The Metropolitan Transportation Authority (MTA) has two years to bring back riders and rebuild fare revenue before federal relief aid runs out, but in that time, it must develop plans to cover budget gaps that start at $2.5 billion in 2025 and grow in the outyears, according to a report on MTA’s financial outlook released today by New York State Comptroller Thomas P. DiNapoli.
“The serious structural budgetary imbalance that the MTA has to fix is clearer now that it has scrapped its ill-advised plan to cover operating costs by borrowing,” DiNapoli said. “The MTA needs to come up with billions of dollars to pay for operations in the coming years and that puts greater strain on its capital plan to update and repair the transit system. This has to be achieved against broad economic challenges that are increasing costs and threaten a recession. The MTA has begun to lay out options for its funding partners, leaving them with some tough decisions. The authority must do its part to ensure any funds provided are maximized to enhance operations and achieve structural budgetary balance.”
Entering July 2022, transit ridership continued to lag at the low end of MTA’s projections, forcing it to revise projections downward and to plan spending of federal relief funds faster than expected to cover shortfalls in fare revenue. Since the MTA has discarded its plan to cover holes in its operating costs through debt, its structural budget imbalance is clearer. Gaps are forecast at $2.5 billion in 2025 and 2026 as spending outpaces inflation projections, but could be as high as $4.6 billion in 2026 if the MTA’s unspecified gap-closing program falls short and economic trends increase the authority’s recurring costs and weaken tax revenues.
Other pressures on the MTA’s budget as federal relief funds disappear include higher pension and overtime costs, higher than expected inflation and rising debt service, which may burden future commuters as the MTA has made a recent habit of deferring repayment of its debt. Ultimately, the budget gaps and risks that accompany them are likely to be too large for the MTA to manage without additional funding or significant fare and toll increases that could hurt regional economic growth.
To ease its debt burden, reflecting the share of operating spending that goes to pay down debt and narrow budget gaps, the MTA suggests that if funding partners provide additional dollars by 2023 it would allow it to use federal money to pre-pay $3.6 billion of its debt outstanding and reduce budget deficits by about one-third in the years ahead. If the MTA’s funding partners move forward with this approach, DiNapoli’s report said the authority should do its part to lay out further steps it can take to close the remaining budget gaps and avoid budget practices that will lead to the same issues in the future, including the deferral of debt service payments. The MTA should specify and increase planned savings, identify means for increasing non-operating revenue and ridership beyond current projections, and enhance service efficiency.
Federal relief allows the MTA to close gaps and balance its budgets in 2023 and 2024. In lieu of the MTA receiving additional aid to reduce its debt, the MTA has $5.5 billion of federal funds remaining that it can use to improve transit service in the hopes of persuading riders to come back. Its regular customer satisfaction surveys should help it better target spending to address riders’ needs. Measurable improvement in service is imperative in part to justify planned fare and toll increases of 4% in 2023 and 2025.
The MTA’s July Plan anticipates subway ridership will reach a “new normal” of 1.3 billion trips in 2026, which is 23% fewer than 2019. To date, however, ridership has returned unevenly, with stations outside the city’s central business districts recovering first, even as ridership in stations in Manhattan have increased more recently, as DiNapoli’s subway ridership dashboard has tracked. Bus ridership has remained flat in 2022 at about 40% lower than it was pre-pandemic. The MTA anticipates the Long Island Rail Road will reach 76 million riders in 2026, still 16% below 2019 and Metro-North Railroad to reach 61.5 million riders in 2026, which is 29% below pre-pandemic numbers. Bridge and tunnel crossings recovered faster and are expected to be at 2019 levels through the July Plan period.
DiNapoli’s report on the MTA’s financial outlook also noted that:
- MTA has projected several scenarios of ridership returning. In the least optimistic case — just 73% of 2019 ridership in 2026 — MTA estimates fare revenue would be down by $350 million a year.
- Every 1% increase in inflation over the 2% assumption could raise MTA’s costs by $150 million annually.
- The MTA estimates a recession could reduce its annual tax revenues by $500 million to $1 billion and DiNapoli has noted that it could also put a damper on ridership recovery.
- DiNapoli projects additional risks to the MTA’s July Plan could increase its budget gaps by $220 million in 2022, $250 million in 2023, $341 million in 2024, $401 million in 2025 and $461 million in 2026. Among the risks are higher than projected pension and overtime costs, and $100 million in anticipated savings that the MTA has not yet identified.
- Congestion pricing, estimated to bring $15 billion for the MTA’s $55.4 billion, 2020-2024 capital program, awaits a decision from the Federal Highway Administration in January 2023. If approval arrives on time, the MTA expects to start receiving $1 billion in annual revenue in late 2023. Using congestion pricing funds to help close operating gaps would ultimately put the authority’s capital program at risk and substantially increase its debt burden.
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