January 12, 2013
MTA officials told NY State Assembly members on Friday, January 11 that the agency is aggressively working to lower costs and its deficit by reducing expenditures by $25 million this year and up to $75 million thereafter without identifying the sources.
But they noted that 48 percent of the MTA’s budget stems from non-discretionary spending, and that spending is projected to rise four to five times the rate of inflation through 2016.
Robert Foran, MTA’s Chief Financial Officer, told the committee hearing led by Assembly Member James F. Brennan, that five categories comprise the bulk of the agency’s budget—pensions, employee and retiree healthcare, energy, Paratransit and debt service—and their costs are increasing annually.
Referring to a PowerPoint presentation, Foran pointed out that the total cost in 2012 for these items was $523 million more than in 2011 and will be $1.7 billion more in 2015 than in 2011.
“Over a four-year period [2012-2016] if you combine all these extra costs over the costs we incurred in 2011, the total is almost $4.6 billion,” said Foran.
The MTA is raising fares in March and is proposing another fare increase in March 2015, which is projected to bring in about $1.7 billion in revenue. But Foran noted that the fare and toll increases cover only 38 percent of non-discretionary expense growth.
“This is the challenge in front of us, but we’re going to stick to our financial plan,” said Foran.
Some of the main elements of the MTA’s 2013-2016 Financial Plan include increasing annual recurring savings targets of $1.2 billion through 2016 and three years of net-zero wages growth for the agency’s unionized workforce.
But Foran said the plan is contingent upon certain outcomes, such as federal support, the regional economy, continuance of the Payroll Mobility Tax and successful execution of the Financial Plan strategy—net-zero labor contracts, continued cost reductions and projected fare/toll increase in 2015.
Brennan expressed concern that bi-annual fare hikes could become the new norm because the agency’s finances are tenuous, particularly the growing debt service.
“The Comptroller’s office recently reported that, including the proposed 2015 fare hike, fare hikes are increasing at more than twice the rate of inflation. They will have risen 35 percent from 2000 through 2015,” Brennan said.
The MTA’s own projections show that its debt service [the company sells debt on the market to help pay for big capital infrastructure projects such as the Second Avenue Subway and East Side Access] will rise 7.6 percent through 2016.
The MTA had to borrow more than $12 billion to fund its current four-year capital program. Brennan asked the MTA what it expects to borrow for the next program, but Foran said the agency couldn’t place an exact number.
But Brennan pressed Foran.
“If you borrowed $12 billion for the current plan, and you expect to borrow roughly the same amount for the next plan, how much more debt service will you be paying?”
Foran conceded that the agency is currently paying a little over $30 billion on debt service, and expects to sell another $13.6 billion in debt for all debt issued for the previous and current capital programs (2005-2009 and 2010-2014). But he noted also that the agency is paying down principle.
“During the time we’ve been selling debt, we’re repaying $7.1 billion in principle on the debt annually,” Foran said.
But Brennan pointed out that the probability of another fare increase after 2015 seems high because the agency is already issuing debt for the current capital program and will be selling additional debt for the 2015-2019 capital program.
“There’s only so much debt you can issue on the market when revenues are insufficient,” Brennan said.
Foran tried to reassure the committee that there was a time when the agency didn’t raise fares for eight years before embarking on the current increases.
“A fare increase is a good thing; it’s good for financial planning and an individual’s financial planning,” Foran said.
But Brennan countered, “I know you’re a financial planner and you’re working with an agency that has a revenue requirement, but you might have a different point of view of fare increases being good, generally speaking, from people using the system.”