Photo by: Marc Fader

Rush hour at the Atlantic Avenue-Pacific Street station in Brooklyn. Service cuts and far hikes reflect deep structural flaws in how New York finances its transit that could pose serious challenges to the city’s economic stature.

If one day’s events can illustrate the spectacular low point of disrepair that the New York City subway system reached in the 1980s, that day might well be January 8, 1981, when 1,000 passengers crowded into a broken train at Hoyt-Schermerhorn station collectively refused to leave for it to be taken out of service. Many said they had already been ordered off of other broken trains, and besides, the platform was too crowded to hold many more people.

The impasse finally eased, after police had arrived, when Metropolitan Transportation Authority workers handed out tokens for free transfers. The history of the city’s public transit in the 80s, though, is full of similar breaking points, the inevitable outcome of decades of deferred maintenance and under-funding.

The authority’s current fiscal crisis, which has led to higher fares and frustrating service cuts with no relief in sight, has transit advocates worried that, if the current situation persists, service will continue to slide – maybe not to the conditions of the early 80s, but to something worse than New Yorkers have seen in years.

“The danger here is that the economy stays bad and the state funding of transit stays fickle, and death by a thousand cuts,” says Gene Russianoff, staff attorney and spokesman for the Straphangers Campaign. “I would say that if we continue with this string of bad years we’ve been having, we could be teetering on the brink.”

And there’s more at stake than just the comfort and convenience of passengers. “The whole region would be choked in traffic were it not for the additional capacity that trains and buses bring,” said John Petro, a policy analyst at the Drum Major Institute. Petro called improved public transportation one of the major causes in the city’s re-emergence from its lean years in the 70s and 80s.

By constantly under-funding the MTA, local governments are missing valuable opportunities to help the system expand, he adds. Cities like Shanghai and Barcelona, he says, are in the midst of transit expansions that could one day threaten New York’s global competitiveness.

While the current debate drags on, “we’re not talking about, how can we use the tool of mass transit expansion to create jobs, to create wealth, to create much-needed housing,” Petro says. With the region’s roads at the limits of their capacity, he added, “It really comes down at this point to whether we’re going to be a city that continues to grow.”

The MTA’s fiscal crisis has an array of causes, many of which boil down to this: It takes a lot of money to run a transit system, and the MTA doesn’t have enough. Part of that is a result of the bad economy and decreased tax revenue. A large part comes from state lawmakers’ unwillingness to provide the necessary funding.

Progress has a pricetag

The January 1981 straphanger revolt was the product of an epidemic of poor service underground. Trains in 1981 broke down four times as often as in 1970. In 1980, 30 trains derailed. And the train that broke down at Hoyt-Schermerhorn that fateful January 8 was one of 500 cancelled every day for the first two weeks of the year.

The early years of the 80s, though, were also when the MTA began to turn itself around, launching a $7.6 billion capital plan to begin long-overdue facilities and equipment repairs.

The five-year program was the first in a series of capital plans that have continued to this day, growing ever more expensive. But even as the cost of capital improvements has risen, monetary contributions from New York State’s government have dwindled, forcing the MTA into a spiral of costlier and costlier borrowing.

One of the MTA’s biggest problems in recent years is that much of its funding comes from real estate taxes that are highly unstable. One, the mortgage recording tax, applies to mortgages taken out on real estate in the 12 counties the authority serves. The other taxes, collectively referred to in MTA records as the “urban tax subsidy,” apply to large real estate transfers solely within New York City – and, in turn, fund only city-based services.

In a strong real estate market, these taxes are a reliable funding source: The former brought in $702 million in 2007, and the latter $861 million. But a year later, as the market had begun to decline, the MTA’s revenue stream was drying up: In 2008, the mortgage tax brought the agency $416 million, and the urban taxes brought in $504 million. In total, revenue from the two taxes had dropped 41 percent in a year, and by 2009 they were down to $242 million and $151 million, respectively—a 75 percent total decrease from just two years earlier.

“When you have the situation we have, people feel like, ‘The MTA’s always broke – must be something wrong with the MTA,'” says Bill Henderson, executive director of the New York City Transit Riders’ Council, “when actually, there’s something wrong with the way it’s funded.”

Rising debt will be passengers’ baggage

Petro argues that in both good times and bad, the real estate taxes have obscured the root cause of the MTA’s financial woes. During boom times the tax revenues covered up for structural problems. As the economy soured, declining real estate taxes took all the blame for the MTA’s predicament.

The fundamental weakness, he said, lies in the way the five-year capital budget is funded: While federal government support for capital projects has remained strong, city and state contributions over the years have dwindled. To make up the difference, the authority has increasingly borrowed money by issuing bonds, and that borrowing has taken a toll. The MTA’s outstanding debt, which was $13 billion in 2000, had reached $31 billion by this past July.

In turn, the authority’s annual debt service payments have grown – from $848 million in 2004 to a projected $1.84 billion in 2010, with more increases on the horizon. In its 2011 preliminary budget, the MTA predicts debt service payments will rise to $2.052 billion next year, $2.204 billion the year after that, and $2.476 billion in 2013. In a report last year, State Comptroller Thomas P. DiNapoli said the agency’s debt service could very well reach $3.2 billion by 2020.

The current capital plan, for 2010 through 2014, should pay for train and track repairs, improved security, new buses, a modern signaling system and large projects including the Second Avenue subway, the MTA says. But the debt the agency has taken on to pay for it, and past plans, has been crippling, Petro says.

“It’s putting pressure on the fare boxes, it’s putting pressure on the riders,” he says. “It’s making it incredibly difficult for the MTA to balance its operating budget.”

Indeed, it is riders who suffer when budget gaps appear, because riders pay a large portion of the system’s operating expenses; numbers vary from year to year, but the percentage of the MTA’s revenue that comes from passenger fares—38 percent in the agency’s adopted budget for 2010 before—is generally higher than any other large urban transit system in the country. So, if tax revenues are not paying the agency’s expenses and local governments aren’t either, riders are asked to make up the slack. Beyond the 7.5 percent proposed fare increases in the preliminary 2011 budget, the future is unclear. Beginning in 2013, the current capital budget has a $10 billion funding shortfall.

The MTA’s continually uncertain funding frustrates transit advocates, who say the service it provides is too important to leave up in the air from year to year.

“I always say, ‘Would you fund the fire department this way? Would you fund the police department this way?'” Henderson says. “For a lot of people, they’re in the same situation with transit. If they don’t take the transit system to work or to school, they’re not going to get there.”

The fix is … out

What, then, can be done to set things right? The answers, advocates say, may already have been brought up – and rejected. The congestion pricing plan that Mayor Bloomberg supported—in which drivers would pay a fee to enter Manhattan on weekdays—would have provided a stable, predictable and sizeable revenue stream for mass transit : about $420 million a year by Petro’s estimate.

After the state Assembly failed to take up that proposal in 2008, a commission headed by former MTA chairman (and now lieutenant governor) Richard Ravitch formulated a series of recommendations to stabilize the agency’s finances. One of those, involving tolls on the East River bridges, also fizzled in Albany. Another, a regional payroll tax, was implemented, but has generated lower-than-expected revenue, while facing tepid support and outright opposition from local elected officials.

Henderson, for one, says some of those tax opponents, particularly those from outside the city, have a point: The tax places a burden on many people in the region who don’t use much transit. Others, like Russianoff, argue that even those people benefit indirectly, by being within the orbit of the huge (and transit-dependent) economic engine that is Manhattan. But either way, both men say, congestion pricing would have been a neater solution, generating revenue for one, more efficient mode of transit while discouraging its less efficient counterpart.

A bill will come due

No large mass transit system makes enough money from rider fares to pay for itself; every system needs subsidies from somewhere. And the subsidies are worthwhile, transit advocates say, because of the greater benefits transit brings to a region.

Finding someone willing to pay the subsidies is the hard part. In the MTA’s case, the absence of that special someone has hurt the agency two times over. First was when the state and city governments stopped directly funding the capital plans, forcing the agency to borrow money to expand and repair itself. The second time was when potentially stable funding sources were dismissed as politically unpalatable.

Pondering the MTA’s future, transit analyst Yonah Freemark, writing at The Transport Politic, compared New York’s transit system to the system in Paris. Both are dependent on tax revenue, he noted, but in Paris, the money comes from regional income taxes, which are more stable than New York’s real estate-based taxes. Even if that stability should fail, he said, Paris has a safeguard: There, if the need for transit service expansions outstrips tax revenue, local governments are mandated by national law to pay the difference.

In New York, obviously, there is no such mandate. In the absence of a viable plan from state elected officials to keep the transit system in good health, Petro argued, the MTA’s troubles will continue.

“They’re really just kicking the can down the road, and it’s going to mean more pain for riders,” he said, adding, “All the tinkering we do and belt-tightening is not really going to address the problem. Hopefully voters will realize that the source of their grief is not this nameless, faceless authority, but the people that they vote for.”

This is the third and final part of a series on the implications of recent MTA service cuts. To learn about how much more crowded some trains are going to be, click here. To see the impact of bus cuts on some New Yorkers, click here.