Transit Surplus Announced, Along With Plan to Spend It - New York Times

Subject: Transit Surplus Announced, Along With Plan to Spend It
Date: 7/27/2005 11:18:02 PM Eastern Daylight Time
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July 28, 2005


Transit Surplus Announced, Along With Plan to Spend It
By SEWELL CHAN and CHARLES V. BAGLI

Buoyed by an unexpected surge in tax revenue, the Metropolitan Transportation Authority announced yesterday that it would have a surplus of $833 million this year and that it would consider using the money to create a giant platform over its West Side railyards, which it could then sell to developers for office and apartment towers.

Despite the surplus, the authority indicated that it still planned to raise fares and tolls in 2007 and 2009.

The windfall represents a remarkable - but probably short-lived - reversal of fortunes for the authority, which in February had projected a tiny surplus for the year and large deficits starting next year. It now predicts that a combination of soaring tax revenue and low interest rates will add $493 million, all of it not previously anticipated, to its coffers by December.

The authority also agreed to negotiate with the developer Forest City Ratner on its plans for a basketball arena and apartment buildings at another railyard it owns in Downtown Brooklyn. (Related Article)

After months at the center of one of the city's most contentious land-use disputes in decades, the authority conceded yesterday that its earlier plan to sell the West Side railyard rights to the Jets to build a stadium was, for practical purposes, dead.

Now, instead of looking for a developer with the resources and confidence to invest an estimated $350 million and nearly three years to build the platform, the authority is looking to do the job itself. Doing so would attract more bidders for the property and, presumably, a higher price.

But that could be a controversial strategy in an election year. The City Council speaker, Gifford Miller, who is running for mayor, called on the authority to use the surplus to avert or reduce the projected fare increases. "The M.T.A. should put first things first: making the trains run on time, not building a new headquarters," he said.

The authority's executive director, Katherine N. Lapp, said that with a platform over the train yards, control of the 13-acre site could be sold to a developer for $1 billion or more. The money would finance construction and renovation projects in the authority's subway, bus and commuter railroad networks.

"There are a confluence of circumstances that I would argue exist once in a lifetime," Ms. Lapp said, comparing the proposal to the development of Rockefeller Center in the 1930's and Lincoln Center in the 1960's. "It's creative. It's bold."

Under the plan, the authority would also build a new headquarters building on the platform, allowing it to vacate and then sell its current headquarters in three buildings on Madison Avenue. The site, between 44th and 45th Streets, sits in the city's premier office district.

Ms. Lapp also presented a more fiscally conservative alternative to the real estate proposal: Using $481 million - the $493 million in unexpected surplus, minus $12 million for security and service improvements - to pay down part of a $2.2 billion unfunded pension liability that accrued over decades. That plan would save $38 million in annual pension-plan contributions.

The development proposal is riskier, but it could be a lucrative move, and it appears to be entirely within the authority's powers. Experts said it would not require legislative approval. Ms. Lapp said the authority would work closely with the city to determine the best uses for the site, which is in a neighborhood of brick warehouses, tenements and factories that was recently rezoned to allow for larger buildings.

Most of the $833 million projected surplus can be attributed to two sources. The authority expects to collect $365 million more than it predicted in February from taxes on mortgage recordings and on the transfer of commercial properties. It also has identified $128 million in unexpected savings on debt service, because interest rates have remained low. The rest of the surplus comes from a combination of new state revenues, restated financial results and other accounting adjustments.

Neither phenomenon is expected to last, and the authority projects that its revenue from taxes and subsidies will be largely flat through 2009. "These transactional taxes are extremely unstable," said the city's budget director, Mark Page, who sits on the board. "These things historically are always cyclical. It is extremely hard to predict when the cycle is going to turn down on you."

The authority expects a deficit of $194 million in 2007, rising steeply to $1.5 billion in 2009 without planned fare increases and budget cuts.

The city has committed $2 billion to extend the No. 7 subway line from Times Square to 11th Avenue and 34th Street, across the street from the railyards and at one end of the Jacob K. Javits Convention Center. In building a new headquarters, the authority could use its power to override local zoning laws and avoid the city's lengthy review process.

News of the surplus and of the authority's proposals appeared to take city officials by surprise. Mayor Michael R. Bloomberg was circumspect about the windfall.

"Nobody is going to build anything on the West Side without the city being part of it," he said. "Nobody's sure yet what will go over there."

Another mayoral candidate, Fernando Ferrer, asked, "Why is the M.T.A. sitting on piles of money while New York City subways remain vulnerable to terrorist attack and in need of basic repair?"

In 2003, the authority raised the cost of a base ride to $2 from $1.50, and this year, it raised the price of unlimited-ride fare cards. Asked if any part of the surplus should be used to avoid future fare increases, the authority's chairman, Peter S. Kalikow, was noncommittal. "There are 25 things we're talking about, that possibly being one of them," he said, referring to the proposal. "The plan is just for information."

A longtime advocate for subway riders, Gene Russianoff of the New York Public Interest Research Group, seemed positive about the idea, saying it was "worth debating."

Robert D. Yaro, the president of the Regional Plan Association, a major civic organization, said he expected a vigorous debate on the proposals. "Whether or not the M.T.A. is going to become a quasi-developer is a very important issue," he said. "There is a visceral sense that we want their time and energy focused on running a transit system, not developing real property - but if that's the only way to maximize the value of their assets, it's something we should look at."

A small part of this year's surplus, $12 million, will be used for immediate improvements in service and security, in a reflection of recent concerns about subway delays and the possibility of a terrorist attack.

The authority announced that it would spend $2 million this year to begin an "intensive cleaning initiative" for subway stations, tracks and equipment; to add morning and early afternoon service on the Long Island Rail Road and late-night service on the Metro-North Railroad, and to improve rail and bus connections for Staten Island commuters.

The authority also plans to add $10 million this year in security spending. The money will pay for police overtime, a public awareness campaign and more platform conductors, who are trained to evacuate riders onto the tracks in an emergency.

Jim Rutenberg contributed reporting for this article.