How labor peace could cost New York MTA long-term

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Skeptics of the New York Metropolitan Transportation Authority’s tentative agreement with its largest union question whether the labor peace will cost the MTA on the back end.

The finances of the MTA — one of the largest municipal issuers with roughly $44 billion in debt — will be in focus again as its board reconvenes Monday and Wednesday to debate the authority’s proposed $17 billion operating budget and 2020 to 2023 rolling financial plan.

Its proposed record-high $51.5 billion, five-year capital program is under a state panel review.

“The budget is still under pressure and the system's operating in a pretty strong economy,” said Howard Cure, director of municipal bond research for Evercore Wealth Management.

Cure questioned how a recession would affect the MTA’s bottom line.

“What if there's a hit on the operating revenues, the fareboxes or the bridges and tolls? There's still a lot of work to be done."

The MTA, which operates New York City’s subways and buses, two commuter rail lines and several intraborough bridges and tunnels, faces out-year deficits that could reach $1 billion in four years. Officials hope that a transformation plan that received board approval in January could whittle the deficits.

The state legislature called for the transformation plan when it enacted its fiscal 2020 budget.

"[Even] with the labor agreement, we're not going to close that gap," board member Neal Zuckerman said Monday. "We need structural change or else we're going to be sitting on the board of a bankrupt entity."

Speaking at a City Council hearing last month, Chief Financial Officer Robert Foran said the MTA may eventually require state aid to balance its operating budget. “I believe at some point in time that operating aid is going to be needed,” he said.

Andy Byford, president of the MTA's New York City Transit division, said Monday that on-time subway performance has surpassed 80% for the sixth straight month. "It's a new baseline for us," he said.

The MTA reached an accord two weeks ago with Transport Workers Union Local 100, which represents 37,000 workers. TWU was working without a contract since May 15.

“We do have some significant cost-saving reduction," MTA Chairman Patrick Foye said. The authority, he added, can fund the proposed agreement under its four-year financial plan.

The deal, which the union's leadership ratified and needs full union as well as board approval, ended six months of acrimony between the MTA and its workers, and even caused a rift between Gov. Andrew Cuomo's board appointees and those sympathetic to labor.

Also during that time, the MTA's inspector general, Carolyn Pokorny, has investigated alleging wrongdoings by employees. Last Thursday, Pokorny's office reported that nine apparent acts of vandalism, with an additional incident under review, have occurred against biometric timekeeping clock over seven months, including three in the previous week alone.

Wages will increase by nearly 10% compounded over the four years of the contract and expects to cost the MTA roughly $350 million. It also features some work-rule changes such as larger co-pays for emergency-room visits, incentives for using generic drugs and a union pledge to increase worker availability by 1.5 days per year.

“The first year is not such a big deal. It’s what happens after that,” said Nicole Gelinas, a senior fellow with the Manhattan Institute for Policy Research. “The TWU was clever in structuring the deal so that the higher raises came at the end."

One large variable, according to Gelinas, is the MTA’s level of savings.

“They don't give you a percentage for savings,” she said. “They just give you a flat number. Whether the savings compound or not makes a big difference.”

Foye pegged the authority’s savings at roughly $44 million per year.

“We do have some significant cost-saving reduction in there, about $27 million comes from drug and health. That's an annual recurring number; it will grow,” Foye said. “About $17 million will come from relief on overtime and what we call availability, which is the flip-side of overtime, that's $44 million a year.

“The $17 million that I mentioned on overtime and availability, the first day of availability, an additional day of availability, is good for management.”

The agreement also accelerates the making of 70 stations accessible for disabled persons, prompting Cure to question why this came under the umbrella of a union deal.

"I'm not sure why that has to be in the contact,” Cure said. “That speaks of one of my bigger concerns about the MTA, that costs for capital construction are so high. They still have a lot of employees, more than necessary."

According to Cure, the state’s own budget strife could constrain its contributions to mass transit. Cuomo’ budget office has projected deficits of $6 billion to $8 billion over three years largely due to spiraling Medicaid costs.

"I'm not sure how generous the state's going to be or whether there will be pressure for further contributions from the city,” Cure said.

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Infrastructure Employee relations State budgets Patrick Foye Howard Cure Nicole Gelinas Metropolitan Transportation Authority State of New York City of New York, NY New York