MTA Faces ‘Fiscal Tsunami’ Without Federal Relief; Warns of Major Service Reductions, 9,400 Layoffs

Real Estate In-Depth | November 2020

MTA Chairman and CEO Patrick J. Foye

NEW YORK—MTA Chairman and CEO Patrick J. Foye presented on Wednesday what he described as the most difficult and devastating budget in the agency’s history and warned that without $12 billion in federal aid, the MTA would be forced to impose draconian service cuts, lay off nearly 9,400 workers and continue to pause its $51.5-bilion capital plan.

MTA officials said the authority’s COVID-19 induced financial crisis eclipses the Great Depression’s impact on transit revenue and ridership.

Without $12 billion in federal emergency aid, the MTA is proposing service reductions of 40% for the New York City subways and buses, and 50% for the Long Island Rail Road and Metro-North Railroad, for a combined annualized savings of nearly $1.3 billion. Service reductions are estimated to have a workplace impact of nearly 9,400 positions. The proposed service reductions focus on achieving significant cost reductions, mitigating negative customer impacts, and rightsizing service in response to current and projected ridership, MTA officials stated.

The MTA proposes to reduce commuter railroad service on Metro-North Railroad the Long Island Rail Road by 50%, which may result in peak period train frequencies of every 20 to 30 minutes along busier line segments, or hourly at less busy line segments. Proposed reductions under consideration take into account the existence of nearby alternate service and maintaining adequate service for essential workers. Off-peak and weekend service may be hourly, reflecting current ridership levels while maintaining sufficient service to prevent crowding. The railroads’ service reductions would result in the elimination of a total of more than 900 positions.

The MTA is also proposing under the scenario it does not receive federal COVID relief, subway service reductions of up to 40% may result in reduced train frequency, suspension of service on some lines at certain times of day, and/or major weekend changes. The reduction in service may allow for a 35% subway fleet reduction, generating savings in maintenance, cleaning and inspection costs. The service reduction would result in the elimination of nearly 2,400 positions.

MTA Chief Financial Officer Bob Foran

The MTA also proposes to reduce bus service by up to 40% through elimination or consolidation of bus routes and reductions in frequency by up to 33% on the routes that remain. Changes to routes would ensure that service is available within a half-mile of existing stops. The bus service reductions would result in the elimination of nearly 5,900 positions in total across MTA New York City Transit and the MTA Bus Company.

“The MTA continues to face a once-in-100-year fiscal tsunami and this is without a doubt one of the most difficult and devastating budgets in agency history,” said MTA Chairman and CEO Foye. “No o

ne at the MTA wants to undertake these horrific cuts but with federal relief nowhere in sight there is no other option. As I have said, we cannot cut our way out of this crisis – we are facing a blow to our ridership greater than that experienced during the Great Depression. We are once again urging Washington to take immediate action and provide the full $12 billion to the MTA.”

“The numbers speak for themselves, we are approaching a point where these draconian options will have to be implemented to ensure our survival,” said MTA Chief Financial Officer Bob Foran. “Not receiving the billions we desperately need to survive would stunt the tangible progress we have made in service quality and infrastructure improvements. We can’t afford to let that happen.”

The November Plan unveiled by the MTA includes favorable re-estimates from the July Plan as fare and toll revenues are projected to surpass the previous forecast by $319 million and non-labor expenses are projected to be lower by $295 million in 2020. Savings from vacancies—attributable to an MTA-wide hiring freeze—are expected to total $66 million. Debt service expense is forecast to be $31 million favorable in 2020, with savings through the remainder of the period covered by the four-year financial plan, while subsidies are slightly unfavorable through 2022, followed by improvements in 2023 and 2024. This brings the MTA’s projected deficits to $15.9 billion through 2024.

The MTA reported it has taken aggressive measures to cut costs internally, focusing on three key areas: reducing overtime, consulting contracts, and other non-personnel expenses. Agencies have already begun implementing these savings, which are now projected to reduce expenses by $259 million in 2020, $601 million in 2021, $498 million in 2022, $466 million in 2023 and $461 million in 2024.

In order to close the 2020 deficit caused by federal inaction, the MTA will have to use its authority to borrow the maximum of $2.9 billion from the Federal Reserve’s Municipal Lending Facility (MLF) before the window closes at the end of 2020. The MTA is taking additional actions to address the 2020 deficit by releasing the current 2020 General Reserve of $170 million, applying the $337 million in the OPEB Trust Fund to current OPEB payments, and retaining Committed to Capital transfers in the operating budget at $187 million for 2020, $181 million for 2021, $120 million for 2022 and $114 million for 2023.

Metro-North Railroad President Catherine Rinaldi

The MTA has again engaged McKinsey to review the economic realities facing the Authority. McKinsey is updating its projections and developing two new ridership scenarios. In the “best case” scenario, the virus is contained through a combination of an effective vaccine and resistance to the virus due to previous exposure, eventually reaching a “new normal” ridership level (90% of pre-pandemic ridership) in 2024.

The “worst case” scenario assumes a resurgence of the virus in the New York City area, resulting in restrictions similar to those experienced earlier this year. From that resurgence, recovery will be slower and will take longer before reaching the “new normal” ridership level; by the end of the Plan period, McKinsey projects aggregate MTA ridership will only reach 80% of the pre-pandemic level under this scenario.

The MTA board will be asked to vote to enact a new budget in December.