Budget Offers MTA Some Short-Term Help
& Long-Term Pain
The States Executive Budget proposal for 2005-06 provides the
Metropolitan Transportation Authority (MTA) with some state assistance
that helps balance its budget through 2007 and makes a down payment
on a new five-year capital program. These planned expenditures still
require the MTA to reduce services, raise fares by 5 percent in 2007
and borrow billions more to pay for repairs and replacement of the regions
mass transportation system. After 2007, the Authority will still face
growing budget gaps, according to a report on the MTAs budget
released today by State Comptroller Alan G. Hevesi.
The Executive Budget proposes a $19.2 billion five-year capital program
for the MTA, which is 31 percent less than the program approved by the
MTA Board. It would also require the MTA to borrow $9.7 billion, thus
relying even more heavily on new debt than ever before. Hevesi noted
that it was the excessive borrowing during the previous capital program
that created the severe financial problems that the MTA now faces.
The Governors proposal improves the MTAs short-term
financial condition, but does not address the MTAs long-term operating
and capital needs, Hevesi said. The MTA borrowed more than
it could afford to pay for past capital programs, and it looks like
the MTA is on track to repeat this mistake.
The Executive Budget would increase State support for the MTA by about
$200 million annually. The new resources would pay for the cost of up
to $3 billion in debt to help finance the 2005-2009 capital program,
but the MTA would still have to borrow another $6.7 billion to fully
finance the capital program. The debt service on these bonds would double
the debt service burden to 23.4 percent of revenues by 2015. For the
2000-2004 capital program, the MTA is expected to borrow $7.9 billion
in new money bonds.
These new resources are insufficient to fund both the debt service
on the new bonds and the rising debt service costs associated with the
2000-2004 capital program. Consequently, the MTA could face large and
rapidly growing budget gaps beginning in 2008. Even if the MTA implements
planned service reductions in 2006 and raises fare and toll revenue
by five percent in 2007, it could still face a budget gap of $459 million
in 2008. In the absence of management improvements that reduce waste,
closing a gap of this magnitude could require another eight percent
increase in fare and toll revenue in 2008.
The budget gaps would grow even more rapidly in subsequent years as
the operating budget is hit with the full impact of borrowing for the
2000-2004 capital program and begins to feel the impact of new debt
issued to finance the 2005-2009 capital program. The report estimates
that the budget gaps could total $834 million in 2009 and nearly $1.1
billion in 2010, beginning a new cycle of large funding gaps.
Without a comprehensive, multi-year strategy to restore fiscal
stability, and internal management improvements that reduce waste and
improve efficiency, the MTA may have little choice but to balance its
budget through fare and toll increases and service reductions,
Hevesi said. This would only continue the cycle of fare increases
and service reductions that the riders have experienced over the past
The Governor is also counting on the MTA obtaining savings of $360
million over three years from corporate restructuring and from issuing
pension obligation bonds. These two proposals are controversial and
if these savings are not realized, the MTA would have to implement alternative
management actions or further increase fares and reduce services.
The Governor has proposed legislation that would authorize the MTA
to issue pension obligation bonds to cover $1.9 billion in unfunded
liabilities in the MTAs pension funds. Pension obligation bonds
are another form of debt, but in this case the proceeds would be used
to fund the operating budget. Borrowing to pay for operating expenses
violates the fundamental rules of financial management. In addition,
pension obligation bonds are risky. In effect, the MTA would play the
stock market with fare and toll revenue in the hope of earning more
than the interest rate on the pension obligation bonds.
Gambling with fare and toll revenue is inappropriate and ill-advised,
Hevesi said. Borrowing to pay for operating expenses is how New
York City got into trouble. This is even worse, because it adds the
risk of gambling to the already irresponsible borrowing for operating
The Comptrollers Office report finds:
- The Executive Budget includes actions that would help the MTA balance
its operating budget through 2007 and finance a new five-year capital
- Raise the mortgage-recording tax rate by 40 percent for borrowers
in the MTA 12-county transportation district. This would generate
about $100 million annually.
Increase several types of motor vehicle fees, which would generate
another $100 million annually.
- Eliminate the $200 million reserve created by the MTA against a
sharp drop-off in real estate-related transaction taxes.
- Increase the MTAs tax forecasts based on less conservative
- Permit the MTA to reorganize its subway, bus and commuter railroad
operations. The proposal, however, would eliminate certain civil service
protections for new MTA employees, which is opposed by the Transport
Workers Union and others. The State Division of Budget (DOB) has set
a savings target of $210 million over a three-year period from this
initiative, but has not produced a detailed roadmap to achieve the
- Allow the MTA to issue pension obligation bonds. DOB estimates that
this would save $150 million over a three-year period. This initiative
entails significant risk and is inappropriate.
The Executive Budget proposes a $19.2 billion capital program for the
- The capital program would be 31 percent smaller than the $27.8 billion
program approved by the MTA board. A scaled-down capital program would
require the MTA to re-prioritize and slow down planned maintenance
and expansion projects, which will likely increase the overall cost
of the projects, adversely affect services, and inconvenience commuters.
- The core capital program, which is designed to restore the regional
mass transit system to a state of good repair, would total
$14.6 billion, which is $2.6 billion smaller than the one approved
by the MTA board.
- In December 2004, the MTA Board approved a $17.2 billion core capital
program, which was already $8.9 billion less than recommended by the
MTAs operating agencies.
- Funding for network expansion projects would total $4 billion, which
is $5.9 billion less than the MTA proposed.
- The MTA may be responsible for funding any cost overruns associated
with the extension of the No. 7 Subway Line.
The MTA faces budget gaps that will grow significantly in 2009 and
2010. The Executive Budget proposes actions that would help close the
MTAs budget gaps through 2007.
- Even if the MTA implements its proposals to reduce services in 2006
and to raise fares and tolls by five percent in 2007, the MTA would
still face a budget gap of $459 million in 2008, $834 million in 2009
and $1.1 billion in 2010.
- These estimates assume that the MTA obtains legislative approval
for its controversial reorganization plan and that it actually achieves
planned savings of $210 million over three years. It also assumes
that the MTA obtains legislative authorization to issue pension obligation
bonds and that it achieves savings of $150 million over three years.
here for a copy of the report
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