New York Building Congress Report

Funding Could Threaten Infrastructure Expansion Plans for New York City

by Natalie Keith

A lack of funding sources and coordination between government agencies could threaten New York City's plans to expand and improve its infrastructure, according to a New York Building Congress report.

The report, called "The Capital Question: Financing New York City's Future Infrastructure," was issued in May. It details, for the first time, the city's total public infrastructure spending, which was $15 billion in 2002.

Funding for projects came from a variety of agencies, including $6.3 billion from New York City, $5.7 billion from the Metropolitan Transportation Authority, more than $1 billion from the Port Authority of New York and New Jersey, more than $1 billion from New York State agencies and $600 million from the federal government, according to the report.

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The report noted, however, that agencies are relying too heavily on borrowing to finance projects. In 2002, the city, state, MTA and Port Authority combined for $125 billion in outstanding debt, a number that is projected to increase in future capital budgets.

"There is an obvious role and rationale for debt in the financing of long-lived assets," said Frank Sciame, Building Congress chairman. "But there are real constraints, including the ultimate constraint - the ability to pay while continuing to fund ongoing general budget obligations."

The report was prepared by Carol O'Cleireacain, an economist and former New York City budget director, as a consultant to the Building Congress. It is based on her September 2003 annotated study, "Public Capital Spending in New York City, A Discussion Paper for the New York Building Congress." The city's spending on capital projects in fiscal year 2002 was followed by $5.7 billion in spending in fiscal year 2003. In the coming years, the city is expected to spend about $5 billion annually. New York City covers 95 percent of it capital budget by borrowing. The city's outstanding debt is currently $60 billion and is projected to grow to $71.5 billion by the end of fiscal year 2007, the report states.

The MTA has increasingly turned to debt - backed by fares, fees, tolls and/or promised aid - as state and city contributions have dwindled. According to the state comptroller, the state's contribution to MTA capital programs has declined from 18 percent in the MTA's first two capital programs, to 7 percent in the 1995-1999 program, to zero now.

The MTA's current $18.9 billion capital program for 2000-2004 is financed about two-thirds from debt and one-quarter from the federal government.

"To meet the needs of a growing economy, the city and various entities the work within it will have to look beyond traditional debt financing," said Richard Anderson, Building Congress president. "Without new dedicated funding sources, we have little chance of realizing some critical infrastructure plans, especially in the areas of mass transit and education."

The report outlines several measures to reduce the city's reliance on debt. They are:

• Introducing tolls at the East River and Harlem River Bridges. This would yield $700 million annually, according to the city's Independent Budget Office. Tolls would eliminate the cost of maintaining the bridges from the city's budget.
  
• Charging a per-head residential building garbage fee. This could take the city's Department of Sanitation's $1 billion operation, plus the annual debt service for capital improvements, out of the city's budget.
  
• Establishing public-private partnerships, especially in the areas of lease financing and combined-use facilities. This could stretch the New York City School Construction Authority's budget.
  
• Ensuring fair and adequate federal transportation aid to New York. A major push is needed to make sure New York is not short-changed in the transportation bill currently under debate by Congress.

The report also contains recommendations for improving the coordination between the various public agencies that fund and oversee infrastructure projects. The report proposes that the city's infrastructure agenda should be handled by the mayor. Other recommendations are:

• The mayor should be able to create a forum to produce a plan in which capital spending agencies in the city are coordinated and represented.
  
• The mayor should assign responsibility for achieving the capital agenda to a deputy mayor for infrastructure.

"There are a lot of players operating on the city's turf," O'Cleireacain said. "Each entity affects the shape of the city's public infrastructure, yet also has its own priorities and appears to act fairly independently of the others."