MTA, on the brink of another funding crisis, could soon consider fare hikes to keep the system afloat

The cost of riding New York City trains and buses might get more expensive in the coming years as the MTA now projects to run out of money for operating expenses a year earlier than it previously anticipated.

While the agency isn’t making any decisions for now, it has few ways to raise revenue, other than cutting service and staff to save money, raising fares, or hoping lawmakers pass a new tax to fund the shortfalls, according to MTA Chief Financial Officer Kevin Willens. The burgeoning funding crisis comes as ridership, which is tied to the agency's revenue, remains starkly lower than anticipated.

“Attack the problem sooner, rather than later,” Willens warned Monday at the agency’s finance committee meeting on Monday. “Which means solutions starting in 2023.”

By 2025, federal pandemic relief funds will be exhausted and the agency could be short more than $2.5 billion a year after that, mainly due to low ridership. Willens suggested the MTA would be wise to find $800 million in additional funding in 2023, and $1.6 billion each year after that to make up for revenue shortfalls and avoid service disruptions.

The agency had been relying on ridership projections from consultants at McKinsey & Company, which suggested in 2020 — as a vaccine was just around the corner — that ridership would be back to 86% of pre-pandemic levels by 2023. Due to the ongoing pandemic and many people still working from home, the consultants have revised their estimates. Now, they said they expect in the best-case scenario that ridership will be back to 88% pre-pandemic levels by the end of 2026. Worst case, it will be 73% by then.

Ridership is currently at about 61% of pre-pandemic levels.

Throughout the pandemic the MTA has managed to run fairly regular service, thanks to billions of dollars in federal relief money. As ridership dwindled in March 2020 as a result of the pandemic, it pleaded with the federal government for funding to keep trains and buses running. Over the course of two years, it ended up getting $15 billion total to keep service running.

'Existential question'

Last week, state Comptroller Thomas DiNapoli put out his own report, framing the problem of lower ridership as a nationwide “existential question”: Should transit agencies cut service levels to adjust to decreased demand, or boost the demand by improving the service?

“Unless there is an additional influx of city, state or federal aid, the MTA is facing stark options for closing its budget gaps that will impact riders,” DiNapoli wrote. “The MTA needs to lay out what is at stake and explain to the public what options it’s considering to close budget gaps and how it can adjust to continued low ridership levels and shift service to meet changes in demand.”

Since February, the agency’s own financial plan predicted the rate of spending and revenue would continue to be out of whack due to the disruptions from the pandemic, writing in its plan that “significant budget deficits loom beyond 2025 if actions to address the structural imbalance are not implemented.”

MTA Chairman Janno Lieber has been warning about the economic shortfall for months as well, priming the pump and suggesting that lawmakers come up with a new revenue stream to fund the MTA to avoid a death spiral, in which service is cut to save money, causing ridership to drop further because of poor service.

Still, the MTA has moved forward with costly construction projects throughout the pandemic, trying to get as much work done on its historic $51.5 billion capital plan as possible. It’s expecting to open the new Long Island Railroad terminal below Grand Central Terminal by the end of the year, and moving forward installing modern signals on several subway lines.

Gov. Kathy Hochul and Lieber share a close relationship and frequently appear together at press conferences for the Penn Station redevelopment plan and tours of the Second Avenue subway tunnels, two major projects in which the state and MTA have been coordinating for swift action. They said they want to take advantage of money from the federal infrastructure bill that could be used to fund these projects.

While the capital and the operating budgets are separate, the lines nearly blurred during the pandemic when then-Gov. Andrew Cuomo suggested redirecting taxes intended for capital projects toward the dire operating budget. This happened before federal and state relief aid finally came through. With congestion pricing expected to roll out by the end of next year and generate $1 billion annually, there have been calls to tap into that funding stream. But the MTA has insisted, and the law states, it’s for capital improvements only.

Derailing service disruptions

DiNapoli suggested one way to avoid funding shortfalls is for the MTA to adjust service where there’s demand. He noted weekday ridership has hovered around 60% at most agencies, while weekend ridership has been much stronger.

For example, on Saturday July 16th, the Long Island Rail Road saw ridership levels as high as 90%, only to see Monday’s ridership dip back down to 56% of pre-pandemic levels. DiNapoli suggests boosting Saturday service where there’s clearly a high demand.

“The comptroller’s report is consistent with what the MTA has said since the pandemic started: mass transit is an essential service for New Yorkers, and the MTA has begun working with decision makers to develop a plan that assures continued strong mass transit in the post-COVID era,” John McCarthy, MTA chief of external relations, wrote in a statement.

In an effort to bring riders back this year, the MTA introduced a fare capping program with OMNY that gives subway and bus riders unlimited trips after 12 rides in one week. It also decided not to institute a fare increase as a way to encourage riders to use mass transit.

But next year the agency will likely have to increase the tolls and fares to make up for this year’s losses. It may raise fares the following year as well. This week’s board meeting will clarify the ridership projections and provide an update on how much money it needs to make up.

Advocates with Riders Alliance suggested that increasing service will increase ridership.

"Gov. Hochul must target state funding to run buses and trains at least every six minutes, all day, every day, to make public transit more competitive with other transportation modes,” Danny Pearlstein, policy and communications director, wrote in a statement. “New York's equitable recovery and climate resilience hinge on our transit system's revival; simply replacing dwindling federal aid with other revenue is not enough."