The MTA loses six billion dollars a year and nobody cares

Johnny Knocke
Jul 6, 2016 · 14 min read
Photo from 2005 NYC Transit Strike

New York City is the center of capitalism and financial markets, however, hiding underneath the towering skyscrapers is an organization that defies the free market forces by siphoning off increasing amounts of city and state taxpayer dollars. This organization is the Metropolitan Transport Authority (MTA), which loses on average more than $6 billion per year dating back to 2009. If the MTA were a company in a functioning free market, it would have filed bankruptcy and restructured a decade ago. Instead, the city and state increase taxpayer subsidies and debt year after year, while acquiescing to union demands, resulting in one of the highest costing, least productive transit systems in the world.

The MTA’s cost of labor is greater than all its total revenue

The average salary of an MTA employee is nearly $90,000

An analysis of MTA salary data on, excluding salaries below the lowest contractual union wage, shows that out of 62,507 MTA employees, the average 2015 salary was $89,779. The vast majority of these employees are bus operators, train conductors, station agents, maintenance personnel, and cleaners. Analysis conducted on 2010 salaries of bus/rail operators and maintenance personnel shows that MTA salaries range from 18% to 60% higher than other US metro systems (i.e. Chicago, SF, LA, Miami) with very few exceptions.

The MTA spent over $876m on overtime in 2015

Exhibit 1: Top 4 Salaries at MTA in 2015

The $876m overtime bill in 2015 represented 15% of payroll, which is nearly double the 8% benchmark of average private nonfarm manufacturing overtime tracked by the US Bureau of Labor Statistics. In 2010 when the MTA’s total overtime bill was $560m, or 13% of payroll, the MTA vowed to crack down, however the overtime issues have only been exasperated.

High absenteeism drives more overtime

There’s a certain percentage of employees who take the mental health day. They wake up and say ‘I don’t feel like working today.’

Thomas Prendergast, Current MTA Chairman

Excessive usage and abuse of the Family Medical Leave Act (FMLA) is another driver of unplanned absences. Once an employee is approved under the act, he or she may take up to 60 unplanned/unpaid sick days per year. FMLA usage is not periodically reported by the MTA, however is 2010 it was revealed to be at 9% in the bus division and 20% in the Staten Island bus division.

MTA employees do not have a “Cadillac” health plan, it’s a Porsche

Exhibit 2: Comparison US metro health coverage vs US national average

Not to be outdone by the MTA’s health insurance plan, the MTA’s dental plan is even better. Employees pay no premium and the plan covers 100% of all procedures including crowns, root canals, and surgery up to $1,800 per person per year, and full orthodontics for 24 months.

When adding in the cost of health and dental insurance premiums, the average salary of an MTA employee exceeds $100,000, without even considering pension costs.

Unfunded pension and post-employment benefit liabilities pose a substantial future risk

Exhibit 3: MTA 2015 operating revenue and expenses (in millions)

While employee salaries and wages are the highest operating expense, pension (retirement), and other post-employment benefits are increasing at an even faster pace. Since 2009, pension and other post-employment benefits have increased at an annual rate of 4.4% and 6.4% respectively.

In the current state, the MTA is able to cover these costs with subsidies from the state and city government. However, in the future, either subsidies will be drastically increased resulting in higher taxes, or fares will increase faster than inflation. As of November 2014, the MTA had a $17.8b unfunded liability for post-employment benefits, and then reallocated and suspended future contributions to the reserve in order to pay for the new union labor agreement. There are also several underfunded pensions, including the LIRR pension that had a funding level of 26.8 percent as of Jan. 1, 2012. An 80 percent level is considered optimal for funds to be able to pay future claims.

Inflexible and inefficient union work rules cost the MTA billions of dollars per year

Cost of construction for the MTA is 2–7x more expensive than any comparable subway system in the world

Pay raises for union employees are stipulated by collective bargaining agreements, not performance, and union employees reach maximum pay after five years

The MTA cannot decrease the number of conductors per train

The future ramifications are more drastic. Around the world, over 15 subway systems have at least one fully automated line, including systems in Malaysia and the Philippines. The MTA currently has approximately 7,000 train conductors and operators being paid an average salary of $100,000 including benefits. If the MTA were to invest in driverless trains, they would save $700m annually, not including future pension and post-employment costs.

Union rules require overtime for work over eight hours per shift

Other examples of inflexible and inefficient union rules:

  • “swing shift”: a period of time that lasts up to four hours where bus drivers receive half pay between morning and evening shifts. Many spend it playing pool in bus depots. Additionally, drivers who call out sick get paid for their 12 hour “run” instead of the two, four hour shifts they would normally work
  • Bus drivers cannot be scheduled in two different boroughs on the same day
  • Employees may not perform the same job with someone of a different title because they are not being paid the same salary; groups must be scheduled to only include people of the same titles
  • Subway cleaning workers cannot be asked to replace light bulbs or do any painting
  • Station agents (in the booth) are not allowed to clean the floor of the subways, even as simple as picking up a piece of trash or cleaning a spill

…this is only a sample. The number of rules and constraints set forth by the collective bargaining agreement is substantial. One can only speculate how many billions of dollars it costs the taxpayers of New York City and State.

I think we have a series of work rules and practices that have developed over many years that are all about how people effectively get paid for not working.

Jay Walder, Former MTA Chairman 2009–2011

Increasing debt and taxpayer subsidies are keeping the MTA afloat

The MTA has more debt than approximately 30 countries

New York City and State taxpayers subsidized over $5.5b in 2015, double the $2.8b in 2004

Exhibit 4: MTA 2015 non-operating revenues / grants (in millions)

In 2015, New York State and NYC gave the MTA subsidies of $4.1b and $1.4b, respectively. By dividing the subsidies by the number of taxpayers in NYS and NYC, each state taxpayer paid a $459 subsidy and each city taxpayer paid a subsidy of $825 (includes state subsidy).

While it might seem fair to pay $2.75 for a ride on the metro, the hidden cost is in your tax bill. In effect, New York City and State residents are subsiding the cost of the subway for tourists and lining the pockets of the MTA union.

The metro system upon a hill

The New York and Hong Kong Metro systems are a stark comparison

Exhibit 5: Comparison of Hong Kong MTR and MTA

Lack of investment in technology is directly attributable to the MTA’s inefficiency

Comparatively, the MTA still runs trains with technology that dates back to the 1930’s. With regards to overnight maintenance, the MTA, in 2016, schedules requests that must originate via fax, requires weeks of meetings, and finally inputs the schedule into a 30+ year old proprietary system.

If MTA management knows what’s wrong, why can’t they fix it?

Correction: Jay Walder is no longer the CEO of the MTR. He was forced to leave at the end of 2014 after announcing a delay and cost increase in a high speed rail project between mainland China and Hong Kong.

Let’s talk solutions

Controlled bankruptcy of the MTA

Implement a public-private partnership (PPP)

A PPP would allow a private company with transit expertise to manage the daily operations of the MTA. Additionally, it would open up the MTA to investment from PE/VC firms that would boost the MTAs productivity and CAPEX spending in exchange for higher returns in the future. By selling a fraction of the MTA, the state and city would immediately receive payment of tens of billions dollars that could be returned to taxpayers.

A significant constraint for the success of a PPP is a major overhaul of the collective bargaining agreement. With the current agreement in place, no firm would want to pay for a stake in a PPP that loses billions of dollars per year due to an inflexible union contract. There would also need to be some government constraints on changes to service. Because the MTA is crucial for poor and undeserved communities stretching from the Bronx to Jamaica, Queens, rules must be put in place that require certain stations to operate even if they are not profitable, which the government could subsidize, albeit at a much lower cost than today.

Increase ancillary sources of revenue

Exhibit 6: MTR advertising examples in conjunction with JCDecaux

Wifi is another potential source of ancillary revenue. Everyone is so attached to their phones and wants to be part of the connected world all the time. Of the nearly five million daily commuters, a significant amount of them would likely be willing to pay a monthly fee to be connected to wifi throughout the metro system, including on the train. If the MTA were to invest in technology improvements throughout the system, adding wifi to trains would be well worth the investment for these future recurring revenues.

How can you make a difference?

If you want change, email this article to your mayor and governor:

Email this article to Mayor De Blasio

Email this article to Governor Cuomo

Failure is not fatal, but failure to change might be. John Wooden, UCLA ten-time championship basketball coach

Johnny Knocke is a former Strategic Initiatives MBA Intern with the MTA’s New York City Transit (NYCT) group and a graduate of Columbia Business School. No confidential information was disclosed in this article.