Joe Lhota, returning to run the Metropolitan Transportation Authority, spent his first month troubleshooting with breakdowns, track fires, derailments, commuter wrath, political bickering, and media glare all around him.
“Enjoy your August,” he said as he closed Wednesday’s monthly board meeting.
July, clearly, was no fun.
First-things-first mode was evident the past week, when he announced his plan to fix New York City’s subways.
Initial triage, he said, would cost about $856 million, $380 million of that out of the capital budget. This would involve signal and track maintenance, train car reliability, safety and cleanliness, customer communications and what he called a “critical management group.”
Gov. Andrew Cuomo said Thursday that New York State would pay for half the cost.
"The current MTA situation is a crisis," said Cuomo, who last month declared a state of emergency for the agency, which also runs Long Island and Metro-North commuter railroads and several bridges and tunnels.
He and Lhota want the city to kick in the other half. Mayor Bill de Blasio has resisted, saying the governor should return funds it "siphoned" from a transit lockbox to balance its general-fund budget, re-allocate money he’s using to light up bridges, and fulfill a $1 billion pledge to the MTA capital program he made last month
Phase 2, a modernizing component, could cost $8 billion in capital funds, based on what he called a “back of the envelope” estimate and hinged in part on a “genius challenge” contest among engineering firms.
“I gave an hour presentation yesterday and I gave two minutes to the long-term plan later,” Lhota told reporters after the board meeting, which included a marathon two-and-a-half-hour public speaking session. “That’s also representative of the amount of time and effort we took about what we need to get the system back on track.”
Lacking a new revenue source, the MTA may have to borrow even more to catch up on its maintenance. It is already one of the largest municipal issuers with $38.3 billion in debt, according to authority documents.
That figure could reach $43 billion in a few years, depending on interest rates.
While the authority enjoys strong bond ratings – Fitch Ratings in June upgraded the MTA’s transportation revenue bonds, its workhorse credit, to AA-minus from A – its heavy debt load is on the capital markets' radar.
“They have big capital needs, obviously,” said Howard Cure, the director of municipal bond research for Evercore Wealth Management. “It’s hard to control capital costs without a new revenue stream.”
The MTA since 2009 has leaned on biennial fare and toll increases, plus a payroll mobility tax on commuters the legislature passed during a previous funding crisis.
Lhota, a former city budget director under Mayor Rudolph Giuliani and the MTA chairman in 2011 and 2012 before running for New York mayor, said the authority has a bead on the financial side.
“Yes, we’re well aware of the fiscal situation and the job here," he said. “Bob [Foran, the MTA’s chief financial officer] does it extremely well. When I was the city budget director I was as equally conservative, if you will, on my assumptions and Bob has been following on that great tradition.
“It’s great budgeting. We don’t budget on a one-year basis. We’re required by law to actually budget for four years and that provides the discipline that we need to make sure the system remains efficient from a fiscal point of view.”
In 2012 under Lhota, Foran projected about a $456 million gap for 2017. Foran’s briefing Wednesday on the MTA’s $16.2 billion operating budget and four-year financial plan revealed a $2 million cash balance for this year.
Foran projected a $493 million deficit for 2021. Declining real estate revenues, he said, will pose a continuing challenge, He also cited the need to implement fare and toll increases of 2% each in 2019 and 2021.
The authority, meanwhile, remains a target of frequent second-guessing over how it spends its operating and capital money.
“The debate, though not as much of late, is about pursuing new projects such as the extension of the Second Avenue subway and projects in progress, such as East Side access, versus the stuff that’s gotten just about all the attention recently,” said Cure.
The Manhattan Institute for Policy Research warned about spiraling costs of debt, pensions, health care and other post-employment benefits in a report Wednesday by senior fellow Nicole Gelinas.
In 1985, retirement and health benefits for the MTA’s New York City Transit personnel cost $1.2 billion in today’s dollars, according to Gelinas. Today, they cost nearly $3.1 billion annually.
Jamison Dague, the director of infrastructure studies for the watchdog Citizens Budget Commission, questioned whether the authority’s $1 billion enhanced station initiative, to refurbish 32 of the system’s 472 stations as part of the authority’s amended five-year capital plan, is worth the tradeoff against other capital needs.
A state review panel approved the updated capital plan last month.
“These enhancements will certainly be welcomed by the users of those stations, but allocating almost $1 billion in additional capital funds for enhancements precludes their use for component projects at other stations and other needed investments in subway performance,” said Dague. He argued for a re-examination of the station upgradres as part of the MTA's 60-day review of the plan.
While curbing debt may be a stretch, given the authority’s fix-it-now mode, controlling employee benefits will be difficult given the clout of Transport Workers Union Local 100.
“They’re dealing with a pretty militant union,” said Cure.
TWU Local 100 had a show of force at Wednesday’s meeting. It supported Lhota’s call for the city to pay for half the cost of the Phase I fixup, pointing out that the city has $4 billion of reserves in multiple accounts.
Under an arrangement brokered by Cuomo, the city committed $2.5 billion to the MTA’s five-year, $32 billion capital plan after more than a year of wrangling.
Union officials say de Blasio could find himself boxed in.
“He can’t just throw his hands in the air and walk away,” said Tony Utano, vice president of the union’s maintenance of way division.
De Blasio has resisted, saying the MTA has money to work with but hasn’t managed it well.
The verbal sparring pits Cuomo and Lhota against de Blasio, who defeated Lhota in the 2013 mayoral election.
“I can’t help but think the battle between the mayor and the governor has some effect,” said Cure. “Adding to the legend is that he mayor and the MTA chairman were opponents in the last election. [Lhota] is going to be more loyal to the state.”
Neal Zuckerman, an MTA board member and a partner and managing director in the New York office of Boston Consulting Group, said the sniping in wearing thin.
“I fear that the perception of the MTA is going to be a lot harder to change than the reality of it. The rhetoric is not helpful.”
Cure said city reserves could easily dwindle, given the risk of another recession and federal cuts in aid for programs such as housing and transportation. “I think the city should be maintaining decent-sized reserves at this point.”
Lhota and some board members Wednesday suggested a renewed push for congestion pricing could be in store. The “MoveNY” plan championed by engineer and former city transportation commissioner “Gridlock Sam” Schwartz, would toll now-free East River bridges and impose a surcharge on vehicles entering certain parts of Manhattan.
Schwartz has said the plan would bring in roughly $1.5 billion in annual revenue, with $1.1 billion for mass transit and $375 million for bridges and roads, and could generate upwards of $15 billion through bonding.
Winning over Albany and lawmakers from Brooklyn and Queens who oppose the new tolls remains a tough sell.
“It’s overly complicated, as everything is in New York, but I’m prepared to start working on it,” Lhota said.
Congestion pricing or not, the crisis is prompting a call for more outside-the-box thinking, according to Ydanis Rodriguez, who chairs the City Council’s transportation committee.
“Any short-term fixes will be short lived,” he said. “We all must think big. We need to be creative."