In my prior post, I noted that from 2007 to 2012 overall U.S. inflation was 10.7%, and the average annual pay of most Downstate New York workers increased just 8.0%. Wall Street pay fell. But based on data from the National Transit Database (NTD), the total operating cost per employee work hour for MTA component agencies increased by 15.2% for Metro North, 15.5% for the Long Island Railroad, 21.8% for the NYC subway, 24.8% for New York City Transit buses and 4.8% for MTA Bus, the former private bus companies in New York City. Mostly due to soaring retirement costs thanks to pension enhancements retroactively granted in the past but not paid for at the time, and past pension underfunding. That’s the bad news.
Now for the really bad news. Those operating costs, as measured by the NTD, do not include soaring interest payments on MTA bonds. As of this January, the MTA has $32.8 billion in debt outstanding, of which $2.5 billion is variable rate, according to information on its website. Little of that debt has been incurred to expand the system to new areas and riders, which might result in more tax and fare revenues. Most of the money has been borrowed to merely pay to replace buses, subway and rail cars, and other components of the transit system as they wear out. The MTA even borrows for painting under its capital plan. In the most recent MTA capital plan, the cost of this type of this (in reality) maintenance spending was about $4.4 billion per year. Nearly all of it was borrowed. And with the interest on past debts (along with the retirement benefits) soaking up more and more of the MTA’s annual revenues, no one knows where the money to maintain the system for the next 30 years (while the existing debt is paid off) is going to come from. And no one in politics wants to talk about it. Further commentary and a spreadsheet are below .
First, a spreadsheet with capital program revenues and expenditures data from the Federal Transit Administration’s National Transit Database is attached here.
Before we get into it, a little history. The New York City subway system was, for the most part, built between 1900 and 1956, when the Rockaway extension of the A train (formerly part of the Long Island Railroad) went into service. Private companies built and outfitted most of what are now the Long Island Railroad and MetroNorth commuter rail lines at about the same time. Penn Station opened in 1910, and the current Grand Central opened in 1913, with the railroads electrified at about the same time. While these systems were being built, little existing equipment was replaced, and few existing lines and stations were rebuilt.
A turning point was reached in the early 1950s. By that point the oldest component of the subway system, the original IRT, was in disrepair. In 1951 a city bond issue was proposed to build the last major component of the subway system – the Second Avenue subway. That’s what people were promised when they voted on the bond issue. New York City borrowed the money, but used it to repair the existing system instead. In 1968 the city subway and bus systems were transferred to a new state agency, the MTA. Again a bond issue was proposed, this time promising not only the Second Avenue Subway but also a Long Island Railroad connection to the East Side of Manhattan. Once again the bond issue was passed based on those promises. And once again nearly all of the money went to rebuild and re-equip the existing system, mostly the LIRR.
By the early 1980s, however, the MTA had fallen far behind where it should have been in renewing the transit system, and it was essentially a wreck. Dedicated MTA taxes were increased, and both the city and state started putting in general tax revenues for the MTA capital plan. Gradually the system began to improve, not because the MTA was rebuilding at an accelerated pace to make up for past neglect, but because as it rebuilt and replaced things at what ought to have been the normal rate all along, a falling share of the transit system was left in disrepair.
That responsible policy, however, only lasted for 12 years, until Governor Pataki, State Assembly Speaker Sheldon Silver, State Senate Majority Leader Joe Bruno, and NYC Mayor Rudy Giuliani took over. Let’s examine Chart 1.
The NTD just aggregates all kinds of funding by level of government, without distinguishing actual cash money from debt. Capital funding for the MTA’s soaring debts has been classified mostly as “local funding” until recently, and then as “other” funding. The data shows about $450 million in state funding for the MTA capital program in 1993, and about $800 million in local government funding in 1994, both after inflation into $2012. That is actual tax dollars provided to the capital program: pre-recession contributions had been higher. The cash funding for the capital plan was cut in the early 1990s recession, and then partially restored. But starting in 1995, state general revenue funding was cut off and local funding has consisted almost entirely of borrowing against future MTA revenues. That borrowing continues right to this day.
For 20 years the only consistent source of actual current tax revenue for the MTA capital plan has been the federal government. The latest version of the 2009 to 2014 MTA Capital plan can be found here.
Excluding the “system expansion” projects – East Side Access, the Second Avenue Subway, and the Flushing Line extension – and the separately funded money for recovery from Hurricane Sandy – this program included $22.2 billion in reinvestment in the existing “core” system, or $4.4 billion per year. The MTA will classify some of this as “ongoing normal replacement” and some of it as “state of good repair” – which is to say catching up with the past. In reality, however, the MTA has done little or no catching up with the past. It has simply reinvested at the “ongoing normal replacement” rate, sometimes replacing equipment whose replacement has been long overdue and classifying that as “state of good repair.”
Of the $22.2 billion, $6.5 billion was federal funding, or just under 30 percent. Another $1.5 billion was New York City and New York State funding, but much of that was from city and state bonds not actual current revenues, and the state has taken away “dedicated” MTA tax revenues to pay for those bonds. So they are really just MTA bonds that are called state bonds. This kind of bogus MTA debt that isn’t called MTA debt is Assemblyman Jim Brennan’s big idea for paying for the next MTA capital program.
The capital program included a $2.2 billion federal loan, and $10.5 billion was MTA Bonds. Given that the prior three capital programs were paid for essentially the same way, it is no surprise that the MTA now has $32.2 billion in debt. Let’s imagine, however, that New York City and New York State had continued to put up as much in general tax revenues for the MTA as they did in the early 1990s, before Generation Greed took over. That $450 million per year in state funds and $800 million per year in city funds in today’s dollars would have added up to $25 billion over 20 years. And the money saved by not having to pay interest on the $25 billion probably would have meant the other $7 billion would not have been borrowed either.
Moreover, it is perfectly reasonable to borrow for system expansion projects, which can bring additional fare and tax revenues (by supporting an expanded economy and population) with them. But these account for less of the MTA capital program than you think. Since the city is paying for the Flushing Line Extension itself, the expansion projects that are in the 2009 to 2014 MTA capital program are East Side Access for the LIRR and the three-station BMT Broadway Line extension (aka the Second Avenue Subway). The money for these two projects amounts to just $1.2 billion per year from 2009 to 2014, with $900 million for various projects related to the LIRR and East Side Access $300 million for the Second Avenue Subway.
Phase I of the Second Avenue subway will be fully paid for as of the end of the 2009 to 2014 capital plan. Unlike ongoing normal replacement, these projects eventually end and don’t cost any more.
As for ongoing normal replacement none of this is news, to anyone who has been paying attention for the past 20 years. As noted by the New York Observer this December:
For decades, under numerous past MTA Five Year Capital Plans, both the City and State collectively cut billions of their own respective financial contributions. They repeatedly had the MTA refinance or borrow funds to acquire scarce capital funding formerly made up by hard cash from both City Hall and Albany. This has resulted in long term MTA debt doubling from $15 billion to over $32 billion during this time frame. More money has to be spent on debt service payments. This has resulted in billions of fewer dollars available for both operating and capital improvements for safety, state of good repair and system expansion capital projects and programs. While Washington has consistently provided billions, it is both City Hall and Albany that have retreated from properly financing the MTA Capital Program since the 1980′s.
Let’s move on to Chart 2, which is expenditures divided into three categories: rolling stock (buses, subway cars, rail cars), facilities, and other. That isn’t much detail, so let’s look at the total.
Another aspect of the shift in capital funding from the annual budget, taxes collected and other spending foregone, to borrowed money, is a complete loss of cost discipline in the capital program. When you have to come up with money this year to pay for ongoing normal replacement this year, there is immediate sacrifice required. And those expenditures are examined carefully. When the entire cost is shifted to a future Generation Greed doesn’t care about, and to younger generations they have chosen to exploit (and rationalize the exploitation), cost control goes out the window.
So from 1992 to 1996, capital expenditures averaged $2.1 billion per year, adjusted for inflation into 2012 dollars. From 1999 to 2012 the average was $3.9 billion, or $1.8 billion per year more. How much of that can be explained by the “system expansion” projects?” Just $1.2 billion per year for the 2009 to 2014 capital plan, and far less before that. A majority of the added cost is simply higher prices for the same amount of work.
To pay for the debt service on the soaring MTA debt, more and more taxes have been imposed on New Yorkers. An extra 1/8 percent on the sales tax in the MTA region. An extra ¼ percent of the wage income of MTA region workers. Etc. After 20 years, perhaps the extra taxes are now more than the taxes that would have been required to properly fund ongoing normal replacement to begin with. But with all that money being sucked into the past, or to the operating deficit to pay for soaring retirement benefits, less and less is available for the MTA capital plan.
So now what? Just keep borrowing for the next 30 years, until debt service and retirement costs absorb 100 percent of MTA revenues and the system shuts down? Bankruptcy? It has happened in some places, and will happen in more.
So what explains the decisions by our state legislators, most of whom have been there the whole time this situation has been created, to sell our transit future down the river. Do they hate mass transit? No, the hate the future, and want to steal as much of it as they can.
Consider this report from State Comptroller Thomas DiNapoli with regard to New York State’s Transportation Trust Fund, set up in 1991 to pay for highway and bridge repairs on an ongoing basis.
That fund was also raided almost immediately after it was created in the crisis of the early 1990s recession, and stayed raided in good times and bad once Generation Greed took over. Instead, money was borrowed pledging future transportation trust fund revenues. The result according to DiNapoli:
“The trust fund was created in 1991 to provide dedicated funding for rebuilding, replacing and preserving highways and bridges in the state. It is funded by special taxes and fees, including a gas tax, petroleum business tax, vehicle licensing fees and rental car tax. But by 2002, debt payments had surpassed capital projects. In the 2012-13 fiscal year, just 22.2 percent of the $3.8 billion disbursed from the fund was spent on capital construction… Some state debt is appropriate for the trust fund, but it becomes a burden when debt service payments become such a large use of the fund, the report found. In the 2012-13 fiscal year, debt service was 40.7 percent of all fund disbursements.”
Now Comptroller Thomas DiNapoli sat in the state legislature from 1986 to 2006. At what point did he vote against the state budget, and the debts that are now soaking up 40.7% of transportation trust fund revenues, because of what that would mean from the future that is now the present? Never. But don’t blame him, because he is against the consequences of what he himself did!
And is this just in New York State? In New Jersey, they have their own dedicated trust fund for both roads and transit, but the annual income has been inadequate due to the state’s low gas taxes and lack of other funding. So New Jersey borrowed instead.
“Over the years, the Transportation Trust Fund Authority has relied increasingly on borrowing and less on ongoing state appropriations for “pay as you go” capital. By 2012, when the four-year program authorized under then-Gov. Jon Corzine expired, all of the dedicated revenue would be going to pay off the principal and interest on previous TTF bond issues, leaving no funding for new projects for the next four years.”
That’s right, 100 percent going to past debts, none to current transportation. So what did Governor Christie do to solve the disaster he inherited?
“New Jersey ended up borrowing 97.4 percent of all transportation capital costs in the first four years of the Christie administration — a higher percentage and higher dollar amount than any previous four years. As a result, New Jersey’s tax-supported debt, which ranked among the highest in the nation at $3,964 per capita, according to a State Budget Crisis Task Force report issued last summer, continues to grow faster than other states.”
It’s about values. It’s about a generation’s values. The same values that are behind the soaring cost of pensions that were retroactively enhanced and underfunded. The same values as those responsible for the nation’s broken families and hollowed out economy. It’s across the board. And they are going to keep taking until there is nothing left. They are not capable of anything different.
I have voted against them, written against them, spent hundreds of hours compiling data showing the consequences of what they have done in state and local government in New York. I left a job for unemployment, and my government career, to run against them, specifically mentioning the consequences of past pension deals and the debt-ridden MTA capital funds as a reason.
What have you done? Generation Greed has been followed by Generation Apathy. Or people who just say “I prefer to be optimistic and hope it all works out!” Maybe it will work out for you. But not for your children, unless the are able to join the favored few prospering personally at others’ expense, and are able to either be happy with that situation or able to rationalize it away.
Right now, today, would Governor Cuomo, Mayor DeBlaiso, the State Legislature, the City Council, the contractors, taxpayers, fare payers, transit workers and business interests be willing to bite the bullet while it remains an alternative to biting the dust? You hear the answer load and clear. The answer is silence. And the last MTA capital plan will come to an end in 10 months.