Over the past decade, New York’s subway and bus system has shown phenomenal success in attracting increased patronage and helping spur the revitalization of the city. But that success may be imperiled by the Metropolitan Transportation Authority’s coming financial woes. Although the MTA is projecting a budget surplus for 2007 due to booming revenues from taxes on real estate transactions, its long-term financial situation is dim. A $1.3 billion budget deficit is projected for 2008, growing to $2.2 billion in 2010.

The deficits are driven by ballooning costs of debt service and health insurance. Together with other expenditure increases, these more than offset growth in fare revenues from higher ridership and the fare increases of 2003 and 2005. The agency's debt is projected to increase from $13 billion in 2000 to $32 billion in 2010. These increases stem from borrowing approved over the past half dozen years to finance maintenance and capital improvements to the system.

No one is in a hurry to head off rising budget deficits as long as the Metropolitan Transportation Authority shows a surplus, however transitory it may prove to be. MTA Chairman Peter Kalikow announced in September his opposition to $20 million in cuts to bus and subway service that had been planned when forecasts showed budget deficits next year. Likewise, Kalikow said that a planned 5 percent fare increase in 2007 would not be necessary, again citing the rosier-than-expected 2007 budget picture.

In fact, recent Metropolitan Transportation Authority decisions on development of Manhattan’s West Side risks further exacerbating future deficits. In September, the MTA Board approved a deal with the city to develop the railyards just west of Penn Station in Manhattan and extend the #7 train to 34 St. and 11 Avenue. The city agreed to pay up to $2.1 billion to build the extension and also to pay for any unplanned costs for land acquisition and design changes. The agreement does not specify who would pay for other cost overruns, however. If the MTA is forced to pick up the tab, its financial difficulties would only deepen.

Many observers think that the agency is taking on a considerable risk. The State Comptroller, Alan Hevesi, released a report pointing out that the MTA’s East Side Access project is over budget by $2.4 billion and the Fulton Street Transit project is already over budget by $94 million. Both are also behind schedule, with delays contributing to higher costs.

Nevertheless, Kalikow commented that, “I was comfortable leaving the cost overrun question to another day.”

It’s not that the MTA’s critics are any more eager to impose service cuts or fare hikes. Although Hevesi’s report clearly outlines the MTA’s long-term budget problems, Hevesi argued at the same time for postponing the 2007 fare and toll increases “for as long as possible” until the MTA develops a long-term strategy to close the budget gaps.

The MTA’s financial problems are thus going to arrive on the desk of the next governor. Transit advocates are hoping that, following Hevesi’s thinking, the new governor will take a comprehensive approach that would achieve a balanced solution to the MTA’s financial needs. Gene Russianoff, staff lawyer for the Straphangers Campaign, was quoted in the Times as saying, “All the big issues are now squarely in the lap of the new governor: fare hike, service cuts, more state aid, MTA efficiencies. … The whole menu of options should be there as a whole and enacted as a package.”

Will the new governor adopt a comprehensive plan, even if that means supporting fare and toll hikes and tax increases? Or will he try to muddle through as his predecessor did, whatever the longer-term difficulties that would create? Stay tuned.

Bruce Schaller, who has been in charge of the transportation topic page since its inception in 1999, is head of Schaller Consulting, which provides research and analysis about transportation. He is also a Visiting Scholar at the Rudin Center for Transportation Policy and Management at New York University.