How to Fix the MTA

Photo: Christian Stoll

Go ahead, blink. The recent headlines about the transit system are worthy of disbelief. At the very moment that the MTA was poised to hike fares for the second time in two years, it had been fully prepared to accept $300 million from the Jets to build a new stadium over the West Side rail yards, even as its own appraiser put the value of the property at $923 million.

As transit worker J. P. Patafio told MTA chairman Peter Kalikow at a December board meeting, the agency is now “the most disliked and most dissed public authority in New York.” It can’t even deliver good news anymore: When the agency got the A and C trains back on track February 2, just ten days after a devastating fire, many commuters reacted with scorn for New York City Transit chief Lawrence Reuter, who had suggested that repairs might take five years. “How come it went from years to weeks?” asked Public Advocate Betsy Gotbaum. “Are they gluing it together?”

Yet for all the popular antipathy toward the MTA, the transit system’s financial situation truly has become desperate. The new fare increases—on February 27, 30-day MetroCards will rise in price from $70 to $76, seven-day MetroCards from $21 to $24, and express buses from $4 to $5—will plug the MTA’s budget gap for just about a year. If current trends hold, the agency will start to pile up operating deficits all over again in 2006, which will swell into hundreds of millions of dollars annually and force further combinations of fare hikes and service cuts. The MTA also needs a new capital plan, but has no way to pay its long-term bills.

As the MTA’s financial crisis deepens, one thing is clear: Albany won’t be sending its cavalry to the rescue. Governor Pataki has been starving the MTA for a decade now, and has shown no inclination to change his priorities. In his latest budget proposal, the one that’s supposed to fund the MTA’s new capital program, the governor didn’t even pretend to find the money to pay for the last two years of his five-year transportation plan. Pataki’s leaving that, he said, to “innovative financing mechanisms” and “public-private partnerships” yet to be discovered.

If the MTA were a private company in need of restructuring, it’s clear what a ruthless turnaround specialist would do. He would start with the 55,000 people who work for the MTA, slashing the agency’s generous pension contributions, which mushroomed 158 percent from 2002 to 2005. He would also demand cost savings and productivity increases from them and basically threaten to bust their union. Then he would turn his attention to the customers and wipe out the least popular bus and subway routes, mostly in the outer boroughs.

In the public sector, however, little of this is possible politically. The transit system is not like an airline, which can threaten to go out of business if employees refuse to take their lumps. Transit workers perform services vital to the daily lives of New Yorkers, and they also form a potent voting bloc. More than that, they have the ability to terminate political careers with a strike.

The MTA is a vast organization that oversees not only the city subway system but the Long Island Rail Road and the Metro-North lines, as well as seven bridges, two tunnels, and some buses. In the not so distant past, the agency had chairmen who were powerful, creative advocates for mass transit, such as Richard Ravitch (1979–1983), Robert Kiley (1983–1991), and Peter Stangl (1991–1995). Under their leadership, the MTA obtained city, state, and federal money for track repairs, vehicle refurbishments, and graffiti removal. Since 1982, government at all levels has invested a combined $48 billion in the subways, buses, and commuter railroads, and the results have mostly been astounding. Transit crime has plunged, graffiti is essentially gone from the system, subway derailments are way down, and bus ridership has jumped 50 percent in eight years.

But over the past decade, the MTA has lost its political independence, which has led directly to its abandonment of fiscal discipline. In 1995, Pataki appointed Virgil Conway, a Republican crony, to head the Authority, beginning the transformation of its chairmanship into what former City Parks commissioner Henry Stern calls “a plum to be given to a rich man who supports the governor.” Conway dutifully held his tongue as Pataki wiped out state grants to the MTA, forcing riders to assume its capital costs and leading the agency to borrow heavily. The commuter lines were mostly spared the pain, while the subway bore the brunt of it.

In 2001, Kalikow, a public-spirited developer who is tight with Pataki and Al D’Amato, replaced Conway, and in 2002, Katherine Lapp, who had been director of the state’s criminal-justice system, became executive director of the MTA. Insiders praise both for their professionalism. But now the bills run up by their predecessors are coming due. The costs of the MTA’s debt service will rise from $916 million last year to $1.3 billion this year to a projected $1.7 billion in 2008, at which point interest charges will be gobbling up more than one of every three fare dollars. Wages, meanwhile, have spun out of control, and here’s one sign of how bad they are: The average MTA bus driver earns more than the highest pay scale provided for in the transit workers’ collective-bargaining agreement. How did that happen?

The bottom line is that the MTA is under severe constraints: It’s being crushed by debt and labor costs, but it can’t do much to reduce either one. Indeed, its operating budget now suffers from what State Comptroller Alan Hevesi calls a “serious structural imbalance”—revenues are rising 1.5 percent a year, while expenses are growing 5.5 percent a year. “It’s like buying a $2 million house and then, lo and behold, you can’t make the mortgage payment,” says a state official who has examined the MTA’s borrowing and spending. “No shit.”So how does the MTA dig out?

Empty some cubicles. It shouldn’t be that hard to find candidates for pink slips: The MTA employs 444 people in marketing and public relations, as well as 698 people in human resources; 443 in legal departments, despite spending $10 million a year on outside law firms; 359 in budgeting and accounting; and 166 in labor relations, according to a report Hevesi issued in October. Attacking government waste is often nothing more than cheap sound-bite politics, but not in this case. The situation is summed up by the comments of a former senior executive at the MTA, who had originally agreed to speak on the record. “I don’t think the agency is inefficient,” he started, diplomatically. “There are always ways to cut costs.” Then he asked if he could speak without attribution, and continued: “It’s a total fucking disaster. I don’t know how else to describe it.”

The MTA is a maze of gigantic, overlapping bureaucracies. To take just one example, each of the MTA’s subsidiary agencies has its own payroll system, and New York City Transit by itself has more than one. Only the MTA knows just how much it could slice by making a serious attempt to eliminate unnecessary and duplicative systems, but there’s little doubt it’s more than the $69 million in administrative savings the Authority has announced for 2005.

Beset by floods and fires and built on technology that predates the Model T, the subway, the very essence of New York, has become frighteningly fragile. And now that the MTA has dug itself into a deep financial hole, it has started traveling back in time to 1975.

How to Fix the MTA
A five-point plan for saving the subway.

A World Class Ride
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Of course, given an operating deficit of $994 million projected for 2008, efficiency gains alone won’t balance the books. But to persuade riders or Albany politicians to fork over more cash, the MTA must first convince them that it won’t blow the funds.

It would also help if the agency made itself more transparent and accountable, which would entail a significant change in its culture. In 2002, for example, the Authority shifted $513 million from its budget for that year to its 2003 budget. The move wasn’t illegal, but it was sneaky: It effectively shrunk the MTA’s 2002 operating surplus—yes, there was one then, before the debt service skyrocketed—to almost nothing and thereby bolstered the Authority’s pleas for a fare increase. Predictably, when Hevesi found out, he issued a report blasting the existence of “Two Financial Plans: One Public, One Secret.” Another furor erupted in January, when Lapp admitted to Assemblyman Richard Brodsky, the chairman of the Committee on Corporations, Authorities, and Commissions, that the MTA had received an appraisal for the West Side rail yards, which the Authority wants to sell to the Jets, but had not and would not share the numbers with state legislators. Brodsky had to subpoena the document to get a look at it. “Peter and Katie have been better than what came before,” Brodsky says of Kalikow and Lapp. “Where they fail, they fail because they become secretive.”

Cut the bloat, end the secrecy, open the books. Only when the MTA puts its own house in order will its pleas for help register as more than crying wolf.

Get buses in new private hands. Remember those Caribbean van drivers the MTA worked so hard to put out of business in the mid-nineties? The agency should tell them to get together and form a bus company. Transit systems have all kinds of unique operations that should not be fobbed off on the private sector; we don’t need a Halliburton subsidiary switching subway signals. But bus service certainly is one area ripe for some free-market competition.

The MTA is currently in the midst of taking over the city’s buses from City Hall and buying out the seven private companies that run the lines. There are solid reasons for this switch. The private firms haven’t operated efficiently, largely because they didn’t compete for their city contracts—they just inherited old deals, and have kept lining up year after year for subsidies. And the takeover will allow the MTA to upgrade vehicles and coordinate service throughout the entire system.

But once the MTA has control of all the lines, it should put them up for bid. Nothing ever changes easily when the Transit Workers Union is involved. But other cities have realized huge savings through competition—once companies realize they can lose a franchise, they find ways to cut costs without reducing services (like paying workers less generous benefits packages). In Denver, for example, routes bid out by the city cost 46 percent less than municipal-run lines, according to a 2002 report by the Manhattan Institute. San Diego reduced its transit costs by 33 percent after contracting out 44 percent of its bus lines. “Different cities do it different ways, but the idea is that even though private companies would lose money if they had to pay for entire bus systems themselves, they can still competitively bid for the right to operate the lines,” says E. J. McMahon, co-author of the study. “That way, you don’t end up just having one big monopoly [the MTA] dealing with another [the union]. There aren’t that many ways to save on operating costs. This is one.”

Hold a giant yard sale. The MTA needs to consolidate, sell, develop, and license properties from its vast archipelago of holdings, wherever possible. For example, the authority had wanted to move employees from a handful of buildings it owns to 2 Broadway. But after renovating 2 Broadway turned into a disaster—more than $300 million in cost overruns, a series of criminal indictments against MTA contractors—the Authority shelved those plans. It should put them back on the drawing board and sell its Madison Avenue buildings; the capital plan needs the cash more than the MTA needs offices adjoining Grand Central Terminal. “I’ve got people coming to me every day,” Kalikow says about developers who want chunks of MTA property. To their credit, he and Lapp are in the process of finding a company to evaluate the MTA’s holdings and figure out which aren’t necessary for the Authority’s operations. “There’s probably a degree of excess value,” he says. “We’re going to try to determine that.”

The MTA has also hired two marketing companies to sell sponsorship rights to its properties, another good idea, if it’s executed with a modicum of taste. “You don’t want to rename Times Square after the Delta Shuttle,” says Neysa Pranger, who heads NYPIRG’s Straphangers Campaign. “But advertising already accounts for almost five percent of MTA revenues. That’s money riders won’t have to pay.”

But when it comes to the most valuable real estate the MTA has for sale—the West Side rail yards—the agency is in a tough bind. Mayor Michael Bloomberg and the governor both want the MTA to hand over its property to the Jets at a huge discount.

At one point, the MTA sought to have the West Side rail yards condemned, which would have led a judge to assign a value to the property and made it easier for the Authority to get a fair price for it. That might have been a smart move. But “it came back to me through the governor’s staff that [condemnation] was not an appropriate way to deal with this issue,” according to Kalikow, so that plan died.

Now, Cablevision, which has invested millions in its fight against the stadium, has stepped in with a competing offer and a plan to build housing and offices. The MTA, in turn, has promised to open the process to all comers, if there’s anyone else out there brave enough to bid against the mayor’s dream.

Even with this latest roadblock, Pataki and Bloomberg seem set on the stadium, and will make it difficult for anyone else to proceed. So what should Kalikow do? If Ravitch or Kiley had ever found themselves in this situation, they would have caused a major media ruckus, possibly involving a resignation threat or two. But while Kalikow has made noises that suggest he’s had almost enough, so far he has remained loyal to Pataki. He should insist that the Jets pay more for the property or lose it. A Manhattan stadium would be a bonanza for the team, so let’s see how much they’re willing to share with subway riders. Among other things, playing hardball for a fair price would set a fine precedent for when the MTA restarts negotiations with Bruce Ratner for the rights to build his basketball arena at the Atlantic Yards in Brooklyn.

Build the stuff that city residents will use every day, and put everything else on hold. When it comes to long-term planning, the MTA board of directors avoids difficult choices. The Authority’s 2000 capital plan, for instance, envisioned not only buying 1,130 new subway cars but kick-starting the Second Avenue subway line, building a rail link to La Guardia Airport, and connecting the Long Island Rail Road to Grand Central Terminal (called East Side Access).

It was a beautiful wish list, but it would’ve taken Robert Moses in his prime to get it all built. Upstate voters killed a $3.8 billion bond issue in 2000 that would’ve paid for some of it, so the MTA whipped out its credit cards and put the bulk of the last capital plan on plastic. And to cover the rest, it restructured old debt, thereby saving money up front but adding billions to future interest charges all the way out to 2030. “The operating budget is now in jeopardy, not just because of inflation in the costs of operating the subway system, but from the way they financed the last capital plan five years ago,” says Ravitch. “They refinanced their debt at a much higher cost because they wouldn’t bite the bullet.”

Governor Pataki has been ruthlessly starving the MTA for a decade now, and there are no signs that he’s about to change.

The latest capital plan is, true to form, a piece of unrealizable fiction, crammed with self-serving stories for each politician to tell. East Side Access, pushed by Pataki and D’Amato, is back, with a price tag of $4.6 billion. So is the Second Avenue Subway, beloved by Assembly Speaker Sheldon Silver, at a cost of $2.8 billion. And the plan provides $2 billion to extend the No. 7 train, which Bloomberg has made part of his plan to develop the West Side; $500 million to security projects, which everyone loves; and commits $400 million in federal money to a new South Ferry terminal, a longtime goal of Staten Island’s congressman, Vito Fossella. The plan also happens to be short of funds by more than $16 billion. Much as we might want them, it simply will be impossible for all these expansions to proceed at once.

The MTA needs an algorithm for inflicting the least damage possible while making painful choices among long-range programs. It also needs to push the federal government to let it use some 9/11 funds throughout the transit system, on the principle that it’s just as important to better connect downtown to the rest of the city as it is to renovate the stations there. Other things being equal, the No. 7 extension, which will connect an entire new frontier of development to the rest of the city, seems the most useful. And the South Ferry terminal, which will rip apart Battery Park to shine up an area already getting doused with 9/11 funds (the Port Authority is planning a $2 billion, Santiago Calatrava–designed station nearby), seems the most useless.

Squeeze more cash out of drivers. Back in the sixties, Governor Nelson Rockefeller diverted toll proceeds from the Triborough Bridge and Tunnel Authority to pay for mass transit. It was a masterstroke, and the same trick can be used again—on the East River bridges. MTA officials have been talking about that as long as there has been an MTA. “I remember sitting in Mayor Lindsay’s office while Bill Ronan, the first chairman, was saying, ‘If we have to, we’ll start putting pretty girls out there with big hats,’ ” Stangl recalls. Call it a sign of the times that the girls will be replaced by E-Z Pass tollbooths, but the MTA can no longer avoid such drastic measures. “If fares don’t go up, you’ve got three choices,” says Ravitch. “You can appropriate money from the state budget, the MTA can borrow money, or you can let the system go to hell. There is no fairy godmother.”

So the MTA needs to pick its poison. Applying tolls to the Brooklyn, Manhattan, Williamsburg, and Queensboro bridges and varying the price from $4 to $10 by time of day would generate $730 million a year, according to the Regional Plan Association. Raising tolls at the bridges and tunnels where drivers already pay would raise $250 million. A ten-cent increase in the gas tax would yield $301 million. Hiking driver’s-license renewal fees to $50 a year would bring in $294 million; a similar boost to local car-registration fees would yield $235 million.

More creatively, the MTA could also try variable pricing on the subway, where fares would change depending on time of day or travel routes. This would be tricky, because New York is unusual in that its wealthiest areas are in the center of the city. Where it makes sense for Washington, D.C., to charge commuters traveling from suburban Maryland to suburban Virginia for the extra time they spend on the Metro, it wouldn’t for the MTA to hit up Brooklyn-to-Bronx riders for extra cash. But the MTA could easily use MetroCard technology to impose surcharges at peak travel times or at stations within Manhattan’s central business district. “I think people would support it, if they were shown that it would work and that it would be fair,” says Gotbaum. That requires a more credible and transparent MTA—which is why this option comes last, not first.

George Pataki is handling the current crisis with a blitheness that amazes and frustrates the people who know from experience what it will take to put the transit system back on track. In the budget he unveiled last month, the governor offered the MTA about 70 percent of the capital funding it will need from 2005 through 2009. And when Kalikow recommended an $850 million package of dedicated taxes to help the MTA close its budget gap, Pataki responded, “I don’t believe in taxes”—as if fare increases weren’t taxes by another name.

Year after year, Pataki’s budgets have relied on borrowing (at $2,420 per capita, New York’s debt is now two and a half times the national average) and one-shot gimmicks to keep his no-new-taxes mantra alive. The MTA is currently the best example we have of where these tactics lead. “What we’re seeing is that the political slogans that have dominated elections are finally coming home to roost on a policy basis,” says Assemblyman Brodsky. “Ideology has consequences. And we’re not in Crawford, Texas, or Peekskill, New York.”

Beset by floods and fires and built on technology that predates the Model T, the subway, the very essence of New York, has become frighteningly fragile. And now that the MTA has dug itself into a deep financial hole, it has started traveling back in time to 1975.

A World-Class Ride
What New York could learn from transit systems around the globe.

How to Fix the MTA