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Saving New York City’s Transit System

Thu, Nov 19, 2020 EVENTCAST

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Saving New York City’s Transit System

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Saving New York City’s Transit System

EVENTCAST 03:00pm—04:15pm
Thursday November 19
Thursday November 19 2020
PAST EVENT Thursday November 19 2020

The Metropolitan Transportation Authority (MTA) is facing its greatest fiscal crisis since its founding in 1968. Deficits for the MTA are projected to total nearly $20 billion by the end of 2024, a vast budget hole dug by vanishing ridership and spiraling costs. Absent generous federal aid, the MTA is looking at deep cuts to service and infrastructure improvements, alongside other draconian measures that threaten to derail New York’s already precious economic recovery in the wake of Covid-19. What are the MTA’s options going forward and how can New York’s transit agency get back on track?

AGENDA:

3:00pm-3:35pm
Interview: MTA on the Rails

  • Michael Hendrix,  Director of State and Local Policy, Manhattan Institute
  • Nicole Gelinas, Senior Fellow, Manhattan Institute; Contributing Editor, City Journal; Columnist, New York Post

3:35pm-4:15pm
Panel: Curbing Long-Term Costs

  • Eric Goldwyn, Research Scholar, New York University’s Marron Institute
  • Arpit Gupta, Assistant Professor, New York University’s Stern School of Business
  • Philip Plotch, Associate Professor of Political Science, Saint Peter’s University
  • Moderator: Michael Hendrix,  Director of State and Local Policy, Manhattan Institute

 

Event Transcript

Introduction:

Today's event cast is being held as part of the Manhattan Institute's New York City Reborn Project and is entitled Saving New York City's Transit System. Our first interview will feature Manhattan Institute senior fellow, Nicole Gelinas. The following panel will feature Eric Goldwyn, Arpit Gupta, and Philip Plotch, and will be moderated by Manhattan Institute's Director of State and Local Policy, Michael Hendrix.

Michael Hendrix:

Welcome to the Manhattan Institute's event on Saving New York City's Transit System. I'm Michael Hendrix, Director of State and Local Policy here at MI, and we're grateful for you joining us for this important conversation on the future of the Big Apple. Throughout our program, please enter your questions on our Slido platform and we'll wrap your questions into the discussion.

Michael Hendrix:

Also I just want to note at the top of the program that unfortunately Richard Rabbit will not be able to join us for today's event. We apologize for the change in programming and appreciate your understanding. We are grateful though to be joined by our very own Nicole Gelinas. And later in the program by a panel of distinguished scholars and transit experts. Nicole is a senior fellow at the Manhattan Institute and a contributing editor at City Journal. Nicole, it's good to be with you.

Nicole Gelinas:

Good afternoon, Michael.

Michael Hendrix:

All right, so yesterday's MTA board meeting really seems to mark a critical juncture for New York City's future. So what happened at the meeting?

Nicole Gelinas:

Yeah, the MTA said at yesterday's board meeting that this pandemic and its aftermath represent the worst financial crisis in the authority's history, and I don't think that's an overstatement, the MTA itself is 52 years old, it was created in 1968. It has certainly seen recessions, financial crisis, and attacks on its physical system in the past, both terrorist attacks and natural disasters. But it's never seen anything like this, where now nine months into the pandemic subway ridership is still consistently only 30% of normal. Commuter rail ridership is still consistently only 25% of normal, buses about 50% of normal. Even bridges and tunnels consistently 15% below what we would've seen last year.

Nicole Gelinas:

So obviously an agency whose revenues come from fares and tolls, about half of the revenues that the MTA takes in, come from fares and tolls, much of that revenue has disappeared. The only thing really keeping it afloat is the tax subsidies that it gets from Albany, the MTA benefits from a little bit of a downstate payroll tax, petroleum tax, real estate related taxes, these are all down but they are not down as much as fare revenue. And aid from Washington, the MTA got four billion dollars in aid from Washington in April. But that is not enough, and so yesterday the MTA said it plans to cut 9400 people from its workforce, which would be about 13% of its workforce. That would mean service cuts of between 40 and 50%, and we can talk about what those service cuts would look like later on.

Nicole Gelinas:

So the only thing that would prevent that from happening, they say, is more aid from Washington. They don't expect ridership to get anywhere close to normal for the next five years, they think they'll get back to 80 to 90% of normal by 2024. They're asking the federal government for another 12 billion dollars in addition to the four billion dollars that they got to kind of carry them through the next four years.

Michael Hendrix:

What are the MTA's options here? It doesn't seem like they have a lot of good ones. For instance, what are the options for fare hikes?

Nicole Gelinas:

Well, yeah, I'm glad you raised that. One of their options is indeed fare and toll hikes. And at the board meeting yesterday, they are proposing to increase fares and tolls, would likely go into effect next spring. They'll start to hold the public hearing process for those fare and toll hikes as required by state law over the next couple months, I think they're actually going to start the public hearings in December. So their goal is to raise 4% more revenue through fare and toll hikes. The mix of that is what they're going to consider over the next month and what they're going to get the public's feedback on. For example, they're thinking about raising tolls on the bridges and tunnels more than they would raise fares on the subways and buses, raise the tolls by 8% perhaps. And that could make some sense when you consider that even though bridge and tunnel traffic is down, it's not down as much as subway and bus traffic. So clearly there is some demand, unfortunately, for a transit dependent city, for people who were taking trains and buses to be driving around, at least in the outer Burroughs for now. Can we charge them 8% more and not lose those people probably.

Nicole Gelinas:

The fare hikes are a little bit messier, because obviously with ridership down so much, the people who are on the trains and buses are not people who make a lot money. These are our minimum wage retail, supermarket, home health aid workers. And so effectively a fare hike right now is a fare hike on the poor. So I don't think they want to go too far with that, and I don't think they should.

Nicole Gelinas:

Another thing they talked about is getting rid of monthly metro card passes because people have kind of deserted the monthly passes. I mean, it used to be more than half, now it's about a third. But I don't think that's a good idea either because the whole point of the monthly pass is to make you take that extra subway trip that you wouldn't have taken because it's effectively free. And when the goal is to get the subways a little bit busier, get people out and about again, you don't want to be charging people a marginal cost for every subway ride.

Nicole Gelinas:

And then they've got some ideas about commuter rail, too, that we can talk about or maybe the panel can talk about.

Michael Hendrix:

Yeah, and there's also ideas on layoffs. It's potentially enormous cuts, I don't want to get to that, but one quick question, you said that there's going to be public hearings, there's going to be a delay in any serious cuts to service or layoffs. How is that possible? If the MTA is in such a fiscal crisis, how do they have seemingly so much time to buy for themselves? How does that work?

Nicole Gelinas:

Well, they're really borrowing time in that they got the four billion dollars from the federal government, that was a grant, they don't have to repay that, so that's good. But they ran out of that money in late summer. So on a 17 billion dollar budget, they're down really to the last six weeks of the budget, they're missing about 40% of their revenue. So they are borrowing, basically, just to make operating expenses. One thing they're doing is borrowing from a very modest trust that they had set up to pay for future retiree benefits, so when the MTA workers retire, MTA basically pays their healthcare benefits just like a pension system. You should be putting money aside for that now in preparation for when people retire. But they used the word liquidate yesterday and said that they were liquidating that fund. It's not a lot of money in context, it's less than 350 million dollars, but they are going to use that for operating expenses, a form of borrowing from the future.

Nicole Gelinas:

And they're also borrowing from the Federal Reserve. As you yourself wrote about, I guess it must be more than six months ago now, Federal Reserve has a new program so states and cities that can't really borrow on the private market can borrow directly from the fed. MTA is one of only two government entities around the nation that has taken advantage of that. Some to refinance existing debt, and some now will carry them through, but it doesn't get them very far. Their main goal is to receive new grant money from Washington. If they don't get that money in the first few weeks of the Biden administration, then they will start to put these service cuts in place.

Michael Hendrix:

Right, and speaking of cuts, it's remarkable that we're talking about a 13%, I believe a 13% cut in the payroll for the MTA, and yet we're talking about a 40 to 50% cut in service. How does that work? Is there a way to cut staffing, as painful as that is, it sounds like some of it is necessary financially, is there a way to do that while also not harming service to such a degree? Especially when the city depends on that kind of service to recover.

Nicole Gelinas:

Yeah, I think that there's more they can be doing. And first of all, we'll give them ... or at least I'll give them a little bit of credit, that they actually start from a better condition relative to the state or the city government in that they've actually been cutting back their white collar workforce for the past three years. They've been going through what they call a transformation plan, they've cut 4,000 positions from the payroll over the past couple of years. In contrast to the city government of course which has added 30,000 people to its payroll over the past six years, that's 10% and de Blasio cannot find even a single position to cut back on.

Nicole Gelinas:

So the MTA has actually been doing some of that work already. They've had a hiring freeze in place for a few months now, that's saving them about 70 million dollars. But yes, one thing that's still something that they really don't want to talk about is really changing some of the ways that the workforce works. For example, at the two railroads, Long Island Railroad and Metro North, they proposed to cut 6% of those workforces, but this would result in an up to 50% service cut. So something's obviously wrong there. Obviously you don't want anyone to lose their job, but they should be able to make a 6% cut with a lower impact on service. And a lot of this goes to the work rules. The railroads, they were bankrupt private companies, in the 1950s the government took them over, but the government never restructured some of these cruel rules, time off rules, how many hours you have to complete a certain task when that task is now mostly automated 50 years later.

Nicole Gelinas:

So if there were ever a time to start thinking about doing those things, it would be now, but they're still not very aggressive on asking the unions to open up these contracts, not even so much for the pay, but just for the work rules to make them more productive.

Michael Hendrix:

So again, assuming that there's going to be a lot of pain here, is there a Rahm Emanuel-esque way to never let a good crisis go to waste? So to say this is an opportunity for us to make the kind of tough decisions that we've been putting off, or are the tough decisions themselves so costly that there's really no other option other than just beg for aid or beg for a bailout?

Nicole Gelinas:

Well, it can't hurt to try, particularly if they do start going into furloughing people and then making those furloughs permanent, the labor contracts at the railroads allow for furloughs. There are seniority rules that make it a little less efficient than it could be, but still there is something there. You could use this as a bargaining tool and a point of leverage to say ... go to the craft unions and say if you don't want to see these furloughs and layoffs go through, then come to us and propose to us what savings you can make to your work practices to make up for some of that.

Nicole Gelinas:

But unfortunately, the unions were not in a very cooperative mood yesterday, they're speaking out very much against any real cooperation on savings with the managements. And if it came to labor unrest with traffic, with railroad ridership what it is right now, there's never been a better time from one perspective in saying the practices that were unsustainable well before this happened are even more unsustainable now. I mean, I don't think three, four, five years from now I don't think we're going to get through this without addressing some of these things, and it will be less painful the earlier we do it.

Michael Hendrix:

Yeah, our forthcoming panel will be getting to those questions of the deeper roots of the cost challenges of the MTA. But to the question of never letting a good crisis go to waste, the MTA is requesting more than 12 billion dollars of federal aid to cover the next four years of projected deficits. Should that aid come with any strings attached?

Nicole Gelinas:

Yeah, I think so. First of all, it's not just us. Like Sarah Feinberg, the acting head of New York City Transit, she stepped in when Andy Byford left and right before the pandemic hit, she's certainly been doing a stand up job of jumping head first into here and essentially taking over New York City Transit. But she pointed out at the board meeting yesterday that a lot of cities are in the same situation. They may not depend on transit as much as New York does, but for example, if you look at the states that President Elect Biden won and helped turn the election, or did turn the election, Philadelphia in Pennsylvania obviously, 25% of people in Philadelphia take transit to work. Even Atlanta that we don't think of as a transit city, 10 and a half percent of people in Atlanta take trains to work or take some mass transit to work. Detroit, home of the automobile, we went out to Detroit a year ago and investigated their mass transit, 7% of Detroit workers take the bus to work.

Nicole Gelinas:

So there is certainly opportunity for a bipartisan bill in the new Congress, or maybe on an off chance, maybe even in this Congress to say we will rescue these transit systems and make up for their fare loss, but in return we really want to get the costs of running these systems, particularly the heavy rail systems, down to a global average. So put in place long term cost cutting plans that would go along with the new fare replacement aid that they get for the next few years.

Michael Hendrix:

There's a question from the audience and I want to encourage everyone who's watching to submit your questions to us. The question from the audience was saying some of the MTA board members were suggesting that fare reductions could be a way to boost revenue. Does it work that way? I mean, rather than raising fares should we be lowering fares?

Nicole Gelinas:

It's not a crazy idea, really. And I think we should be thinking about doing things like if we raise the fare on the subway, should we raise it by a lower amount on the buses, just to account for the fact that bus service is slower, the streets are still not as well managed as they could be to account for the different types of conveyances that need to use the street. Realistically in this fiscal environment, no, I don't think we're going to see outright fare reductions. But I do think if the MTA is too aggressive in raising fares, they will lose more ridership than they normally do. With anyone who sometimes can work from home, sometimes goes in, particularly on the commuter rails where these commuter rail passes are hundreds of dollars a month, I think this is less ... People are not going to be as willing to take a big jump in the commuter rail pass in the monthly fare card that they might have a year and a half ago.

Nicole Gelinas:

So I think going beyond a sort of keeping up with inflation, 4% fare hike to cover two years, I think going much beyond that, very dangerous from a perspective of starting out with a low level of ridership right now.

Michael Hendrix:

Right, and the question of ridership is a really interesting one. There was some commentary yesterday, questions asked about whether there was some structural change in commuting in and around New York City, and frankly many other major cities with the rise of remote work, and how much that would change the demand for transit systems. You suggested earlier, mentioned earlier in the program, that the MTA is forecasting a return to something like 80% by ... or 90% ridership by Christmas 2024. Is that even realistic?

Nicole Gelinas:

Yeah, I guess we're all just soothsaying right now in some ways. Realistically, do any of us know what 2024 is going to look like? Of course not. But I think it is prudent to assume that ridership will not recover very quickly. I think if we're looking ahead to next year, we're not going to get Broadway back until late next year at the earliest, we're not getting the opera back until the same time. Museums still operating at very limited capacity, no real global travel going on at the moment. And those conditions, I think it's perfectly reasonable to say will last really another year from now.

Nicole Gelinas:

What happens after that is harder to glean. I think there is pent up demand for tourism, people want to go places, they're just now allowed to or they feel uncomfortable doing so right now. So when those things change, I think tourism will bounce back. I think on the office side of things, that's going to be more difficult. People with long commutes of well over 40 minutes, in some cases well over an hour on the commuter rails, and New Jersey Transit, we can't forget the New Jersey Transit buses, they are enjoying some of their new extra time with their families. Are they going to want to work at home forever? Probably not, but something like going into work three days a week, working at home two days a week, or switching off every couple weeks, I think that will persist indefinitely. I think that is a structural change as you put it.

Michael Hendrix:

Right, and it's worth pointing out that there's not just the MTA, there's also the Port Authority, there's New Jersey Transit, there's a lot of other agencies like the MTA that are in the New York area and that are also suffering, too. And that need some of additional revenue, whatever that may be.

Nicole Gelinas:

Yeah, and I think that does go to the fact that this is a core congressional duty right now, is that we don't want to give up on our cities because of an event that is temporary. I mean, the pandemic will be over at some point even though it's sometimes hard to think through to that day. So we don't want to be left with cities where people are completely out of the habit of taking transit, they've bought cars, which if you buy a car you're going to keep it for seven years, so you're making a long term behavioral change. And transit systems that are decimated where if people do come back faster than the MTA and faster than New Jersey Transit think, that we don't have the service to provide them with transit.

Nicole Gelinas:

So for the next few years, I think it's perfectly reasonable for Congress to say we're not giving up on the country's cities, and in order not to give up on the country's cities, we have to provide extraordinary aid to transit.

Michael Hendrix:

Well, to the question aid, someone else from the audience suggested can or should the federal government condition further contributions to the MTA on reform of union work rules? What's your take on that?

Nicole Gelinas:

Yeah, I think so. And is there the appetite in Congress to do that, that is a different story. Neither party on the construction side of work rules reform, which is separate but related, neither party has ever showed much appetite for reforming laws like Davis Bacon that push up construction wages. But yes, I think something like cash for cuts, where the MTA and other transit agencies get an infusion of money now, but this is tied to specific reforms that they choose, and some of those reforms have to be measurable work rule reforms where you can cost it out over a few years.

Nicole Gelinas:

And the good thing about doing it slowly is hopefully you can do a lot of this through attrition. For example, if you need fewer crew members on a commuter rail train, you don't have to layoff people who have worked there for decades, you can just do this by not hiring new people to replace people who are retiring.

Michael Hendrix:

Not to steal too much thunder from our next panel, but you, Nicole, have written on the MTA's capital campaign, and you studied its spending before, and going into this crisis the MTA had its most ambitious ... ostensibly its most ambitious capital campaign ever. From what you're seeing, where does that stand, where are we? I mean, there was a lot that the MTA was planning to invest in, some critical investments. It seems like that's under threat.

Nicole Gelinas:

Yeah, and some of these critical investments result in labor savings years down the line. For example, modernizing the subway signals, eventually that means you can run more trains closer together with fewer people on each ... fewer workers on each train. Doesn't have to happen tomorrow, but that is something that the technology enables. But and another good thing if we're looking for some good news here, is that the MTA has taken advantage of lower transit traffic and lower bridge and tunnel traffic over the past few months to get a lot of their planned work done more quickly. They finished a major grid crossing project in Long Island ahead of schedule, they've done some subway signal work, some station renovation, escalator renovation work ahead of schedule. But, after the end of the year, if they don't get this aid from Congress, they will effectively stop their capital construction plan.

Michael Hendrix:

Right, this was a fantastic opportunity, to get to another audience question that just came in, this was an opportunity to deal with the backlog of repairs for the MTA. That also, by the way, came with a lot of health costs. Many MTA workers have suffered and even died from COVID-19, and that too has been a tragedy that the MTA has had to deal with.

Nicole Gelinas:

Yeah, unfortunately at yesterday's board meeting the MTA announced the deaths of two additional transit workers. I believe that brings the total number of transit workers who have died from COVID since March to 133. Obviously an enormous death toll for the MTA.

Nicole Gelinas:

Now, it would be ... and the MTA is doing some research on this, but it would be a ... I don't want to say a good thing because nothing good will come of all of those deaths, but it would help the MTA along in their recovery if they could get the medical community to try to pinpoint through family interviews and so forth how exactly did it transmit so quickly over the workforce. Not so much now, it has abated, but late March through April, that is when the workforce seemed to get quite ill, and the reasons for that are still unclear. And now people could say well, it's really obvious, you're in a transit system, you have all sorts of people packed together. At that time people were not wearing masks, so that probably has something to do with it. But it would be good to have as much hard information on that as we can get for the use of the MTA, in preventing similar death toll in a second and hopefully not a third wave of COVID, but for other transit systems around the world as well.

Michael Hendrix:

So are there, to that question someone else in the audience about international lessons learned. Are there any lessons we could learn, say, from transport for London, anything that they've done, or in what government aid has done for them that we could take as lessons learned for us?

Nicole Gelinas:

Yeah, I spoke to Andy Byford a couple of months-

Michael Hendrix:

Andy Byford being ...

Nicole Gelinas:

The-

Michael Hendrix:

Train Daddy.

Nicole Gelinas:

Yep, the former head of New York City Transit.

Michael Hendrix:

Right.

Nicole Gelinas:

And I think ... and now of course London is basically back in lockdown, that's its own story, but the good thing from the perspective of transit is they really do have national support for the transit system. Now it's not perfect. The first rounds of transit aid that TFL got from the national government was basically just a cash grant. The most recent round that they got, eventually the national government wants London property tax payers to pay for this. Who knows if that will ever happen, but there was some grumbling about it in the London papers over the past week or so.

Nicole Gelinas:

But the important thing is they're getting aid in some form, they are not talking about 40% cuts in tube or bus service. And I think even talking about these cuts here, it really puts back the recovery of the city because if you are a business thinking about renewing your corporate lease, if you're a retailer thinking should I try to stick out til next year, news that says we're going to cut transit service by this drastic amount, it doesn't give you a good feeling of sticking it out for the future.

Michael Hendrix:

Well, not to end on a dour note, we'll be transitioning to our next panel in just a moment, but a final question to you, Nicole, if you had to give one message to a Biden administration for the MTA, what would it be?

Nicole Gelinas:

I think one thing which we didn't talk about is that this is a workforce development program that in many cities the people who ride transit tend to be poorer people, they don't have a car, they cannot afford the six, seven thousand dollars a year it costs to purchase and maintain even a used car. And so if they are looking to get into the workforce, or looking to get back into the workforce after they've been laid off for a few months, the hurdle of having to somehow find a car, that's a huge marginal tax that just keeps you from getting into the workforce. So people needing to get to work in Detroit, needing to get to work in Philadelphia, Atlanta, and of course dozens of other cities across the country, including New York, having reliable transit is very important to getting people into the workforce for the first time, or getting people back into the workforce.

Michael Hendrix:

Well, on that note, thank you, Nicole, so much for joining us. This has been incredibly enlightening. Worrying, but incredibly enlightening. Thank you so much.

Nicole Gelinas:

Thank you, Michael, and I look forward to what the panelists have to say.

Michael Hendrix:

Indeed, so speaking of our next panel, we are joined today by three experts to lead us into a big picture discussion of the MTA's crisis, some of its long running cost challenges, some of the history behind that, that will hopefully give us a sense of the future. Professor Philip Plotch is the Associate Professor of Political Science at St. Peters University. He has a long background at the MTA, and in many other transportation roles. Arpit Gupta, Assistant Professor of Finance at NYU Stern. And last but certainly not least, Eric Goldwyn, research scholar at the Marron Institute. Thank you so much for joining us.

Eric Goldwyn:

Thank you.

Michael Hendrix:

All right, now Phil, I want to start with you, you wrote a book called The Last Subway, I encourage everyone to check it out. And it's on the long and costly wait for the Second Avenue subway extension, which we've been talking about since 1903, and still have only a handful of stops to show for it, more than a century and billions of dollars later. What were the big lessons for you on the MTA's long term cost challenges from studying that extension?

Philip Plotch:

So I'm thinking about three lessons that I think are really relevant today. When you look back at the history of the Second Avenue subway, which is really the history of the subway system itself, I think the first lesson is when New York tries to focus on some of the big, sexy transportation projects. So they want to bring the Long Island Railroad into the east side of Manhattan, or they want to build the Second Avenue subway. When they focus on that they put less resources into maintaining the existing system. And as a result, the system deteriorates. The service deteriorates, the facilities deteriorate. And I think there's no better example of that than in the early 1970s when the tunnel for Long Island Railroad was built [inaudible 00:30:46] which is still abandoned and unused. When New York started to build the Second Avenue subway, what happened was that by the end of the decade there was graffiti covering every single surface, there were about seven fires a day on the subway system. When trains pulled in there was a 30% chance the doors weren't going to open at your station.

Philip Plotch:

So what can happen when you focus on some of these big, sexy projects that people get very excited about, is you lose focus on what's really more important. And that happens when you prioritize short term things, like we want to keep the fare low, we want to protect the workforce. So we all want to do that. Nobody wants to see anybody fired, nobody wants to see the fare increase. But if we don't think long term, it's going to have repercussions, and it won't take very long before we start to see deteriorating service.

Philip Plotch:

So I think that's the first one, thinking about long term. And the second one is the New York City subway system has been able to recover from some really awful things. Whether it's 9/11, or whether it's the New York City's financial crisis when we almost went bankrupt in the 1970s. And they did that when people came together. So it's when the unions, the corporate executives, when the elected officials on both sides of the aisle, when the congressional delegation is in sync with the state delegation in Albany. When they say these are our priorities, that has so much more force. It gets the public behind it and it gets the resources that you often need. That's a hard thing to do, it's a hard thing to bring the union leaders together with the people who care about the fares, and with the corporate executives who worry about getting their employees to work.

Philip Plotch:

But if we could do that, if we can get those people together, we have a much better path forward to get out of this financial crisis.

Michael Hendrix:

Well, there's a lot to build on there. Arpit, I want to come to you. The Second Avenue subway extension is among the costliest infrastructure projects we've ever seen. Building on what Phil just said, what lessons did you take away from looking at the Second Avenue subway, I know you studied it a little bit, surely ... I mean, part of the problem is just the sheer length of time that goes into any big project that the MTA takes on.

Arpit Gupta:

Absolutely, and I would separate out the cost of capital expenditure from the recurring ongoing operating expenses that you were talking about with Nicole. So to build the subway, as you just said, takes a really long time. And the procurement rules that we have in place don't seem to work particularly well. So we wound up spending an enormous amount of money that was devoted to things like paying for more workers than was actually necessary to man the tunneling equipment. We saw design rules take into effect, which is also greatly increased the overall cost because we weren't using things like cut and cover, [inaudible 00:33:45] tunneling way people under the ground, we were building these enormous ... At kind of an earlier point, this really was sort of a white elephant project, and so we built these kind of massive stations which kind of looked really nice, but wound up being enormously expensive.

Arpit Gupta:

And so I find that all these kind of design rules, procurement rules added up the capital expenditure cost enormously. At the same time you see enormous benefits in terms of real estate increases in value around these kind of station stops on the upper east side. So that also kind of tells me that though it's very expensive to do, there are also a lot of benefits towards connecting a city as dense as New York City. And there's also a role here for things like value capture to try to benefit more from the incremental increase in demand around station stops.

Michael Hendrix:

And we're going to get to the question of value capture in just a little bit, but I think that was very helpful for teasing out the differences between what we spend in operations and what we spend on ... what we have in capital expenditures. But all of that is part of this discussion of where the MTA is right now, how it got there, and where we're going from here.

Michael Hendrix:

Eric, you're leading really a groundbreaking international study on infrastructure construction costs right now, comparing different countries. What are you finding? What can be helpful for us to learn from what you're studying?

Eric Goldwyn:

I think a lot of the stuff that we're seeing in our research, which is looking at subway construction in cities like Seoul, Korea or in Istanbul or Milan, Italy, has lots to do with sort of internal capacity. So while Nicole mentioned that the MTA has been letting people go over the last couple of years because of the transformation, one of the things that we're finding is that that lack of internal capacity leads to sort of losing control of projects and sort of extending timelines, extending sort of scope additions to projects, and really driving up the costs of projects.

Eric Goldwyn:

So one thing that the MTA has been doing though is they have sort of created an internal team that is solely focused on capital construction that's a little bit separate from the every day headquarters operations. And I think that going forward, I probably am on Phil's side with this, where I don't think we're going to see much capital expansion in the near term. But if we were to, I think that having that team really understanding what they're doing, really managing contracts, really managing design and scope and all that stuff is critically important to keeping costs down.

Michael Hendrix:

Well, Arpit raised a point about labor and staffing, and so Phil, I wonder if you have a response to that. What is the role of unions here in staffing, in pay, or are they the problem or is that the wrong way to look at it? And I'm thinking both of just these large projects, capital projects, but also just ongoing staffing here. I wonder if you have any response to that.

Philip Plotch:

Right, so we talked about that difference between operating budget and the capital budget. So the operating budget, there's a whole set of work rules which help the unions keep their jobs, and give them very high benefits and incentives sometimes to work overtime. If you're getting paid twice as much for working more than 35 hours or having a long train ride, you're going to milk that system. But that's one side of it, which the federal government actually has very little to do with.

Philip Plotch:

On the other side is the capital construction. And the federal government does have law, it's called the David Bacon Law. And that says that every construction worker who works on a federally funded project, and all of the MTA's capital projects are pretty much ... there's some portion of federal funds there, have to be paid at the prevailing wages. And that's considered to be the union wages here in New York. So the MTA doesn't get to negotiate the wages. They hire a contractor, and the contractor has the wages built into their system. It takes away some of that competitive feature of bidding out a project. You want to get the lowest cost bidder, but they're all pretty much having to pay the same construction costs.

Philip Plotch:

And not only do they have to pay the same construction costs, which can be quite high for the Second Avenue subway, some of the workers were making up to $100 an hour at one point on the project. But what it does is it means that all of the different unions have enormous control over a project. So for example, there's one union that's setting up traffic barriers. There's another union that is operating a tunnel boring machine, there's a union that's digging trenches. There's a union that's providing temporary power, there's another union that's building a support system for roadways. These are all different unions, and it means that one person can't be doing four jobs. So sort of imagine if you had to replace your toilet in your house, and you needed somebody from the plumbing union to come, and somebody from the electric union to come, and somebody from the bricklayers or tile layers to come. So it becomes very inefficient. And that's one of the problems that we have with construction. Which again, you have to think about it very differently than we think about some of the problems that Nicole was talking about, with some of the direct workers that we have in New York City Transit and Long Island Railroad and Metro North.

Michael Hendrix:

And just for clarification, is there any useful international comparison here? You mentioned $100 an hour, you mentioned high staffing, is there any useful international comparison to give us a sense of scale here?

Philip Plotch:

So we pay higher in New York than we do anywhere else in the country, and we pay higher in the United States than we do anywhere else in the world. It's not even close. And those are just the benefits, that doesn't even take into account the work rules.

Philip Plotch:

Now, what you'll hear from some people is that a lot of the costs that we incur here, and that the MTA incurs, aren't incurred in other countries, like healthcare costs, they're very expensive, or pension costs, or training for union members. Those are very expensive and our transit systems have to pick up that cost, the state's not picking up that cost, the federal government's not picking up that cost.

Michael Hendrix:

If anybody else wants to jump in too, because I also imagine that this could be part of the federal role, if there's any strings attached maybe this could be part of the consideration. I also ... yeah, go ahead.

Eric Goldwyn:

Well the only thing I was going to say is there was an article that came out over the summer, and in it someone ... or two people, consultants from [inaudible 00:40:26] sort of broke down some of these things that you're talking about. And they were saying that in Europe it's quite common, so instead of getting paid time and a half, double time and overtime, you get more in vacation, right. So that's a non monetary sort of benefit paid out. Which is sort of fascinating for me to learn, I was like, oh, interesting alternative. And also the wages paid for sort of manning the tunnel boring machine are I think less than half of what Phil just quoted you on $100 an hour, and far fewer people man those machines.

Eric Goldwyn:

So thinking about labor productivity absolutely is another piece of the story, there's no question about it.

Michael Hendrix:

Justin Fox from Bloomberg had an article yesterday talking about how it's not just labor costs here, again, looking specifically at the construction side, it's also some combination of regulation, law, nimbyism, is that also a factor here? And by the way, this wouldn't be just for the MTA, it's for really any transit system or even the construction of roads and highways.

Philip Plotch:

So there are numerous regulations, and each time that a regulation is put in, it's a well meaning regulation. Like the Americans With Disability Act, everybody thinks it's wonderful that a person in a wheelchair or a person pushing a stroller can access the subway system. But it also means that you have to have a lot of elevators, and it also means that the platforms have to be very wide. Which means that it's more expensive to build the subway system. We can't build subways like we did over 100 years ago because of all sorts of construction safety factors. We don't want people dying building the subway like they did over 100 years ago.

Philip Plotch:

So we put in regulations for safety, we put in regulations after 9/11 to make sure that people can escape in case of a terrorist attack. We put in regulations so that minorities and women owned businesses have a leg up. We put in buy American clauses, so that we buy American products. And if you keep on adding regulation after regulation, at some point it becomes almost impossible to build new transit systems and to extend their existing system.

Philip Plotch:

But it's hard to take those away. Everybody supports ADA, everybody supports let's give a leg up to minorities and women, everybody supports fire safety, everybody supports these kinds of features. But there has to be a recognition that there's a cost to them.

Arpit Gupta:

Yeah, there's a great paper here by [inaudible 00:43:06] in Brookings Institute that documents that the cost for highways in particular really started to escalate around the 1970s around the time that NEPA, a major federal environmental review law was passed and they document even that highways got even more squiggly as they were kind of changing even the routes of the highways to kind of adhere to these new laws.

Arpit Gupta:

I think a big problem is that a lot of those changes in regulation and practice have been procedural rather than substantive, right, so they've been adding more layers of review and process and make it more difficult and more costly and more time intensive to build these projects without actually improving on the final outcomes. And so we've seen this in the form of planning reviews, and community board involvement, and just these additional layers of oversight that don't necessarily actually improve the final outcome, but add a lot of [inaudible 00:43:59] points and make it very expensive and costly to build really anything in this country, whether it's a subway, a highway, or a house.

Eric Goldwyn:

I just wanted to add, one of my favorite examples of sort of the mitigation NEPA is from in Atlanta they were adding a fourth runway to their airport, and obviously airports are loud, I don't want to pretend that they're not, but they had to go in and put soundproofing into 10,000 houses. And they also had to buy an entire village, I think it's called Mountainview, and demolish 2,500 houses. Those are things that obviously no one really considers that goes into the cost of these projects, and in a lot of the projects that we're looking at you absolutely see all kinds of things that are similar. In Los Angeles when they're building the light rail they have to grade the streets, they have to build affordable housing for one of the projects. In this project I'm looking at in Boston they built a pedestrian bicycle community path that added a lot of cost. So there are all kinds of other things that sort of end up filtering into these projects that having nothing to do with running the Second Avenue subway, or things that you might associate with a transportation project.

Michael Hendrix:

I think one takeaway here is that there are long term cost challenges for the MTA specifically, yes, but there's also something very uniquely American about these costs. But also even maybe just the English speaking world. Some of your description of Hartsfield Jackson would probably sound familiar to someone who's running Heathrow Airport and their perpetual attempt to build another runway.

Michael Hendrix:

So just to pivot here for a moment and Arpit, I want to get back to you, do we need new dedicated funding streams? In 1981, Ravitch, Dick Ravitch lobbied the state legislature for taxes to save New York City's transit. Yesterday Chairman Pat Foye said he was agnostic on the subject, that it was above his pay grade. Arpit, how do you look at this?

Arpit Gupta:

I think that would be very helpful. So to give you some examples, the seven train extension into Hudson Yards involved a form of value capture by which the developer was helping to pay for some of the expansion out there. We also saw an example of this right around MI's headquarters at Grand Central in which SL Green provided something 200, 220 million dollars to help fund some of the construction costs and expenses to improve Grand Central Station in exchange for up zoning and development rights in the area.

Michael Hendrix:

Arpit, I just want to pause you for a second, value capture, just briefly define that term.

Arpit Gupta:

Absolutely, so it's the idea that transit improvements will generally improve the value of properties in the vicinity of the transit stops as people find it more convenient to live there and access transit. And that increase in value can be taxed or taken advantage of in some way through up zoning, for example, making it easier to build around the regions in the stops in ways that help finance the project's ex ante. So as we're ... Because it's unclear how much we're going to build any time soon, but to the extend that we do, I think we really need to look at finding ways of allowing for more development and using that additional development to help finance these projects. I think there are also some opportunities within the stations themselves, things like more advertising, things like leasing more of the space inside the transit stops to kiosks and vendors and so forth to help kind of pay for some of these expenses.

Michael Hendrix:

Yeah, and by the way, I want to invite any of our newly logged on viewers to send in your questions, we'll include them in the program.

Michael Hendrix:

Phil, I want to go to you, is there any money just lying around? Ravitch was able to depend on extra highway money, Boston, DC for some of their big projects was able to do that. Maybe Biden could redirect highway dollars here, this matters I guess to both ongoing operating costs but especially for keeping the capital campaign going. What's your sense?

Philip Plotch:

So Richard Ravitch happens to be my hero, and when he came into his position as MTA chairman, the system was about as bad as it had ever been. And what he did, which was very different from his predecessors, we he talked about all the problems. So usually if there's a subway delay, the MTA chairman would say oh, it's not a big deal. But he would actually call the reporters up and say, "There's a big subway delay." And he would explain the reasons why there was a delay because we didn't have enough money to maintain our services. He was immensely independent from the governor, and he negotiated with White House, he negotiated with the state legislative leaders, he talked with the mayor, and he did things behind the governor's back. I don't think Governor Cuomo would like it very much if Pat Foye and the other leaders of the MTA started going around him.

Philip Plotch:

So if you're the governor, there's lots of priorities you have. The transit system is in a financial crisis, there's no doubt about it. But we have other great needs here in New York, and I don't think the governor wants the MTA chairman knocking on the doors of Congress saying, "We should shift money from higher education and bring it to public transportation." As much as the MTA chairman might want to do that.

Philip Plotch:

So I wish that there was that money lying around, but there isn't. We are going to have to face some very, very difficult choices. I can tell you the choice that usually gets made in these situations. So when we have a choice between raising fares and raising taxes, because those are the only two ways you could for the most part fundamentally raise revenue, we just borrow more. Which is the reason why the MTA has debt of about 45 billion dollars, which is more than most states in the United States. It's more than many countries in the world. And it has to get paid back. That means when everybody's swiping their metro card through, they're paying a substantial part of that fare to pay off debt. And we're just going to keep on increasing out debt.

Philip Plotch:

It's great that the Federal Reserve gives us low interest rates to borrow money, but you have to pay it back. And that is something that is going to be very, very difficult moving forward if we don't have a swift and steep recovery.

Michael Hendrix:

It almost seems like from reading your book that the story of New York City's transit system is really just a successive series of crises, it can best be told through those crises and how we managed them, is that fair?

Philip Plotch:

So I was sitting here thinking, "Wait, maybe we shouldn't talk about building Second Avenue subway anymore," because that leads to a depression, or world war, the middle class starts to leave, or if we talk about it New York City goes into a financial crisis, or we start building on Second Avenue and there's a hurricane like Sandy, or god forbid another coronavirus. So I think because the Second Avenue's been talked about for so long, for 100 years, it is one series of crises after another that New York has gotten through. And that's really I think the heartening part of this story when you think about the history of New York and the history of this subway, is we've gotten through some really terrible times. This is a financial crisis, it's a crisis of thousands, tens of thousands of people dying. It's a crisis of what is New York going to look like in the next couple years. But somehow we come back stronger than ever, in a way that surprises you if you pick up the New York Times from any date before yesterday it always looks like the sky is falling, but somehow we seem to dust ourselves off and New York continues to be a place where young people want to move to for economic reasons, for social reasons, for the vibrancy that we provide.

Philip Plotch:

So I think as long as New York continues to be a place where young people feel like they can succeed and be happy, where there's a good quality of life and it's safe then I think we're going to be okay. It's going to be a while to get there though.

Michael Hendrix:

This was a surprisingly hopeful discussion, I wasn't expecting that, but I like it. All right, so there's some great questions from our audience here. I'm going to combine two of them. They're talking about this crisis moment and what kind of improvements we can make in this moment that could not only allay concerns about infectious disease, but maybe just make other general improvements. They also note, our questioners note that there's the end of the 24 hour subway system and that maybe there's an opportunity to use that to make some of these improvements. What's your take on that question? What can be done now if anything? And this is really a question for anyone. Arpit, maybe I can turn to you or Eric.

Arpit Gupta:

Yeah, sure-

Michael Hendrix:

[crosstalk 00:52:46] buses.

Arpit Gupta:

Yeah, sure. So I think one thing that we can know is that at this point the kind of excessive scrubbing and trying to clean physical surfaces is really something that's taking a substantial toll on the budget, and it's not really clear that it's actually doing very much to lower the substantive COVID risk. So there may still be a psychological reason to kind of continue doing it in a way to kind of encourage people to take the subway, but I think the most effective thing we could do is try to continue to preserve norms basically of not talking while you're in the subway. If you take the [inaudible 00:53:21] subway, no one's really talking in the subway, right? And we know that kind of at this point limiting kind of your speaking voice is really the best thing to do to lower substantive risk.

Arpit Gupta:

I think another reform that we could consider doing at this time is to revisit the role of conductors in the system. So we have four or 5,000 conductors, and back to the international examples, many countries just have the one driver or in some cities like Paris just have ... there will be driverless trains, right? And as we now know that these workers are subject to considerable COVID risk while being in these subway cars, so we have just a couple of train lines, I think the L and the 7 train lines run on one, just a driver only and only on weekends. But I think part of the reforms that we could try to think about are ways to take some funding now, take some sort of subsidy, and use that to lower that operating cost in ways that might reduce our staffing needs and I think that'll lower the health risk of workers, it'll improve the financial health of the system, and will make it more viable to continue operating the subway.

Michael Hendrix:

This is a slight pivot from what we were planning to talk about, but Eric, you've done a lot of buses, it's notable that even as ridership on trains, subway, Metro North, hasn't come back to the degree that we would hope for, it has come back a little bit more for buses. And yet, as part of the MTA's planned cuts, they're looking at eliminating entire bus lines. How do you look at that? Is that the right approach to take, or could there be a better role for buses today?

Eric Goldwyn:

Well I think there's two things on that point. So on average, your average bus rider is poor, older, more likely to be of color than your average subway rider. More likely probably also to be an essential worker. So I think that partially explains some of the I guess resilience on the bus, but also buses were free for a long time, and once they did implement fares ridership did drop a bit, but not obviously to the level of the subway.

Eric Goldwyn:

The other thing is I think the lesson of 2008 when the cut bus operating hours by about 22%, we saw pretty much a one for one drop in ridership. And so if you're talking about a 50% drop in operating hours, the idea of seeing that is heartbreaking for me. And one of the things people have been talking about about conditions on federal money, I'm open to some of the labor reforms, I would love to see the condition of if you take this federal money you have to restore operating hours once the virus is under control, or something that is not going to just continue to get pushed off. But I would love to see language like that and I think that would be ... making sure service is protected would be wonderful.

Eric Goldwyn:

I do think obviously there are a lot of cheap ways actually to improve bus service by making it just run faster because then you can turn them around more quickly and you can sort of increase the frequency of service and the number of vehicle miles traveled just by allowing the bus to run at 10 miles an hour instead of five miles an hour, right? You're doubling your speed.

Eric Goldwyn:

And so I would love to see ... If they do consider some bus cuts on certain routes, maybe on a parallel route, but in a protected bus lane and really allow service to fly, so to speak.

Eric Goldwyn:

Actually, I would love to take ... There's a question about public private partnerships.

Michael Hendrix:

Yes, yes, yeah, there is a question, is there a role for public private partnerships, I wonder what your thoughts are.

Eric Goldwyn:

So my colleague Ilan Levy and another colleague of ours, [Daheer Abdi Rashid 00:57:07] who is in Korea, we've been looking at this case of Line 9 in Seoul. And it is a fascinating public private partnership because the way that at least I've always understood public private partnerships, and a lot of other types of project delivery, is that the public agency is trying to offload risk onto private contractors. And some people have written that obviously the private sector is not stupid, so they sort of increase prices because they don't want to get stuck holding the bag. But in this instance what has happened is the public sector is taking on the riskiest parts of the project, so the building of the sub structures, and then they are privatizing the sort of procurement of sort of rail cars, power systems, things that are not that risky, things that aren't likely to get oh, there's a 50% markup. And I think that it sort of inverts some of the theory of private public partnerships in an interesting way. I'm not saying it was good, I don't know enough about it just yet, but it's one of the only public private partnerships I've seen in the transit space where I'm like okay, that is really very interesting. Right now if anyone knows Purple Line down in Maryland is a public private partnership that is currently belly up, so to speak.

Eric Goldwyn:

So anyhow, I think that actually is a really interesting model to learn more about.

Michael Hendrix:

That's a great point. So one question that I think is key here is ridership, when is ridership returning, what role, what factors play in whether or not riders are coming back. One question from the audience is about crime surely is also part of how we tackle COVID-19. Whether we're safer both physically but also in terms of public health. It seems like there are a lot of factors behind ridership as Nicole and I were talking about. The MTA is projecting a return to something like normalcy by the end of 2024. What do you think, what are the key factors in getting riders to return because clearly that fare box revenue will be absolutely critical to getting more money in to keep the lights on, and to keeping service up.

Philip Plotch:

So I want to just say two things that are really important to think about. One is that at some point we're going to have a congestion pricing program in New York, where people who are driving into Manhattan below 60th Street are going to be paying a toll. It's not clear exactly when that's going to happen or how much the toll is going to be. That's going to raise a lot of money for the MTA. So it's going to increase costs for the MTA because there's an expectation that more people will be taking buses and subways.

Philip Plotch:

Which means that it's maybe not the best time to be cutting service. And the other reason that it might not be the best time to cut service is a lot of people are hesitant to get one a subway or a bus. If you cut service they're going to be more crowded, which makes it even less likely to attract people to the transit system.

Philip Plotch:

So just to think about those two factors, I think the congestion pricing is a little longer term, it looks like it's not going to be happening in the next six months or so. But the idea of cutting service and making people feel less safe to get on transit could backfire.

Arpit Gupta:

Yeah, one thing I think to note here is that even cities like Tokyo and Seoul is my understanding is that these urban areas are seeing more public transit interest, even though they've managed this disease far better than the United States has. And they're also not seeing things like quite as much remote work either. So it seems like this will likely be a difficult path no matter what we do, but I really agree with Philip here, and I think part of the issue that we saw with the MTA budget yesterday is that there are so many of these legacy labor costs that aren't really addressed very much by lowering service, yet that's one of the few levers that the MTA thinks that they have. And so if they move towards plans like increasing headwinds on weekend routes to 15 minutes or something like that, it really threatens to kind of put into place this debt spiral in which worse and worse service doesn't really save the MTA that much money, but deters potentially a lot of people from actually taking the service because if you don't know whether the subway's going to be there or not when you go to the station, you just don't go there in the first place. And that might really worsen the operating outlook for the entity.

Arpit Gupta:

So I think the best thing the MTA can do for itself right now is just try to maintain standards of ensuring sufficient transit operations, even when things are not looking so good, just to kind of ensure that people are able to forecast and plan around it and eventually take it in the future.

Michael Hendrix:

Speaking of forecasting, what are your prognostications on this death spiral scenario? God forbid it happens, but David Schleicher at Yale Law School, a friend of some of ours tweeted yesterday that the single biggest challenge for New York City is not the future of telecommuting and remote work, but getting the subway system to work. It seems like a death spiral could also be a death knell for New York's recovery. What are the prospects of that kind of a scenario?

Philip Plotch:

I think what we have now is we have a consensus here in New York that we have to have a subway system in order to have a thriving economy. And as long as we have that consensus across incomes and across geography and across the kinds of different jobs that people have and the different ways that we all pay taxes, then I think we're going to be okay. But if that falls apart, if people think that New York can thrive without a subway system, then that's when I think we really have to worry.

Philip Plotch:

So I always like to say that New York without a subway system is like building a skyscraper without an elevator. You can't have offices on the 92nd floor without an elevator. In New York, you can't have 100 story buildings unless you have the ability to get tens of thousands of people into that neighborhood in a relatively short amount of time.

Philip Plotch:

So the real estate folks understand that, the business leaders understand that, the workers understand that. And all the elected officials seem to understand that one [inaudible 01:03:07].

Michael Hendrix:

Well I believe that we are now out of time, so I think this is actually the perfect point to end us. New York City needs its subway system like a skyscraper needs its elevator. Thank you all so much for joining us. We're all going to be staying tuned to your observations as this fiscal crisis takes root and we try to solve it. And hopefully it'll be solved soon and well and we'll be back on track soon. Thank you all so much.

Arpit Gupta:

Thanks, Michael.

Eric Goldwyn:

Thank you.

Philip Plotch:

Thank you.

Eric Goldwyn:

See you guys on the 7 train.

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