NYC Subway Chief Warns of ‘Death Spiral’ Without $40 Billion Fix

(Bloomberg) -

The Metropolitan Transportation Authority, which manages New York’s transit system, is at a crossroads after decades of underfunding and neglect.

It either invests as much as $40 billion over the next decade in an overhaul, or it descends into a “death spiral,” says Andy Byford, who oversees the subways and buses.

That’s the pitch Byford, 53, is making to disgruntled riders and taxpayers at town-hall meetings, to the City Council during hours of testimony, and to business executives at breakfasts and other gatherings.

“You don’t get the billions you need by just going to Albany with a begging bowl,” Byford, recruited a year ago to run New York City Transit, told executives at a Crain’s Magazine breakfast this month.

Byford appeared before them as the largest U.S. transit agency confronts a unique moment of opportunity and risk.

Voters in November flipped control of the state Senate, putting Democrats in charge of both houses of the Legislature and increasing the chances of approving transit funding. Many support Democratic Gov. Andrew Cuomo’s plan to charge motorists “congestion pricing” fees to enter Manhattan’s business core.

Still, the MTA — which controls the subways and buses along with commuter trains and some bridges and tunnels — faces a $991 million deficit looming in 2022 and political arguments over who will pay to close it and how.

On Dec. 13, Moody’s Investors Service revised its credit-rating outlook on the MTA to negative from stable, noting how deteriorating service has produced lower-than-expected revenue as subway and bus ridership declined. That situation could worsen if fares go up, as the MTA board prepares to vote on a 4 percent increase in January.

“This is going to be a real test year,” said Howard Cure, director of municipal bond research for Evercore Wealth Management, who said he’s become more selective in considering MTA bonds. “Will they get enough revenue? Will they lower their really high construction costs? Will they be able to stop the loss of riders, reducing breakdowns and delays?”

The agency says its on-time subway performance improved to 70 percent in October, its best record in two years, but still down from 2013’s average 80 percent. It’s repaired more than 1,600 defects in its outmoded century-old signal system, Byford told the City Council this month.

None of this has impressed scores of riders who attended public meetings in each of the city’s five boroughs, where he seeks support for more revenue.

“I don’t know of any business model where people can charge more money for worse service,” Shameek Robinson of Harlem told Byford during a Dec. 10 gathering in Manhattan.

Budget analysts say without the fare increase, the agency would face a $1.6 billion operating deficit by 2022. Debt service is already projected to increase 26 percent to $3.3 billion by 2022, consuming 37 percent of fare and toll revenue, state Comptroller Thomas DiNapoli reported in October.

The fare and toll hikes, and most of Cuomo’s “congestion pricing” plan, would merely help to pay annual expenses. While Mayor Bill de Blasio has dropped his opposition to the concept, he still has questions about its details, and some suburban lawmakers have objected to their constituents being asked to pay more.

That’s why de Blasio favors a millionaire’s tax, a 0.53 percent on incomes of city residents only — $500,000 for individuals and $1 million for joint filers — which the mayor says would raise at least $500 million.

While the measure is backed by Michael Gianaris, the soon-to-be state Senate Deputy Majority Leader, Cuomo has called it “dead on arrival.”

Byford said the $40 billion would pay for hundreds of new train cars and buses and replace obsolete century-old signaling technology, creating a world-class transit system comparable to London, Hong Kong and Singapore in 10 years.

Political squabbling over fare increases and congestion pricing could pale in comparison to the battle shaping up between Cuomo and de Blasio over the governor’s proposal for the state to skim a portion of the city’s real estate taxes to pay for mass transit.

The concept, called “value capture” or “tax-increment financing” would assess the added value of properties near subway stations and take that portion of property tax revenue for the state. It would amount to an “unprecedented taking of the city tax base,” said Dean Fuleihan, de Blasio’s first deputy mayor, when Cuomo proposed it in March.

Cuomo has pushed its potential to raise billions of dollars for mass transit.

“It’s the worst idea,” de Blasio said Dec. 7 during his weekly appearance on WNYC radio. “It takes away revenue that New York City uses right now to pay for schools, police, fire, parks, sanitation. That money is already locked into our budget.”