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Lhota's Departure Highlights MTA's Uncertain Future

DEC 21, 2012 1:46pm ET
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Joe Lhota's prominence after Hurricane Sandy surely will affect the dynamic of next year's New York City mayor's race, assuming he seeks that office.

But his departure on Dec. 31 as Metropolitan Transportation Authority chairman also keeps a revolving door spinning at an agency that is one of the largest issuers in the municipal marketplace.

The chairman and chief executive positions at the country's biggest transit system have served as transfer points the past few years, with Lhota, Jay Walder, Lee Sander, Dale Hemmerdinger, Peter Kalikow and Katherine Lapp moving through its executive turnstyles since 2007.

"I don't think that's a good sign," said former MTA executive Peter Derrick, a transit historian and visiting scholar at New York University's Rudin Center for Transportation Policy and Management.

"The MTA has a major problem getting money for its capital program. That's a $5 billion annual capital need, $3.5 billion of which has to be raised locally by selling MTA bonds. It's not that the bonds are unstable, but it's important to have stability at the top."

Gene Russianoff agreed. "Six MTA leaders in the last six years. That has not helped the cause of winning safe, reliable and affordable transit," said Russianoff, an attorney and chief spokesman for the Straphangers Campaign rider advocacy group.

Whoever succeeds Lhota — Gov. Andrew Cuomo will likely again name a panel of transportation experts to recommend a short list — must grasp a multitude of challenges that include finalizing the damage costs from Sandy, sealing a deal with the Transit Workers Union Local 100, and soaring debt. The MTA has $32 billion of debt outstanding, a figure that could rise to $40 billion by 2016.

"Heavy reliance on debt burdens the operating budget," said state Comptroller Thomas DiNapoli.

Bond rating agencies are monitoring the MTA more closely in the Sandy aftermath. Fitch and Standard & Poor's rate the MTA's transportation revenue bonds A, while Moody's Investors Service assigns an equivalent A2 rating.

Earlier in the week, a state budget crisis task force chaired by Richard Ravitch — himself a former MTA chairman — and former Federal Reserve chairman Paul Volcker called adequate, dependable funding for the capital program a major concern. "The MTA's revenue is volatile, and its largest nonfare source, the regional payroll mobility tax … has been narrowed through legislative changes and recently declared unconstitutional," the task force report said.

The MTA, which expects to win the tax case on appeal, can keep collecting the tax for now. The agency is budgeting for $1.5 billion in receipts from the tax in 2012, rising to nearly $1.8 billion by 2016. "The court will uphold our appeal. I'm confident of that," Lhota said Wednesday.

Derrick said the most effective MTA chairmen have managed to neutralize the politics. "The chairman is supposed to be independent of the governor, just as the MTA board is not supposed to be political. Of course, much of the time much of the board has been political. But the best of the recent chairmen — Richard Ravitch, Bob Kiley and Peter Stangl — really did keep MTA above the political fray most of the time," he said.

"Ravitch and Stangel really weren't political. Kiley didn't hire the people the politicians wanted. [Former U.S. Sen.] Alphonse D'Amato once wanted to get somebody on board and Kiley told him, 'No, we don't do things like that,' " Derrick said.

In the interim, political war horse Fernando "Freddy" Ferrer, who replaced Doreen Frasca on the MTA board in June 2011, will be the agency's interim chairman. Ferrer said emphatically Wednesday that he doesn't want the permanent job. New York City Transit President Thomas Prendergast, who was in Washington on Thursday lobbying for more Sandy-related aid, will be interim executive director.

The week's events mark the return to a major public stage — even if only temporary — for Ferrer, the former Bronx borough president who ran for mayor in 2001 and 2005. "This isn't my first rodeo," Ferrer said Wednesday, clearly enjoying a feisty give-and-take with English- and Spanish-speaking media.

Ferrer emerged as a city political figure in the late 1980s, when under his borough presidency the Bronx rebuilt from the ashes of burned-out buildings, and from a political scandal that brought down predecessor Stanley Simon and Bronx Democratic leader Stanley Friedman, the latter one of the city's most powerful politicians at the time. Both served time in federal prisons on racketeering charges.

"Freddy took over and cleaned up a cesspool of a situation, and built up the Bronx to the status of an All-American city," said Allen Cappelli, a current MTA board member from Staten Island, where he runs a namesake law firm. Cappelli was Ferrer's communications director in the Bronx from 1998 to 2002.

"He is one of the most highly intelligent people working with government institutions that you'll find anywhere," Cappelli said in an interview after Wednesday's board meeting.

Derrick doesn't envision Ferrer running a transit agency.

"I think Freddy would be a disaster. He's just not a capable administrator," he said. "[But] Freddy Ferrer is clean. As far as I know, he was not tied to the scandals and he did some OK things in the Bronx. The gutted apartment houses were rebuilt, mostly by community groups, and Freddy let that happen. He gave his support and didn't stick his finger in the pie."

Lhota, meanwhile, said he'd talk with his family over the holiday season and decide in January on a mayoral run. His performance at the MTA has given him a very high public profile in New York, oddly so for someone whose persona can be  dour and technocratic.

But Lhota frequently shows a sharp, dry wit. The other day he called his pending political decision a "profile in courage," triggering laughs from the media.

He is a registered Republican and a former deputy mayor under Rudolph Giuliani and his wife, Tamra, is a key GOP fundraiser.

Lhota by law must resign as MTA chief before running for public office and raising campaign funds. Supporters hope his expanded public profile and ability to court business leaders —  Lhota once worked on Wall Street and was a vice president of Madison Square Garden —  will offset his late start to the campaign.

Democrats outnumber Republicans heavily in the city, but the last five four-year terms have featured Giuilani and Michael Bloomberg, a former Democrat who won two terms  as a Republican and a third as an independent.

"Lhota is a no-nonsense person, but his major appeal is to the business community," Derrick said. "They backed Guiliani and Bloomberg. We've had five terms of a Republican [-type] mayor backed by the business community. David Dinkins they regarded as a disaster."

Cappelli knew of Lhota only by reputation before he took over the MTA. "Joe made an outstanding chairman, who tackled complex sets of issues," he said. "I'm very saddened by his leaving."

The new chief will inherit an agency committed to major projects that have strained the MTA's capital capacity. They include the Second Avenue subway line construction, the Fulton Street transit center and East Side access for Long Island Rail Road trains.

"We're stuck with a lot of choices whether we fully like or don't like the megaprojects," said Ferrer. "That's borrowed money that has to be paid back. Whenever you borrow something you have to pay it back with interest."

Given the MTA's challenges down the road in raising money for its capital program, the region may have to begin tackling issues once too politically sensitive. They include congestion pricing within Manhattan — a proposal backed my Mayor Michael Bloomberg and transportation guru Samuel Schwartz — and tolls on East River bridges.

"Geographic inequity" regarding bridge tolls surfaced Wednesday, when the board enacted biennial fare and toll hikes that will take effect in March.

"The MTA has had years of an unsustainable capital plan, and now we're staring at $40 billion of debt," said state Assemblywoman Nicole Malliotakis from heavily tolled Staten Island. "The MTA has to be more conservative with its budget."

"It's crazy that someone in Brooklyn can go see Jerry Seinfeld on Broadway for free, but would have to pay an extra $15 to see Jerry Seinfeld at the St. George Theatre on Staten Island," Cappelli said, referring to the new toll on the Verrazano-Narrows Bridge.

"The whole region needs to get ready for this kind of discussion. The future of public transportation depends upon a reliable, sustainable source of revenue that's not subject to ups and downs," Cappelli said. "Drivers' and riders' interests are mutual. Both are at the breaking point. This way of doing business needs to end."

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