With the cynicism that has been beaten into me over 25 years of observing New York public policy, I find myself agreeing with the New York Post as to what our state government probably wants the next MTA head to do: cover up the problems, run up the debts, cut back on maintenance and reinvestment, protect vested interests in the present while destroying the common future, and take the blame. In other words, more of the same. I might add there is one thing no one in Albany wants the next MTA head to do: make a fair accounting of how we got into this mess and who benefitted, since those in power are and represent the beneficiaries.
The MTA, however, is something I happen to know a lot about. So for interest’s sake if nothing else, I have decided to write down a series of exercises and analyses the next MTA head should undertake and publish — to help improve, or at least raise real understanding of, the agency. These are briefly listed below; I’ve decided to pass on writing multiple posts on the details of who each analysis ought to be conducted.
The MTA should undertake an analysis of fiscal sustainability, tabulating the effect of decisions over the past 20 years on the present. The detailed tables showing its MTA’s budget and infrastructure status should be re-created for each year to show how it fell so deep in the whole, and how much closer to or further away from fiscal sustainability it became each year, based on better assumptions and practices. In particular, “ongoing normal replacement” and “state of good repair” investments should be retabulated as what they actually are — ongoing maintenance expenses, not one-time only investments. If these do not continue the system will collapse as subway cars, buses, tracks, signals, stations and maintenance facilities wear out. Because ongoing expenses were paid for with 30 year-bonds, this maintenance will stop and the transit system will collapse. And yet we have been told that the MTA had a balanced budget during all the years the debt accumulated.
The MTA also shifted costs for retired employees into the future, now the present, to avoid paying for retiree rights when earned. These costs should be re-assigned back to the year when they should have been paid, by (among other things) substituting an actual rate of return for the fantasy assumed rate of return, and placing the price of pension enhancements and assumptions (from the private bus companies) back in the years the deals took place.
The productivity of the agency and each of its parts should be analyzed. Staffing levels (including consultants) and work undertaken should be tabulated in great detail for two different years, which I propose to be 1988 and 2008, to show changes in productivity across departments (adjusting for reorganizations) and titles. Changing work practices and organization that led to those productivity gains, and other attempts at productivity gains that failed, should be described. And productivity should be defined back to its original meaning, from its recent usage as a word for cuts in worker pay or service quality. Productivity is the level of useful work per accomplished per hour of work paid for. To measure it, one needs to know the number of hours worked, the amount of work accomplished (the schedule of service or maintenance), and whether or not that work was useful (did people use additional service and did additional maintenance lead to added reliability?
At New York City Transit, the part of the MTA I am most familiar with, I believe such an analysis would show a substantial expansion of the number of people in management and analytical titles, some of it in response to public pressure (the whole sub-agency that informs people of service diversions), some of it due to the unwillingness of some employees and contractors to do their work without direct supervision to force them, and some unexplained. The level of productivity for the rank and file would vary from excellent for subway car and infrastructure maintenance, to zero. I base this on a back-of-the envelope analysis I did when I was there. But I’d want to see more facts on who and how much, what as worked and failed, and what more could be done. Everyone else should want to see it too.
The MTA should, as well, describe in detail the level of cost and subsidy for different services. It has never published cost of service and revenue data below the agency level, aside from separate data on New York City subway and bus service provided to the Federal Transit Administration. Given the integrated nature of the transit network, free transfers and unlimited ride cards, providing cost and subsidy data by individual rail or bus line is difficult, and the assumptions behind the allocation of costs and revenues is subject to manipulation depending on what those in power want to show. But given that everyone believes everyone else is ripping them off and acting accordingly with regard to the MTA, a fair accounting — though unlikely — is essential. The fact that the MTA bills the State of Connecticut for service on the New Haven line, which also serves New York, and is billed by New Jersey Transit for service on the Port Jervis and Pascack Valley lines, which also serve New Jersey, shows it is possible. The average and marginal costs and revenue associated with different parts of the system — each subway, rail and bus line — should be tabulated in detail, to show what share of costs were covered. Ideally this would be done not only on an annual basis but separately for peak hours, mid-days and evenings, overnight service, and weekends.
Most of the MTA’s tax revenue, however, is no longer used for transportation at all. They are used for debts, pension and retiree health care — costs from the past that should have been paid in the past but were instead shifted to the future, as described above. So to understand who and where benefits from those taxes, the number of workers, retirees, and bondholders by county and how much MTA money they receive must also be tabulated. The source of the taxes by county should tabulated as well.
Finally, on day one the MTA head should get a stress tested estimate of the agency’s interest rate risk as a result of the past issuance of variable rate bonds, and identify those parties who decided to issue those bonds, the information they relied on, and the financial firms that underwrote them. It should also get an outside view on the risk of these bonds, from an organization that is completely unconnected with them. These bonds, depending on their extent, may be a potential disaster under entirely plausible scenarios. I felt sick on the day I found out that the MTA had taken on variable rate debt at a time when fixed interest rates were at historic lows. Just to save a few nickels and “make it work” the way the politicians wanted, the agency acted like a hedge fund and risked massive future costs. A few handouts no one knew they were paying for in the past were valued more highly than the potential for disaster in the future.
Some massive costs have actually hit the agency, as a result of the collapse of the auction rate market (and even more bizarre way for a public agency to fund itself) and bond insurers. But additional risks remain. How much? I invested in a two-year U.S. Treasury note in the early 1990s at 9.5%, and due to all the debt the MTA has taken on since, its rate would likely be much higher than the Treasury rate in that scenario. What would happen to the MTA budget if interest rates returned to the level of not that long ago, perhaps because the Chinese, Arabs and others realize the U.S. has borrowed far more than it is willing to pay back? Will anyone say? They should be required to.
No doubt there are many managers, both inside the MTA and outside, whose careers have been made by their willingness to “make things work” the way the politicians wanted, and sell out the future for short term benefits. That kind of “realism” seems to have been the path to advancement across all our now-deteriorating institutions over the past 15 years. Were I appointed head of the MTA, everyone associated with the variable rate and auction rate bonds would be fired, and alternatives would be found for every financial institution that recommended them.
But that, and the willingness to undertake and publish the exercises described above based on fair and reasonable practices and assumptions (that some of us would have used at the time but everyone ought to be clear on now), is why no one like me would ever be appointed to head the MTA. People who benefited from current arrangements didn’t want the effect on the future disclosed then, and don’t want the effect of the past disclosed now. I’d want everything about the past and future on the table for all to see. That is not what anyone in power seems to want today, and not just at the MTA.