Five Noteworthy Changes in the MTA's Financial Plan
As part of its regular budget process the Metropolitan Transportation Authority (MTA) on February 23, 2017 modified the financial plan it had previously adopted for 2017 to 2020.1 The modifications include five noteworthy changes which have the combined impact of slightly worsening the agency’s fiscal outlook.
First, the financial plan update specifies, for the first time, the cost of the recently negotiated 28-month labor contract with the Transport Workers Union (TWU) Local 100. The agreement, announced in January and ratified by the union in February, covers 38,000 transit workers and sets the wage pattern for other represented transit workers.
Two 2.5 percent wage increases spread over 28 months headline the agreement—above the MTA’s previously projected 2 percent increases—and the deal includes a “me-too” clause that entitles the TWU to match potential wage gains by other MTA unions.2 This clause does not cost the agency anything now; however, it has the potential of reopening wage increases for more than half of all MTA employees.3
The MTA presents the contract’s net cash impact as approximately $52 million over the four-year life of the plan; however, this plan also reduces the four-year savings from the rebidding of the TWU’s health benefits by $64 million.4 The MTA prudently secured a more competitive health care benefits package with the cooperation of TWU last year. When the MTA released its November financial plan, labor negotiations had not yet started, and the agency booked the full savings. The February update reduces the value of this savings by $64 million over the plan.5 This combined with the $52 million cost of the contract have an unfavorable impact of $116 million during the plan. (See Table 1.)
|Annual Cash Surplus/(Deficit) in November Financial Plan||($237)||$54||($44)||($352)|
|Related to Cost of TWU Contract||(23)||(32)||(37)||(23)|
|Net cash impact on operating expenses||(13)||(15)||(19)||(4)|
|Offset half of savings from rebid of medical contract||(10)||(17)||(18)||(19)|
|State Subsidy Changes||(125)||(43)||(43)||(59)|
|Reduced PMT Replacement Funds||(67)||(67)||(67)||(67)|
|Additional MTA Efficiencies||25||50||50||50|
|Debt Service and Capital Contribution Changes||62||(15)||63||12|
|Timing of State funds||12||38||38||38|
|Shifting of Agency Pay-as-you-go Capital||50||(53)||25||(26)|
|Use of Sandy Insurance Proceeds||100|
|Other changes, net||(38)||(10)||(8)||(7)|
|Annual Cash Surplus/(Deficit) in February Financial Plan||($236)||$3||($19)||($379)|
|November 2016 Financial Plan Net Cash Balance||$23||$76||$32||($319)|
|February 2017 Financial Plan Net Cash Balance||$24||$27||$7||($372)|
Note: Totals may not add owing to rounding.
Source: Metropolitan Transportation Authority, 2017 Approved Budget, February Financial Plan (February 20, 2017).
Second, the Governor’s Executive Budget released in January reduced the dedicated tax and State subsidy revenue from the MTA’s previously budgeted amount. The Fiscal Year 2018 Executive Budget reduces the appropriations for Metropolitan Mass Transportation Operating Assistance (MMTOA) and the Payroll Mobility Tax (PMT) Replacement Funds while increasing projections for the Petroleum Business Tax (PBT) receipts and MTA Aid.6 The result is lower Dedicated Subsidies and Taxes in each year, totaling $271 million in reduced revenues over the financial plan.7
The negative impact of these two changes is largely, but not fully, offset by three more positive modifications. The MTA expects to reduce operating expenses due to unspecified efficiencies by $25 million in 2017 and $50 million in each year thereafter, a total favorable impact of $175 million. In 2010 the MTA began setting these incremental recurring savings targets based on agency efficiencies, a process that has generated nearly $2 billion in annual savings. Much of the “low-hanging fruit” has been picked, and the agency has noted the difficulty of identifying and implementing more efficiencies.
Additionally, adjustments related to the financing of the MTA’s capital program will save money by lowering debt service. The State Division of the Budget agreed to accelerate the release of $704 million previously appropriated to support the MTA capital program.8 Receiving this capital funding earlier than anticipated allows the MTA to defer previously scheduled borrowing, saving $12 million in 2017 and $38 million per year thereafter in debt service. The MTA also plans to shift the timing of pay-as-you-go (PAYGO) capital contributions, moving a planned $50 million contribution in 2017 to 2018 and a planned $25 million contribution in 2019 to 2020.9 The combined effect of earlier-than-expected State funding and PAYGO shifts results in favorable outcomes of $62 million in 2017, $63 million in 2019, and $12 million in 2020, and an unfavorable outcome of $15 million in 2018.
Finally, the MTA settled with insurers over claims related to Superstorm Sandy, yielding $100 million to compensate for lost business during and after the storm. The modified plan includes this “one-shot” to support operations in 2017.
In some ways the February Financial Plan represents business as usual. The MTA relies on unspecified efficiencies to alleviate projected deficits, and it manages planned PAYGO capital to use cash balances to lower debt service costs where appropriate. However, the revised plan also reflects more fundamental changes in MTA financing arrangements, reducing subsidies from earmarked and other state taxes without replacement funds that were in the past provided through state funding.
The MTA can accommodate the revenue reductions and higher labor costs in the short term, although the projected 2020 cash deficit is now larger than what was anticipated in the previous plan. Addressing the labor settlement and the subsidy reductions exceeded the value of the “one-shot” insurance recovery and the latest round of yet-to-be implemented efficiencies. Decreases in annual cash balances are modest but the cumulative impact is noteworthy with a negative balance of $372 million in 2020. A 1 percent annual general reserve, if not needed each year, could provide $650 million over the plan period. Absent the availability of these funds new policy actions will be required to keep the agency from serious red ink.
- Metropolitan Transportation Authority, 2017 Adopted Budget, February Financial Plan 2017-2020 (February 21, 2017), http://web.mta.info/mta/budget/.
- Notably, the contract contains a $500 pensionable cash bonus for each employee at the end of the contract and captures changes to reduce the costs of workers’ compensation in the future.
- Bob Hennelly, “TWU Wage Deal Gets Thumbs-Up From Two-Thirds of Membership,” The Chief Leader (February 17, 2017), http://thechiefleader.com/.
- Beyond 2020 the MTA believes the settlement will have virtually no cash impact because higher base salary costs are expected to be offset by other savings. See: Metropolitan Transportation Authority, 2017 Adopted Budget, February Financial Plan 2017-2020 (February 21, 2017), p. I-3, http://web.mta.info/mta/budget/.
- Metropolitan Transportation Authority, 2017 Adopted Budget, February Financial Plan 2017-2020 (February 21, 2017), p. I-3, http://web.mta.info/mta/budget/.
- MMTOA provides operating subsidies for the MTA and other downstate transportation systems. These funds are appropriated by the legislature and consist of business taxes and sales and use taxes, some levied Statewide and others limited to the MTA service region. PMT is a payroll tax on the MTA region, and PMT Replacement Funds were appropriated in response to certain PMT rate reductions and exemptions and are paid for through alternative sources included in the State budget. PBT are composed of a business privilege tax, a gasoline and diesel fuel excise tax, and fees for vehicle registrations and driver licenses. The MTA receives 34 percent of the proceeds from these taxes and fees. MTA Aid is composed of: a $1 license fee for each six-month period of validity of a learner’s permit or driver’s license issued to individuals residing in the MTA service region; a $25 annual motor vehicle registration fee in the MTA service region; a 50-cent per ride tax imposed on each taxicab ride that originates in New York City and terminates within the MTA service region; and a 5 percent tax on automobile rental fees within the MTA service region.
- In its one-house budget bill, the New York State Assembly restored the $65 million reduction in PMT Replacement funds; however, in doing so they have reduced State capital funds to meet this operating need. See: Overview of Assembly Budget Proposal, State Fiscal Year 2017-2018 (March 13, 2017), p. 65-2 http:
/ /nyassembly.gov /Reports /WAM /20170313 /2017_budget_summary.pdf; and Metropolitan Transportation Authority, 2017 Adopted Budget, February Financial Plan 2017-2020 (February 21, 2017), p. I-2, http://web.mta.info/mta/budget/.
- Of this, $104 million has been advanced for the 2015-2019 capital program, and the MTA anticipates an additional $600 million this year for the 2010-2014 capital program.
- These shifts result in a $3 million increase in debt service in 2018 and a $1 million increase in debt service in 2020.