AS the economy flails, New Yorkers should worry that the state-run Metropolitan Transportation Authority will try to bridge its huge deficits by neglecting the physical assets of downstate’s public-transportation system.
MTA leaders and state politicians, including Mayor Bloomberg and Gov. Paterson, don’t want to repeat that experience of 30 years ago. But unless they’re going to squeeze every inefficiency that they can find, they’ll have to do something politically unpopular.
Before the next elections, the pols will have to allow the MTA to hike fares by likely more than it did earlier this year. Or they’ll have to find a way in the cash-strapped city and state budgets to make up for the hundreds of millions of dollars in revenue that a fare hike would provide.
The MTA took a blow last week when Albany shot down Bloomberg’s congestion-pricing plan. It had already budgeted for $600 million in congestion-pricing revenues annually starting in 2010.
Without that $600 million, the authority faces a $1.2 billion budget gap in less than two years, or more than 10 percent of expected spending – a serious hole. It’ll have to scramble to pay its current debt as well as such fixed obligations as contract-labor costs, without cutting customer service and maintenance of subway cars, tracks and stations.
Part of this is the same old story. Everyone knows that the MTA spends a lot of money on its workforce, both unionized and white-collar. Labor costs are up almost 24 percent in three years, largely owing to health care and pension escalations. But the MTA is being squeezed from another angle that could be more dangerous in the short term: inflation of its non-labor operating costs.
Reported cost-inflation in metro New York is up about 3.9 percent in the last year, one third above the average of the last decade or so – and the MTA feels it. The price of everything from fuel to electric wiring has skyrocketed, pushing non-labor costs up 32 percent in three years.
Fuel costs are up 47 percent; materials and supply costs (excluding much larger construction-project expenditures) are up almost 40 percent. Costs for both now total $766 million, up from $541 million in 2005.
These costs are small compared to payroll and pensions, but they matter – and they eat up money from the recent toll and fare hike, which brings in about $200 million annually.
Plus, while the MTA has put some money aside for fuel fluctuations and is investing in non-petroleum fuel sources, it has no room for error if costs stay high. One source of revenue, real-estate-related taxes from downstate, is plummeting, coming in last month 28 percent below what was expected and 50 percent below last year’s figure. The MTA also receives money from a special downstate tax on corporate profits, which it expected to hold steady for the year – but it’s all but assured that that spigot will turn itself off for a while, as well.
If you’re an optimist, you can think that maybe we’ve seen the worst of it: Fuel prices will moderate; inflation will slow, and real estate will pick up.
But maybe not. The Federal Reserve is under pressure to keep interest rates low, risking sustained inflation if the economy doesn’t pick up quickly.
If costs continue to rise, the MTA will feel an even bigger squeeze – because it faces so much political pressure to keep fares flat. The fare hike New York politicians (namely former Gov. Eliot Spitzer) screamed about a few months ago increased fare and toll revenues by only 3.2 percent – meaning that after inflation, the MTA is losing ground.
Further, if inflation stays high, the authority will feel pressure on the labor side. Union members will demand hefty raises so that their purchasing power doesn’t erode.
The MTA can’t deal with higher costs and flat fares simply by delaying such expansion projects as the Second Avenue subway. It must spend more than a billion dollars every year just to save the existing assets in an old system from deterioration, even before things like replacement of train cars and system improvements.
It’s good, at least, that Paterson has turned to Richard Ravitch – who headed the MTA as it struggled to recover from the ravages of the ’70s and thus is like the Paul Volcker of the subway system – to consider budget options. “Maintaining a state of good repair is the highest priority,” Ravitch told me last week.
But that’ll be hard to do if costs skyrocket while revenues – fares, plus those real-estate-related taxes – stay put.
Politicians hate fare hikes, but they don’t want to make up for inflation’s erosion of the fares by making room for mass transit in their own budgets. The state was happy to increase education spending by $1.8 billion in the new budget even as mass transit faces looming deficits.
In fact, even if inflation levels off quickly, the MTA likely will move to raise fares again in the next two years, just to deal with its projected gaps.
But in an environment of higher inflation, New Yorkers could easily face a double-digit fare hike, percentage-wise.
Yes, they’ll be upset. But Paterson, if he’s tempted to use his bully pulpit to head off a hike, should remember: New Yorkers will pay for it, if not through their pocketbooks, then through decaying trains, tracks and stations.
Nicole Gelinas is a contributing editor to City Journal.