Why the MTA Is Broken

Reported by Danny Valdes and written by Arun Gupta and Danny Valdes

The next time you purchase a monthly Metrocard, which is slated to increase to $89 at the end of June, think about this: Almost one-third of the money you spend — about $29 — will go to service the Metropolitan Transportation Authority’s massive $26.8 billion debt.

This simple fact indicates why the Metropolitan Transportation Authority (MTA) is in perpetual crisis. The MTA will spend nearly $1.5 billion to service debt in 2009, and it projects debt servicing will swallow up an average of more than $2 billion a year from 2010 to 2012.

Wiley Norvell, communications director for Transportation Alternatives, says the reason for this debt load, reportedly the fifth largest of any state or local government body in the United States, is because the MTA pays for improvements “on a credit card.” Norvell explains that “the city and state have stopped contributing to the capital construction,” leaving borrowing as the main source of funds for new transit projects.

The MTA breaks down expenditures into operating and capital. The capital budget pays for expanding and building subway lines and stations, purchasing new subway cars and buses, maintaining signals and communications and related activities. The operating budget includes salaries, health and pension benefits, fuel and electricity and cleaning trains and stations.

John Petro, urban policy analyst at the Drum Major Institute for Public Policy, wrote in a recent report that while New York City and State funded 30 percent of the MTA’s capital budget in the mid-1980s, by 2004 that support had declined to just 3 percent.

Petro argues that for more than 20 years, “the city and state abdicated responsibility to fund capital programs, forcing the MTA to borrow huge sums to maintain mass transit service. … as huge debt payments eat up larger portions of the authority’s operating budget, the MTA is facing ever-larger budget deficits.”

Because the city and state provide so little capital funding, the MTA issues bonds to fund new projects. To make the bond payments, it uses revenue from both taxes and the fare box — money that would normally be part of its operating budget.

“The capital program is more linked to the operations budget than most people realize,” Norvell says. “We’re one of the only transit systems in the country that pays for debt right out of the fare box.” (The fare box includes money from the various rail, subway and bus services run by the MTA.)

That fare box is shrinking because of the severe U.S. economic downturn. In a press release dated April 27, the MTA predicted “increasing unemployment and higher fares” would lead to a “7.2 percent drop in usage of its facilities in 2009.” It noted that even after approved fare and toll increases, it expected revenue from these sources to fall by an additional $221 million this year.

But this shortfall pales in comparison to plunging real estate transaction taxes, which are a major source of income for the MTA.

The collapse of the real estate bubble has virtually wiped out this source of funds. In 2007, the MTA raked in $1.6 billion from real estate transaction taxes. Last year, it collected only $995 million, however. According to an MTA press release dated April 27, projected real estate tax revenue will plummet to $544 million in 2009. But even this looks optimistic. According to an MTA spokesperson, the authority took in a paltry $161 million from the real estate transaction tax through the first five months of 2009.

Norman Brown, legislative director of the New York State Council of Machinists and a nonvoting member of the MTA board, argues that the MTA is overly dependent on revenue generated by the real estate industry.

“Real estate is to New York what oil is to Houston,” says Brown. “For years, the real estate people have been paying the bulk of the operating budget without a word of complaint because the capital construction it generated served their interests.”

DOOMSDAY

Earlier this year, the MTA reported that it was facing a $1.8 billion budget deficit for 2009 due to declining revenue. To close the gap, the MTA warned of a “doomsday scenario” involving fare hikes of 23 percent and drastic service cuts that would eliminate two subway and 35 bus lines.

In May, Gov. David Paterson and the state legislature agreed to raise $2.26 billion, mainly from an increase in payroll taxes, to prevent the doomsday scenario. As part of the deal, $400 million a year will go to fund the MTA’s capital projects.

But the agreement mandated a 10 percent fare increase to go into effect June 28, and two more fare hikes of 7.5 percent each for 2011 and 2013. Since 2003, the price of a single subway or bus ride has leaped 50 percent to $2.25.

Additionally, a proposal to institute tolls on the East River bridges that could have generated an additional $600 million a year was killed by the state legislature.

The announcement from Albany may have been a relief to straphangers, but many observers say New Yorkers are still faced with a transit system teetering on a financial precipice and beholden to powerful corporate interests.

840 MILES

New York State’s MTA is the largest provider of mass transit in the Western Hemisphere. It includes more than 840 miles of subway tracks in New York City; two major commuter rail lines, the Long Island Railroad and Metro-North Railroad; seven bridges and two tunnels; and approximately 380 bus lines. It serves 8.5 million riders and more than 800,000 vehicles on an average weekday.

The number of riders who use the New York City transit system today is barely at the level of the 1940s when more than 8 million rides were recorded per day. By the 1970s, after decades of neglect, the subway became a symbol of the defunding of New York. Breakdowns, derailments and even collisions became commonplace.

Starting in 1981, the MTA issued its first bonds, totaling $350 million, to repair and upgrade the system. The subways were improved significantly by the early 1990s, but the state completely eliminated its funding for capital projects by 1992. Consequently, the MTA’s outstanding debt reached $12 billion by 2000.

Many analysts point a finger at former Gov. George Pataki, who served from 1995 to 2006, as the culprit for the MTA’s current woes. According to the Room Eight blog, it was the Pataki administration that decided that “suburban MTA tax revenues would go to suburban roads in places like Rockland County, not the MTA. Later, more of these ‘dedicated’ taxes paid by people downstate were paid to transit agencies in upstate New York.”

DEBT EXPLOSION

Under Pataki, the MTA debt exploded. According to The New York Times, a deal to refinance the $12 billion debt — “recommended and structured by the former Wall Street investment giant Bear Stearns” — was enacted in 2002. (Bear Stearns reportedly walked away with $100 million in fees.) Critics blasted the deal. While the MTA realized short-term savings, it extended debt that would have been paid off in 2015 by another 17 years.

Another problem with the debt-driven financing, claims Norvell of Transportation Alternatives, is that capital funds aren’t just paying for “glamour projects” like the new Second Avenue subway line. They are also paying for “signal maintenance, replacing old subway cars — things that are necessary for the system to continue running efficiently.”

Charles Komanoff, an energy-policy analyst, transport economist and environmental activist, is one of many who think the MTA’s financial crisis is inseparable from problems with its governing structure. “The issue of governance is really important and no one is talking about it.”

A 17-member board of directors oversees the MTA. Each member is nominated by the governor and approved by the New York State Senate. Thirteen members each cast a single vote, and the remaining four, representing upstate counties, cast one collective vote. There also are six nonvoting seats held by representatives of organized labor and the Permanent Citizens Advisory Committee, which was created to give voice to transit users. The board’s powers include approving budgets, labor contracts, fare hikes and service cuts.

POWER TO THE PRIVILEGED

Komanoff claims few if any of the voting board members are representative of mass transit users. “These people are part of the permanent government. They are, for the most part, rich people, connected people. They are connected to wealth, connected to privilege and connected to the automobile, and not connected to the average person in the city.”

“The board is not representative of the riders,” concurs Gene Russianoff, staff attorney and chief spokesman for the New York Public Interest Research Group’s Straphangers Campaign, which advocates for subway riders. “Latinos and African-Americans are also extremely under-represented.”

Russianoff calls it “galling” that board members receive free E-ZPasses to pay bridge, tunnel and highway tolls while “you have to pull teeth to get them to use the [transit] system.” He adds, “The fact that the last two chairs of the MTA have been political fundraisers and well-off developers makes me very, very nervous.”

Discussing the MTA board invariably brings up charges of corruption and patronage. Russianoff says Pataki “appointed very well-off people who raised contributions for him,” such as former MTA Chairman E. Virgil Conway.

Writing in The Nation in December 2005, Robert Fitch described Pataki’s MTA as thronged with “investment bankers seeking no-bid bond business, developers angling for bargain properties, landlords who want the MTA as a generous tenant, [and] mobbed-up contractors seeking construction business…”

During Pataki’s successful run for a third term from 2003 to 2006, eight MTA board members contributed $135,760 to his campaign.

The year he was appointed, former MTA Chair and real estate mogul Peter Kalikow and his wife reportedly donated $80,000 to Pataki. Meanwhile, Fitch revealed, Kalikow’s “flagship tower at 101 Park Avenue” rented space to at least three different firms and lobbyists that did business with the MTA.

“It brings up the issue of patronage in a big way,” Russianoff says, “especially when it comes to the position of chairman. A huge percentage of what a board does is determined by its chair.”

This trend continued with former Gov. Eliot Spitzer. In 2007, he nominated current MTA Chair H. Dale Hemmerdinger, who is president of a real estate firm that owns and manages more than 2 million square feet of space. Hemmerdinger’s wife reportedly donated $40,000 to Spitzer, and his family is a major donor to and fundraiser for the Democratic Party. (According to campaign contribution data, Hemmerdinger also donated $1,000 to a Republican congressional candidate in December 2007 — current MTA Vice Chairman Andrew M. Saul.)

Brown is critical of the fact that the “board is almost entirely a holdover from Pataki’s administration. If you look at all the people who were recommended by the governor, there are only a few people appointed that weren’t appointed by Pataki.”

While wealthy developers and fundraisers are appointed to powerful positions on the board, six nonvoting board members represent the Transport Workers Union, the United Transportation Union and the Metro-North Railroad Unions, as well as commuter advocacy councils and organizations.

“Clearly they should have a vote,” Russianoff says. “Otherwise they’re a little like the corpse at the wake.”

“All we have are eyes and ears,” says Brown of the Council of Machinists. “We make sure the commuters or the union reps are not being blindsided by the decisions the authority makes. Since we can’t vote, we just go and listen.”

Click here to read “Getting the MTA Back on Track” by Danny Valdes, in this issue of The Indypendent.

1904

The first underground subway opens in New York City. They were private ventures by two companies: the Interborough Rapid Transit Company (IRT) and the Brooklyn Rapid Transit Company, which later became the Brooklyn-Manhattan Transit Corporation (BMT). After 1913, New York City built or improved most of the lines and leased them to private companies for profit.

1921

Mayor John Hylan forms the New York City Transit Commission (the forerunner of the modern transit system) with aspirations of building a city-owned-and-operated subway line.

1932

The city opens its first publicly owned subway, the Independent Subway System (IND).

1934

NYC transit workers organize and form the Transport Workers Union (TWU) under the leadership of Michael Quill. The TWU would later expand to represent transit employees in other cities, primarily in the Eastern United States.

1940

With the private lines reeling from the Great Depression, the city acquires both the IRT and BMT subways and begins to integrate them into the public system administered by the city’s Board of Transportation.

1940s-1950s

Robert Moses successfully alters the legal structure of public authorities. They become state bureaucracies with the same privacy rights as corporations, along with the rights to raise their own police force and evict people under eminent domain.

1953

The New York City Transit Authority (NYCTA), a public benefit corporation, is created and charged with administering the city’s transit system “for the convenience and safety of the public.”

1966

NYCTA workers strike after the expiration of their contracts and win a dollar-per-hour increase, an additional paid holiday and increased pension benefits. In response, state legislators pass the Public Employees Fair Employment Act (more commonly known as the Taylor Law), rescinding public employees’ right to strike.

1968

The NYCTA is placed under the control of the newly formed Metropolitan Commuter Transportation Authority (MTA), responsible for administering transportation throughout the state of New York. Known today as the Metropolitan Transportation Authority, it covers nearly every aspect of transportation — both mass transit and road construction — for the New York metropolitan area, including all five boroughs of New York City and its seven surrounding suburban counties.

2005

The 33,000 members of TWU Local 100 stage a three-day strike to fight MTA attempts to institute a two-tier pension system and to saddle workers with increasing healthcare and pension expenses.

—Danny Valdes