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.

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