NYCivic

MTA Fiscal Crisis Was Widely Foreseen,
But No One Untied Victim on the Tracks.
City, State Spending Beyond Revenues
But Powers that Be Ignore the Problem.

By Henry J. Stern
October 26, 2004

Back to substance on issues facing the city. The Velella case now has its own page.

Transit finance is an impending disaster, just like school finance under the courts. The MTA is seeking a substantial fare increase for 2005, and threatens another increase for 2006. The fiscal problem is intensified because more and more of the MTA's operating budget is being used each year to pay interest for the debt it incurred for its capital construction program, which includes new equipment and line extensions as well as maintaining a state of good repair. Yesterday the Times' Richard Pérez-Peña reported that this situation was widely known for some time. The operating budget crisis was as predictable as two trains approaching each other from opposite directions on a single track (railroad analogy).

Everyone professionally involved with the MTA — state and local government, transit experts, and civic organizations concerned with fiscal problems — knows the financial score. However, no one in a position of authority has done anything significant to alleviate the impending fiscal disaster; in fact, the funding agencies have made it worse. The city and state continue their efforts to reduce their subsidies to the MTA, and the agency itself not only fails to reduce its management costs significantly, but has wasted hundreds of millions of dollars in boondoggles like 2 Broadway.

The MTA has also improvidently spent federal funds on the $400 million South Ferry plan and the overly-elaborate Fulton Street station. The Port Authority is no better: its monument to itself will be the $2 billion World Trade Center station, a location which already has an adequate replacement for the station destroyed on 9/11. The only argument for these castels of conspicuous consumption is that the federal government is paying the bill (out of the 9/11 disaster relief funds), and that if we did not spend it in this way we would receive nothing. With a presidential election coming up, it is hard to believe that the only condition the feds impose on New York would be that the money be wasted.

Katie Lapp, the MTA's executive director, was sent in by Governor Pataki to prevent further stealing, much of it due to the chairman's particular responsiveness to friendly lobbying. Ms. Lapp works hard, means well, and has learned a lot about transit. Yet in the most recent round of salary increases for top MTA executives, the heads of the operating divisions were given substantial raises that place them way above her. It's not that she needs the money, but these increases, like seating at the old May Day parades in the Soviet Union, are signals to the outside world as to who is in and who is not.

Ms. Lapp, who received a justified bouquet in the Public Lives column of today's New York Times, may not have the authority she needs to move employees around and to make the economies that should be made in management before the MTA goes to service reductions. Although some manning cuts are desirable, they should not be made while headquarters remains plump. It is also true that not every token booth needs to be manned, and New Yorkers should wake up to the fact that we cannot pay people to wait all day to serve occasional transit users. These jobs are not make-work assignments for newspaper readers.

The MTA management needs strength to deal with its old-line engineering personnel, who are always ready to tell you that anything you want to do is unsafe or illegal. They can be mistaken, as are their crocodilian colleagues in NYC DOT, We need railroad presidents with the knowledge and strength to deal with them effectively. There seem to be just a handful of people who can do this well. David Gunn is at Amtrak and Richard Kiley is in London. We should search for the best in technical personnel.

The City of New York itself faces a similar cash crisis in its FY 2006 expense budget. The mayor has just announced the ritualistic annual program to eliminate the gap (PEG is the acronym) which is supposed to cut $300 million this year and $600 million next year, although he issued no press release on the very important topic. Most of the specific cuts were left to the agencies, with a 3% reduction demanded in all areas except education and CUNY. The exemption of education is a political decision, influenced by fear of the courts. There is more waste in education than in a number of other agencies, but elected officials are afraid to look for the fat because they are afraid of the judges and the special masters appointed by the judges looking over their shoulders. This is an aftermath of the Court of Appeals decision in June 2003, which is a prelude to mandating enormous additional expenditures for education by the city and state without providing a nickel to pay for them. That will occur unless the judges usurp the most important function of the State Legislature by imposing taxes. The righteous do not have a limited sense of their own authority.

Almost everyone knows that there is considerable waste and fiscal irresponsibility in government. The federal government, which can print money and borrow as much as it likes, has brought our national debt to a new high, more than seven point four trillion dollars. Numerically, it is $7,438,658,418,144.80 as of today (10/26). Since yesterday, when we started researching, the national debt has risen by $1.7 billion dollars. The states and cities are theoretically required to have balanced budgets. So they create off-budget agencies, much as Enron did, to borrow additional billions of dollars. By the time people catch on to what is happening, and try to crawl out from under the debt, the borrowers will have long since left office.

It is not smart politics to raise taxes, or to say that you will, unless you are acting under immediate and overwhelming duress, or make it appear that this is the case. When, in 1984, candidate Walter Mondale said that he would raise taxes, he carried just one state (Minnesota) to Ronald Reagan's forty-nine. Reagan had raised taxes in 1982, which was a fiscal necessity at the time. When Bush 41 said "Read my lips, no new taxes" in 1988 and then did increase taxes, he lost substantial credibility and was defeated for re-election in 1992 by Bill Clinton, who said he would raise taxes for the wealthy, which he did. In 1994, the Democrats lost Congress.

In Ecclesiastes, it is said that there is nothing new under the sun. That is essentially true, but there are new levels of ingenuity used by budget makers to conceal facts and thus postpone difficult fiscal choices. If this maneuvering could go on forever, we would all be spared paying for what we spend, but even Carlo Ponzi was unable to keep the scheme going beyond a certain point.

What this comes down to is that government data can be as misleading as data you get from insurance companies, which we have learned from Attorney General Eliot Spitzer is not totally reliable. But as long as the cognoscenti know but do not dissent publicly from unsustainable fiscal decisions, things will continue as they are. It is true that a rising tide lifts all boats, and that would be helpful, but it would take a flood not seen since Genesis to put the public finance of our body politic on an even keel.

Please don't shoot the messenger.