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September 26, 2005


Short-term MTA Financial Outlook Continues to Improve; Defective Railroad Ties Could Cost Up To $125 Million

The short-term financial outlook for the Metropolitan Transportation Authority (MTA) continues to improve and the 2005 surplus could total $928 million, which is $95 million more than projected by the MTA, according to a review of the MTA’s financial plan issued today by State Comptroller Alan G. Hevesi. The report is critical, however, of the MTA’s proposal to use a portion of the surplus to construct a platform over the Long Island Rail Road yard on the West Side of Manhattan. While the 2005 surplus is likely to be larger than projected by the MTA, the report also found that replacing defective concrete railroad ties over the next three years could cost $80 million more than set aside by the MTA.

The MTA projects a surplus of $833 million in 2005 as a result of State actions that increased taxes and fees, higher estimates of tax revenues, and a larger 2004 surplus. Of this amount, $481 million represents a windfall from higher real estate transaction tax revenues and lower debt service costs that the MTA would like to use to construct a platform over the West Side rail yard. The MTA would also construct a new headquarters at the site, which would permit the MTA to sell its midtown properties to help fund the next capital program. The report finds that the 2005 surplus could total $928 million based on higher estimates of real estate tax revenues ($75 million in 2005) and a $40 million reserve that is unlikely to be needed, partly offset by higher energy costs due to hurricanes Katrina and Rita ($20 million). The report notes that while the short-term outlook continues to improve, the budget gaps for 2008 and 2009 are large and essentially unchanged since the February Plan.

The State Comptroller continues to advocate that the MTA sell its midtown properties and to support development of the rail yards, but this could be done without the MTA constructing a platform. For example, the MTA has already rejected a $400 million offer from Cablevision, which had agreed to build a platform at its own expense.

“Developers—not commuters and taxpayers—should pay for constructing a platform as part of any development deal and assume the risks of delays, cost overruns, and the timing of the real estate market,” said Hevesi. “Instead of building a new headquarters on the West Side, the MTA should explore moving downtown, which would support State and City efforts to rebuild Lower Manhattan.”

Coincidentally, the cost of the platform is about equal to the tax and fee increases approved by the State for 2005 and 2006. Given the size of the 2005 surplus, it is now apparent that the tax and fee increases were unnecessary and the MTA could have waited until 2007 for State assistance.

“The State Legislature did not raise taxes and fees so the MTA could build a platform,” said Hevesi. “These resources should either be used in ways that directly benefit commuters, such as deferring planned fare and toll hikes, or returned to the taxpayers.”

The report also found that the Metro-North Railroad and the Long Island Rail Road (LIRR) purchased 270,000 concrete ties from the same manufacturer in 1997 and 1998, but many are deteriorating prematurely despite the fact that the MTA hired a quality assurance consultant to oversee the production process. According to the railroads, spot replacement is not practical or cost effective in track segments where there is a significant number of deteriorating concrete ties and replacement of all the ties in these segments is necessary to avoid service disruptions. The LIRR purchased another 39,000 concrete ties from the same manufacturer in 2001 and these ties are also showing signs of premature deterioration. Concrete ties were expected to have a longer useful life than wooden ties—50 years compared to 30 years. However, many of these concrete ties purchased by the MTA are lasting for only seven or eight years.

The concrete ties are covered by a 25-year warranty, which the railroads maintain covers both the replacement of defective ties and the much greater cost of installation. The manufacturer disputes the extent of the warranty but the MTA reserves its right to pursue claims against the manufacturer for the cost of installation. The statute of limitations to sue the quality assurance consultant for malpractice has passed. The MTA will initially fund the $44.2 million cost of installing 116,000 concrete ties scheduled to be replaced through 2007 out of the operating budget pending the outcome of negotiations with the manufacturer.

  • Metro-North plans to spend $14 million to replace 52,000 of the 206,000 concrete ties that it purchased in 1997 and 1998.
  • Metro-North will periodically inspect the remaining 154,000 ties that are showing some signs of premature deterioration. Metro-North has no plans to replace them at this time, although it may become necessary depending on the outcome of inspections and the analysis of outside experts.
  • Through late May, the LIRR had already spot-replaced more than 800 concrete ties that had completely failed. Metro-North has spot-replaced a similar number.
  • The LIRR plans to spend $30.2 million to replace all of the 64,000 concrete ties that it purchased during 1997 and 1998, although the actual number replaced could be less depending on the outcome of inspections and the analysis of outside experts.
  • The LIRR purchased another 39,000 concrete ties from the same manufacturer in 2001. The LIRR will conduct periodic inspections of these ties, which may also need to be replaced.

The report finds that the MTA could incur additional operating budget costs of up to $80 million if the remaining 193,000 concrete ties purchased from this manufacturer since 1997 need to be replaced. Alternatively, the MTA could realize savings of $44.2 million in the event that the manufacturer covers all the costs associated with the defective ties.

“Concrete ties are expected to last 50 years but these didn’t even last ten, and now the job needs to be done a second time. This will cost money the MTA can ill-afford and will mean service disruptions for riders,” said Hevesi.

Click here for a copy of the report.



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