the JFK rail link, which have strong support in segments of the business community. If Spitzer can follow through as governor on truly setting priorities for getting these projects in the ground, he will leave a legacy.

It would also be an accomplishment if the new governor reverses the politicization of the MTA and other transportation agencies that has occurred under Pataki. It was not that long ago that governors appointed professionals such as Bob Kiley to head the MTA. Although Kalikow has shown more independence than his immediate predecessors, he can hardly claim independence from the governor.

Less visibly but equally important would be the new governor giving the state Transportation Department and regional planning agencies funding, staffing and political mandate to pursue progressive transportation policies.

Bruce Schaller, who has been in charge of the transportation topic page since its inception in 1999, is head of Schaller Consulting, which provides research and analysis about transportation. He is also a Visiting Scholar at the Rudin Center for Transportation Policy and Management at New York University. 



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