PCAC Statement – May 5, 2011 – MTA Finances

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Statement of the Permanent Citizens Advisory Committee

to the Metropolitan Transportation Authority

Before the Senate Standing Committee on Investigations and Government Operations on Metropolitan Transportation Authority Finances

 

Thursday, May 5, 2011

 

Good morning, my name is Ira 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 who 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 nonvoting 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 finances and the steps necessary to deal with projected operating deficits and prevent future fare increases and service cuts.  Addressing these problems directly is critical to the future of this State. Public transportation is the engine that drives the region’s economy, and the success of the downstate economy is critical to the state as a whole.  Allowing the MTA system to decline would also result in massive human costs.  Millions of our neighbors depend upon the MTA system to get to work, to attend school, to visit family, and to get to medical appointments.  For many of these persons, there is no other choice but to travel by transit, and fare increases and cutbacks in the system will translate directly into cuts in the freedom to travel for the least advantaged among us.

In a very real sense, we all depend heavily upon transit.  If everyone in this region attempted to travel by private car, no one would be able to travel effectively.  For this region to function, its transit system must function.  Our environment and health depend on transit as well.  Our chances of reducing energy use and our “carbon footprint” and of improving our air quality and reducing the incidence of environmentally related illnesses are directly related to our ability to maintain a healthy transit system.  The question before us is what we can do to ensure that the resources necessary to maintain and operate the system will continue to be available. in our region

We are at a critical point for the future of public transportation in this region, the MTA, and its operating agencies.  Clearly, the financial constraints that confront the all levels of government and the changes in the national economy are forcinge hard choices in meeting public needs.  These financial constraints have hit hard with respect to the MTA operating budget as well.  The PCAC, together with a host of other transportation advocates, has for many years warned of an approaching financial crisis at the MTA related to reliance on volatile revenue sources and sharply higher debt service costs.  Now the effects of economic downturn have made the challenge that confronts the MTA all the more severe.

The decisions to rely so heavily on volatile sources of revenue and the borrowing that has funded capital expenditures at the MTA have created structural problems that extend beyond our current economic difficulties.  The problem is more than the product of a temporarily faltering economy; it is the result of deep seated issues, and the PCAC’s recommendation is that bold action must be taken to deal with the structural shortcomings of the MTA’s finances.

One impact of these decisions can be seen in real estate tax revenues.  In 2007 receipts from taxes imposed on real estate transactions made up over one third of the taxes and subsidies supporting the MTA, but by 2008 these revenues were in a state of free fall.  In 2011 the value of monthly mortgage recording tax receipts supporting the MTA is projected to be just 34 percent of the amount collected in 2007.  The “Urban Taxes” that support the MTA, which are imposed on commercial real estate transactions and mortgage recordings, have fared even worse.  The MTA’s 2011 Urban Tax collections are expected to be only 17 percent of their 2007 level.  In all, real estate related taxes are expected to generate 2011 revenue that is less than 25 percent of the amount collected in 2007.

The PCAC’s members believe strongly that the future success of our region demands that stable, reliable, and inflation-sensitive sources of funding be available to meet the needs of operating and maintaining the MTA system as well as improving the system to provide for the future regional growth.  With the persistent operating budget gaps that Comptroller DiNapoli has discussed, the last three years of the current Capital Program facing a $10 to $13 billion funding gap, and unprecedented future needs, decisive action is necessary.

The MTA’s level of debt service as a result of borrowing for capital needs is likewise a critical element in its continuing financial difficulties.  This region’s bus, subway, and commuter rail systems have long been starved for the capital needed to maintain existing systems and provide for growth.  From the establishment of the New York City Transit Authority in 1953 and the purchase of the Long Island Rail Road by the State of New York in 1966 there has been a constant scramble for the funds necessary to maintain these systems and provide service to meet new demand, and often the funding provided was not sufficient.  The lack of resources to meet capital needs is not a new problem; many argue that the capital shortfall in the subway system was ordained from its opening in 1904, when the nickel fare was not sufficient to both operate and maintain the system.

By the 1970’s it was clear that the MTA system would soon fail if action were not taken.  To rescue the system, the first MTA Capital Program was implemented in 1982.  This step to arrest the system’s decline and return it to a state of good repair was not without cost, however, as in the absence of increased public funding much of the resources for this and subsequent Capital Programs had to be borrowed, with the future revenues of the system pledged as security for these debts.  The system has benefitted greatly from the investments made possible by the MTA Capital Programs, but the MTA is now near the breaking point in terms of debt.  This situation is a direct result of the failure of the State and City to provide adequate capital funding for necessary system improvements and repairs.

At this point, outside of the federal government, the MTA has the fifth greatest debt load of any public entity, behind only the States of California, Massachusetts, and New York and New York City.  The MTA’s debt service burden will this year exceed $2 billion and is expected to rise to over $2.5 billion by 2014.  Debt service will be equal to 45 percent of all fares and tolls collected this year; in 2014 this figure is expected to rise to 54 percent.  In terms of operating costs, debt service will be equal to 20 percent of the cost of running the system in 2011, rising to 23 percent in 2014.  The notice for this hearing cites structural imbalances in the MTA budget of $1 billion for 2011 and $2.1 billion for 2014.  I submit that the cause of these imbalances can be found in the MTA’s rapidly escalating debt service burden.   After payroll, debt service is the MTA’s largest expense.  The cost of debt service is eating the MTA budget alive.

The riders cannot be expected to bear the burden of the system’s capital needs alone, despite funding an exceptional share of operating costs.  Riders of MTA services contribute a greater percentage of the cost of their ride than users of any of this nation’s large transit systems.  In 2010 fares covered 45.9 percent of Long Island Rail Road operating expenses, 59.9 percent of Metro-North operating expenses, and 55.7 percent of New York City Transit operating expenses.  Compare these figures to 32 percent in Boston, 27 percent in San Francisco, and 22 percent in Atlanta, and most will agree that MTA riders overall are doing their part.

The riders bear a heavy burden, but it is up to the MTA and its agencies to ensure that this burden is distributed equitably.  The operating agencies must ensure that they collect the revenues to which they are entitled and that the system is operated as efficiently as possible, consistent with maintaining quality service.  We have seen and applaud recent reforms focusing on ensuring that the MTA’s real estate holdings generate a fair return.  We also want to ensure that the fare revenue due from riders is being received.  The Long Island Rail Road Commuter Council, one of the PCAC’s three constituent riders’ councils, has long been concerned that fares were being left uncollected on board trains and that some riders have become so confident that fares would not be properly collected that they have begun to “game” the system.  Recently, the MTA acknowledged that by their own estimates the LIRR had failed to collect as much as $17 million in fares annually.  This failure is particularly serious when one considers that the 2010 LIRR service cuts were imposed in order to save $10 million annually.

I want to be clear that the PCAC believes that a long term solution to the MTA’s financial difficulties must also include increasing the efficiency of the system.  There are a number of opportunities for increasing the efficiency of delivering MTA services.  As in any large organization, back office and administrative functions can be streamlined, duplication can be reduced, and more efficient procedures can be implemented.  That process has begun, and we support these efforts, which have resulted in a greater use of shared services and procurements.  These efforts have not been without their issues, however, as may be seen in the first few months’ operation of the MTA Business Service Center (BSC).  We also would note that even optimistic projections of savings from the BSC envisioned a period of more than four years before savings would pay the MTA back for initial start-up costs.  Increased efficiency will not make the MTA’s immediate financial problems vanish.

Greater and more effective use of technology presents another long term means of cutting the cost of running the MTA.  One example where technology is currently reducing costs is the use of ticket and MetroCard vending machines.  Many riders now prefer to buy fares from these machines, but some do not, and we will always need station agents to provide a human presence.  The vending machines, however, are a good example of providing riders with a choice that is a win for them in terms of convenience and a win for the MTA in terms of efficiency.

We believe that improved fare collection processes and technologies are a prime area where efficiencies can be achieved, and systems that allow trains and buses to move along their routes more rapidly with fewer delays are a clear opportunity to improve efficiency, as they allow the system to provide more and better service without increasing the number of buses or trains needed on the streets or rails.  We are pleased to note that the MTA has begun initiatives in these areas.  Achieving these efficiencies takes time and requires stable funding, but we cannot afford to ignore their potential benefit.

True and substantial efficiencies are possible in the long term, but we must ensure that changes claimed to increase efficiency without cutting service do not in fact negatively affect service.  Several years ago there was some question about apparent high levels of marketing staffing at New York City Transit.  It turned out that the employees in question were in fact the telephone information center employees who are critical sources of routings and directions for many of our riders, particularly elderly riders.  The jury is still out on recent changes to the telephone information system that were made to increase efficiency, with some riders finding the new system impossible to navigate.  We have also been told that efficiency dictates the closing of subway station booths and rail ticket windows and reduction of station staff.  In some cases this is necessary, but riders will tell you that this desire for efficiency must be balanced by the need to maintain a human presence within the subway and commuter rail systems for the orderly and efficient operation of the system.  In sum, we do not have a luxury system that is full of frills and redundancies.  There are few places where cutbacks would provide easy opportunities for savings, and we should not pretend that there are many.

Instead of looking to service cuts to reduce expenses, we should look to spend the resources provided to the MTA as wisely as possible to gain the largest impact per dollar in terms of service to the riders.  The PCAC earlier this year released its most recent research report “Minutes Matter,” which examines the potential for creating transit performance measures that reflect and can be used to improve the experience of riders. Along with our prepared statement, we have provided to you a copy of this report and will be happy to furnish additional copies to you.  We are convinced that in order for transit performance measures to be credible to the public and effective as a management and planning tool, they must be firmly related to the passenger’s experience and presented at a meaningful level of aggregation.

The PCAC believes that use of passenger based statistics can result improved linkages between spending and service and ultimately increase efficiency.  This is particularly relevant in terms of prioritizing capital expenditures.  The New York State Public Authorities Law (PAL) Section 1269-D requires the MTA to submit a Strategic Operation Plan (SOP) to the Governor.  This plan is required in part to include an analysis of the relationship between specific MTA Capital Program elements and the achievement of service and performance goals.  The PCAC strongly supports linking operational performance and capital investment, and believes by ensuring that the performance indicators used reflect the riders experience, we can most efficiently use limited funds to best meet the needs of those served by the MTA and its agencies.

We need to be honest about the costs and benefits of operating an efficient and reliable public transportation system.  What the MTA system needs fundamentally is a set of stable and reliable funding sources that meets current operational and debt service needs, will grow with inflation, and can be adjusted to account for increasing demands on the system.  These revenues must be protected from funding sweeps and end of year budget cuts, and must take into account the ongoing capital needs of the MTA and its agencies.  If borrowing is to be used to provide resources for the MTA Capital Program, it must be matched with a level of new revenues sufficient to service the new debt.  We can no longer pretend that a system that cannot pay its operating costs through fares can use them to pay for capital needs.

 

 

 

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