(Updates with Walder comments in fourth paragraph.)
July 27 (Bloomberg) -- New York’s Metropolitan Transportation Authority, which carries 8.5 million riders a day, counts on freezing pay and raising fees to erase deficits for two years without service cuts.
The agency would produce cash balances of $4 million at the end of 2012 and $125 million for 2013 by negotiating contracts that keep wages unchanged for three years, increasing toll and fare revenue by 7.5 percent in 2013, announced earlier, and cutting costs, according to a four-year fiscal plan presented today at the agency’s monthly board meeting.
The projected surpluses, which would be applied to the next budget, compare with deficits estimated by the agency in February at $247 million next year and $37 million for 2013. The proposal also calls for a second round of 7.5 percent fare and toll increases in 2015, and for borrowing $6.9 billion to fund capital projects including new lines and maintenance.
“This financial plan brings stability back to the MTA’s finances,” Jay Walder, the 52-year-old chairman and chief executive officer who last week announced his plans to leave in October, said in a statement. The proposal “presents at least a fragile stability for the organization,” Walder said at the meeting. “It has risks associated with it.”
The added borrowing, to include $4.7 billion in revenue bonds, would leave the MTA with $36 billion in debt, said Andrew Saul, chairman of the board’s finance committee.
“To me this is an absolute ticking time bomb,” Saul said at the meeting. “It’s on the riders’ backs.”
The nonprofit Citizens Budget Commission faulted the plan for failing to provide a way to pay off the proposed new debt, while saying it is “better than doing nothing to meet the essential infrastructure needs of mass transit.”
“The problem with the MTA plan is that it does not increase revenues to provide the money eventually needed to pay back” the debt, Carol Kellermann, the Manhattan-based group’s president, said in a statement. “New revenue must be found,” she said, citing “mushrooming debt-service” costs.
Significant risks to the proposal mentioned by board members include assumptions that dedicated taxes, subsidies and revenue won’t be diverted from the MTA and that labor talks will succeed. Because the agency has limited working capital, a weak economy was also listed as a risk.
State Aid Reduced
New York Governor Andrew Cuomo, a Democrat, cut $100 million from the MTA in his fiscal 2012 budget. Cuomo has reached tentative agreements with the state’s two biggest unions, freezing base wages for three years. Agency officials said they hope to use the accords as a basis for future labor negotiations with MTA workers.
The agency’s three-year contract with its largest union, Transport Workers Local 100, expires in January. It provided for 4 percent wage increases in each of the first two years and a 3 percent boost in the third, said Aaron Donovan, an agency spokesman. Terms were settled by a three-member panel of outside arbitrators, he said. The local represents about 38,000 of the agency’s 66,500 workers.
The fare and toll increases contained in the plan for 2013 and 2015 are subject to board approval following public hearings, according to the agency, the largest U.S. transit system. Members won’t take a final vote on the proposal until December.
A 7.5 percent gain in agency revenue is expected from toll, subway and bus fare increases that took effect Dec. 30. On a typical weekday, 5.1 million people enter the MTA’s subways.
“The whole focus last year was on finding ways to improve customer service while cutting costs, and that’s what we’re going to continue to do,” Donovan said.
The plan forecasts operating budget deficits of $54 million in 2014 and $178 million in 2015. The MTA’s 2011 budget calls for $12.1 billion in spending.
Walder announced his resignation, effective in October, to head MTR Corp., which runs the Hong Kong subway and trains in China. Since taking over in October 2009 he has slashed 3,500 MTA jobs and curbed overtime pay to help reduce costs by $525 million.
Those steps were part of an initiative Walder began last year to produce $3.8 billion in cumulative operating savings by 2014. It also calls for revising contracts with suppliers and health-care providers, and consolidating agency functions.
The capital plan includes $2.2 billion in federal loans over five years to help close a $9 billion deficit in the agency’s $24.2 billion expansion and maintenance program. The MTA is building a Second Avenue subway on Manhattan’s Upper East Side and a link to run Long Island Railroad trains into Grand Central Terminal, the largest U.S. transit projects.
The measures under Walder’s cost-cutting initiative will build on reductions in capital program expenses, including a 15 percent reduction in administrative payroll spending, overhauling the way track work is done and changing the way projects are overseen. The agency said those moves, coupled with earlier steps to reduce costs, will produce projected savings of $4 billion through 2014.
“If achieved, these savings will represent a significant improvement in the way the MTA does business,” said Kellermann of the nonprofit group. “They still leave a $7.6 billion hole in the capital program that will grow to $9.0 billion as previously anticipated federal aid is reduced.”
“The best medicine for the MTA’s fiscal woes is new revenue from sources such as accelerated and larger fare and toll increases, increases in auto user fees such as vehicle registration and drivers’ license fees,” Kellermann said. She also called for another attempt to impose fees for motorists entering central Manhattan, similar to charges for driving into central London.
--Editors: Ted Bunker, Stephen Merelman.
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