New Funding Needed for MTA Improvements to Prevent Unplanned Fare and Toll Hikes
If new funding sources for the Metropolitan Transportation Authority (MTA) are not identified, the authority may have to raise fares and tolls faster than planned to improve a system that has deteriorated sharply in recent years, according to an analysis of the MTA’s financial plan recently released by State Comptroller Thomas P. DiNapoli.
"Maintaining, modernizing and expanding the largest mass transit agency in the nation is critically important to the future of the New York metropolitan region," DiNapoli said. "In the absence of adequate funding, the system could fall into further disrepair and riders could face unplanned fare hikes. The state and city need to find solutions to prevent these possibilities from becoming reality, and the MTA must make the best use of its resources."
DiNapoli's report notes that the performance of the Long Island Rail Road (LIRR) and the subway system has recently worsened. On-time performance on the LIRR fell sharply during the first half of 2017 and was on pace for the worst year in 17 years, largely as a result of an increase in delays related to Amtrak-owned tracks, signals and switches, as well as the LIRR itself.
By 2016, the average distance that subway trains travel before breaking down had fallen by one-third to 112,000 miles, the shortest distance since 2001, and on-time performance had fallen sharply. Almost one-third of the subway fleet is now more than 30 years old and about 40 percent of the signals in the system are more than 50 years old. The sharp growth in subway ridership over the past 15 years is also straining the system.
Although the MTA has invested more than $120 billion in capital improvements since its first capital program began in 1982, the pace of investment has not kept up with the need. Some of the largest funding needs remain in the subway system, where signals, power, stations, repair shops, pumps and emergency ventilation equipment have not been restored to a state of good repair, and subway car purchases have been delayed. More than one-third of the 201 emergency ventilation plants in the subway system are more than 50 years old and have never been rehabilitated, including five that are more than 100 years old. Over half of the system's tunnel segments are not protected by ventilation plants.
In July, the MTA announced a two-phase Subway Action Plan to address the deterioration of the system. Phase 1, with an estimated cost of $836 million, focuses on stabilizing and improving the subway system. The MTA has suggested that the state and the city split the cost of Phase 1, but an agreement has not yet been reached. In the absence of a funding agreement, the MTA has been drawing on its reserves to begin Phase 1.
The MTA had projected that Phase 1 would be completed in 2019, but it now hopes to complete Phase 1 by the end of 2018. The MTA still has not explained how the cost of increased subway maintenance will be funded after state and City funds are exhausted. After the completion of Phase 1, recurring costs could exceed $300 million annually, the equivalent of an unscheduled fare and toll increase of about 4 percent.
Phase 2, with an estimated cost of $8 billion, will focus on modernizing the system and will be included in the 2020-2024 capital program. The MTA has not yet indicated how these costs would be funded.
The MTA is contributing 43 percent of the funds for the 2015-2019 capital program, a much larger share than any of its funding partners. The cumulative impact of the 2015-2019 program and prior capital programs has placed a heavy burden on the operating budget and on those who use the transit system in the form of higher fares and tolls. Debt service and other operating resources that support the capital program are projected to increase by 22 percent over the next five years to $3.5 billion, consuming one-fifth of all MTA revenues. Even before taking into consideration the 2020-2024 capital program, debt outstanding is projected to reach $42.6 billion by 2022, $7 billion more than five years earlier.
The MTA is counting on the federal government to fund almost one-quarter of its capital program, but there is uncertainty regarding these funds. For example, the President has proposed eliminating the New Starts program, which the MTA assumes will fund one-third ($2 billion) of the estimated cost of Phase 2 of the Second Avenue Subway.
Although the state has committed to contributing $8.5 billion to the 2015-2019 capital program, it has not yet identified the source of $7.3 billion of its commitment. The state commitment could be met through MTA bonds backed by an existing or new state revenue source. The Governor recently announced the state's intention to contribute an additional $1 billion to the current capital program, but the source of that funding has also not been identified.
The 2015-2019 capital program had a funding gap of $15 billion when it was first proposed. It took 17 months before the state, the city and the MTA could agree on a funding formula to close the gap, which delayed a number of projects. The 2020-2024 capital program could have an even larger gap in the absence of solid commitments from the state and the city, or a new funding source.
Without additional financial assistance, the MTA may have to raise fares and tolls faster than planned to maintain, modernize and expand the system. While the Governor and the Mayor have both expressed support for new revenue sources for the MTA, they disagree on the approach.
The MTA projects a balanced operating budget through 2019, but it projects budget gaps in the following years, starting at $112 million in 2020 and growing to $493 million in 2021, despite planned biennial fare and toll increases of 4 percent in 2019 and 2021. (The MTA has already raised fares and tolls by 4 percent in 2017.) These estimates assume uninterrupted economic growth, $1.4 billion in unidentified cost savings and the restoration by the state of $65 million in annual funding to offset the revenue loss to the MTA from a reduction in the Payroll Mobility Tax on small businesses.
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