The Metropolitan Transportation Authority (MTA) projects large operating budget gaps and has significant unfunded capital needs. With less than four months before the start of its new fiscal year, there are still questions regarding the MTA’s plan to balance its 2020 budget and narrow the out-year budget gaps, according to New York State Comptroller Thomas P. DiNapoli’s annual report on the MTA’s financial plan.

“This is a critical moment for the MTA and for riders,” DiNapoli said. “As everyone agrees, the MTA needs to transform itself into a more efficient organization, improve service and modernize the system. The right choices and effective implementation are crucial, and transparency and openness with all stakeholders is essential. If it fails, the consequences could be felt for years to come, and riders could face reduced services, unplanned fare hikes, and deterioration of the system.”

The MTA’s latest financial plan projects budget gaps that grow from $392 million in 2020 to nearly $1.6 billion in 2023. These estimates, however, already assume successful implementation of the MTA’s proposed budget reduction program. Excluding that program, the gaps are much larger, growing from $705 million in 2020 to $1.9 billion by 2023. Although not as large as the gaps projected by the MTA during the Great Recession, they are still large by historical standards.

The MTA plans to balance its 2020 budget and narrow the out-year budget gaps by implementing its budget reduction program and transformation plan, and raising fares and tolls. Management is counting on the aforementioned program and plan to generate $543 million in savings in 2020 ($848 million in 2021 and more than $900 million annually thereafter). These efforts would reduce staffing levels by as many as 3,886 positions, which could require layoffs.

The transformation plan would refocus the operating agencies on safety, reliability and service, and centralize common support services. It also calls for improved capital planning, development and construction so projects are completed on time and on budget. The MTA expects the transformation plan to yield $535 million in savings annually by 2022, which was the top end of the range provided by the consultant that developed the plan ($370 million to $530 million). The MTA, however, has not yet hired a chief transformation officer, or other critical staff, or estimated the total cost of implementation.

The budget reduction program is expected to generate more than $360 million in savings annually beginning in 2021, including $70 million in agency initiatives yet to be identified. The program would also eliminate more than 400 subway maintenance positions. In total, the authority would reduce the number of subway maintenance employees funded by the operating budget by 967 between 2018 and 2023, reducing the work force to a level only slightly higher than before the Subway Action Plan.

The third element of the MTA’s gap-closing program calls for raising fares and tolls by 4 percent in March 2021 and by another 4 percent in March 2023. Since 2007, the average subway and bus fare has grown by 62 percent, three times faster than inflation and the growth in wages in the metropolitan area. Fares on the commuter railroads have increased by more than half since 2007.

DiNapoli’s office estimates falling subway and bus ridership has cost the MTA more than $250 million annually in lost fare revenue. An economic setback during the financial plan period could further complicate the MTA’s finances. Given the risk, the Comptroller suggests that the MTA boost its reserves to avoid service cuts or unplanned fare hikes such as those experienced during the Great Recession. If the MTA continues to improve service and riders return, unanticipated fare revenue could be used to increase reserves. The MTA’s financial plan includes an annual general reserve of just 1 percent of planned spending.

The MTA’s gap closing program calls for diligent monitoring to ensure it achieves planned savings without unintended consequences, such as reductions in service reliability. Even if the gap-closing program is successful, the MTA still projects a small budget gap in 2021 that grows to $433 million by 2023.

The MTA also has large unfunded capital needs. New state resources for the MTA’s capital program, such as congestion pricing, and federal funding are expected to contribute $32 billion to the MTA’s 2020-2024 capital program, but additional funding will still be needed to modernize the subway system.

DiNapoli’s report also found:

• Even before taking into consideration the next 5 year capital program, outstanding debt is projected to reach $41.8 billion by 2022, an increase of 19 percent from 2019.
• Debt service would increase by 31 percent, exceeding $3.5 billion by 2023 when debt service will represent nearly 20 percent of total revenue.
• As of June 2019, the MTA has committed just 65 percent of the funds for its 2015-2019 capital plan and finished just 25 percent of its projects.
• Overtime grew by 143 percent between 2010 and 2018, reaching a record of nearly $1.4 billion, which exceeded the MTA’s initial forecast by more than one-third ($396 million). The MTA expects overtime to fall by $255 million to $1.1 billion this year, but that is still $123 million more than it projected at the beginning of the fiscal year.
• Health and welfare costs for MTA employees and retirees rose 34 percent to $1.8 billion from 2013 to 2018. MTA expects these costs to further increase by 41 percent by 2023.
• Despite record job growth in NYC, annual subway ridership has fallen for three consecutive years (2016-2018) to 1.68 billion, although it has held steady through May 2019.
• Weekday on-time subway performance fell from 87.7 percent in 2010 to 63.5 percent in 2017, the lowest since 1991. Through the MTA’s Subway Action Plan and Save Safe Seconds campaign, on-time performance improved to 79 percent through July 2019. On-time performance on lettered lines has lagged behind the numbered lines. The MTA reports that weekday on-time performance reached 84 percent in Aug., up from 69 percent in Aug. 2018.
• LIRR’s reported on-time performance, which had slipped to 90.4 percent by 2018 — its worst level in 22 years — has improved in 2019, averaging 93 percent through July.
• Metro-North’s reported on-time performance also improved in 2019 after recent declines, to 94.8 percent through July.

The Comptroller's full report on the MTA's financial outlook can be read here: https://www.osc.state.ny.us/osdc/rpt6-2020-mta-financial-outlook.pdf.

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