With No Federal Money Coming, the MTA Has Options — Bad Ones

A wise man once said, "There's always money in the banana stand." But as the MTA approaches a fiscal abyss, the transit agency would be lucky to have to something like a food stall stuffed with cash.

Gov. Cuomo made waves last week when he said that if the federal government doesn't fill the MTA's immediate $3.9-billion fiscal hole, the agency would need to raise fares and tolls to make up the yawning gap that could get as high as $16 billion over the next four years. And right now, it's appearing that the Senate does not want to help.

But there's another option than fare hikes — the nuclear option: the MTA can cannibalize its future by using federal capital grant money to fund day-to-day operating expenses.

In a quiet move in March, the Federal Transit Administration announced that transit agencies could use federal funds that are usually earmarked for capital work for operating expenses on an emergency basis.

However, that option comes with huge downsides.

For starters, the FTA permission requires the money to be used only for limited "eligible activities," such as "protective measures to eliminate or lessen threats to public health and safety, such as enhanced cleaning/sanitizing; placing hand sanitizer dispensers in high-traffic areas; providing personal protective equipment."

The MTA is prepared to spend about $500 million on COVID-related cleaning over multiple years, so advocates say the cost-benefit analysis doesn't really work out in favor of the idea of raiding the capital cookie jar.

"The entirety of the MTA's needs are so massive that it's just a drop in the bucket," said Reinvent Albany Senior Researcher Rachael Fauss.

And the 2020-2024 capital plan — which promised accessibility upgrades; system expansion in the form of a continuation of the Second Avenue Subway and offering some Metro-North customers access to Penn Station; and the start of badly needed signal upgrades — is already under threat. Agency officials said that the plan is on pause during the pandemic, and might be cut severely if the agency remains mired in debt and doesn't have revenue sources like congestion pricing, said MTA Chairman Pat Foye.

Most important, the habit of taking capital funds for operating expenses is what led to New Jersey Transit's legendary neglect and decline, as basic repairs and upgrades went by the wayside for years at a time.

So advocates think the FTA's permission to allocate major repair funds for the immediate crisis is really not much help.

"The MTA should use this as an option of last resort," said Tri-State Transportation Campaign Executive Director Nick Sifuentes. "It has been tremendously detrimental in the case of New Jersey Transit, which has engaged in hundreds of millions in such transfers annually and has very little new capital investment or system expansion to show for it."

Other advocates said the idea is only helpful if all else fails.

"It would be an act of utter desperation," said TransitCenter Communications Director Ben Fried. "If the situation gets bleak enough, it’s an understandable choice. But if the MTA is forced to make that choice, it means that elected officials failed to come through for transit riders."

That said, groups such as Tri-State and Reinvent Albany are part of a coalition of advocacy organizations that are pushing the federal government to give the MTA another $3.9 billion to help balance the imbalanced books. It stands to reason that the groups would not want to dilute that message by also urging the MTA to use the federal money it already has, said one supporter of turning capital money into day-to-day funds.

"Everyone is on the same page: They want Washington to give the MTA more money," said Larry Penner, a retired official who spent 30 years at the Federal Transit Administration, including a stint as point man in the New York region (as such, sees the Washington-MTA dynamic a bit differently).

Penner takes the narrow view that Washington can't be relied upon, so the MTA has to cut all its frills — and he considers system expansion projects like the Second Avenue Subway to be frills in the current environment — to keep the system running. Unspent federal capital money, he argues, should be spent only on projects that maintain "state of good repair," a transit term that applies to things like basic but crucial trackwork and signal repairs.

"The MTA is like a homeowner — and right now, that homeowner has less income, so that homeowner has to prioritize his or her expenses. Safety, accessibility and state of good repair are more important than system expansion right now."

Penner has outlined billions in federal capital grants that he believes should be shifted to day-to-day operations. He believes, for example, that the $4 billion that the MTA has budgeted for the Second Avenue Subway should be spent now, and the project put off until the 2025-2029 capital plan. Same for the $1.5 billion budgeted for Metro-North's Penn Station expansion.

The FTA has also allocated $1.4 billion in the current fiscal year to the MTA, money that he says has not been spoken for and can be used for any day-to-day operations, not just COVID safety expenditures.

"Transit agencies are always rightly afraid to do this," Penner said. "But this time, they should. You can’t count on Washington."

The MTA also has the option to borrow money from the Federal Reserve's Municipal Liquidity Facility, a $500-billion fund with low interest rates for cities and certain public agencies. But the fund only offers borrowers three-year loans up to 20 percent of missing revenue — and the MTA takes in about $8 billion at the farebox and at tollbooths every year.

"Borrowing is a better option, but it doesn't fill the entire gap either, since they can only borrow $2 to $3 billion," Fauss said.

Fauss said the Federal Reserve could allow transit agencies to access another fund that provide long-term, low-interest loans, but even that isn't a terrific for an agency whose operating budget was one-fifth allocated to debt service — even before the coronavirus crisis swept the world. The MTA has already hit up its creditors earlier in the crisis, taking out a $1-billion loan in mid-March. Ultimately, she said there really only one good option available to the MTA.

"Direct emergency aid is always going to be the best option," she said. "It's better than fare hikes, service cuts, raiding capital funds and borrowing money." (It's also better for the nation overall, given how much money the MTA spends on contracts during good times.)

The MTA, which has previously said that every cost-saving measure is on the table, is considering borrowing from the Fed, but is not considering reallocating capital grants for day-to-day expenses.

"At this point, all FTA capital grants are programmed for capital," said agency spokesperson Andrei Berman. "Municipal Liquidity Facility borrowing is an option for short-term deficit bridge financing."

Whatever happens, straphangers definitely don’t think the burden should fall on them.

“I think it’s not the right time,“ said Johnny Villarreal as he waited for a 4 train at 86th Street the other day. “We’re dealing with the virus, politics, many things. ... I don’t think a fare hike is right.”

Another straphanger — who declined to give his name — was more blunt.

“Fuck no,” he said. “That’s fucked up.”

— with Gersh Kuntzman and Adam Light