Category Archives: Transportation

Loose Change Adds Up to Millions for Transit Agency

Posted by Doug Turetsky, November 18, 2013


Photo by Tara Swanson

There’s a particularly opaque source of revenue in New York City Transit’s financial plan that’s called, in jargon only a bureaucrat could love, “fare media liability.” What it amounts to is the transit agency’s loose change jar. It is where the transit agency accounts for all those nickels, dimes, quarters, and sometimes bigger sums left unused on lost and expired MetroCards.

Last year, the jar was pretty full since it held more than $95 million—an unusually large amount that resulted from transit riders stocking up on MetroCards prior to the December 2010 fare increase and then some of those cards expiring with funds left unused. While $95 million is just a small share of the $3.7 billion the transit agency collected in 2012 in fare revenue, it’s still a lot of nickels and dimes, especially for an agency often knocking at the door of City Hall and the Capitol building in Albany for fiscal help.

But the jar may not be nearly as full in the future. The reason is that in March New York City Transit started to charge riders $1 every time they bought a new card rather than refill the one they already had (at least until that card expires and you can then get a free replacement). The transit agency expects fare media liability will drop to the more typical amount of about $52 million this year and, with a full year of the replacement fee in place, fall to $41 million in 2014.

The new charge has clearly changed many straphangers’ behavior. Subway station floors are no longer littered with MetroCards, empty or with small change left on them. The transportation agency expects to soon announce details that show the number of new cards issued has fallen substantially and the number of cards refilled has risen dramatically, according to agency spokesman Adam Lisberg.

The policy of promoting reuse of valid MetroCards and charging for replacement cards (damaged cards are replaced for free) is wrapped in the earnest rhetoric of environmentalism and is called a “green fee.” But there are fiscal motivations as well.

The charge for new cards will generate a projected $24 million in revenue this year, according to a Daily News article. Many tourists and business visitors who want to use public transit will have to pay the fee to get a MetroCard and New Yorkers who don’t have a card for whatever reason will also be paying the new card fee.

The policy also will generate savings. The transit agency typically produced about 160 million cards a year at a cost of $10 million. But with fewer new cards needed, New York City Transit expects to save about $3.8 million by producing about 60 million fewer cards annually. And with less MetroCard litter, there’s some savings on cleaning too.

Yet as the transit agency’s financial plan anticipates, there will still be a stash of unspent change on expired MetroCards. Some of that will come from tourists and other short-term or occasional riders who buy a card and wind up not using all of the money placed on it.

Many everyday riders also will contribute to the ongoing accumulation of fare media liability. The transit agency’s method of providing discounts ensures this. Under the latest fare hikes, the transit agency provides a 5 percent bonus when riders put $5 or more on pay-per-ride MetroCards. But that $5 only gets you 25 cents more on the card, well short of the $2.50 needed to swipe through a turnstile. You need to put at least $50 on the card before the bonus will net a bus or subway ride.

Many cards are likely to be lost or forgotten before the 5 percent bonus adds up to a ride or they will expire with an odd amount left on them. Although the transit agency gives riders two years to replace an expired card and have the funds on it transferred to a new one, many old cards are also likely to slip away with unused value.

As a result, New York City Transit can continue to expect to see some loose change aiding its budget.

New York City: Your Ad Here

Posted by Doug Turetsky, September 6, 2012

New York City itself may not be for sale, but the rights to tie your corporate name and logo to a variety of city facilities and services may increasingly be up for grabs as public agencies look for ways to raise revenues to meet growing expenses and offset city funding cuts.

On September 14, the city’s parks department is scheduled to receive bids from companies for the right to affix their names to 55 dog runs and 631 basketball courts. The city’s 2013 budget anticipates $1.5 million in annual revenue for the naming rights to the dog runs and $3.5 million from the basketball courts in fiscal years 2013-2016. An additional $8.0 million in annual revenue over the same period is expected through more sponsorships, although the parks department has not yet announced what facilities it will offer to potential sponsors. The city’s financial plan expects the parks department to take in $13 million annually in sponsorship revenues through 2016.

The parks department’s effort to sell these naming rights is being done under an initiative it calls the NYC Parks Corporate Partnership Program. Under this program, the agency says, “[C]ompanies can invest in a unique opportunity to promote their brand through NYC parks assets.” The parks department is offering potential partners rights that can stretch from onsite to online.

IMG Worldwide, a major sports and fashion marketing and licensing company, has been enlisted to play a key role in the parks’ partnership program (IMG is the marketer of New York City Fashion Week). The parks department Web site describes IMG as “the exclusive designated agency to develop and commercialize this opportunity.” Proposals for sponsoring the dog runs and basketball courts are to be sent to IMG. For its work on behalf of the parks department, IMG is reportedly being paid by NYC & Company, a private organization that does tourism promotion and marketing for the city. In 2011, about 40 percent of NYC & Company’s $36.4 million in revenues came from city funding.

The parks department is not the first agency to market naming or sponsorship opportunities. The Department of Transportation’s bike-share program, now expected to start rolling in March 2013, is being funded solely with sponsorship money: $41 million from Citigroup and $6.5 million from MasterCard. For its cash, Citigroup will get its name on 10,000 bikes and 600 docking stations around the city. MasterCard is providing the payment system for the program.

Similarly, the Metropolitan Transportation Authority is seeking to take greater advantage of the MetroCard’s ubiquity as well as its iconic link to the city by offering advertising space on the front of the card. The back of the card has already been available at costs ranging from $25,500 for 50,000 cards to $450,000 for 2.5 million cards. Rates for the front of the card haven’t been determined yet.

The transportation authority has also sold naming rights to the Atlantic Avenue-Pacific Street subway stop for $200,000 a year for 20 years to the British banking firm Barclays. The station, which sits under the soon-to-be opened Barclays Center arena in Brooklyn, is now called Atlantic Avenue-Barclays Center (Barclays paid $400 million over 20 years to purchase naming rights for the publicly subsidized arena from the Nets).

At least one other local agency has declared its intention to offer up its facilities for some form of advertising. Last September, the Daily News reported that the New York City Housing Authority was floating the notion of offering billboards to advertisers at its development projects, an idea that provoked unease among some residents and elected officials.

But the housing authority still sees its 2,600 buildings in 334 developments citywide as an opportunity for prospective advertisers. In January, the housing authority released Plan NYCHA: A Roadmap For Preservation, a five-year plan to improve services and increase partnerships and revenues. Although it provides only the barest of details, the plan states that the housing authority aims to “design and launch a plan to offer NYCHA property for advertising with input from residents.”

New York’s streets were once believed to be paved with gold. In the future, they may increasingly be paved with sponsorship dollars.

What is Yellow and Rises at the Same Time it Falls?

Posted by Yolanda Smith, December 23, 2010

Many school kids love puzzles, and extra credit is in order for any who can solve a particularly tough one about the yellow buses that take more than 140,000 children to and from school each day. Currently, yellow bus service is one of the fastest growing parts of the overall Department of Education budget. And here is the puzzle: why are these costs rising even as their ridership falls?

Generally, state law sets the criteria for transportation to school of public and nonpublic school students. Eligibility basically rests on the distance students live from their schools, with variations depending upon grade level. New York City sets its own minimum distance requirements, which provide transportation for more students than the state requires. The state also requires school districts to transport students with disabilities or living in temporary housing.

This school year the city’s total school transportation costs are expected to exceed $1 billion. The biggest portion of this is the cost of contracting for the school buses, which grew from $772 million in 2005-2006 to $887 million in 2009-2010, an increase of $115 million. Over that five-year period, the cost of yellow buses for general education students jumped $86 million or 16 percent and for special education students $29 million or 15 percent.

But fewer kids rode the buses last year as compared with the 2005-2006 school year. The number of students riding the buses in 2005-2006 totaled 156,980. They included 96,384 general education students and 60,596 special education students. By last school year, the number of general education students riding yellow buses had fallen 12 percent and special education ridership fell 6 percent. (It’s worth noting that during this same period the number of kids using student MetroCards grew from 520,596 to 579,984, yet the city’s cost remained $45 million a year under the long standing agreement with the Metropolitan Transportation Authority.)

So what’s driving up costs even as ridership declines? One piece of the puzzle may be the contracts the education department has with the companies that supply the buses and personnel such as drivers and matrons. These contracts allow price increases for things like fuel to be passed on to the city. But the average price of fuel in New York grew by only 4 percent from 2006 through 2010, much less than the overall increase in yellow bus spending.

Limited competition may be another piece to the puzzle. A side-by-side comparison shows that fewer vendors are providing yellow bus services to the city’s public, private, and parochial schools in 2009-2010 than were in 2005-2006. Although the education department does not use competitive bidding to award yellow bus contracts, having fewer vendors to work with can weaken the city’s bargaining position.

The rising cost of insurance, which swelled from $15 million to $25 million over the last five years, also played a role. The additional $10 million was specifically for insuring buses carrying special education students and accounted for over one-third of the increased cost of busing these students. (In the current school year insurance costs are expected to decline by $1 million.)

Clearly, there are other pieces to solving this puzzle. The increasing emphasis on school choice may have played a role in pushing up the cost of busing as students attend schools farther away from their homes. It is also possible that school bus routes have become less efficient as the number of students riding the buses has declined. A few years ago the education department sought to improve route efficiency, an effort that left some kids literally standing on frozen street corners in January waiting for buses that never came. Public outcry led to the reversal of much of that initiative.

While we have no definitive answer to why school bus costs are rising even as ridership is falling, there’s one factor that makes this a little bit less pressing from the perspective of the city budget: transportation costs are partially reimbursed from state aid for education. At least for now, city dollars have been a declining share and are expected to represent only 38 percent of transportation funding while state aid is the main support for these expenditures and makes up the balance.

New York City residents, of course, also pay state taxes, so they end up paying coming and going.

The Cost of Students’ Free Ride

Posted by Alan Treffeisen, January 11, 2010

The uproar over the Metropolitan Transportation Authority’s plan to discontinue free MetroCards for students boils down to a couple of key questions: How much do the free rides really cost the MTA, and if they are to be provided, how to cover that cost? As is often the case, the answers are more complicated than the questions.

Around 450,000 school children in New York City use MetroCards that allow them to make three bus or subway trips, each with a free transfer, every school day. Roughly 58,000 students use MetroCards that permit three half-fare bus trips, each with a free transfer. The fare cards are distributed according to a student’s grade and distance of school from their home.

From 1995 up until this year, the city and state each contributed $45 million toward the cost of student MetroCards, with the MTA absorbing any costs above $90 million. Inflation has eroded the value of that $90 million by about 40 percent.

This three-way financing arrangement began when then-Mayor Rudy Giuliani suspended a $128 million per year city subsidy for the transit passes in October 1994. (The state had been reimbursing the city for $69 million of that amount, so the actual cost to the city had been $59 million.) While New York City has continued to contribute $45 million a year, New York State has now cut its contribution from $45 million to just $6 million, leaving the MTA to shoulder the rest of the student fare cost. Citing its own financial difficulties, the MTA says it can no longer afford to do so and wants students to pay half fare on subways and buses next school year and full fare in the school year that begins in September 2011.

But how much do those free MetroCards really cost the MTA? Back when Mayor Giuliani derailed the old subsidy arrangement, the MTA estimated the annual cost to be $135 million—with the city, state, and transportation authority splitting the bill evenly.

If the city and state payments had kept up with inflation they would now be around $72 million each. If the payments had increased in line with the MTA’s estimate of how much it costs to provide the students with MetroCards, they would have risen even more. The MTA currently pegs the cost of student MetroCards at over $250 million, meaning that a one-third share would be more than $83 million.

There are different ways one could calculate the school fare program. One way would be to compare the reimbursement that the MTA currently receives for the program with the revenue that it would receive if students (or the city and state on their behalf) paid the regular transit fare. This foregone revenue can be thought of as the cost to the MTA under the current arrangement, and appears to be how the transportation authority derives its estimate. Of course, if students or their families were responsible for paying the full fare, some would switch to schools within walking distance, or look for alternate modes of transportation.

Many economists would take a different approach, one that looks at the marginal cost of providing transit service to school children. In other words, what additional cost does the MTA incur by providing the service? Mayor Giuliani said in 1994 that there was no additional cost for transporting school children, since the trains would be running anyway. Untrue, responded the MTA, saying that it runs extra buses and trains, particularly during the morning commute, specifically to accommodate the additional passengers.

Regardless of how the cost is calculated, there’s also the question of who’s going to pay for it. Though the state and MTA have shared the cost of free- and reduced-cost student fares with the city in the past, some sections of state law appear to legally exempt the state and MTA from much of the responsibility.

Under state education law cities such as Buffalo and Rochester can be reimbursed by the state for up to 90 percent of the cost for the transit passes they provide to students. But this same law excludes cities with a population of more than 1 million—and there’s only one—from eligibility for the reimbursement. State law also makes it clear that education funds cannot be used to reimburse New York City for payments to the MTA for transportation costs.

State public authorities law, which covers the MTA, appears to put the legal onus for covering the cost of free or reduced fare passes on the city. The law says that if a Mayor requests a lower fare for some riders, it’s up to the city to pay for it. Of course, that wouldn’t prohibit the state and MTA from continuing to help out for the good of the city’s students.

Despite Fare Hike and Service Cuts, MTA Budget May Soon Derail Again

Posted by Alan Treffeisen, March 30, 2009

Facing a nearly $1 billion operating budget hole this year, the Metropolitan Transportation Authority’s board decided last week to hike mass transit fares and raise tolls on the agency’s bridges and tunnels. The MTA board also approved an array of subway and bus service cuts.

As the MTA’s customers are threatened with the prospect of paying more for less, some may be unaware that the authority’s current financial plan assumes there will be a further fare and toll hike in 2011. Worse, even with the two sets of fare and toll increases, the MTA still must cope with substantial operating budget gaps after this year: almost $300 million in 2010, over $400 million in 2011, and over $600 million in 2012.

Compounding the bad news even further is the fact that so far this year, the MTA’s receipts from real estate-related taxes dedicated to the agency have been less than half the levels projected in the current financial plan. This raises the possibility that the modest $49 million surplus now projected for 2009 could turn into a deficit, requiring further budget-balancing measures this year.

Some of the MTA’s revenue streams, in particular the transfer taxes, are notoriously difficult to forecast. A strong economic recovery in 2010 could increase tax revenues enough to erase the MTA’s operating budget deficit.

Regardless of what happens to its operating budget, the MTA would still face the challenge of funding its 2010-2014 capital program for expansion projects such as the 2nd Avenue line and East Side Access, renovating subway stations, repairing signals and rails, buying new trains and buses, and other improvements needed to keep mass transit moving. While substantial federal funding can be expected (over one third of the $24 billion 2005-2009 capital program is funded by the federal government), the MTA will likely have to finance the bulk of the program with its own resources.

Due to a debt restructuring in the early part of this decade, the MTA’s ability to issue additional bonds backed by existing revenue streams is severely limited. The Ravitch Commission proposals for tolling the Harlem and East River bridges and levying a new regional payroll tax would have allowed the MTA to support future capital improvements through the issuance of bonds backed by these revenue sources. Regardless of whether the legislature in Albany ultimately crafts a “rescue” package to roll back some of the announced fare hikes and service cuts, an important consideration will be whether or not the plan addresses the gap in funding for the MTA’s capital needs.