“Greatest Challenge in its History”
2020 a Horrific Year for MTA with Plunging Revenue, Huge Deficits, 2015-19 Capital Plan Mostly Not Done, 2020-24 Plan on Hold, and Crippling Debt
Reinvent Albany thanks the State Comptroller’s Office, including the Office of the Deputy Comptroller for New York City, for releasing its latest annual report on the MTA’s Financial Condition. The report details the massive fiscal crisis faced by the MTA.
Below is a Reinvent Albany summary of the State Comptroller’s report.
Federal and State Funding
- Urgent Need for Federal funding – The State Comptroller rightly says that the MTA is “facing the greatest challenge in its history,” is in a “desperate situation and is in urgent need of federal help to balance its 2020 and 2021 budgets.” This statement is important as the State Comptroller is an independent elected official charged with watchdogging state finances while protecting taxpayers and users of state services like MTA riders. The report also notes that the MTA’s usual funding partners, the State and City, “are unable to provide additional funding.” This follows downgrades to the MTA and the State’s and City’s credit ratings — the first time in three decades in which the state and city have faced downgrades.
- $600M MTA Dedicated Funding at Risk of Being Raided by State – The Comptroller’s report also says that if the State does not receive additional federal aid, “it may cut MTA funding which would exacerbate the MTA’s gaps starting in 2021.” This reference is due to MTA statements that $600M in dedicated funds are a risk because of the Governor’s proposed across-the-board cuts. Reinvent Albany and our colleagues oppose the inclusion of MTA dedicated funds — which were created by the legislature for good times and bad — in the potential cuts from the state budget adjustment process. The state’s support for the MTA from its dedicated funds remains critical, as noted by Kroll in its last downgrade of MTA transportation revenue bonds.
- Risk that the Economy and MTA Revenue Will Not Improve as Quickly as MTA Projections – According to the Comptroller, “The economy might also continue to worsen, and even if it does not there is no guarantee that ridership or tax revenue will return to pre-pandemic levels [emphasis added].” This risk speaks to the need for continuing federal and state revenue sources as the MTA weathers the COVID-19 crisis and looks at a post-COVID future.
Operations and Transformation Plan
At the same time that the Comptroller described the urgent need for federal support, the report notes that the MTA should find efficiencies where it can, such as through its existing transformation plan and by reducing spending on overtime.
- Transformation Plan Incomplete Without Civil Service Changes – As stated in the report, the transformation plan has been halted until 2021. Importantly, the report also notes there are “constraints on full implementation of the transformation plan.” The report also says that the MTA will need to “negotiate changes with its unions to implement some elements. Since most of the employees at NYCT and Bridges and Tunnels are civil servants, AlixPartners noted that civil service reforms may be needed.” The report also said that the MTA’s transformation plan should be reported on at least quarterly through its gap-closing monitoring report.
- Overtime Savings Plan Needs More Details – The Comptroller’s report stated that while the MTA has investigated overtime abuse and intends to reduce overtime by more than $200M annually in 2021, “the MTA has not detailed how it will achieve this reduction.” The MTA’s investigation into overtime only focused on its operating agencies, and has not included scrutiny of overtime of MTA Headquarters employees, including the the MTA police force. The MTA approved the expansion of its police force in 2019, but this has since been paused due to budget constraints.
Reinvent Albany has called for the MTA Board to examine police overtime, and the overtime rates and workforce availability statistics of all MTA employees to be made public. This transparency measure will allow the MTA to better manage its overtime costs. Any plan to reduce overtime by the MTA should consider all MTA employees, including police officers.
The Comptroller’s annual financial condition reports provide important oversight of the MTA’s capital program, and provide an independent assessment of the completion of the plans.
- Two-Thirds of 2015-2019 Plan Unfinished – For the MTA’s 2015-2019 plan, the report notes that nearly two-thirds of the 1,166 projects were not finished as of June 30, 2020. Further, the report said “while the MTA had completed 470 projects, 389 projects (33 percent) were still in construction, and construction had not even begun on the remaining 307 projects (26 percent).” The MTA routinely speaks about its capital plan in terms of commitments — its intent to complete projects by issuing contracts or setting aside in-house labor — but completions are a more useful gauge for the public in understanding the status of projects.
- 2020-2024 Plan Indefinitely Suspended – For the 2020-2024 capital program, given the COVID-19 emergency, the report says that “pandemic has stalled the start of the program. As of June 30, 2020, only 30 of 476 projects had been completed or had begun, and most of the rest of the program is indefinitely suspended.” The report also notes that the funding sources for the 2020-2024 are at risk, because existing taxes are expected to come in at lower rates due to a weakened economy, and congestion pricing has not yet been approved — and if approved may be used for operating expenses.
- Funding for 2020-2024 Plan Not Identified – Further, the report notes that the $3B from the state for the 2020-2024 plan per is provided as a capital appropriation, “the sources of funding have not been identified.” Later, the report says that the State “could require the MTA to issue bonds to cover its contribution to the 2020-2024 capital program.” This means that future MTA riders may be on the hook for these payments should the state choose to no longer fund its obligations, as these are likely to be done through 30 year bonds.
The report provides an important summary of the MTA’s increasing debt load. Specifically, the report states that “debt service is projected to reach $4 billion by 2024, an increase of 55 percent since 2019.” This means that debt service payments will be nearly 24% of its total revenues, up from 12% in 2004.
- Repeated Downgrades Means Debt Will be More Expensive – The report also notes that the MTA’s transportation revenue bonds “have been downgraded by four rating agencies… Interest rates on MTA bonds have begun to rise since the pandemic, and the cost of borrowing may continue to be more expensive than in the past.” This context is important as the MTA considers borrowing nearly $3B for its operating deficit through the Federal Reserve’s Municipal Liquidity Facility Program, as discussed during its September Board meeting.
- Additional Borrowing Must Be Done Under the Right Conditions – The Comptroller’s report notes that the MTA may use the MLF if it continues to provide better rates than the market. Reinvent Albany supports extending the MLF program through 2022, lowering its interest rates to not penalize agencies with lower credit ratings like the MTA, and ensuring that the MTA can access loans for a longer period of 5 years. See our primer on the MLF program.
As the report notes, “if the MTA borrowed $10 billion for operating purposes as allowed to by the State, debt service could rise by $675 million annually starting in 2023, bringing the debt burden to 27 percent that year.”