New York MTA Set to Pay Proposed Wage Increase With Pension Cash

A proposed labor agreement for New York’s Metropolitan Transportation Authority, the largest U.S. transit system, may pit subway and bus workers against commuter-rail employees.

The MTA and TWU Local 100, which represents subway and bus employees, agreed last week on retroactive and future pay increases that would cost the transportation operator $525 million through 2017, according to bond documents.

To cover those costs, the MTA would use money previously earmarked as supplemental deposits for its Long Island Rail Road Plan for Additional Pensions, the documents show. That system had a funding level of 26.8 percent as of Jan. 1, 2012, according to an audited report. An 80 percent ratio is considered optimal for funds to be able to pay future claims.

The supplemental deposits “would have reduced the unfunded liability and future expenses,” of the LIRR pension fund, according to the documents.

The MTA employs 66,000 workers and carries 8.5 million riders daily on subways, buses and commuter railroads in the New York City area. New York Governor Andrew Cuomo last week announced the contract agreement, which would raise wages by 8 percent over five years without fare increases. It needs the approval of union employees and the MTA’s executive board.

Budget Risk

The tentative plan eliminates a key budget risk for the MTA and the additional costs are manageable, Baye Larsen, a Moody’s Investors Service analyst, wrote in an April 23 report. Even without the supplemental payments to the LIRR pension fund, the MTA will still make its required retirement contribution, Larsen wrote.

Rob Zanath, spokesman for the International Association of Sheet Metal, Air, Rail and Transportation Workers, which represents LIRR employees, declined to comment.

If the MTA negotiates other labor contracts with similar wage increases, the transit authority would need to pay an additional $410 million through 2017, according to bond documents. Those expenses would be paid with money currently pegged as voluntary deposits into a trust for future retiree healthcare costs.

The MTA, rated A2, five steps below the top by Moody’s, would also cut $70 million per year beginning in 2015 from capital spending, according to bond documents.

That reduction “would significantly reduce the resources available in the next five-year capital plan,” Larsen wrote.

Adam Lisberg, an MTA spokesman, wouldn’t comment on the possible funding cut to the pension system beyond what Cuomo said in a press conference last week.

“There will be no fare increases due to this contract negotiation and it is in keeping with the MTA’s long-term financial plan,” Cuomo said during the press conference.

To contact the reporter on this story: Michelle Kaske in New York at mkaske@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Mark Tannenbaum, Justin Blum

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