IBO FINDS NYC TRANSIT'S FISCAL CONDITION HAS IMPROVED, BUT FUTURE PROBLEMS LOOM

   The Independent Budget Office today released New York City Transit's Fiscal Condition, which was prepared at the request of City Councilmember Gifford Miller. The report reveals that NYC Transit's fiscal condition has grown much stronger in recent years and that it will run a surplus in 1999. However, slowing dedicated tax revenues and pressure to accommodate additional riders are expected to erode and even reverse recent surpluses; deficits are probable in 2000 and beyond.

   Additionally, while significant capital investment since 1982 has improved the system, IBO finds that current levels of capital spending are insufficient to fund major system expansion. Such expansion would require additional resources, which could come from subsidies, dedicated taxes, operating budget savings, and/or fares.

   "The transit system is key to New York City's continued economic prosperity," said Councilmember Gifford Miller. "The City has the potential to create hundreds of thousands of new jobs over the next twenty years. But these jobs may never materialize if we don't expand our overburdened system. The IBO's report highlights the fact that we need to find new sources of revenue if the City is going to build the infrastructure necessary to reach its job growth potential."

   "Given NYC Transit's recent budgetary surpluses, people might have the impression that it should be easy to add service and expand the subways," said Douglas Criscitello, IBO Director; "however, potentially large operating deficits over the next few years means that additional revenues or operating budget savings would be needed to enhance the system."

   Updating NYC Transit's projections, IBO found that the 1999 surplus would be $91 million. This will be another in a recent series of surpluses that have been partly the result of unusually high revenues from dedicated taxes and significant spending control. Adjusted for inflation, operating expenses per passenger decreased 39 percent between 1991 to 1998.

   These surpluses, however, have not been the result of growing fare box revenues. Although fare discounts and free transfers have successfully boosted ridership, they have led to a decline in total fare box revenues.

   NYC Transit's fiscal condition could deteriorate over the next few years. The growth in dedicated taxes is likely to slow and spending will be more difficult to control, particularly given the significant increase in riders. IBO's update of NYC Transit's projections show future annual deficits rising to 10 percent ($429 million) of expenses by 2003. A more optimistic scenario modeled by IBO shows New York City Transit's operating budget just breaking even each year between 2000 and 2003. A more pessimistic scenario results in annual deficits rising to $890 million, or 20 percent of expenses by 2003.

   The report also shows that NYC Transit's fares account for a higher proportion of operating costs than other systems. NYC Transit's ratio of fares to operating expenses was 66 percent-higher than for the Long Island Railroad (54 percent) and Metro-North Railroad (60 percent). It also was higher than Washington, D.C. (50 percent), Chicago (46 percent), Los Angeles (30 percent) and Boston (29 percent).

   The report is divided into four sections that address: 1) trends in ridership, revenues and operating costs, 2) capital spending and financing, 3) NYC Transit's budget projections and two alternative scenarios, and 4) potential expansion of the subway system. IBO will continue to analyze NYC Transit's finances and will be examining the next MTA capital plan when it is released this Fall.

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