PCAC Statement – Jan 11, 2013 – Oversight Heating

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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 11, 2013

 

Good morning, my name is Ira R. Greenberg.  I am the Chair 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.  We believe that the MTA is at a financial crossroads and that decisions made in the near term will determine how effectively the MTA and its operating agencies are able to serve the people of this State and region for years to come. For the second straight year, the MTA has approved a budget that is only precariously balanced.  The 2012 budget projected a $1 million closing cash balance; the recently approved 2013 budget has a somewhat larger cushion, with a closing cash balance of $40 million.  These balances are eight one-thousandths of one percent and three tenths of one percent, respectively, of the total budgets for 2012 and 2013.  As a result of Superstorm Sandy, ending 2012 in the black required use of all of the MTA’s remaining General Reserve and an internal loan from funds being held for future post-employment benefits.

Maintaining balance in the MTA budget has come at a significant cost to riders.  In 2013, fare yields will again rise by 7.5 percent, marking the fourth fare increase in five years.  The average increase in fares will be in the 8 to 9 percent range, to compensate for marginal ridership losses due to higher fares.  As a result, the percentage of the cost of operating costs paid by the rider continues to increase.  More troubling is that for many riders the cost of commuting is becoming unaffordable, as incomes remain flat or fall.  When the 2013 fare increases take effect, the cost of the most expensive Metro-North monthly pass will rise to $500, a level that seemed incredible just a few years ago.

At the same time, the MTA’s debt has ballooned.  In 1995, the New York Times editorialized against a $4.5 billion MTA borrowing program.  The MTA is now $32 billion in debt, with $2 billion in new borrowing planned for 2013, exclusive of its short term needs for Superstorm Sandy reconstruction.  The payments necessary to service this debt in 2013 will be approximately $2.25 billion, one half of the proposed new borrowing that the Times said was unaffordable less than twenty years ago.  Of course, if there are stable and reliable new revenues to support new bonds, then debt financing can be financially responsible, but we have not created new revenues to support new bonds in the past, instead relying on existing revenues intended as pay-as-you go funding for capital improvements or as operating funds.

One of the more vivid lessons of Superstorm Sandy is that the MTA system is essential to the functioning of this region.  Without subway and rail systems, a fraction of the normal number of commuters caused streets and roadways to rapidly fill with cars and come to a standstill.   Assessing the value of the MTA to the downstate region and state is somewhat like asking the value of a foundation to a building.  Without its foundation a building could not stand, and without an MTA system that is efficient, effective, and affordable, this State and region as they currently exist could not stand.

The question is not whether to fund the system, but how to fund it.  We believe in the principle that the beneficiaries of the MTA system should pay for its operation, maintenance, and improvement.  Obviously, this means that the riders should make a substantial contribution to meet the MTA’s financial needs.  The riders currently make such a contribution, paying the highest percentage of operating costs of any major transit system in the nation.  Some commentators, such as the Citizens Budget Commission, have pointed to unfunded depreciation and post–employment costs for which the MTA is responsible and call on riders to bear an even greater burden.  We disagree with this assessment.

The PCAC believes that the MTA system generates a wider range of benefits to the region and State at large than is commonly acknowledged, and that these benefits justify reconsidering the funding supporting the MTA and its operating agencies.  Some of the system’s benefits to non-riders are obvious.  In addition to the system’s immediate benefits to its riders, it is widely recognized that motorists gain greatly by moving millions of commuters out of personal automobiles and into transit.  This is a significant benefit, and in recognition of this there are several cross subsidies between drivers and transit built into the current MTA funding formula.

It is also widely recognized that real estate values are closely tied to the availability of transit facilities, and so the MTA is also supported by dedicated taxes on real estate transactions.  In addition, the ripple effects of spending on the MTA system, particularly in terms of capital expenditures, is commonly identified as benefitting the economy as a whole and justifying additional subsidies from general governmental revenues.  In addition, the ripple effects on local communities of wages earned by commuters are a major support of downstate local economies and further New York State’s substantial interest in spreading the benefits of economic activity throughout the State.

Beyond these limited effects, it has been shown that transit networks like the MTA system have larger benefits as an integral part of the overall economy.   Studies have demonstrated that transit produces general economic benefits, including reduction in travel time and costs beyond its positive impact on commuters, increases in worker reliability and productivity, reductions in traffic accidents and their individual and social costs, increases in productivity due to access to a wider labor market, and agglomeration effects resulting from access to specialized labor pools and heightened interactions between firms.  Improved environmental quality and decreased energy use and greenhouse gas emissions account for additional benefits from the system that flow beyond transit riders.

The PCAC looks to our elected leaders to begin a fundamental reassessment of the way that the MTA is funded.  This does not absolve the MTA of responsibility for its own financial future; efforts to deliver service more efficiently and effectively must continue, all fares that are due must be collected, fare structures must encourage ridership and revenue growth, and growth in non-fare revenues must be further pursued.  We cannot, however continue to shift an increasing portion of the cost of operations onto riders or to finance an increasing share of capital needs through the issuance of debt that is not backed by new revenues.

The PCAC has long held that the MTA’s funding structure should, taken as a whole, be stable, reliable, and able to keep pace with increasing operating costs as a result of inflation and growing demands on the system.  Stability demands that safeguards, such as a meaningful lockbox for dedicated funds, be in place to prevent raids on MTA funding.  Riders know all too well the results of funding sweeps and diversions of dedicated funding, as service cuts made necessary by these actions in 2010 and 2011 are only now beginning to be restored.

In addition, 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.

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 fares and tolls.

Creating a strong and equitable funding structure for the MTA will mean that new revenue sources will have to be developed  Several possible sources have been proposed, including 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 is the capture of a portion of the value created near transit facilities.  We must explore other possible funding mechanisms related to benefits created by the MTA system as well.

We ask for you to help to begin and guide a public discussion leading to a funding structure that will assure the long term viability of the MTA system.  The time to act is now.  Without adequate funding and a strong transportation system the future of our State and region is at risk.

 

 

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