PCAC Statement – Jan 10, 2014 – Budget

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Statement of the Permanent Citizens Advisory Committee to the Metropolitan Transportation Authority

Before the Assembly Committee on Corporations, Authorities and Commissions Oversight Hearing on the Metropolitan Transportation Authority

Friday, January 10, 2014

Good morning, my name is William Henderson.  I am the Executive Director of the Permanent Citizens Advisory Committee to the MTA (PCAC).    The PCAC was established by the New York State Legislature as the umbrella organization for three legislatively-mandated Councils that represent the interests of riders of the Metro-North Railroad, Long Island Rail Road and New York City Transit system.  A representative from each Council also participates as a non-voting member on the MTA Board. The Councils were created by the New York State Legislature in 1981.

We appreciate the opportunity to testify on the MTA’s future policies, planning and finances.  Although an improving economy has strengthened the MTA’s financial position, the MTA budget remains tight and subject to many factors outside the Authority’s control.  The $106 million projected closing cash balance is a significant improvement over the razor thin margins contained in the past two years’ budgets, but the fact remains that this cushion is less than .7 percent of the MTA’s total expenditures.

Because this budget remains so precariously balanced, the stability of the MTA’s funding is critical. The PCAC has long held that the MTA’s funding structure should, as a whole, be stable, reliable, and able to keep pace with increasing operating costs from inflation and growing demands on the system.  We further believe that safeguards, such as a meaningful lockbox for dedicated funds, should be in place to prevent raids on MTA funding.  While the financial picture is encouraging, changes can be rapid.  Many of us remember all too well that the MTA’s abundant resources of 2005 and 2006 evaporated quickly into the financial crisis of 2009 and funding and service cuts of 2010.

While delicately balanced, the MTA’s latest financial plan contains several positive features.  First and most significant for riders, it substantially reduces projected future fare increases.  The users of the MTA’s buses, commuter rail lines, and subways already pay the largest proportion of operating costs of any large transit system in the nation and have done so for many years.  Fare hikes in 2009, 2011 and 2013 drove up the cost of travel at more than twice the inflation rate even as riders struggled with their finances.  The PCAC and its councils consistently opposed these increases as unsustainable.  The feedback  we received from riders confirmed our fears that fares were progressively becoming unaffordable.

No one wants to pay more to ride buses, commuter railroads, and subways, but the fare increases projected for 2015 and 2017 in the MTA’s Financial Plan would return the growth in fares to a figure that is approximately equal to the expected rate of inflation, about 4 percent over two years.  A portion of the decreased fare revenue growth will be funded through increased efficiencies in the MTA, which is a positive step in its own right.  We do not believe that this solution resolves all issues of affordability and equity, but it is a significant improvement over previous fare increase plans.

The MTA’s Financial Plan also includes actions to reduce underfunding of pension and other post-employment benefits (OPEB), which primarily provide for retirees’ healthcare needs.  This underfunding has shifted costs to future years and threatens to raise future fares by saddling the MTA with additional costs not related to current operations.  It also creates current obligations for additional pension contributions to compensate for pension fund earnings that did not occur due to the underfunding.

In addition, the financial plan also addresses future capital needs by increasing annual “Pay-As-You-Go” capital funding by an additional $40 million per year starting in 2014.  We have deep misgivings about using existing MTA revenues to meet capital needs and believe that capital expenditures should be funded either by contributions by State and local governments or bonds backed by dedicated funding streams set aside to cover capital spending.  We believe, however, that this source of capital funds is preferable to additional fare backed debt, particularly as this increased funding originates from debt service savings from lower than expected interest rates and revised cash flow projections.

On the subject of the MTA’s capital needs, the current MTA Capital Program will expire at the end of this year, and it is critical for the State to agree to a new five-year MTA capital program on a schedule that will not delay the vital work needed to maintain and improve bus, commuter rail, and subway service.  Equally importantly, the State must work to identify appropriate funding for this plan.

There is much work to do.  Although its infrastructure has been stabilized and reliability improved greatly from the 1970’s and early 1980’s, the MTA system requires a constant infrastructure renewal and maintenance effort to support this improved service.  Rails and stations must be renewed, new buses, rail cars, and locomotives must be purchased, and signal systems must be replaced.

But the capital needs of the MTA go beyond maintaining the system in a state of good repair.  This region faces great challenges in adapting to new weather patterns, and the MTA’s assets must be hardened against more frequent and severe storms.  Some of the needed funding has and will been provided by the federal government, but a local contribution will be required as well.  It is expected that the MTA will be responsible for meeting $1 billion of the $4.9 billion of repair costs from Sandy.

In addition, we are seeing increasing demands on the MTA system, with ridership, particularly in the subways, reaching levels not seen since the 1940’s and 1950’s.  There must be more capacity to handle these increasing demands.  For this reason, the MTA needs modernized signal systems that allow more trains to travel over the same tracks and new fare systems that will allow it to efficiently collect fares and speed bus boarding.  It must continue the development of better information systems, such as the subway “countdown clocks,” the BusTime information system, and help point intercoms, that make travel more secure and efficient.  The MTA needs to follow through on the commitment that it and the City made to providing rapid bus service and to realize Mayor de Blasio’s plans for expanding and improving the rapid bus network.  It needs to provide new commuter rail facilities and equipment to respond to changing population and development patterns on Long Island and in the five MTA counties north of New York City and to ensure that LIRR and Metro-North service meets federal mandates and is as safe as possible.

This work requires a robust MTA Capital Program.  The question is not whether to fund the Capital Program but how to fund it.  It is our position that the MTA’s capital needs must be met without bonding against existing revenues.  It is not reasonable to ask an entity that cannot meet its full operating costs through farebox revenues and can only with great difficulty produce a self-sustaining budget to fund capital expenditures through bonds backed by fare revenues.

We continue to be concerned about the MTA’s debt load.  As of November 2013, the MTA’s debt stood at approximately $33 billion.  While the MTA is not in danger of reaching its statutory debt limit, which was raised in 2012, this is an exceedingly heavy burden.  As a result of the borrowing to fund past capital programs, the MTA expects its annual debt service expenses to rise from $2.2 billion in 2013 to $2.8 billion in 2017.  To provide some perspective, in 2017 the debt service that the MTA must pay will amount to over 48 percent of the fares that it collects.

In past years both the State and City of New York provided substantial capital funding for the MTA.  Presently, the MTA receives no regular capital funding from the State, and, other than funding for the 7 line extension, the City’s contributions to the MTA Capital Program have remained stagnant for almost 20 years, after being cut significantly in the 1990’s, and amount to about 2 percent of MTA capital spending.   In the first two MTA Capital Programs, the State provided 19 percent of the necessary resources, while the City provided between 10 and 14 percent.   We must return to this legacy of support and ensure that funding the 2015-2019 MTA Capital Program will not put pressure on the MTA’s operating budget or on fares and tolls.

We also believe that the State must take a fresh look at funding sources that are tied to benefits that the system generates in terms of traffic reduction and real estate values.  In addition to its overall economic benefit to the region and State, the MTA system generates specific and significant benefits to motorists and to owners, developers, and users of real estate.  Creating a strong and equitable funding structure for the MTA may require consideration of measures such as rationalization of bridge and tunnel crossing charges to generate additional toll revenue while reducing the negative impacts of “bridge shopping” on neighboring communities.  Another possibility for new revenue is the capture of a portion of the value created through the construction or improvement of transit facilities through special assessment districts or other means.

The State rose to the challenge of rescuing the MTA from its 2009 financial crisis and we ask for you to once again rise to the challenge of creating a more usable and efficient system.  We ask for our elected officials to initiate and guide a public discussion that leads to a funding structure that will assure the long term success of the MTA system.

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