A Helluva Way to Run a Railroad
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The financial problems, critics contend, are the direct result of more than a decade of policies by New York State, New York City, and the authority, which operates the city's subways, buses, bridges and tunnels, and the Metro-North and Long Island commuter railroads. In particular, they point to a $17 billion capital maintenance and expansion program adopted four years ago that was broadly denounced at the time as a fiscal time bomb. "What happened is fairly obvious; people did foresee this,'' said Laura MacDonald, an analyst at Standard & Poor's who studies the authority's finances.” They had a capital plan that would be large even if you were just maintaining a state of good repair, and in addition, they included major new expansions, and the M.T.A. funded it primarily on their own debt, versus getting contributions from the state or the city."
Current top officials at the authority agree. "What is happening is what people predicted back in '99, 2000, which is that the capital plan debts put tremendous pressure on the operating budget," said Katherine N. Lapp, the executive director. In 1995, the authority took $169 million out of passengers' subway, bus and commuter rail fares - or about 7 percent - to make debt payments. This year, it will take $401 million, or about 12 percent. It projects that by 2008, the figure will reach $849 million, or about 24 percent of the income from fares. In 1995, the transit authority had $7.5 billion in debts that it was expected to repay by itself, with fares and tolls. Today, that figure is more than $14 billion, and the agency projects that the total will approach $20 billion by 2008. In that period, it also predicts deficits rising to more than $1 billion a year.
All of those figures are overly optimistic,
says the state comptroller, Alan G. Hevesi, a Democrat, who forecasts $2 billion-a-year
deficits. "They borrowed huge
amounts of money without identifying or securing a revenue stream,"
he said. "You can do that for
a short period of time, and then it causes a crisis.'' Ms.
Lapp and the chairman of the authority, Peter Kalikow, have stated plainly in recent
months that the agency must get a vast new infusion of money from
The governor's appointees hold 6 of the 14 votes on the authority's board, and he chooses the chairman, who sets policy directions and names the top executives. The mayor’s appointees hold four votes, and people chosen by suburban county executives hold the remaining four. "This is primarily about the governor’s role," said Peter Derrick, a former chief of long-range planning at the authority. "The governor controls the M.T.A., and he's opposed to new taxes and subsidies for transit.''
But Adam Barsky, deputy secretary to Mr. Pataki and his main liaison to the authority, disputed the notion that the governor could dictate to the agency or be held responsible for its actions. Mr. Barsky defended the 2000 capital plan, saying that while ”people were aware that there were going to be debt service costs," the current troubles have more to do with unexpected rises in the cost of pensions, health care expenses and labor contracts. Both he and Mr. Pataki suggested that they did not accept the view that the situation is dire and that higher fares are inevitable. Mr. Barsky argued that the apparent worsening in recent years was largely just a product of the authority’s being more open about its finances.
Officials have proposed an
increase next year in what passengers pay by about 5 percent over all,
leaving the base fare at $2, raising the cost of the seven-day pass to $24
from $21 and the cost of a 30-day pass to at least $76, and possibly $84,
from the current $70. In an appearance
last week in
When it comes to the authority, politicians have wanted to keep the system in good condition, buy new trains and buses and add expensive new projects, all without a new source of income like higher fares or new taxes. The authority's administrators have accepted those goals, and in a sense, they achieved them; the system is, by many measures, in better shape and more efficient than ever. But they also deferred costs through borrowing and put mounting financial burdens on riders.
In the early 1980's, when the
transit system was in terrible shape, the state came to the rescue, along
with the city and suburban counties. They provided billions of dollars in
direct subsidies, and new taxes with revenue "dedicated" to the
agency. The next decade brought new
subsidies. But since 1991, Mayors David
N. Dinkins, Rudolph W. Giuliani and Michael R. Bloomberg have all cut the city’s
contributions. In 1995, Governor Pataki
took office, cut state subsidies to the authority and said the system,
already the most financially self-sufficient in the country, had to become
more so. He installed a new chairman at the authority, E. Virgil Conway,
who raised fares - to $1.50 from $1.25 in the city - and said his orders
were to make do with less from
In 1997, the authority introduced
MetroCard discounts, like free transfers between buses and subways, and
weekly and monthly passes. Ridership soared, and the average price paid
per ride plummeted. Even after last
year's fare increase, authority officials say, riders pay an average of $1.24
a ride, less than in the early 90's.
When the time came for a new capital plan in 2000, the authority,
at the insistence of Mr. Pataki, Assembly Speaker Sheldon Silver and Mr.
Giuliani, included billions of dollars for projects like a
Mr. Silver demanded and won an accord to place a transportation bond measure on the statewide ballot with $1.6 billion for the authority's capital program – debt that the state would be responsible for. The state also increased the authority's share of the dedicated taxes, though that new subsidy did not make up for a decade of cuts. The authority's plan leaned much more heavily on borrowing and on riders' fares to pay back those debts. To make it work, the authority refinanced all of its existing debt, and "back-loaded" the bonds, with smaller payments in the first few years and bigger ones later, a strategy that gained some short-term breathing room but raised the cost over the long run.
Despite a chorus of criticism, a state panel appointed by the Assembly and Senate leaders, the mayor and the governor approved the capital plan. Mr. Pataki voiced doubts about the bond issue and declined to campaign for it, and voters rejected it. Despite that loss, the authority did not pare back its plans. "There's been a conscious retreat, especially by the state, from government's role of putting new resources into mass transit," said Al Appleton, senior fellow for infrastructure at the Regional Plan Association. In the past four years, the system's pension and health care costs have, indeed, risen more sharply than expected. But the record low interest rates of recent years - not anticipated by anyone in 2000 - greatly lowered the cost of refinancing old debts and borrowing more. And some dedicated taxes that feed the authority - taxes on new mortgages and petroleum product sales - have generated hundreds of millions of dollars more each year than expected.
Looking ahead, though, Mr. Kalikow, who became chairman in 2001, and Ms. Lapp, who joined the agency in 2002, paint a bleak picture. Their financial plan does not even cover operating expenses after next year, to say nothing of capital costs. A new five-year capital program is supposed to start next year, but agency officials say they cannot pay for it. They say they need $17.2 billion just to keep the existing system in good order, $500 million for better security and $7.8 billion to continue the expansion projects - a total of $25.5 billion. Their plan calls for $8.7 billion from federal aid, $4 billion in still more debt for the authority and $1.4 billion from steps like selling real estate and advertising. Ms. Lapp said that "all of those figures may be overly optimistic," as outside monitors have charged.
Even if those estimates are
realistic, they leave an $11.4 billion hole to fill. Unless state and
local governments produce the money, Mr. Kalikow and Ms. Lapp have warned,
the expansion projects - the
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