The outlook for the Metropolitan Transportation Authority’s (MTA) budget has improved considerably over the past year thanks to the economic recovery as well as low energy costs and interest rates, according to a report released today by State Comptroller Thomas P. DiNapoli.

“The MTA has used an unexpected windfall to invest in its capital program and increase services and maintenance,” DiNapoli said. “While the MTA still faces challenges, it has recovered from the recession and, to its credit, it has improved its financial position for the future. Because fares have soared in recent years, a time when many riders could least afford the hikes, the MTA should look for ways to minimize future increases.”

The average subway fare rose by 45 percent between 2007 and 2015, nearly three times faster than the inflation rate for the metropolitan region (14.8 percent). These increases occurred as the Great Recession took a heavy toll on family finances. The MTA plans to raise fares and tolls by 4 percent in 2017 and by another 4 percent in 2019, slightly less than the projected inflation rate for this period. 

DiNapoli’s report notes that since 1991, subway ridership has grown by 77 percent and is expected to reach 1.77 billion riders in 2016, the highest level since 1949. The Long Island Rail Road, Metro-North and the MTA’s bridges and tunnels are also reporting record use.

On July 27, 2016, the MTA released a preliminary budget for 2017 and an associated financial plan covering calendar years 2016 through 2020. The MTA projects a year-end cash balance of $200 million in 2016 (two-thirds higher than previously projected). It has also closed the budget gap that had been projected for 2019, but is projecting a $371 million budget gap for 2020. 

After a 17-month delay, the state and city reached a final agreement on their contributions to the MTA’s 2015-2019 capital program. The capital program totals $29.5 billion and includes funding for maintenance, modernization and expansion. The state and city, however, have yet to identify the sources for $9.2 billion of their $10.8 billion contribution, making it impossible to measure the impacts on the state or city budgets, or taxpayers. 

The MTA is funding 40 percent of the cost of the capital program ($11.8 billion), including $8.2 billion from borrowing. Debt outstanding is expected to increase from $29 billion in 2010 to $41.4 billion in 2020, an increase of 43 percent over 10 years. Debt service would exceed $3.1 billion by 2020, nearly one-third higher than in 2015. Debt service and other operating resources supporting the capital program would consume, on average, 20 percent of revenue during the financial plan period.

In the past six months alone, the MTA has realized $1.6 billion in unanticipated resources, including $1.1 billion in lower debt service and energy costs. About half of the resources were used to cover the higher cost of employee fringe benefits. The MTA has also allocated resources to improve customer amenities, service, maintenance and security. 

The MTA is considering a proposal to allocate $566 million in debt service savings to accelerate capital projects that are not in the approved 2015-2019 capital program. While this proposal has merit, DiNapoli recommends the authority consider using some of these or other unanticipated resources to increase reserves, pay down long-term liabilities, or moderate future fare and toll increases. 

The MTA assumes that revenues will grow at an average annual rate of 2.2 percent between 2015 and 2020 based in large part on increases in ridership and fares. The MTA’s financial plan assumes uninterrupted economic growth, although there is a risk of an economic setback during the financial plan period. MTA revenues are very sensitive to changes in the economy, as evidenced by the large revenue losses during the last recession.

DiNapoli’s report also finds:

• Spending is projected to grow by 22 percent between 2015 and 2020, driven by employee fringe benefits and debt service;
• Debt service and other nondiscretionary costs, such as pension contributions and health insurance costs, will consume more than half (53 percent) of total revenue in 2020;
• The cost of the MTA’s health and welfare benefits is projected to increase by nearly 49 percent to $2.3 billion by 2020;
• Pension contributions are projected to level off after growing rapidly over the past decade, but the annual contribution ($1.4 billion) will be three times the 2005 level; 
• Dedicated state taxes and fees that support the MTA are expected to account for 36 percent ($5.6 billion) of total revenue in 2017;
• Current labor contracts will begin to expire in December 2016. The MTA has set aside resources for 2 percent annual wage increases; and 
• The MTA expects its cost-reduction efforts to generate recurring annual savings of $2 billion by 2020. Nonetheless, the MTA should explore additional opportunities to reduce unnecessary costs to minimize fare hikes and to improve services.

Read the report, or go to: http://www.osc.state.ny.us/osdc/rpt7-2017.pdf