In the waning months of 2020, COVID-19 cases were rising in New York and mass transit ridership was still nowhere near pre-pandemic levels. Patrick Foye, the chair and CEO of the Metropolitan Transportation Authority, warned that the system would need $12 billion in emergency relief in order to avoid severe service cuts and thousands of layoffs. In December, Congress came through with $4 billion in the federal stimulus package, averting that worst-case scenario, at least for the time being. But even if the Biden administration can deliver another round of federal aid, structural problems that predate the pandemic all but guarantee that the MTA will continue to run significant budget deficits for years to come.
“The concern before the pandemic started was the same old story about unsustainable growth in operating costs compared to the growth in the operating revenues,” said Nicole Gelinas, a senior fellow at the Manhattan Institute, a conservative think tank. “In the $17 billion budget that (the MTA) put in place last February, they were basically running close to a half-a-billion-dollar annual operating deficit – and that was set to grow over the next few years.”
For an agency that depends on fares for around half of its revenue – and government subsidies and economically sensitive taxes for the rest – the pandemic could not have come at a worse moment. To fund its operations, the MTA borrowed $2.9 billion from the Federal Reserve’s emergency credit line, which it now plans to convert to long-term debt. The agency’s credit rating was downgraded multiple times over the course of 2020.
“(The agency) is approaching now 25% of the expense budget each year that will have to go to cover debt service,” said David Jones, president of the Community Service Society of New York and an MTA board member. “That’s higher than any institution I’ve heard of.”
The challenge the agency now faces is how to stabilize its operating budget while maintaining the most essential parts of the system without neglecting critical investments.
“The MTA is the lifeblood of the region’s economy. … They are in a dire fiscal situation.” – Andrew Rein, president of the Citizens Budget Commission
Its four-year $51.5 billion capital plan, which was approved just a couple of months before the pandemic hit, has been, by and large, put on hold, and additional congressional assistance may be needed if it is to move forward with important system upgrades, such as modernizing subway signals, and repairing and replacing the tracks.
“There is no question that the MTA is the lifeblood of the region’s economy, so we have to keep one eye on that capital investment, and we know that part of what they are doing to try to keep the operating budget solvent is dipping into what they had planned to invest in the capital program,” said Andrew Rein, president of the Citizens Budget Commission, a nonpartisan fiscal monitor. “They are in a dire fiscal situation on the operating budget side, and their capital plan is at risk of underinvestment.”
With ridership down around 70% during the pandemic, some analysts believe that it will be necessary for the system to “right-size” service in response to the decreased usage. The authority itself has alluded to that possibility in the past. “We’re going to have to match our service structure and service level to equal rider demand,” Robert Foran, the authority’s chief financial officer, said in November.
Although the vast majority of New Yorkers rely on mass transit in some way, cuts to bus and subway service disproportionately affect low-wage workers of color who can’t afford a car or lack the ability to work remotely.
“The No. 1 priority of the MTA – and the governor who controls it – must be maintaining the frequency of bus and subway service,” said Danny Pearlstein, policy and communications director at Riders Alliance, a transit advocacy organization. “The bus and subway … are a lifeline for millions of New Yorkers, so if there are ways, like the MTA is doing now, to right-size service on commuter rail, that makes sense.”
In order to shrink its chronic budget gaps, the MTA will have to find ways to streamline operations. The authority has looked to increase administrative efficiencies in the Metro-North Railroad and the Long Island Rail Road, for example, but many analysts believe the MTA has no choice but to lower its labor costs. The agency recently enacted overtime controls, but larger issues will need to be addressed in order to bring down its cost structure.
“They need to have a serious effort to work with the TWU (Transport Workers Union) on the package of benefits and the cost of benefits, especially for retirees,” said Mitchell Moss, director of the New York University Rudin Center for Transportation. “They are going to have to have a serious examination on how they can manage the rising costs of pensions and health benefits.”
In order for the authority to reduce health care costs, transit workers will have to increase their contributions, which are lower than those of some state employees, or it will have to find savings in other ways. One possibility could be providing in-house health care, a model that the New York Hotel and Motel Trades Council pioneered. Health care reform at the national level, such as through the implementation of a public option or single-payer system, could also help.
“Most countries and governments see mass transit as an inherent infrastructure requirement if they want to have a functioning city. We haven’t gotten there yet.” – David Jones, president, Community Service Society of New York and MTA board member
But it has been MTA workers, a large portion of whom are Black and Latino, who kept the system running throughout 2020, even during the darkest months of the pandemic. More than 100 died of the coronavirus last year. “This is complicated politically because one of the reasons that the $4 billion (in relief) was included in the federal allocation was the extraordinary pressure put on both Republicans and Democrats by the national union,” Jones said. “So obviously they are not only protecting the system, they are protecting their workforce.”
Jones said that in addition to new sources of revenue – a temporary gasoline surcharge, a stock-transfer tax and adding tolls to the East River bridges are avenues he believes should be considered – the authority may need to rethink the extent of its dependence on fares. “One of the problems is that the MTA relies on farebox revenue virtually more than any system in the country or worldwide,” Jones said. “Most countries and governments see mass transit as an inherent infrastructure requirement if they want to have a functioning city. We haven’t gotten there yet, and we think there’s going to have to be deeper subsidies coming from the federal government, state and city to sustain the system and see it markedly improve.”
The MTA board recently held hearings on fare increases, but it may not pursue those increases this year.
Congestion pricing, if finally implemented, could provide another potential funding stream, as could the legalization of recreational marijuana and online sports betting.
Nobody knows how long it will take for the economy to rebound, nor how the post-pandemic restructuring of society will impact transit ridership. But the fact that permanent changes to life and work are likely to alter commuting patterns increases the urgency for the MTA to get its fiscal house in order, especially while the federal government is still providing stimulus spending to mitigate the economic damage of the pandemic.
“The MTA fiscal problem is still dire, and the city’s fiscal situation is still dire, and since they are all intertwined, federal aid is needed by all,” Rein said. “The MTA’s problem is the state’s problem, and the state’s problem is the MTA’s problem, and it all can tumble into the city’s fiscal problem.”