Finance New York

Reaction to the Ravitch Report

Today, the Ravitch Commission, charged with finding a solution to the current funding crisis at New York’s Metropolitan Transportation Authority, released its study of the agency to the Governor of New York State, David Paterson. Headed by Richard Ravitch, who is often credited with saving the agency from self-destruction in the 1980s, the report proposes a number of new measures that will keep the agency well-financed in the future. That is, if the proposals are approved by the oft-reluctant New York State Assembly. You’ll find a detailed discussion of the report below, but you can also download it and peruse it yourself here (PDF).

Criticisms of the existing MTA structure:

Unsurprisingly, the report came out completely for the improvement of funding for mass transit in the region. Ravitch witnessed the almost-destruction of the MTA system in the 1970s, and just as in the 1980s, is convinced that the worst decision would be to allow the Authority to again fall into disrepair as a result of insufficient funding. “Any action taken to slow down investment in mass transit,” the report states, “is contrary to sound public policy objectives that can only be achieved as a result of continuously funded capital programs.” Indeed, the health and sanity of New York City is utterly reliant on the health of its transit system, and the State and City have a moral and economic obligation to ensure it.

The MTA’s currently budget crisis, which predicts a $1.5-billion funding deficit next year, is the primary obstacle to the agency’s future solvency and its ability to continue financing the purchase of new busses train cars, the renovation of stations, and the construction of new lines such as the Second Avenue Subway. The agency, in its doomsday proposal a few weeks ago, suggested it would have to increase fares by 23% overall and decrease service, including by eliminating the W and Z subway lines. Perhaps even more scary, the plan says nothing about how future capital expenses will be paid for! There’s literally no money to pay for the next five-year capital plan, which is essential if we want to make sure the system doesn’t fall apart on itself!

But the report rejects such plans, arguing instead that the best decision would be to increase funding and increase service. And yet, the MTA Board is required to present a balanced budget, and that won’t happen without more tax revenues.

The report puts the blame squarely on two problems: a structural reliance on bond funding (whose problems we’ve discussed before) and a problem in the leadership structure of the agency. Here’s the critical passage on debt-based funding:

“Fundamentally the MTA’s deficit is rooted in a structural budget imbalance driven by years of over-reliance on self-supported debt to fund its capital needs. This has led to large and growing debt service payments made through the operating budget that have placed extraordinary pressure on the farebox. This structural imbalance has been masked in recent years by an unprecedented collection of real estate transactional taxes.”

And, indeed, this is a major problem: passengers are simply paying more and more for less, as they’re having to pay back the loans that were taken years ago to finance capital improvements. The MTA’s budget has been fine in recent years, as the passage points out, but only because of the huge real estate market in New York City, that held the Authority afloat. Now that the building boom in the city has popped and the overall economy has slowed significantly, the MTA must find other ways to finance itself. Most importantly, it must stop being so reliant on bonds to fund capital improvements and even operating expenditures. Taking out loans simply costs more in the long-term than paying as you go, as direct taxes would ensure.

The report also goes a long way in criticizing the way the Authority’s management is currently structured. In 2005, the Authority’s leadership was split between a Chairman and an Executive Director, neither of whom have complete control over the system, and whose roles in leading the charge for improvements has been notoriously nebulous. The Ravitch report suggests that a more reasonable solution would be to combine the two roles in one single full-time Director.

There’s also a thinly-veiled criticism of the authority’s existing board structure:

“The Commission recommends that all new members of the MTA Board possess relevant experience in one or more of the areas of expertise that are necessary to serve effectively… the activities of the agency are simply too important to the economic health and competitiveness of the region to entrust its oversight to individuals who are not experienced in the activities under their review.”

It is true that the current disposition of the Board’s members – towards real estate – as a result of Governors using the Board as a political patronage system, doesn’t make much sense. But this kind of statement, without setting any kind of necessary experience for joining the Board, will never be followed in the state’s highly-charged political environment.

Both suggestions make sense, but one wonders whether the report doesn’t go far enough. Perhaps the MTA’s current structure as an Authority, which is not particularly accountable to the government, doesn’t make much since. Because the MTA exists apart from the State and City governments, these publicly-elected bodies can criticize the MTA for its “failings” without promising increased funding. By re-incorporating the MTA into the State government, this kind of criticism would not be possible and the future financing of the agency would be more assured. Considering how political any change at the MTA currently is, the Authority’s supposedly “non-political” stance seems disingenous. Though the MTA is separated from the government, its decisions are wildly influenced by politics.

Proposed financial improvements:

Obviously, any improvement in the Authority’s finances would have to be supported by new finance sources, because it doesn’t look like there’s going to be any improvement in the real estate market in the next few years. The plan proposed by the Commission in this report is designed to support not only existing operating expenses but also to pay for annual spending of $5-6 billion on capital improvements. “A program of this size could be supported by the Commission’s revenue proposal,” the report notes.

Most importantly, the Commission suggests that improvements could be sponsored without the massive 23% increase the MTA is suggesting. Rather, the report proposes giving the MTA Board the ability to increase fares and tolls at a rate “no greater than the change in the Regional Consumer Price Index and no more frequently than bi-annually.” This would mean no more insane political psychodramas everytime the Authority announces it might need to increase fares. It would also mean smaller, yet steadier, price increases for riding busses and subways. This would be a meaningful and useful change and allow more reliable funding from the farebox.

But the majority of new funding would come from a regional Mobility Tax, which would be paid from wages in the twelve MTA commuter counties in New York State. At a rate of 33 cents on every $100 earned, the tax would be expected to produce $1.5 billion annually for the agency, enough to in itself make up next year’s budget deficit. This money would go directly to a new agency that the report proposes, the MTA Capital Finance Authority, which would pay directly for MTA Capital Improvements and as a result reduce to some degree the agency’s expanding debt load.

Is this new agency really necessary? It seems like the report proposes it just to ensure that the tax money will go to capital improvements, rather than operating expenses. More bureaucracy in the already multi-layered MTA seems like a bad idea. Also, the tax, though useful, would not affect commuters in New Jersey and Connecticut, which also benefit from MTA services! One wonders whether the MTA, folded into an expanded Port Authority with tri-state coverage and taxation ability, would be more effective. Such a major change, however, is unlikely in the next few years.

Finally, the report suggests, once again, tolling on the East and Harlem River bridges, meaning that any vehicular route into Manhattan would now be charge. We’ll discuss tolling in New York City more extensively in future posts, but this makes a lot of sense, but is also politically difficult, as proven by the failure of Mayor Bloomberg’s congestion charge proposal last year. The report suggests using overhead cameras and EZ-Toll devises that would charge car drivers without the need of toll plazas (which would be virtually impossible in the case of the currently free Brooklyn, Manhattan, and Williamsburg Bridges. Those bridges would now cost the same as using the Triborough Bridge or Queens-Midtown tunnel. Bridges between Upper Manhattan and the Bronx across the Harlem River would cost the same as a subway fare. Overall, these proposals would bring in $600 million annually. Again, we endorse these proposals, which would reduce vehicular traffic and increase funding. But we’ll see what the hyper-reactive State Assembly, under the leadership of anti-congestion charge Sheldon Silver, does…

Proposed service improvements:

The report places a premium on improvements in bus service in the city and region as a whole, with a reasonable argument:

“While the MTA’s major expansion projects remaind critical for the region’s future, the Commission recognizes that the time necessary to construct these types of improvements and their high cost make them impractical solutions to addressing immediate transit needs. Expanding the bus network is the only realistic approach.”

It is true that in the short term, increasing ridership on the transit network simply cannot be handled by the subways, which are already completely overcrowded. The plan suggests that BRT lines would be simple, cheap, and effect, and significantly improve service for a lot of the city. Indeed, the experience on the recently improved Bx12 Select Bus Service (which includes bus-only lanes, improved stations, and pre-paid fares) suggests that BRT can work effectively in New York City. But realistically, the service offered on that Bronx bus line simply does not increase capacity significantly.

The report’s emphasis on bus service improvements – which are cached in the not-so-true claim that “Demand for bus travel, whether local or regional, has mushroomed in recent years,” wouldn’t actually save the region’s transit woes. As this MTA page shows, subway ridership in New York City remains twice as high as bus service ridership, and it’s also growing more quickly. There’s a good reason for this – subways are quicker, come more frequently, and provide much more space on board than busses.

While it may be true that better bus service, provided by the report’s proposed Regional Bus Authority – “a single entity responsible for bus service in the metropolitan region,” would attract some more riders, the overcrowding on existing MTA subway lines would not be solved.

The report does provide useful suggestions for improving the funding of the agency, but it doesn’t go far enough. Simply stated, the proposed finances, which would increase annual funding by around $2 billion, would not actually provide enough to increase funding, which would be necessary for more service. It is important to ensure long-term accountability in the Authority’s finances, which the report’s suggestions would do. But as of now, absent a sudden improvement in the real estate market, no subway service improvements are likely in the short term.

Without stating it explicitly, the MTA is placing its future entirely in the hands of the federal government. Only Washington will have the financing to provide for the dramatic service improvements the MTA needs – and for which this unexciting Ravitch Commission report does not provide.

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