The Metropolitan Transportation Authority’s (MTA) proposal to reduce budget gaps through 2028 by an average of $915 million annually by paying down debt raises questions on how it will find additional savings and revenue to fund operations when federal aid runs out, according to a report issued today by State Comptroller Thomas P. DiNapoli. While the MTA has identified a targeted $100 million in unspecified efficiency savings, this will not be enough to close its projected deficit of $1.6 billion starting in 2024 as pointed out by DiNapoli in October. DiNapoli urged the MTA to expand on these efforts, disclose specific actions and identify how they will impact fares and service delivery.
“The MTA has suggested it can reduce budget gaps by paying debt off early, but more can be done now to find cost savings and generate revenue to close gaps sooner,” DiNapoli said. “No one wants to see steep fare hikes or service cuts. However, it is unclear how the MTA will avoid these outcomes unless it lays out additional options for the public and its funding partners to consider.”
DiNapoli’s report looked to examine the current composition of MTA revenue, analyze changes to revenue over time and provide a comparison of revenue against other transit systems. The report found that when compared to five other transit systems in similar metropolitan cities, the MTA relied more heavily on farebox revenue and less on subsidies from state and local sales tax and dedicated budget sources.
In July, DiNapoli recommended the MTA boost ridership since farebox revenue accounts for a large portion of their budget. However, ridership has not increased enough for the MTA to balance its books, which has led the MTA to suggest it needs a greater share of subsidies as part of its funding. In 2019, prior to the pandemic, fare revenue stood at $6.4 billion, or 42.1%, of the MTA’s total revenue. Today, fare revenue makes up only 24.5% of the MTA’s $15.7 billion in revenue, excluding MTA Bridges and Tunnels. The MTA projected in July that fare revenue will be the largest source of growth among all revenue sources and will rebound to make up 32.2% of total revenue by 2026. For this to happen, they’ve included proposed fare increases of 4% in 2023 and 2025. However, the MTA would have to raise fares by at least 19% on top of these proposed increases to reach the same level of fare revenue as in 2019. DiNapoli also noted fare revenue could rise if the MTA exceeded the midpoint of its ridership projections, which it can do by committing resources to provide safe, reliable and frequent service.
DiNapoli also found that if the MTA received subsidies in 2019 at the same rate as Boston’s Massachusetts Bay Transportation Authority, it would have received another $1.7 billion in funding, and if the MTA received subsidies at the same rate as the Washington Metropolitan Area Transit Authority, it would have received an additional $700 million. Other comparable systems, including Chicago and Philadelphia, also received transit subsidy shares that fit within this range.
The report also highlights the MTA’s greater reliance on volatile subsidies as opposed to taxes like the other transit systems. In particular, real estate transaction taxes have shown increased sensitivity during recessions. However, the MTA is currently projecting growth in real estate transaction taxes through its financial plan, despite New York City projecting a substantial decline in similar taxes received in fiscal year (FY) 2023. The city does not expect real estate transaction taxes to return to the MTA’s projected levels until after FY 2026.
Unlike the other transit systems, the MTA also receives a portion of toll subsidies from MTA Bridge & Tunnel crossings. DiNapoli noted tolls generated about $1.1 billion in revenue this year, but surplus toll revenue is expected to decline after paying for bridge and tunnel expenses.
DiNapoli urged the MTA to continue to search for operating efficiencies and identify and expand cost-saving options in order to close its expected budget gaps. However, the magnitude of these gaps makes it unlikely that they can be closed by reducing spending alone without leading to a substantial reduction in services and hurting the regional economic recovery. The MTA will have to provide its board with options that rely on raising revenues, while recognizing its authority is limited in raising fares and tolls and enhancing other sources of operating revenue, such as advertising. Ultimately, state, city and federal leaders will also need to be a part of the discussion if the MTA is to identify and secure additional subsidies to achieve balanced budgets and maintain operations.
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