The light at the end of the subway tunnel could be an onrushing fiscal crisis that could impact the Metropolitan Transportation Authority down the line. Despite unprecedented federal aid and better-than-expected state tax revenues, the MTA continues to plan to use borrowing techniques that push difficult financial decisions into the future and could leave less money to pay for services, according to NYS Comptroller Thomas DiNapoli’s annual report on the MTA’s debt.
If riders don’t return faster than the MTA projects, or if new sources of revenue are not found, rising debt payments could force the state-run agency to close future budget gaps through service cuts, greater than planned fare hikes, or delays in capital projects, the report concludes.
“The MTA’s finances are stable this year, but just around the corner it faces budget gaps with no solution to close them yet,” DiNapoli said. “The MTA should not kick the can down the road. Its plans to issue debt to pay for operating costs and put off paying down its debt for capital projects may save money in the short-term, but those bills will eventually come due for future riders and taxpayers.”
The MTA’s structural budget problems predate the pandemic with expenses having risen faster than operating revenue. When the pandemic hurt fare and tax revenue collections, the MTA’s bad financial situation became a dire problem, according to the Comptroller’s office. The agency is relying on more than $14 billion in one-time federal aid to balance its budgets through 2025. By 2026, the MTA faces a budget gap of more than $2 billion and could, as a last resort, have to borrow to pay for operating costs.
DiNapoli called on the MTA to work with its federal, state and city funding partners to accelerate and enhance funding sources for its capital plan to reduce pressure on its near-term debt burden. The report also encourages the MTA to prioritize its capital spending on projects that address the transit system’s resiliency, so that it has a clear understanding of which projects are critical and which could be delayed if necessary.
The MTA anticipates future revenue growth will ease the burden that its debt puts on the operating budget and create breathing room to fund future capital programs. However growth in ridership is far from certain. Since 2010, debt has been the largest source of funding for the MTA’s five-year capital programs, which are vital to keeping the system in a state of good repair and reliable for riders. However, it is consistently late in completing these programs. DiNapoli’s report identifies $54.4 billion that has yet to be committed for projects that date back as far as the 2010 plan. Based on the commitments in 2022, it would take the MTA until 2028 to commit these funds and 2031 before the work was completed.
“If it continues down this path, the MTA will have a harder time paying for maintenance, repair and other work that keeps the system running and funding the capital projects that are needed to improve service for riders,” DiNapoli said, adding that the MTA’s current $55.3 billion 2020-2024 capital program is its largest ever. Only $8.3 billion of the program has been committed, mostly because of a pause in capital commitments during the pandemic and the delay in receiving congestion pricing revenues. The Infrastructure Investment and Jobs Act will provide an estimated $10 billion over five years which the MTA estimates will provide $1.7 billion more than projected for the 2020-2024 capital programs. These funds are expected to help the MTA cover the potential $2.9 billion capital plan gap that could be opened up if the MTA uses its debt capacity to issue debt for operating purposes instead of capital.
“The MTA has always strived to find and achieve financial efficiencies and will continue to do so,” MTA spokesman Aaron Donovan said. “The report speculates on a potential future situation and possible future solutions.”