The Metropolitan Transportation Authority is armed with billions from several rounds of federal funding. Toll and tax revenue is up, other indicators are positive and commuters are probably spared a fare increase for this year.
But as he outlined scenarios related to the authority’s rolling four-year financial plan and how it hinges on post-pandemic ridership return, Chief Financial Officer Robert Foran’s message to the MTA board on Wednesday was clear: Don’t get too giddy.
Out-year deficit borrowing looms, according to Foran. Without a 2021 fare increase, a two-year wage freeze and service cuts, the MTA could face a combined $3.5 billion deficit in 2024 and 2025, Foran said.
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Even if it applies all $2.9 billion of deficit bond proceeds from the Federal Reserve’s short-lived Municipal Lending Facility program, a $605 million gap would still remain for 2025.
“We’ve got a bridge given to us by the federal government through this massive infusion of $14.5 billion, but it’s up to us to anticipate what the future will be, and try to position ourselves so that we can make smart decisions to get there instead of having to do some last-minute, knee-jerk, drastic, horrible set of decisions,” Foran said as he rolled out the plan and an $18.3 billion proposed operating budget.
The worst-case scenario, Foran said, could push debt up to 20% of the MTA’s operating budget, which could strain the authority’s operating and capital plans.
Debt now accounts for 17% of the MTA’s proposed operating budget. New York City and the state cap theirs at 15%.
“We’re very conservative when we estimate interest rates in the future,” Foran said.
“We use forward calendars. We also use a very wide margin for our variable rate, because we just don’t want to be surprised and we want to make sure that when we put something in for our debt-funded capital program, that in and of itself is not going to be a future surprise.”
While the board has the call on fare hikes, finance chairman Larry Schwartz, a confidant of Gov. Andrew Cuomo, said Monday they would not occur this year.
Crisis-by-crisis management has been a mainstay of the MTA throughout its history. Over the past 18 months, it has struggled amid sharp ridership drops from work-at-home mandates during the COVID-19 pandemic.
“A financial plan is merely a set of assumptions,” Foran said. “Things can change. I hope we see an improvement throughout our economy and I hope we see continued improvement in ridership.”
The state-run authority, which operates New York City’s mass-transit system, holds nearly $50 billion of debt including special credits.
“Clearly they got a bit of a reprieve from the federal government,” said Howard Cure, director of municipal bond research for Evercore Wealth Management. “The stars have aligned. A lot of people of influence in Washington are taking care of them.”
That includes transit-friendly Democratic President Joe Biden and the rise of New York Democrat Chuck Schumer to Senate majority leader. In addition, former New York City transportation commissioner and MTA board member Polly Trottenberg is a U.S. deputy transportation commissioner.
While the federal aid has given MTA officials a chance to exhale, a new wave of variables confronts the authority, including the return of riders; delayed implementation of a congestion pricing mechanism for Manhattan south of 60th Street; just how many workers will return to the city and at what times; and an alarming spike in subway crime.
“There are big, big questions,” Cure said.
Foran said the MTA should seek replacement revenue for the presumed lack of 2021 fare increases. He warned of severe service cuts starting in 2023 as a tradeoff.
His frequent reference to service cuts as “right-sizing” rankled a few board members.
“I have right-sizing high on my list of the top 10 weasel words you hear in negotiations [and] budget discussions,” board memberNorman Brown said.
“It’s clear to me it’s an exchange here. The good news is there’s been a fare freeze, but the bad news is the head times and the crowding on the trains both work in the opposite direction. That’s an odd way to re-attract people to the train.”
Down as much as 90% at one point, subway ridership is still half of what it was when the virus took hold. The MTA needs riders to backstop its five-year, $51.5 billion capital program. That prompted discussion at its committees last Monday about overhauling its fare structure.
“A lot of questions remain,” Cure said. “We just don’t know what your office looks like in the suburbs, or the city for that matter.”
The watchdog Citizens Budget Commission said the MTA needs to improve its practices in four areas: operation and maintenance productivity improvement; bus-speed increases, or “spatial productivity”; one-conductor train operation on subways; fare-payment modernization on commuter rail; and healthcare savings. These moves could yield annual savings totaling up to nearly $3 billion and enable a staffing reduction of nearly 13,000 by 2024, said CBC senior research associate Alex Armlovich.
“While the path to achieving operating savings is hard, it is much preferable to phase in these savings over the next few years than to have massive fare and toll increases, economically damaging service cuts or significant increases in dedicated taxes and subsidies,” he said.
The short-term leadership picture is murky. Cuomo is moving Foye to the chief executive position of the Empire State Development Corp., the state’s economic development arm, in September.
Cuomo sponsored legislation in Albany to bifurcate the authority’s leadership, under which MTA New York City Transit interim president Sarah Feinberg would chair the board and chief development officer Janno Lieber would become CEO.
Lawmakers, though, have sat on the bill and transit advocacy groups have argued that the change would put excessive power in the governor’s hands.
The MTA board traditionally does not meet in August, though it did so last year amid the pandemic crisis. Some board members are calling for a gathering next month.
Other unknowns include the degree of spread of the coronavirus Delta variant; the effect of rising inflation on interest rates, affecting bond issuance; and whether any infrastructure funding package that emerges from Washington beefs up spending on mass transit.
A virus resurgence could also prompt calls for hazard pay and a tussle with the MTA’s powerful primary union, Transport Workers Union Local 100.
Metropolitan Transportation Authority
Under long-awaited congestion pricing, which state legislators enacted in 2019, the MTA could raise up to $15 billion through new bonding based off toll revenues.
Tolls were supposed to take effect this year, but the program stalled under President Trump. After Biden took office, the Federal Highway Administration allowed the MTA to conduct a shorter environmental review.
In his exit press conference on Wednesday, Foye said the headwinds from Trump’s administration, which he called “cynical,” provided the most frustration during his two-year tenure.
“Second, the issues related to the second and third rounds of funding. Fortunately, the new administration, Senate Majority Leader Schumer and the New York congressional delegation were able to fight their way through that.”
Congestion pricing has also been ensnared in the vortex of longstanding political feuding among states, transit agencies and the city.
Days ago, U.S. Sen. Cory Booker, D-NJ, a former Newark mayor, objected to the plan.
“I just can’t support my residents who commute paying more money to commute,” he said. “There’s a better way to go about this than laying more costs on New Jersey residents.”
New Jersey’s objections a decade ago, through former Gov. Chris Christie, held up the Gateway project to build new tunnels between New Jersey and New York and fix the existing ones that are 110 years old. Christie said then that New Jersey would have written too big a check.
That project is back on track, with Amtrak having received key federal approval for the environmental impact study. Schumer three weeks ago said construction could start next year.
With congestion pricing, Cure said, “you have people from New Jersey who could get hit hard. You have a lot of angry people from New Jersey.”
That state, Cure added, could use its leverage with the Port Authority of New York and New Jersey.
“Could they retaliate through the Port Authority or hold up a project?”
While state law earmarks congestion pricing revenue specifically for the MTA’s capital and not operating funds, budget switching has been commonplace in Albany.
“It’s very fluid,” Cure said.