May 4, 2005
MTA Can Manage Its Budget Through 2007 Without Planned Service Cuts, But Faces New Fiscal Challenges Beginning In 2008
The Metropolitan Transportation Authority (MTA) will be able to balance its 2006 operating budget without implementing previously planned service reductions and is on track to balance its 2007 budget as long as the agency remains committed to achieving savings from internal management improvements, according to a report issued today by State Comptroller Alan G. Hevesi.
In a report on the MTA’s financial outlook, Hevesi said that the MTA’s financial condition is expected to worsen beginning in 2008. He noted that new resources from the State are the main factor allowing the authority to fund its operating and capital budgets next year but that management must remain vigilant in making improvements to their operations.
“The riders and the taxpayers have done their part. It’s now up to the MTA to deliver on its promise to implement management improvements,” Hevesi said.
The Comptroller’s report noted that even after the recent fare
increase, the latest four year financial plan projects gaps growing
from $813 million in 2006 to $1.4 billion in 2008, and that capital
funding constraints could push the target dates for achieving a state
of good repair for the existing system further into the future. The
report said that delays could greatly increase the cost of network
expansion projects, noting that the cost of East Side Access has already
grown from $4.3 billion to $6.3 billion.
These new resources have allowed the MTA to amend its proposed capital program for 2005-2009. The amended five-year capital program totals $21.1 billion, which is $6.7 billion less than proposed by the MTA’s Board in September 2004 and $10.1 billion less than proposed by the MTA’s operating agencies. Although funded at reduced levels, the amended capital program will permit restoration, modernization, and network expansion projects to move forward. The portion of the capital program devoted to restoring and maintaining the existing system is funded at 93 percent of the level requested by the MTA, but there will be significant delays in planned network expansion projects. East Side Access, the Second Avenue Subway, and the JFK rail link to lower Manhattan were allocated $2.5 billion in the amended program, compared with $7.9 billion in the MTA’s September 2004 proposal.
The report noted that the MTA is expected to issue $9.3 billion in “new money” bonds to help finance the 2005-2009 capital program, which is more than issued in any previous capital program. Of this amount, $5.1 billion would come from bonds issued by the MTA and backed by new State-authorized sources of revenue. The remaining $4.2 billion would also come from MTA bonds, but these bonds would be backed by existing pledged revenues.
Debt service costs would nearly double from $848.1 million in 2004 to $1.6 billion in 2008, and then rise to $2.2 billion by 2015. The debt burden would rise from 11 percent in 2004 of revenues to 18.6 percent in 2008, and then to 23 percent in 2015.
“While the State’s contribution is larger than previous capital programs, the MTA continues to rely heavily on debt to finance its capital programs,” Hevesi said.
The Comptroller’s report found that there have been a number of positive developments since the beginning of the calendar year that should permit the MTA to end 2005 with a surplus of more than $500 million, compared with a projected surplus of $76 million in the MTA’s current financial plan. The MTA, however, will need these resources to help balance the 2006 budget.
Among the positive developments cited by the report include:
“The MTA will have to manage its budget carefully, but should be able to balance its budget through 2007 without resorting to service reductions,” Hevesi said.
Despite these positive developments, the report projects that the MTA will again face serious fiscal challenges beginning in 2008 because the new sources of revenue approved by the State are insufficient beyond 2007 to close the budget gaps projected in the MTA’s financial plan, which are largely driven by borrowing for the 2000-2004 capital program, and to fund the debt service on the bonds to be issued to help finance the 2005-2009 capital program.
The Comptroller’s report also identified the following budget risks:
“While there remain significant budget risks, the immediate crisis is over. The MTA should use this opportunity to get a head start on addressing the structural imbalance between revenues and expenditures caused in large part by the MTA’s heavy reliance on debt to finance its capital programs,” Hevesi said.
Even after raising fares in May 2003 and again in March 2005, the MTA’s latest four-year financial plan projects gaps of $813 million in 2006, $1.1 billion in 2007, and $1.4 billion in 2008. To narrow these budget gaps, the MTA proposed draconian service cuts beginning in 2006, such as eliminating 33 bus routes, abandoning certain Long Island Rail Road branches and removing the tracks, and reducing late-night subway and bus service. It also proposed a 5 percent increase in fare and toll revenue in 2007. Even assuming implementation of these actions, the MTA’s current financial plan projects remaining budget gaps of $607 million in 2006, $689 million in 2007, and $991 million in 2008.
An October 2004 report by the State Comptroller concluded that the fiscal crisis was brought on by past decisions to borrow beyond its means to help finance its capital program, and identified numerous ways the MTA could reduce costs without adversely affecting services.
The report recognized the efforts of Executive Director Katie Lapp to institute budget reforms and steps she has taken since October, 2004 to reduce costs, including: