OP-ED: New York MTA threat to terminate contracts comes with financial risks

Sept. 25, 2020
Most bus, subway and many commuter rail car procurements are funded by FTA grants with the FTA Region 2 Office accepting Toll Credits, instead of hard cash, to meet the legal 20 percent local share requirement for grant approval.

New York Metropolitan Transportation Authority (MTA) Chairman Pat Foye continues to remind me of the little boy who cried wolf when he recently notified a number of vendors that he may be forced to cancel existing and not award future contracts.

This is based upon the MTA not obtaining an additional $12 billion in emergency federal funding. Most bus, subway and many commuter rail car procurements are funded by Federal Transit Administration (FTA) grants. The FTA Region 2 Office (serving New York and New Jersey) has accepted Toll Credits instead of hard cash to meet the legal 20 percent local share requirement for grant approval. This has been in place for decades. As a result, FTA funded MTA bus, subway and commuter rail car procurements are 100 percent federally funded. There is no cost savings to the MTA if they cancel or delay any FTA funded subway, bus or rail fleet procurements. The MTA never identifies which bus, subway and commuter rail car procurements are FTA grant funded that they would consider canceling.

The current MTA $51 billion 2020 - 2024 Five Year Capital Plan correctly assumes more than $7 billion in annual FTA formula funding. The MTA hopes for another $3 billion under a competitive New Starts Full Funding Grant Agreement (FFGA) to help pay for the $6.9 billion Second Avenue Subway Phase 2. It is the height of arrogance for the MTA to believe the FTA could approve both a second $12 billion emergency bailout and $3 billion Second Avenue Subway Phase 2 FFGA in 2020. There is no guarantee that FTA will commit up to $3 billion for Second Avenue Subway Phase 2 any time soon. 

Like all transit agencies, the MTA can not legally award a contract unless secure funding is already in place. Bus, subway and rail car builders, prior to COVID-19, already had a backlog of orders. They range from pre-production to production to delivery going back years. Suppliers or subcontractors are in a similar situation. As a result of COVID-19, both manufacturers and suppliers may have fallen behind schedule several months due to staff shortages.

There is currently plenty of work already in place to keep the transit industry busy for years to come. Let the MTA produce documentation that bus, subway and rail car manufacturers and suppliers will face significant financial losses resulting in their future demise if they have to cancel or reduce the number of new MTA contract awards. Seeing is believing. If the vendor is in the process of building a bus, subway or commuter rail car, they will not agree to cancel the contract unless the MTA pays liquidated damages. Has the MTA performed a financial risk assessment to determine what the total potential value of liquidated damages could be if they elect to terminate previously awarded contracts? What would be the legal costs to MTA in addition to liquidated damages to vendors? There are FTA legal grant requirements for the grantee to guarantee that the asset goes into transit service. Would the MTA want to be on the hook to the FTA for reimbursement of assets that never went into transit service? Has the MTA performed a financial risk assessment to determine what FTA might ask for, as well?

Why isn't the MTA open and transparent by listing all bus, subway and rail car procurements currently underway? Identify the cost and funding source. It could be either an approved FTA grant, pending FTA grant currently under review by the FTA, future FTA grant or local funding from previous or current Capital Programs. There are more than $8 billion worth of carryover MTA contracts from the 2010 - 2014 and 2015 - 2019 Capital Programs. Those funds are supposedly in place. Why would the MTA include these contracts for projects that are several years late?

The real goal behind the scene is that MTA Chairman Foye and company continue to take the position "my way or the highway." They refuse to acknowledge that the $51 billion 2020 - 2024 Five Year Capital Plan was never real due to overly optimistic funding assumptions. No wonder bonding companies continue to downgrade their rating. In reality, the MTA on paper has $59 billion worth of work to do between 2020 and 2024. If the MTA Capital Program was reduced by $12 billion to offset costs and revenue losses related to COVID-19 from $51 to $39 billion, there will be $7 billion more than the previous largest record $32 billion 2015 - 2019 Five Year Capital Plan. This doesn't include $8 billion more in carryover work. This would not mean the end of our transit industry or gutting the MTA Capital Program, including canceling existing or not awarding new contracts as threatened.

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Larry Penner is a transportation advocate, historian and writer who previously worked for the Federal Transit Administration Region 2 New York Office. This included the development, review, approval and oversight for billions in capital projects and programs for the MTA, NYC Transit, Long Island Rail Road, Metro-North Railroad, MTA Bus, NYC DOT, NJ Transit, along with 30 other transit agencies in New York and New Jersey. 

About the Author

Larry Penner

Larry Penner is a transportation advocate, historian and writer who previously served as a former director for the Federal Transit Administration Region 2 New York Office of Operations and Program Management. This included the development, review, approval and oversight for billions in capital projects and programs for New Jersey Transit, New York Metropolitan Transportation Authority, NYC Transit bus, subway and Staten Island Railway, Long Island and Metro North railroads, MTA Bus, NYCDOT Staten Island Ferry along with 30 other transit agencies in New York and New Jersey.

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