LILP Exclusive: Think Tank Suggests Alternative to Congestion Pricing

By Steve Levy
Cover credit – wirestock on Freepik

Over the past decade, New York State leaders have imposed numerous gimmicks to keep the Metropolitan Transit Authority (MTA) afloat: unprecedented borrowings and huge fare and tax hikes. The latest money grab is in the form of the congestion pricing proposal that was originally scheduled this spring to charge motorists for driving into Manhattan. The proposal was placed on hold by Governor Kathy Hochul, but it is widely believed she will introduce a revised version after this November’s election.

These measures will further burden New York’s taxpayers and commuters but will do nothing to solve the structural imbalance in the MTA operations.

The point is, state leaders have it wrong. The MTA doesn’t have a revenue problem. It has a SPENDING problem.

A recent report issued by our Center for Cost Effective Government suggests that the only way to prevent the ultimate collapse of MTA finances is not through congestion pricing, but rather by imposing a State-authorized financial control board which would have the authority to restructure contracts, onerous work rules, and wasteful overtime policies.

These burdensome contracts and rules and regulations within the MTA have led to significant financial stress for the authority.

• The MTA faces a budget gap of $2.5 billion in 2025 and 2026.
• Subway service delays tripled between 2012 and 2017.
• The MTA has a lower percentage of trains that arrive on time compared to other major subway systems.

The MTA’s History of Inefficiencies

The following are prime examples of the MTA’s irresponsible and wasteful spending:

1. $20M Employee Lounge at Grand Central Station in 2009 (Source: NYS Senate)
2. $7M Doghouse in Dutchess County in 2009 (Source: NYS Senate)
3. At $2.5 billion per mile, construction costs of the Second Avenue Subway were 8 to 12 times more expensive than similar subway projects in Italy, Istanbul, Sweden, Paris, Berlin, and Spain. (Source: Bloomberg).
4. Engineers and Conductors Earning $283K Plus $10K/Month Pension (Source: NYS Senate)
5. 10,482 MTA workers were paid at least $100,000 annually in 2013. (Source: Empire Research Group)
6. More than 700 MTA workers earned $100,000 or more in overtime in 2023, contributing to a 9% increase in payroll costs, according to a new report by the Empire Center for Public Policy. (Source: Newsday)
7. $10,000 for shoes for Desk Workers. (Source: Newsday)
8. Underreported $500M While Seeking 2002 Fare Increase (Source: New York Times)
9. More than 1,100 employees doubled their salaries in 2023 as the agency’s overtime bill skyrocketed to nearly $1.3 billion. (Source: CBS News)
10. Excessive Staff Levels and Outsourcing: • 698 in Human Resources • 443 in Legal • $10M in Outside Legal Services • 444 in Public Relations • 359 in Accounting • 166 in Labor Relations. (Source: NYS Comptroller, 2005)
    
    These examples are only a fraction of the mismanagement within the agency. Additional abuses include:

• Overtime Abuse: In one notable case, an employee earned $344,000 in overtime alone. Subway workers, including administrative personnel, average $155,000 annually, with some earning as much as $240,000—double the industry norm. (Source: Newsday, 2024)
• Disability Abuse at LIRR: Nearly 97% of Long Island Railroad retirees took advantage of the disability system at the height of the scandal. (Source: New York Times)
• Exorbitant Construction Costs: Railroad construction costs in New York reached an astronomical $2.6 billion per mile, compared to $170 million per mile in Atlanta. (Source: High Speed Rail Alliance)
• Mismanagement and Inefficiency: Tunnel-boring in New York employs 25 people, whereas Spain performs the same work with just nine. Seniority-based overtime practices led to inflated salaries in the latter years of employment and pension padding. (Source: NYPost, High Speed Rail Alliance)
• Misuse of Funds for Employee Salaries: In 2015, the MTA spent $9.85 billion on employee salaries, retirement, and post-employment benefits, which exceeded total revenue collections by $1 billion. (Foundation for Economic Education)
• Job Duty Restrictions: Subway cleaning workers were not even permitted to replace light bulbs in 2012, a clear illustration of inefficiencies and poor resource management. (Source: NYPost).
• Inefficient fare collection: The MTA lost an estimated $690 million in unpaid fares and tolls in 2022. (Source: Blue-Ribbon Panel Investigation)
  
  Our analysis highlights the numerous times control boards have been implemented in various jurisdictions throughout the nation to stabilize governments that were on the verge of fiscal collapse.
  
• New York State law prevents the MTA from filing bankruptcy, but the state can impose a financial control board.
• Control boards have been implemented in cities and municipalities including New York City, Nassau and Erie Counties in New York; Detroit, Michigan; San Bernardino, California; Vallejo, Californian; and Stockton, California.
  
  In the 1970s, as New York City was on the verge of fiscal collapse, the state of New York and the federal government intervened, establishing the Municipal Assistance Corporation (MAC) and imposing a Financial Control Board (FCB) to oversee the city’s financial operations. The FCB wielded broad powers, including the authority to approve or reject the city’s budget and borrowing plans, ultimately restoring fiscal discipline and rebuilding investor confidence. The potential imposition of a financial control board on the MTA reflects a similar need for oversight to ensure financial stability and to prevent history from repeating itself.
  
  In 2003, Buffalo, the largest city in Erie County, faced a severe fiscal crisis characterized by a massive budget shortfall, compounded by an expensive new labor contract with city police and other budgetary strains. The state’s intervention led to the creation of a control board with significant oversight powers. This board had the authority to approve or disapprove budget proposals, borrowing plans, and labor contracts, and reviewed every expense over $50,000.
  
  In 2011, Jefferson County, Alabama, filed for the largest municipal bankruptcy in U.S. history, driven by a disastrous sewer project that pushed its debt to over $4 billion. The financial crisis of 2008 further exacerbated the situation by causing interest rates on the county’s debt to soar, making it unmanageable. In response, the county restructured its debt by issuing $1.8 billion in new debt to refinance the existing $3.2 billion sewer debt, with creditors like J.P. Morgan Chase conceding significant reductions.
  
  The third-largest municipal bankruptcy at the time, San Bernardino, California, serves as a major example of state-led financial restructuring. When the city entered bankruptcy in 2012, it had a cash deficit of $18.2 million and a projected $45.8 million budget deficit. Declining revenues from property taxes, vehicle license fees, and redevelopment funds had severely impacted the city’s finances.
  
  San Bernardino’s resurgence following its 2012 bankruptcy declaration highlights the transformative power of municipal bankruptcy restructuring. Exiting bankruptcy in 2017 marked the end of a prolonged financial crisis characterized by a severe cash deficit and high unemployment. The city now boasts over $40 million in cash reserves—25% of its general fund budget—and projects a $2.5 million budget surplus for the current fiscal year, a stark contrast to the $45.8 million deficit at the time of bankruptcy. Substantial investments in infrastructure, including repaving 53 streets and enhancing key avenues, along with improvements to parks, senior centers, and tree trimming services, underscore the city’s commitment to revitalization.
  
  In the years after Detroit declared bankruptcy, the city has experienced a significant resurgence. Detroit ultimately shed $7 billion in debt and restructured an additional $3 billion, allocating about $1.7 billion toward city improvements. The bankruptcy proceedings eliminated $7.8 billion in payments to retired workers and relieved the city of $4.3 billion in unfunded healthcare obligations and future costs. This financial reset allowed Detroit to emerge from state financial oversight and control by December 2014.
  
  This financial stabilization was pivotal in attracting private investments, particularly in the downtown area, leading to a revitalization marked by new businesses, trendy restaurants, and upscale housing. Wall Street responded positively to these developments, upgrading Detroit’s credit rating, which, although still below investment grade, is a significant improvement from its post-bankruptcy lows.
  
  The bankruptcy allowed for the addressing of the significant underfunding in its pension funds. The gap in the city’s two pension funds, the General Retirement System (GRS) and the Police and Fire Retirement System (PFRS), amounted to $3.5 billion. Pension liabilities represented 19 percent of the $18.3 billion in total liabilities accrued by July 18, 2013, the day the city filed for bankruptcy. GRS benefits were cut by 4.5 percent, and 2.25 percent cost-of-living adjustments (COLAs) were eliminated. PFRS beneficiaries had their COLAs reduced from 2.25 percent to 1 percent, avoiding steeper cuts because police and fire employees do not participate in Social Security.

CONCLUSION

Although the MTA cannot declare bankruptcy under current law, state leaders have another option: placing the MTA under the oversight of a financial control board. A financial control board would allow for the restructuring of the MTA’s contracts, its outdated work rules, and its costly spending practices. Like actions taken in other fiscally distressed municipalities, such as Detroit, financial control boards restore fiscal stability by enforcing oversight and reforming budgetary practices.

So, before the Governor and state legislative leaders once again seek more borrowings, and higher taxes and fares, they should instead concede that the structural imbalance within the MTA is so far gone that restructuring through a financial control board is the only logical solution.

The Center for Cost Effective Government is a think tank dedicated to exposing wasteful government spending and educating the public on various measures that can control taxing and spending for the purpose of creating more hospitable conditions for taxpayers and the business community. www.centerforcosteffectivegovernment.org

For more from Steve Levy and Long Island Life and Politics, visit their website at https://lilifepolitics.com/