Testimony to the New York State Senate Standing Committees on Transportation and Corporations and Assembly Standing Committee on Corporations, Authorities and Commissions

Good morning Senator Kennedy, Senator Comrie, and Assembly Member Paulin. Thank you for the opportunity to testify about the impact of COVID-19 on the Metropolitan Transportation Authority (MTA). I am Denise Richardson from the Citizens Budget Commission, a non-partisan, nonprofit research organization devoted to influencing constructive change in the finances and services of New York City, State, the MTA, and other public authorities. 

The MTA faces an unprecedented fiscal crisis with a cumulative $16.2 billion budget gap from 2020 through 2024. The MTA’s present crisis is a result of the drop in economic activity, declines in farebox revenue, and unplanned expenses caused by the pandemic. We should be mindful, however, that before the pandemic and recession, the MTA’s finances already were in a precarious position, with its budget relying on optimistic assumptions about budget savings and organizational transformation.

Fares and tolls represent nearly 40 percent of the MTA’s operating revenue, with dedicated taxes and subsidies representing another 43 percent. By April the MTA experienced a 90 percent decrease in subway and bus ridership, a 65 percent decrease in bridge and tunnel traffic, and a 95 percent decrease increase in commuter rail passengers. With a modest uptick, ridership on the subway is now down only 70 percent and on commuter rails down 80 percent from pre-pandemic levels. Toll traffic has been much more resilient and is only 15 percent below where it was earlier this year. Additionally, the MTA estimates that new COVID-related cleaning will cost $567 million in 2020, $591 million in 2021, $518 million in 2022, and $500 million annually in 2023 and 2024.  

The MTA was granted authority in the New York State Fiscal Year 2021 Budget to redirect funds dedicated to support the capital program to fund operating expenses in 2020 and 2021; however, the delay in congestion pricing’s implementation and the downturn in real estate transactions subject to the “Mansion Tax” limit the funds available. 

Despite the modest return of ridership, the MTA’s July financial plan anticipates a shortfall in fare and toll revenue of $5.1 billion in 2020 and $3.9 billion in 2021 with smaller gaps in the following years. At the same time, reduced economic activity will result in lower MTA tax revenues, with a 2020 shortfall of $1.6 billion and a 2021 shortfall of $1.5 billion. Even with an expected full return of fare, toll, and tax revenue in 2024, the MTA anticipates it will have a $1.8 billion gap. 

To be clear, the MTA needs additional assistance from the federal government. However, prospects for receiving it are uncertain. With additional federal help stalled in Congress, the State’s and City’s own constraints, and no present options to enact additional taxes and fees, the MTA has few solutions to its financial problems.

As CBC noted in July, the MTA must make hard choices to solve its financial problems. The choices will be difficult and far-reaching and will require shared sacrifices by all constituencies. The hard choices include:

• Working with the labor force to implement additional savings by increasing the efficiency of operations, and reducing overtime and employee benefits costs.
• Foregoing new headcount. The financial plan includes an increase in fiscal year 2021 of 776 positions and an increased personnel cost of $250 million; this is not affordable at this time. 
• Rescoping the capital program to focus on the projects that will preserve the system’s state of good repair and reduce future maintenance expenses, especially in the key areas of tracks and signals. Optimizing service to match ridership patterns and support critical needs of the economy. This may include changing the frequency of service and adjusting service on overlapping routes for buses, subways, and the commuter rail network.  For example, the MTA expects commuter rail service to remain at less than 25 percent of last year’s ridership for the rest of 2020. The MTA should consider a revision of its ‘Essential Service’ plans to ensure that service enables the ridership to maintain social distance guidelines without running trains that are basically empty. Commuter rail farebox recovery ratios are forecast to drop in 2020 to 10 percent at the Long Island RailRoad and 14 percent at MetroNorth. Returning the ratios—which are a measure of how the fare relates to the cost of providing service—to 2019’s ratios of 31 percent and 40 percent, respectively, could require less frequent trains or trains that make all stops along a line’s full length. 
• Increasing tolls by a greater percentage than the currently planned 4 percent increase in 2021 as toll traffic has returned at a faster rate than ridership 

The MTA has been given the authority to issue long-term debt support its operations. This should not be considered without first taking steps to cut spending, since it risks adding even more unsustainable annual spending, exacerbating rather than solving the MTA’s fiscal problems. 

Debt service is paid through the MTA’s fare and toll revenue and tax subsidies. In 2020 debt service represented 19 percent of the MTA’s operating revenues and subsidies; in 2021, due to the pandemic’s effects, the MTA forecasts this to grow to 26 percent, decreasing to 23 percent by 2024. Thus, for every $5 of fare, toll, and tax revenue the MTA receives, it will need to spend more than $1 on debt service. With more revenue allocated to debt service, fewer resources are available to enhance service, keep trains and stations clean, maintain rolling stock, or make other ongoing repairs that are not capital eligible.  Controlling debt service growth once borrowing for operating expenses is introduced will require counterproductive reductions in capital investments, risking the system’s state of good repair.

The MTA needs financial assistance from the federal government; however, at the same time, the MTA should examine every aspect of its operations and make the hard choices that will be necessary to reduce spending and keep the system operating until ridership returns and economic activity rebounds. The MTA has come too far in recent decades to sacrifice its future to short-term decisions that will have long-term negative consequences.

Thank you.