New York’s Metropolitan Transportation Authority's costs – not including debt service -- have outpaced inflation by more than half over the past 12 years, said a report Wednesday by the Manhattan Institute for Policy Research.

“This fundamental imbalance prevents the state from providing New Yorkers with the transit service that a growing city demands,” senior fellow Nicole Gelinas said in "The MTA's Escalating Cost Crisis," a study on the agency’s finances.

“Absent control of costs, particularly employee-benefits costs, history indicates that the MTA will spend much of any new revenues allocated to it on increased operating spending and on servicing debt, not on adequate improvements to subway, bus, and commuter-rail service for New Yorkers,” said Gelinas.

The study comes a day after MTA Chairman Joseph Lhota unveiled an $836 million plan to fix New York City’s subways, marked of late by frequent derailments, signal problems and track fires, plus congestion at Penn Station due to track closures forced by quasi-federal Amtrak’s emergency repairs.

According to MTA documents, 67,452 trains were delayed on weekdays in May, up one-third from the same month last year.

Lhota, said his plan would cost roughly $456 million in operating expenses and $380 million in capital costs,

The first phase, Lhota told reporters Tuesday, will start immediately with a goal of visible improvements within one year.

Lhota said the five components of Phase 1 will involve signal and track maintenance, train car reliability, system safety and cleanliness, customer communications and what he called a “critical management group,” rebuilding the organization and bringing key decision-makers together to monitor incidents in real time and more rapidly dispatch resources.

His initiative came about a month after Gov. Andrew Cuomo called on him to craft a reorganization plan for the authority. Cuomo also expects Lhota to complete a review of the MTA’s five-year capital program by the end of August.

“The NYC Subway Action Plan marks the beginning of a new chapter for the MTA and provides an opportunity to stabilize and improve the system and lay the foundation for modernization,” said Lhota.

Then-MTA Chairman and CEO Joseph J. Lhota in Grand Central Terminal on Fri., December 28, 2012
MTA Chairman Joseph Lhota announced a plan to fix the New York subways. MTA New York City Transit/Marc Hermann

The MTA, one of the largest municipal issuers with $38.3 billion of debt, operates the city’s subways and buses, Long Island and Metro-North commuter railroads, and several bridges and tunnels. Record passenger volume, aging infrastructure and what many transit advocates believe is a shortage of capital funding have all strained the agency.

In addition, the state-run MTA has been the focal point of political bickering between Gov. Andrew Cuomo and Lhota on one side, and New York Mayor Bill de Blasio, who defeated Lhota in the 2013 general election for mayor.

The sniping has ranged from who should pay more for the city’s subway to funding to whether lighting up the MTA's bridges is the best use of state transit-related funds.

The MTA’s capital plan has long been a political football. More recently, it took the authority nearly two years to obtain approval by a state review panel for its $29.5 billion, five-year capital program and only after Cuomo brokered a complex agreement that included a record $2.5 billion contribution for New York City.

According to de Blasio, the MTA has only spent $75 million of that money so far.

Last month the authority received the OK for an amended $32.3 billion capital plan after Long Island politicians in the state legislature threatened a veto over the proposed $2 billion LIRR third-track project.

Also in June, Cuomo said he would add $1 billion in capital funds, but didn’t say where he would get the money.

Speaking to reporters late Tuesday at the City Hall subway station, de Blasio softened his stance on Lhota.

"The MTA has to spend the money it has effectively, efficiently, and on a real schedule, and Chairman Lhota was honest today about the fact that the MTA has not been effective at spending the money it has," said the mayor.

Ironically, said de Blasio, Lhota's plan for $456 million of operating expenses for the subway initiative just about matches what New York State has in its reserves. And the state has raided MTA funds in a so-called lockbox account in past years.

"So, the answer is obvious – that money is available right now, it’s in the State of New York’s reserves. That money was originally slated for the MTA’s needs. It’s from tax revenue specifically for the MTA," said de Blasio.

"That money – that $456 million – should be returned to the MTA immediately."

Lhota late Tuesday night repeated his call for the city to fund the MTA 50-50 with the state.

"The MTA is looking for the city to be a funding partner that assists the 6 million New Yorkers, the mayor's constituents, who use the subway," he said,

Gelinas said the MTA’s revenues “have more than kept up with inflation and with service enhancements” to keep up with ridership growth.

“Even as the MTA’s revenues have increased over the decades, its costs to operate subways, buses and commuter rails have outpaced these gains,” she wrote.

According to Gelinas, pensions, health care and debt are the main drivers of the transportation authority’s increased costs. New York City Transit constitutes the biggest share of the MTA’s pension costs, with a $977 million payment expected this year for current and future retirees, or 69% of the total annual cost.

“To be sure, the MTA has repeatedly refinanced its debt to take advantage of record-low interest rates, helping to curtail growth in costs,” she said. “But the authority has grown accustomed to low borrowing costs and has correspondingly adjusted by borrowing even more money.”

Debt from past capital-investment programs consumes today’s revenues even as some of the infrastructure funded with that debt has expended its useful life, according to the report.

In 2005, she said, pension and health care costs constituted 23% of employee spending, or $2.5 billion in today’s dollars.

Today, they constitute 30%, or $4.5 billion, consuming all the additional revenue that the MTA takes in annually from the payroll mobility tax that the state legislature implemented in 2009.

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Paul Burton

Paul Burton

Paul Burton is the Northeast Regional Editor for The Bond Buyer and the author of the book "Tales from the Newsrooms." He is a sought-after public speaker and has appeared on radio and TV shows, including former CBS News White House correspondent Sharyl Attkisson’s public-affairs program, “Full Measure.”