AFTER six months of Albany drama, is the state-run Metropolitan Transportation Authority fixed?
In the long term, no. In the short term, a pessimistic maybe.
Gov. Paterson, Assembly Speaker Sheldon Silver and Senate Majority Leader Malcolm Smith have asked Downstate taxpayers to pay a steep price for an uncertain outcome.
On Tuesday night, Paterson & Co. finally agreed on a $1.8 billion annual taxpayer bailout for the beleaguered MTA, including a $1.5 billion income-based tax for Downstate workers and a number of transportation-related taxes and fees, including a cab surcharge.
The authority, facing huge operating deficits and the possibility that it wouldn’t be able to maintain the quality of its subway and bus assets, had threatened big fare hikes and service cuts. With the bailout, the MTA will raise fares and tolls but by a smaller amount, bringing in $500 million or so extra a year, for a total of about $2.3 billion more in cash.
The numbers that state legislators and the MTA have laid out in the MTA budget leave little room for error. For example, for the seven months left in this year (if all goes perfectly) the budget’s higher taxes, fees and fares will bring in $1.3 billion. But the MTA was facing a deficit of at least $1.5 billion, even after making cuts that didn’t involve service.
Yes, the MTA’s real-estate-related tax revenues may finally stop their huge declines, giving the authority a bit more cash. But taxes could just as easily keep declining by more than the MTA expects. So it’s possible that the MTA will end up with a deficit even after all the hikes and be tempted to borrow from next year — something it sought to do last week before the bailout agreement.
Which brings us to next year, when the margin for error is equally slim. For 2010, without any toll hikes or service cuts, the MTA was facing a deficit of about $2.3 billion — so a bailout of $2.3 billion for the year would seem to do the trick. But, again, we’ll see what happens with tax revenues. They may get better; they may get worse.
One big bailout question was whether the deal would encompass the revenue for funding the MTA’s capital plan — without which subways and buses could decay. On Tuesday, Silver said he thought the bailout included enough to fund $6.5 billion in new debt for the first two years of the next five-year capital plan, requiring annual payments of a few hundred million dollars a year. But if it turns out that a continued bad economy erases all of the MTA’s room for error, this funding could be the first thing sacrificed.
Of course, many would say that it’s better to have $2.3 billion in extra money than not to have it. That would be true — if the MTA hadn’t sacrificed much of its tenuous independence for this money.
First, the MTA has agreed, as a condition of the bailout, to restrict fare hikes to 7.5 percent every two years for the foreseeable future.
That’s fine — if inflation is low and if tax revenues improve along with the economy. If not, the MTA could find itself asking for more money, with everyone saying, “Didn’t we fix this problem a while back?” — further damaging the MTA’s dubious credibility.
Second, the MTA could pay for this bailout with even higher labor costs. Organized labor, from the teachers union to the MTA’s own transit workers, came out in force for the bill. They’ll want something in return.
The bill was the creation of union-friendly Democrats. Republicans never offered one vote of support. When it looked like the bill would fail in a closely divided Senate, Republicans could have offered support in exchange for some modest reforms of such things as pension costs. Such politics prompt cynicism about the state Senate’s promises to audit “wasteful” MTA spending — because neither Democrats nor Republicans appear interested.
For what taxpayers are giving up here, they should’ve gotten more in return. Lost in the relief over the averting of MTA bankruptcy is the fact that the $1.5 billion annual payroll tax created to fund the deal is a tax on jobs. New York is already the least business-friendly state — and Downstate is already hemorrhaging jobs.
Yes, an MTA that can’t provide basic services or invest in city transit assets kills job, too. The bailout bill was supposed to ensure that this wouldn’t happen — not just for a year but for a generation. It didn’t accomplish that task.
Nicole Gelinas is a contribut ing editor to City Journal.