New York City probably could not exist as we know it without its extensive mass transit network. So you might expect the prospect of an imminent transportation doomsday to provoke alarm, or at least more than has been discernible thus far.
The Metropolitan Transportation Authority recently released what it calls its “doomsday” budget for 2021. Absent a $12 billion financial bailout, the transit agency says it will need to cut city subway and bus services by 40%, cut suburban commuter rail service in half, and lay off 9,000 workers, or nearly a quarter of its transit labor force.
In more typical times, the prospect of such draconian cuts would push the region’s political and business communities to at least DEFCON 4. These, however, are not typical times. The pandemic crushed transit ridership in the spring. This month’s virus surge has triggered new school closings, cutting demand further. Ridership is down about 70% compared to before the pandemic, despite hopes for a greater recovery by this point. Given the unappealing alternatives, the region’s decision-makers seem frozen. Presumably they hope that either a bipartisan agreement in the lame-duck Congress or a Biden administration with Democratic control of Congress (pending two Georgia runoffs for Senate seats) will come through for the Big Apple early in the new year.
Neither of these benign outcomes seems especially likely, though. Heading into the Thanksgiving holiday week, the only obvious vehicle for a new coronavirus economic aid package was a must-pass spending bill to keep the federal government operating beyond Dec. 11. Sen. Chuck Schumer, the New Yorker who leads the chamber’s Democratic minority, might be able to squeeze a bit more money into the bill for the MTA, which has already received about $4 billion in pandemic-related financial aid. That might get the agency through the first few weeks of the year, beyond the Georgia runoffs and President-elect Joe Biden’s inauguration on Jan. 20.
It is still a stretch to assume that the next Congress will cover all, or even most, of the agency’s multi-billion-dollar, multiyear shortfall. In a barely Democratic Senate, such largesse would need the support of newly seated members from Arizona and Colorado, the aforementioned two from Georgia, and Joe Manchin of West Virginia. In a Republican-controlled Senate, the prospects would be dimmer still. And over in the House of Representatives, a narrowed Democratic majority will have to balance the New York region’s needs with demands from California, Florida, Illinois and the rest of the nation. The financial impacts of the pandemic have reached across the country.
This does not mean Congress or the new administration will tell New York to drop dead, in the words of the famous 1975 Daily News headline. Lawmakers will appreciate that New York was not responsible for the pandemic, that it was uniquely vulnerable to the early spread of the poorly understood virus, and that it cannot function normally without at least most of its pre-pandemic transit services. My guess is Congress will offer some help. But that help is unlikely to be as much as the region seems to be counting on getting.
New York will probably need to scale down its ambitions – and rein in its transit unions. The unions have gone on strike three times since 1966. The first walkout paralyzed the city for almost two weeks, brought newly sworn Mayor John V. Lindsay to heel, and gave unions an upper hand in later negotiations. They have rarely relinquished that advantage since. The second strike, in 1980, was more forcefully opposed by Mayor Ed Koch, who encouraged New Yorkers to walk or bicycle to work. And the third, a three-day walkout in December 2005, forced the state and the MTA to back down from demands for sorely needed pension reforms.
The fares paid by subway, bus and commuter rail riders in recent years have covered only about 38% of the costs of operating the services they use. The rest comes from a hodgepodge of taxes, fees and miscellaneous costs imposed across the metropolitan region, as well as from government subsidies. The region’s drivers pay exorbitant tolls to use bridges and tunnels, paid for long ago, to generate a surplus that goes to mass transit. Businesses in the MTA region pay an extra tax on employee wages and self-employment income. Still more money comes from driver’s license and vehicle registration fees, taxes on motor fuels, a surcharge on for-hire vehicles and taxes for recording mortgages.
New York’s high costs for labor, space, utilities and supplies readily suck up this deluge of cash (or what was a deluge, before the pandemic reduced some elements to a trickle). Debt service alone takes 16% of the MTA budget; pensions, health and welfare benefits take another 21%. Those pensions won by workers a generation or two ago were not funded when they were earned. Today they are soaking up revenue provided by riders and nonriders alike.
In some ways, the MTA’s pandemic-induced fiscal train wreck is a warning signal for what lies ahead in many corners of public finance. As I have said before, promises that are impossible to keep won’t be kept. I would guess that federal aid often will come with strings that will pull back pension and welfare benefit costs, even if those strings are not ultimately attached to whatever aid is forthcoming for the MTA.
Meanwhile, many New Yorkers have grown accustomed to doing without a lot of the transit options they formerly took for granted. Subways that never closed started shutting down at night for antiviral cleaning. Many of the city’s white-collar workers are doing their jobs from home, just like everywhere else. More than in most other places, some former residents have departed for nearby suburbs or more distant locales, where social distancing space is greater and cheaper. The MTA already assumes that some 10% of its former customers will not return at any time in the next several years.
These developments are especially bad news for the city’s formerly thriving core in Manhattan. They are more of a mixed blessing in the outer boroughs and outlying areas. That may be the best explanation for the relatively quiet response to the MTA’s doomsday warnings. The prospect of doing without customary bus and rail service is less frightening to a population that learned to do without them months ago.
Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book,
Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book
The High Achiever’s Guide To Wealth.
Posted by Larry M. Elkin, CPA, CFP®
photo by Heath Brandon, licensed under CC BY-SA
New York City probably could not exist as we know it without its extensive mass transit network. So you might expect the prospect of an imminent transportation doomsday to provoke alarm, or at least more than has been discernible thus far.
The Metropolitan Transportation Authority recently released what it calls its “doomsday” budget for 2021. Absent a $12 billion financial bailout, the transit agency says it will need to cut city subway and bus services by 40%, cut suburban commuter rail service in half, and lay off 9,000 workers, or nearly a quarter of its transit labor force.
In more typical times, the prospect of such draconian cuts would push the region’s political and business communities to at least DEFCON 4. These, however, are not typical times. The pandemic crushed transit ridership in the spring. This month’s virus surge has triggered new school closings, cutting demand further. Ridership is down about 70% compared to before the pandemic, despite hopes for a greater recovery by this point. Given the unappealing alternatives, the region’s decision-makers seem frozen. Presumably they hope that either a bipartisan agreement in the lame-duck Congress or a Biden administration with Democratic control of Congress (pending two Georgia runoffs for Senate seats) will come through for the Big Apple early in the new year.
Neither of these benign outcomes seems especially likely, though. Heading into the Thanksgiving holiday week, the only obvious vehicle for a new coronavirus economic aid package was a must-pass spending bill to keep the federal government operating beyond Dec. 11. Sen. Chuck Schumer, the New Yorker who leads the chamber’s Democratic minority, might be able to squeeze a bit more money into the bill for the MTA, which has already received about $4 billion in pandemic-related financial aid. That might get the agency through the first few weeks of the year, beyond the Georgia runoffs and President-elect Joe Biden’s inauguration on Jan. 20.
It is still a stretch to assume that the next Congress will cover all, or even most, of the agency’s multi-billion-dollar, multiyear shortfall. In a barely Democratic Senate, such largesse would need the support of newly seated members from Arizona and Colorado, the aforementioned two from Georgia, and Joe Manchin of West Virginia. In a Republican-controlled Senate, the prospects would be dimmer still. And over in the House of Representatives, a narrowed Democratic majority will have to balance the New York region’s needs with demands from California, Florida, Illinois and the rest of the nation. The financial impacts of the pandemic have reached across the country.
This does not mean Congress or the new administration will tell New York to drop dead, in the words of the famous 1975 Daily News headline. Lawmakers will appreciate that New York was not responsible for the pandemic, that it was uniquely vulnerable to the early spread of the poorly understood virus, and that it cannot function normally without at least most of its pre-pandemic transit services. My guess is Congress will offer some help. But that help is unlikely to be as much as the region seems to be counting on getting.
New York will probably need to scale down its ambitions – and rein in its transit unions. The unions have gone on strike three times since 1966. The first walkout paralyzed the city for almost two weeks, brought newly sworn Mayor John V. Lindsay to heel, and gave unions an upper hand in later negotiations. They have rarely relinquished that advantage since. The second strike, in 1980, was more forcefully opposed by Mayor Ed Koch, who encouraged New Yorkers to walk or bicycle to work. And the third, a three-day walkout in December 2005, forced the state and the MTA to back down from demands for sorely needed pension reforms.
The fares paid by subway, bus and commuter rail riders in recent years have covered only about 38% of the costs of operating the services they use. The rest comes from a hodgepodge of taxes, fees and miscellaneous costs imposed across the metropolitan region, as well as from government subsidies. The region’s drivers pay exorbitant tolls to use bridges and tunnels, paid for long ago, to generate a surplus that goes to mass transit. Businesses in the MTA region pay an extra tax on employee wages and self-employment income. Still more money comes from driver’s license and vehicle registration fees, taxes on motor fuels, a surcharge on for-hire vehicles and taxes for recording mortgages.
New York’s high costs for labor, space, utilities and supplies readily suck up this deluge of cash (or what was a deluge, before the pandemic reduced some elements to a trickle). Debt service alone takes 16% of the MTA budget; pensions, health and welfare benefits take another 21%. Those pensions won by workers a generation or two ago were not funded when they were earned. Today they are soaking up revenue provided by riders and nonriders alike.
In some ways, the MTA’s pandemic-induced fiscal train wreck is a warning signal for what lies ahead in many corners of public finance. As I have said before, promises that are impossible to keep won’t be kept. I would guess that federal aid often will come with strings that will pull back pension and welfare benefit costs, even if those strings are not ultimately attached to whatever aid is forthcoming for the MTA.
Meanwhile, many New Yorkers have grown accustomed to doing without a lot of the transit options they formerly took for granted. Subways that never closed started shutting down at night for antiviral cleaning. Many of the city’s white-collar workers are doing their jobs from home, just like everywhere else. More than in most other places, some former residents have departed for nearby suburbs or more distant locales, where social distancing space is greater and cheaper. The MTA already assumes that some 10% of its former customers will not return at any time in the next several years.
These developments are especially bad news for the city’s formerly thriving core in Manhattan. They are more of a mixed blessing in the outer boroughs and outlying areas. That may be the best explanation for the relatively quiet response to the MTA’s doomsday warnings. The prospect of doing without customary bus and rail service is less frightening to a population that learned to do without them months ago.
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