Prendergast: $15 Billion Gap in MTA Capital Program “Unconscionable”

Post-election, the political discussion about transit funding in New York has entered a new phase. Albany can now turn its attention to the most pressing transportation issue in the state: closing the $15.2 billion gap in the MTA’s next capital program. Yesterday, MTA Chair and CEO Tom Prendergast made his first public comments since the election. He said elected officials must be educated on the need for transit investment and repeated his call for new revenue sources to keep the region’s trains and buses running smoothly.

Tom Prendergast says elected officials must learn Photo: Kevin Harber/Flickr
A $15 billion gap in the MTA capital program threatens to saddle straphangers with the burden of even more debt. Photo: Kevin Harber/Flickr

Prendergast’s remarks came at an event hosted by a construction industry group — the General Contractors Association of New York. Also participating in a panel on the MTA capital program and transit funding were Citizens Budget Commission President Carol Kellermann, NYU Rudin Center for Transportation Director Mitchell Moss, former NYC Economic Development Corporation chief Seth Pinsky (now with RXR Realty), and CUNY Institute for State and Local Governance Chair Marc Shaw.

Debt levels at the MTA have skyrocketed as capital programs have grown while state and city funding has shrunk. Borrowing costs consume an ever-greater share of the agency’s operating budget, contributing to higher fares and less service for riders. “Continuing to the load the MTA up with debt is dangerous,” Pinsky said. “We do need to talk about new sources of revenue.”

One potential source is the city’s own capital budget. Under Ed Koch, the city chipped in $200 million annually. Under Giuliani, the city cut its contribution down to $100 million. The number has stayed steady ever since. The MTA’s new capital plan assumes the city’s annual contribution will increase to $125 million, and Shaw, a former Giuliani budget director, was bullish that the city would commit to it. If it does, an extra $25 million in cash per year is still just a drop in the bucket when it comes to the capital plan’s budget gap.

Pinsky, the former NYC EDC president, sees potential in the real estate sector. Local governments could levy special taxes on development near transit — a strategy known as value capture — both in the city and around suburban rail stations, which he said are too often surrounded by a “sea of parking” in areas that could serve as vibrant downtowns.

Investing in transit by tapping the increased value of real estate has promise, but the devil is in the details, and it hasn’t always worked well in New York. Kellermann pointed out that development at Hudson Yards, which was supposed to pay for the 7 train extension, has been lackluster, leaving city taxpayers to pick up the tab. And even if the value capture mechanism is calibrated perfectly, she said, it can’t bridge a $15.2 billion gap.

Kellermann suggested the cost of a MetroCard should go up to help fill the gap, on top of back-to-back four percent fare hikes already scheduled for 2015 and 2017. She also thinks drivers should pony up. “There needs to be a lot more money contributed by auto users,” she said. “I wouldn’t give up on the East River tolls. The Move New York plan is a good start.”

Pinsky said tolls are “worth looking into,” while Shaw said his “gut” was bearish on tolls getting a sign-off from Albany, though he acknowledged the state will have to find money one way or another. “Every capital plan needs a revenue source,” he said. “The solutions will be found in the politics of the moment.”

At this particular moment, State Senate Republicans are ascendant. Their leader, Dean Skelos, represents a constituency that fought tooth and nail against the MTA-supporting Payroll Mobility Tax since its creation in 2009. Prendergast warned against further cuts to the PMT. “There’s about $15 billion in question [for the current capital plan],” he said. “If there’s rollbacks to PMT, that number grows, and that would be a concern to us.”

But before elected officials can be asked to generate new revenues for the MTA, Prendergast said, they must be convinced that the investment is necessary. “We establish the need first, then we establish the finances,” he said. “If we don’t reach consensus and we don’t get the funding we need to do this program, we will actually lose an asset we already have. That, I think, is unconscionable.”

After Prendergast’s remarks, a reporter asked if Governor Cuomo is among those who must be convinced of the capital program’s merits. Prendergast didn’t answer directly. “It’s all the stakeholders. It’s all the elected officials. It’s everybody,” he said.

The cost side of the equation came up for discussion as well. Kellermann noted that mega-projects like East Side Access and the Second Avenue Subway eat up enormous shares of the MTA’s capital spending with little accountability. “There’s no cost-benefit analysis,” she said, noting the authority’s enormous cost and schedule overruns.

Kellermann and Prendergast both called for more public-private partnerships and design-build contracting for large projects. “That’s not a core competency of ours,” Prendergast said. “We need to do more of it.” He also cited the Montague tunnel rehabilitation, which came in early and under budget, as an example that can provide “lessons learned” as the agency proceeds with other tunnel rehabs.

Both the Citizens Budget Commission and the Regional Plan Association have called on the MTA to ramp up the installation of Communications-Based Train Control signal upgrades. Prendergast framed improved signals as both a safety issue and a system expansion issue, because CBTC allows for more trains per hour. Kellermann urged the MTA and the public to develop a stronger stomach for long-term shutdowns on lines that will receive signal upgrades.

A major bottleneck for CBTC expansion: Finding qualified contractors. The MTA has two companies that it can call on for CBTC jobs, and is in the process of adding a third to the list. The MTA says it expects CBTC bids to be less costly once there are three companies vying for contracts.

The next likely step in the debate over MTA funding will likely be a report from the transportation reinvention commission, which has been on ice since September. Commission members tell Streetsblog that draft copies of the report tackle funding issues. Its recommendations should provide grist for discussion before the legislature starts its session next year. After yesterday’s event, a reporter asked Prendergast when the reinvention commission report will be released.

“It will be coming out soon,” he said.

  • Tyler

    There is no doubt there should be more investment in public transportation infrastructure… but the MTA seems like such a black hole of a money pit. When very basic structural repairs to my local subway station (that was closed on one side completely, unfettered by train traffic because the local track was shut down) cost over $4 million and they didn’t even complete the final tile repairs… uggh.

  • BBnet3000

    “Prendergast’s remarks came at an event hosted by a construction industry group”

    The MTA is underfunded but this sounds a lot like the farmer and the hogs all agreeing that the government needs to give them more feed.

    How much of this capital funding is for state of good repair and how much is for boondoggle megaprojects? How much does it cost to keep the subway in a state of good repair and to upgrade signals in New York compared to any other first world city?

  • Here’s an idea. We float inflated contracts on the backs of transit riders.

    We are already doing this?

    Well done then.

  • Tyler

    By the way — based on the poster they hung on the wall of the station, they seemed to be *proud* of the repairs and the money they spent and expected the rest of us to share in their joy.

  • vnm

    It’s all laid out right here.

    http://web.mta.info/capital/pdf/Board_2015-2019_Capital_Program.pdf

    (PDF)

    $5.5 billion would be for what the MTA calls network expansion and what you call boondoggle megaprojects. This includes extending the Second Avenue Subway to Harlem and building four new stations in the Bronx for new Metro-North service to Penn Station. The big majority of the funding, $23.5 billion, would be for just keeping trains and buses running, and doing upgrades like upgrading its ancient manual block signaling systems. This is what the MTA calls its “core program.” The remaining $3 billion is for the MTA’s nine vehicular bridges and tunnels.

  • HamTech87

    Hearing Seth Pinsky, the guy who foisted unnecessary parking onto NYC, complain about “seas of parking” is just too bizarre.

  • Tyler

    That strikes me as $32 billion that could be spent better — Perhaps starting with an honest bidding process that has some sort of checks-and-balances built into it? If you are simply picking the lowest bidder out of multiple insanely inflated bids, then it’s easy to spend $32 billion ain’t it? Also, wouldn’t it be nice if there were some real accountability in the system… how many state contractors have actually had their contracts truly enforced? (i.e., withholding of payment, warranties, etc.)

  • Bolwerk

    Heh, I remember that. Wow. But, if he saw the light, great. I really think a lot of people have since 2007 or so. They just usually aren’t elected officials. 🙁

  • vnm

    I don’t know if it’s a lot or a little, to be honest, for a five-year plan. How much is the State DOT planning to spend over the next 5 years? What about the City DOT? What about Fire, Police, Hospitals, Corrections, Education? If you don’t know either, that’s an indication that there is a lot more scrutiny placed on the MTA’s budget than on other government priorities. The way our system is set up, transit riders have to go begging on their own every five years, whereas other governmental capital needs are met within the State budgeting process.

  • Bolwerk

    A lot of this stuff does seem inflated. Almost $3 million/subway car. Wikipedia says (and I’m only citing them because I’ve seen this elsewhere) the R160 fleet costs were more like $1.28 million/car, I guess contracted around 2005.

    Is it just me, or is that like ~130% inflation over a 10-year period?

  • avatu

    Most of the dollars spent go to labor in one form or another. Meaning good paying jobs for our neighbors. Construction workers, engineers and project administrators. The same people who ride and rely on the transit system. These local jobs spur and support the rest of the local economy. In fact the loss of this spending would have a very detrimental effect on the city. The companies doing this work take great financial risk with often the potential of quite meager profit’s and the real potential of deviating losses. The transit system in this city is a treasure worth protecting for the good of all.

  • Larry Littlefield

    Everyone is missing the point. The general public will compare what they pay for mass transit, and when they get in return, and they will feel they are ripped off. Why? Because they are ripped off. And that is true of every public service for one simple reason — Generation Greed.

    A large and growing share of the transit fare, the toll revenue, the taxes, whatever is being sucked into the past for debts, pensions, and retiree health care.

    Not debts for system expansions that provide greater benefits to offset the greater cost. Debts for past maintenance, fare cuts, wage increases, “dedicated revenue” raids.

    Not pension and retiree health care expenses in return for work that is being done today. Excess costs due to past retroactive pension enhancements, employee contribution cuts, and taxpayer underfunding. And the fact that retiree health insurance was unfunded until recently.

    As long as the can is kicked, the wedge between that people are paying and what they are getting continues to grow. And as long as people aren’t told why they are paying more for less, the more they feel current workers and the agencies are ripping them off — not the past. And since our legislators did these deeds in the past, that’s just the way they like it.

    That growing wedge is fueling hostility to all government provided services, because all government provided services are becoming more of a ripoff for people today, because of what was done yesterday. Only no one makes the link.

    If Pendergast wants to educate people, the first thing he needs to do is skip the fare increase and instead cut fares and tolls back to the level of transportation provided, over and above taxes and subsidies. And then impose a “Generation Greed” surcharge on top of that, so everyone can see how much money is not actually going to today, or tomorrow.

    You put in $20 and it says you have a $22 metro card? The goodwill from that little piece of misdirection has worn out. How about cutting the fare to $1.25, but when you put in $20, you only get a $10 Metrocard — and you paid a $10 Generation Greed surcharge? That is reality.

    As for the cost of capital projects, I still want to know what is going on with NY’s construction industry multi employer pension funds. And how much extra is being charged to every MTA projects to get these funds out of the hole after past retroactive pension increases and construction contractor underfunding.

  • lop

    http://web.archive.org/web/20090205214306/http://www.alstom.com/pr_corp_v2/2008/corp/53460.EN.php?languageId=EN&dir=/pr_corp_v2/2008/corp/&idRubriqueCourante=23132

    961.6 million for the first 660 in 2002 (1.46 million each), 1.12 billion for the next 620 in 2007 (1.81 million each), 784 million for 382 in 2008 (2.05 million each).

    If the contract is signed in 2017 it would be just about a doubling of price in 15 years. Still bad, but slightly less so.

  • lop

    6.162 billion in funding for the capital plan is coming from MTA/TBTA bonds. Is that new debt before the 15 billion dollar gap?

  • Larry Littlefield

    What else would it be?

    Now as I’ve said, it is not unreasonable to borrow for actual expansions of the infrastructure that have the potential to either raise revenues by expanding economic activity (Flushing Extension), provide ongoing benefits by permanently increasing the quality of life (ESA, SAS), or cut costs (nothing, because even if an MTA investment means fewer workers are needed, labor contracts mean that productivity never happens). Maybe that’s what this borrowing is.

    What is disastrous is to go deeper and deeper into debt just to pay for the ongoing normal replacement required to keep the system that you have, which provides no additional revenues or benefits that you aren’t already getting. To the point where interest swallows all the money and ongoing normal replacement stops, and you lose what you have.

    Now if the CBC wants to say we can’t invest in the future because Generation Greed took all those future revenues in the past, it should say so, rather than this nonsense about cost-benefit. Kellerman is a member of Generation Greed too. None of them wants to say “the future and those who will live in it are screwed, and here is our plan to allocate the plan while deferring it to after we are gone.”

    Everyone at that conference is a member of Generation Greed whose career consisted of going along with the sellout of the future that is now the present, and getting some of the benefits (ie. the contractors). No wonder so much is unsaid. What needs to be said is that it’s time to bite the bullet while it remains an alternative to biting the dust, and not just at the MTA.

  • Larry Littlefield

    “Most of the dollars spent go to labor in one form or another. Meaning good paying jobs for our neighbors.”

    A rising share of the dollars go to PAST labor, to workers that were paid more than future generations will be paid, and are being paid, with part of that cost deferred to those less well off younger public and private sector workers. That means tax-free bond payments for the rich and tax free pensions for those cashing in and moving to Florida.

    The question is how and in what way will future labor in the public and private sector be screwed to pay for this? And not just at the MTA.

  • andrelot

    Wouldn’t support for capital expenses rises a lot if someone, from any party, decided to go on a full frontal war against the construction unions of New York, which makes very expensive to build anything? It is not as much as high wages as it is about arcane or outdated work rules that have nothing to do with safety, but just keeping with practices long gone (like iron-clad fixed scheduling, excessive benefits, seniority etc).

  • Charles

    Everyone needs to read and understand the charts in this story: http://www.nytimes.com/2014/11/08/business/economy/government-shows-growth-after-years-of-shrinking.html

    Government investment in infrastructure is the lowest it has been since before the Federal Aid Highway Act was passed in 1955.

    And the people just voted for more austerity.

    If the MTA wants to maintain current service or even add service, it is going to have to find ways to get the private sector to pay for it. Government is not going to do the job.

  • Guest

    A typical MTA work site: Two dozen guys in orange vests standing on a platform on the 7 line, cackling like schoolboys. Finally one guy jumps down to track level and halfheartedly whacks at the rail with a tool. A train comes, and he climbs back to platform level.

    These may be good paying jobs, but it is hard to see how any work is getting done.

  • Bolwerk

    Well, anything significantly greater than inflation is “bad” enough where it should at least be explained.

    Maybe there is a good explanation, like asset inflation. I think steel prices have gone up significantly in the past 15 years. But I rather doubt that’s a complete explanation.

  • Larry Littlefield

    If you were to chart it next to inflation-adjusted public employee pension contributions, what do you think it would show? Here is the chart for NYC teachers. One reason there is less money for infrastructure, and there are others like it.

    https://larrylittlefield.files.wordpress.com/2014/07/chart-21.jpg

    Then there is the interest on all those debts. And all those federal senior benefits older generations promised themselves, but voted for politicians who promised tax cuts instead of paying for them.

    If interest payments aren’t crushing the federal and state budgets, that is because interest rates are zero. But zero interest rates are crushing public pension funds, which have a zero percent return and a 7 percent return assumption.

    And when interest rates rise back to normal? The value of existing stocks and bonds in public employee pension funds (and 401K portfolios) crashes, and interest payments gut public budgets. It’s just a matter of how and when the pain comes. Other charts to understand are here.

    http://larrylittlefield.wordpress.com/2014/03/09/debt-and-inequality-go-together-rising-debt-is-the-cause-of-rising-inequality/

    Republicans and austerity? Maybe in the 1950s. Suggest raising taxes at the top to avoid the country going bankrupt, and you’ll see how austere they are. Generation Greed is bi-partisan.

  • G1991

    How much revenue could be generated from congestion pricing and using the congestion pricing funds to finance high capacity forms of transportation? In New York, I would imagine that this would be a perfectly viable form of transit financing.

  • AnoNYC

    http://www.move-ny.org/pages/the-bottom-line

    “Revenues
    The Move NY Plan will generate $1.44 billion of badly needed new revenue each year – revenue that will be “lockboxed” and invested in capital projects that maintain and upgrade our transit system and regional road network.

    Here’s how the numbers add up:

    We gain $1.65 Billion from the new CBD charges, while forfeighting $770 million by reducing tolls on other bridges. The technology and administration for the new tolling scheme will costanother $170 million. All told, then, implementing Toll Reform will net us $885 million annually.

    Meanwhile, more transit riders – lured in by better and more affordable service, or choosing not to drive because of the CBD tolls – will add $230 million at the transit fare box. Similarly, lower prices on outer borough bridges will attract more drivers, netting another $65 million. The taxi surcharge will raise $255 every year, and finally, revoking the parking tax rebate that only Manhattanites enjoy will save us $10 million.

    Those numbers are calculated by the Balanced Transportation Analyser (BTA) a 60-tab spreadsheet model developed by economist Charles Komanoff and available here. Widely respecting consulting firm HNTB conducted an audit of the BTA in 2013 and found its assumptions and predictions accurate.

    That revenue will be allocated according to the following formula:

    The first quarter ($356 million) goes to Road and Bridge capital projects: drivers being asked to pay more have the right to see improvements to the infrastructure they use.

    Of the remaining $1.115 Billion:

    $109 million will go to increasing bus service and restoring service that was cut in 2010 and offering fare relief for riders of Express Buses and intra-city commuter rail

    $975 million will go to keeping the transit capital improvements: major new transit capital projects that will make the system more accessible and link the region together like never before, and keeping the system in a State of Good Repair, and improving the experience of the system through station rehabilitations, signaling improvements, universal countdown clocks and a more convenient fare payment system.”

  • AnoNYC

    “And the people just voted for more austerity.”

    The people of the over-represented rural and suburban districts.

  • lop

    Almost one billion annually for transit capital funding? That’s about 1/3 the current funding gap.

  • lop

    The capital plan allocates less, 5.519 billion, to network expansion. And how much of that is picked up by the feds anyway?

    Reporting makes it seem like the MTA has 16 billion in cash and wants another 15 over the next five years. But they have 10 billion cash and are going to borrow another 6, and are still 15 short. Seems like a big difference.

  • Larry Littlefield

    If you don’t bond it, and spend 30 plus years of revenue in the first five years, as proposed. Leaving you in the same situation in five years.

    But lets say they do the right thing (zero chance, but what the hell). Yes we need this plan.

    And we need to demand a better deal from the contractors, saving $1 billion per year without cutting scope. Bid it out for lower prices with strict penalties for failure to meet them, and if no one meets those parameters, don’t do the work until they do.

    And we need another $billion per year.

    But only because of all the money being sucked into the past. Without that, there would ALREADY be enough money. The MTA does not lack for dedicated revenues.

  • disqus_YCAT7tnqNO

    Absolute BS. RXR is lobbying local governments for tax abatements and public funds in every one of these transit-oriented redevelopments. Hempstead, Wyandanch, Riverhead, Glen Cove, Huntington Station, etc… The list is endless. Typical crony capitalism that makes Albany the ethical cesspool it is. RXR will lobby to build parking one year, tear it down the next, whatever it takes to keep making a buck regardless whether it’s needed or helpful.

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