Going into its latest round of collective bargaining talks, the New York City Transit Authority (NYCTA) was widely reported to be facing an operating deficit of $1.2 billion in 2002, growing to nearly $1.7 billion over the next couple of years. However, these numbers were strongly contested by representatives of Local 100 of the Transport Workers Union (TWU). The transit system’s cry of poverty also has been questioned by opponents of a proposed subway and bus fare increase, prompting City Comptroller William Thompson to announce a complete audit of the NYCTA.

So, just how big are the Transit Authority’s potential deficits over the next few years? Pending Thompson’s audit findings, the real answer to that question appears to be (a) not nearly as large as the NYCTA might have wanted everyone to believe going into the TWU talks, but (b) big enough, in the wake of the new transit workers’ contract, to require a substantial fare increase—unless the Authority opts to cut service and deplete its financial reserves.

Parsing the available data

On the surface, it seems unambiguous enough: the NYCTA’s official 2002 operating budget[1] and financial projections list a “net operating cash deficit” of nearly $1.3 billion in 2002, growing to $1.6 billion in 2003 and $1.7 billion in 2004. However, as noted in a footnote, these figures do not include debt service expenses or a variety of dedicated tax and budget subsidies provided by the state and city.

A different, more inclusive set of figures can be found in the Authority’s “Consolidated Financial Plan Projections”, which include operating and debt service subsidies, which in turn are largely financed by dedicated state and city taxes.[2] This table points to potential cash deficits of $235 million for 2003 and $476 million for 2004—a total of $711 million over the two years.

Prior to its deal with the TWU, the Transit Authority already had budgeted an additional $130 million for labor costs in 2003, and $114 million more on top of that for 2004, resulting in a total budgeted increase of 8 percent over a two-year period. Based on media accounts, that might be enough to roughly cover the wage and benefit hikes called for in the first two years of the contract. Pending release of more detailed financial estimates reflecting net additional wage and benefit costs, it’s not clear how much—if anything—the TWU contract will add to those deficit estimates.

The wild card: accumulated surpluses

Thanks to innovative fare reforms and New York’s strongest economic growth in a half-century, ridership on the city’s bus and subway system skyrocketed between 1996 and 2000, greatly strengthening the finances of the MTA and the NYCTA.

Excluding capital asset values and depreciation, audited financial statements indicate the Transit Authority ended 2001 with a built-up cash surplus of $502 million—enough to cover a good portion of the projected gaps for 2003 and 2004.[3] Indeed, the Transit Authority’s adopted budget for appears to call for using $384 million in “contingency reserve” funds to prevent the 2003 and 2004 deficits. The remaining gaps would be closed with $376 million in service cuts.[4]

What would it take to balance the budgets with fare hikes alone? The Transit Authority’s projected deficit of $476 million in 2004 is equivalent to 22 percent of projected passenger revenues for that same year—which would translate into an increase of 35 cents in the base fare. However, a further increase of at least five cents would be necessary to cover likely increases in labor costs through 2005, bringing the total potential fare increase to at least 40 cents.

The prudent approach

The NYCTA’s financial trends over the past eight years have closely paralleled those of the state and city governments. Like the state and city, the Authority rolled up record surpluses during the boom years of the 1990. Albany and City Hall have already drained their reserves to avoid the tough decisions necessary to stabilize their budget balances. The Transit Authority and MTA Board will now feel increasing pressure to do the same—but they should not yield to that pressure.

Fares might be held down in the short term with financial gimmickry. However, over the next few years, this will only serve to greatly increase financial pressures on bus and subway riders as well as the broader base of taxpayers who subsidize the system. The most responsible way to minimize a fare increase is by reducing the system’s expenses.[5]

Originally Published: FISCALWATCH MEMO

Notes

1. Metropolitan Transportation Authority, “Year 2003 Agency Budgets and MTA-Wide Financial Plan 2002-2004,” p. 137.
2. Ibid. p. 165.
3. For details, see pages C-4 and C-5 of the New York City Transit Authority’s Consolidated Financial Statements, Dec. 31, 2001 and 2000, which is included in the “investor information” statement available for downloading at http://www.mta.nyc.ny.us/mta/investor_02.htm.
4. Op. Cit.
5. For details on one option for significantly reducing costs, see the Manhattan Institute’s Center for Civic Innovation report, “Competitive Contracting of Bus Service: A Better deal for Riders and Taxpayers,” at http://www.manhattan-institute.org/html/cr_30.htm.