FOR RELEASE:

DiNapoli Analysis Identifies MTA Budget Risks

Capital Borrowing Program Could Increase Future Budget Gaps

The Metropolitan Transportation Authority's current financial plan includes significant budget risks according to a comprehensive analysis of the authority's finances released today by New York State Comptroller Thomas P. DiNapoli. The report also shows that the MTA could further complicate its financial situation if it proceeds with its plan to borrow $14.8 billion, the largest amount in its history, to fund its capital program.

"The MTA is in a very difficult position as it struggles to hold together a strained operating budget while proposing the largest borrowing program in its history to fund capital projects," DiNapoli said. "There is no debating that the capital program is critically important, but my analysis shows that the magnitude of this borrowing plan will have serious implications for the operating budget in the coming years. Before taking on nearly $15 billion in new debt, the MTA must present the public with the facts about the potential long-term implications of this new borrowing on services, fares and budget gaps."

In July, the MTA released a revised financial plan for calendar years 2011 through 2015 that showed balanced budgets for 2011 through 2013 and relatively small budget gaps for 2014 and 2015. The MTA's estimates assume fare and toll increases of 7.5 percent in 2013 and 2015.
However, the Comptroller's analysis found that the July financial plan faces a number of significant budget risks, including the uncertainty of savings from the next round of collective bargaining, the need to achieve planned cost-reduction targets, continuation of a sluggish economic recovery, and the potential for additional cuts in State operating assistance.

Another challenge facing the MTA is filling the $9.9 billion funding gap in the last three years of its capital program that covers 2010 through 2014. To close the gap, in July the MTA proposed scaling back its capital program, increasing borrowing by $6.3 billion to a total of $14.8 billion and seeking additional assistance from the State and the City. The borrowing program will have to be approved by the MTA board and New York State's Capital Program Review Board.

Such a heavy reliance on debt would place a huge burden on the operating budget, just as heavy borrowing in the past has contributed to the MTA's current problems. If the MTA goes forward with the proposed borrowing program, debt service would reach $3.3 billion by 2018, which is 64 percent more than in 2011. Even with biennial fare and toll increases of 7.5 percent in 2013, 2015, and 2017, the MTA could still face budget gaps rising from $600 million in 2016 to $1.2 billion in 2018.

"The next MTA Chairperson will face a number of challenges including negotiating new collective bargaining agreements, squeezing additional savings from the operating and capital budgets, and keeping fares affordable in the face of rising debt service costs for the capital program," DiNapoli said.

The Comptroller's report on the MTA's July plan also found that:

• The MTA plans to scale back its capital program by another $2 billion for a total cut of $3.8 billion since the program was first proposed in September 2009, reducing the program to $24.3 billion. Nearly all of the reductions are concentrated in maintenance and modernization.
• The MTA would issue $12.6 billion of its own debt to finance the 2010-2014 capital program, and is seeking approval from the federal government to borrow an additional $2.2 billion under a low-interest loan program for railroads to complete the East Side Access project.
• Debt service on these bonds would reach nearly $1.1 billion annually beginning in 2019. With such a high level of borrowing, outstanding debt would rise from $30 billion at the end of 2010 to $41 billion in 2017 even as $5 billion in existing debt is retired.
• Debt service as a percent of total revenue could rise from 16.4 percent in 2011 to 22.7 percent in 2018 without new fare and toll increases. (The burden could reach 20.5 percent in 2018 even with biennial fare and toll increases of 7.5 percent).
• In total, the proposed financing program would cost the authority's operating budget $33 billion over the term of the loans, or nearly $13 billion more than the approved financing program.
• The MTA has raised fares and tolls by 21.4 percent since 2007 (two and a half times the inflation rate) and the July financial plan for 2011 through 2015 calls for raising them by another 15 percent by 2015 (more than twice the inflation rate).
• The July financial plan assumes that any wage increases during the first three years of a new labor agreement will be offset by savings from union concessions. Wage increases at the projected inflation rate, for example, without offsetting savings would increase costs by $62 million in 2011 and as much as $327 million by 2015.
• Spending continues to rise at a rate more than twice that of inflation. Despite an assumed three-year wage freeze, the MTA projects annual spending increases of 5.1 percent through 2015 based on rising costs for health insurance, pensions, debt service and services for disabled commuters.
• The MTA is facing dual hurdles: avoiding slippage in the $550 million in cost-reduction efforts already implemented, and implementing an additional $270 million in recurring savings by 2015 without reducing services.
• The pace of the economic recovery is a matter of grave concern. Roughly one-third of the MTA's revenues come from economically sensitive taxes, and the use of mass transit is closely tied to employment levels in the region.

For a copy of the analysis visit: http://osc.state.ny.us/reports/mta/mta-rpt-11-2012.pdf