Most of those who will read this post know the financial issues with New York’s Metropolitan Transportation Authority. Decades ago, funding for the agency’s capital plan was cut, and some capital funds were diverted to the operating budget as “reimbursable expenditures.” At the same time, effective fares were cut when the Metrocard was introduced, and current and – in particular former – MTA workers benefitted from a huge pension increase in 2000. The cost of capital construction contracts soared, due to pension increases for union construction workers and managers, and construction union pension underfunding, at about the same time. It was a political win for everyone – who is no longer around. The cost of all of this was borrowed or deferred, and today much of the money being paid to the MTA, in taxes, tolls and fares, is being sucked into the past.
As the years pass, meanwhile, major systems and components of the subway and commuter rail network continue to age, and eventually reach the point where they will either have to be replaced or start to fail and disrupt service more and more frequently. Perhaps to the point where entire lines have to be abandoned for years or decades, as two tracks on the Manhattan Bridge were. Or permanently, as the West Side Highway was. One of those systems is the signal system on the New York City subway, which is aging even as the cost of replacing the signaling on a line has exploded. The plan had been to gradually replace conventional railroad signaling with Communications Based Train Control (CBTC). But after decades of borrowing the MTA Capital plan came to a near halt after the Great Recession, and compared with the plans in place 17 years ago the MTA is way behind, without any hope, at recent prices, of ever being able to catch up. Can technology provide a way out?
Since the data is published every year, I have long hoped that some other organization would use the data and publish reports showing what it says, having someone else to it as part of their job. That hope increased after the New York Times used the data as part of its series on the New York City Subway. And after Governor Cuomo directed the MTA to hire a consultant to study “MTA Reinvention.” Moreover, the NTD now includes a spreadsheet titled “Metrics” with almost all the basic cost and service efficiency ratios one might want to see. As of the date of this post that spreadsheet for 2018 is on page 2 (tab at the page bottom), though it will be moving down as 2019 data is published.
There has been, however, no public discussion of what National Transit Database data shows about New York’s transit system since the NY Times articles. So rather than allow this information to remain among the unsaid, I decided to at least analyze the operating budget. (I’m not sure there really is a capital budget, since under the prior MTA capital plan, regardless of what officially passed, most of the money never actually arrived and most of the work was never actually done).
This series of posts based on Census of Governments state and local government employment and payroll data for March 2017 (and 2007 and 1997) continues with a post on infrastructure functions: highways and streets, mass transit, air transportation, water transportation, government-run electric and gas utilities, water supply, sewerage, and solid waste management. Along with related private sector activity. When I joined New York City Transit out of graduate school in 1986, I was told it was the largest industrial/blue collar employer in New York City. It probably still is, with the other functions described adding as many blue collar jobs, and jobs with contractors many more.
In the past 10 years or so, subway riders have experienced a drastic decrease in their quality of life despite rising fares, relative to the very low inflation of the period. This is something I have attributed to costs from the past – the big pension increase in 2000, with huge costs deferred until later, and decades of zero state and city funding for the MTA capital plan, with money borrowed instead. But after reviewing the data for these functions, I have begun to wonder if even worse is coming. And not just at the MTA. But we will have water!
Debt and infrastructure investment are supposed to go together. State and local governments have operating budgets and capital budgets, and constitutions and charters that say that while money may be borrowed for capital improvements, the operating budget is supposed to be balanced.
During the Generation Greed era, however, that isn’t what has happened. For the U.S. as a whole, total state and local government debt increased from 14.1% of U.S. residents’ personal income in FY 1981 to 22.7% in FY 2010, even as infrastructure investment diminished. This was a matter of generational values, not just a matter of government. One finds the same trend in business – more debt, less investment – during the same years, with the short term high of having more taken out relative to the amount put in contributing to perpetual political incumbency and sky-high executive pay. A generation, it seems, has decided to cash in the United States of America and spend to proceeds before it passes away.
Four years ago I did an analysis of state and local government finance data from the U.S. Census Bureau, for all states and for New York City and the Rest of New York State separately, with data over 40 years, to determine the extent to which each state’s future had been sold out due to state and local government debts, inadequate past infrastructure investment, and underfunded and retroactively enriched public employee pensions. Having a sold out future means having a future of higher state and local government taxes, diminished public services, and lower pay and benefits for newly hired public employees, and that is what many parts of the United States – most, in reality – are facing.
Over the past month I have re-created that analysis with data through FY 2016, the latest available, rather than just FY 2012, while adding some details. This post and the next three will show what I found.
New York City and city residents are going to pay a high price for the 14-month L-train (Canarsie line tunnel) shutdown. With limited and already crowded alternatives, commuting will become hellish for hundreds of thousand of people, including those on other subway lines that will be impacted indirectly. Some will move to other neighborhoods, driving up rents and creating housing shortages there. Others might give up and leave the city altogether, at a moment when the availability of workers, particularly young educated or otherwise talented workers, has become the critical economic development asset. Businesses and tax revenues will follow.
Faced with this reality, there were plenty of really bad ideas considered before the 14-month shutdown was approved. Some wanted to rehab one track at a time to continue to provide very limited service, increasing the cost and time required for the project far in excess of any benefit provided. Others demanded a new tunnel be built instead, at a cost of $billions, to temporarily maintain service while the existing tunnels were rebuilt. But most subway riders have a limited sense of entitlement and a realistic sense of what the city and state can afford, given other priorities that are also demanding more and more money in exchange for decreased public services, and have accepted the L train shutdown, bad as it will be.
Then there is the replacement of the BQE viaduct under Brooklyn Heights, another necessary but disruptive project. The plan for this seems to have been developed on a different planet. Planet placard.
I worked in capital budgeting for New York City Transit in the early 2000s, and was shocked to see the price of capital projects soar — despite a recession. The MTA’s construction costs have continue to soar ever since, contributing to the agency’s $41 billion in debt and deteriorating infrastructure, and this has become a political issue since the New York Times series on the decline of the subway late last year. Recently, MTA head Joe Lhota promised to implement reforms to reduce those costs.
“On some projects the MTA has shelled out seven times more money than European transit agencies have paid for similar initiatives. Lhota said the agency is working to reduce red tape and the high risk that causes contractors to inflate their bids on MTA projects or not bid at all. In theory, increased competition would drive down costs.”
Or at least admitted costs, since “reducing contractor risk” means reducing the MTA’s ability to get restitution when the contractors fail to perform.
What I didn’t know back in 2004, but have since learned, is that the MTA’s contractors have been jacking up their bids in large part not to pay for current workers doing current construction, but rather to pay for the underfunded construction union pension plans. This is something the MTA isn’t talking about, because both the construction unions and the real estate industry, two of the most politically powerful interests in New York, each benefit from the shift at that private debt to the public sector in general, and the MTA in particular.