MTA debt reduction not enough to avoid fiscal cliff: report

ALBANY — The Metropolitan Transportation Authority’s plan to pay down debts won’t be enough to avoid massive budget gaps as ridership remains low and federal aid runs out, according to a new report released Tuesday by state Comptroller Tom DiNapoli.

DiNapoli’s office analyzed the agency’s plan to reduce budget gaps through 2028 by an average of $915 million a year by paying down debt and found it raises questions about how the MTA will find additional savings and revenue to fund operations.

“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.”

While the MTA has identified a targeted $100 million in unspecified efficiency savings, DiNapoli argues that will not be enough to close the agency’s projected deficit of $1.6 billion starting in 2024.

DiNapoli urged the MTA to expand on cost-saving efforts, disclose specific actions and identify how they will impact fares and service delivery.

In July, agency officials projected that the MTA faces a recurring $2.5 billion funding shortfall come 2025 when federal COVID aid runs out. Compounding the problem is the fact that transit officials chose to borrow money to cover operating costs during the pandemic to run the MTA’s subways, trains, buses and bridges.

Officials have floated the idea of paying down debts to help reduce the recurring gap as DiNapoli previously warned in September that the ballooning debt could jeopardize major subway, bus or train upgrades in the future.

Looking further ahead, debt payments could consume between $4.1 billion and $5 billion of the MTA’s budget starting in 2031, according to official projections.

In the new analysis, DiNapoli’s office also notes that the MTA receives subsidies at a lower rate than other transit systems in places such as Boston and Chicago, but noted that those agencies rely more on taxes to cover operating costs.

In response to the report, MTA chief for external relations John McCarthy said the agency is grappling with post-pandemic problems facing transit systems all across the country.

“We are committed to maintaining robust service for our riders and this report underscores that solving post-pandemic budget gaps with fare increases and service cuts alone is not an attractive option,” McCarthy said. “The November Financial Plan, including a proposed 2023 budget, will demonstrate the magnitude of looming financial challenges.”

Watchdog groups have called on state lawmakers to step up and help steer the struggling agency away from the fiscal cliff by providing billions in new, recurring, state dedicated funding for operations.

Reinvent Albany’s Rachael Fauss, who issued an analysis of the MTA’s dire fiscal situation earlier this month, said budget transparency is key to winning over lawmakers and avoiding service cuts.

“This really is a looming disaster for transit riders and we urge the MTA to use open, consistent budget data to help strengthen their case for state aid to the public and the legislature,” Fauss said.

Among other recommendations, Fauss said new and existing state transit funds should be remitted directly to the MTA and other transit systems instead of being tied up in the state budget, a move that would strengthen the MTA’s bond ratings and over time reduce borrowing costs.

In an earlier report released in July, DiNapoli recommended boosting ridership since farebox revenue accounts for a significant portion of the agency’s budget. His office’s new analysis shows even with increases, farebox revenue will not be enough to close the gaps.

While more straphangers are returning to the rails, ridership has not increased enough for the MTA to balance its books and officials have called for more subsidies from state and federal lawmakers to cover funding.

In 2019, fares made up $6.4 billion, or 42%, of the MTA’s total revenue. Today, fares only account for 25% 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% of total revenue by 2026.

A pair of 4% fare increases planned for 2023 and 2025 have been proposed to help make up the difference.

DiNapoli notes that projected fare revenue for 2026, even with the increases, would “still be lower both in terms of dollars and as a share of the budget than in 2019, which is contributing to a fiscal cliff.”