What Does the New York Train Derailment Mean for MTA?
Dec 2nd 2013 11:18AM
Updated Dec 2nd 2013 11:20AM
The train crash on Dec. 1 in the Bronx in which four people lost their lives and dozens others were injured and traumatized thrust into the spotlight the nation's infrastructure needs. It similarly places the Metropolitan Transportation Authority (MTA), the operator of the train that derailed on the fateful Sunday morning, in the crosshairs of potential blame and rising costs.
While the cause of the New York train crash remains unknown - that is whether it was a mechanical failure or human error - there is no denying the precarious terrain on which the train was traveling.
In addition to this particular turn traversing a dangerously sharp corner, the track is one of several different sets of tracks that converge, and this has been known to cause confusion and delays in the past. Yesterday's wreck also isn't the first accident to occur at this spot in recent months, and it is a grim reminder of the capital that's needed to bring the country's infrastructure up to date.
The U.S. is expected to fall short of the $3.6 trillion infrastructure investment needed by 2020 by $1.6 trillion, according to the American Society of Civil Engineers. That translates into a grade of "D minus" assigned to the state of U.S. infrastructure by the trade organization.
If the MTA were to receive a grade for its future, it too would probably be a disappointment.
The largest transit company in the U.S. transports 8.5 million passengers via its subways, buses, and trains every day, and this month is scheduled to vote on a proposed budget of $13.7 billion for 2014.
The MTA is expected to close out 2013 with $141 million in cash but will be met with $240 million in deficits for the 2014-2016 period. It has been investing millions of dollars in restoring services that were suspended in 2010.
Increased service will drive greater revenue, but the MTA is also combating rising costs tied to pensions, health care, and servicing its debt, and there is not any immediate relief in sight. Those expenses were set to rise by 7% each year through 2017, according to Bloomberg ... before Sunday's train derailment.
The transit agency already saw its insurance premiums rise in 2012 as a result of its transportation infrastructure that was ruined in the wake of Hurricane Sandy. Now, with the most recent train derailment, those costs are likely to rise again.
Insurance and lawsuits
In July, Montreal, Maine & Atlantic Railway was operating the train behind a fatal train wreck in Quebec, one in which dozens of people lost their lives. Chicago-based, privately held parent company Rail World suffered damage both to its reputation and bottom line as a result, and is now in bankruptcy protection.
As Rail World sorts through its bankruptcy, numerous wrongful death lawsuits have been filed against the holding company and in at least a dozen of those cases the plaintiffs are seeking damages of no less than $1 million each. The company is in the process of liquidating its assets and was recently allowed a $3 million loan to pay expenses in the meantime.
For its part, the MTA invested $200 million in catastrophic bonds this year after Hurricane Sandy's wrath caused $4.7 billion in damages last year. The MTA became more of a liability in light of its vulnerability and ran into some headwinds and higher prices when renewing its property insurance earlier this year. The cat-bond will insure the transit agency against Mother Nature, but it may take more than clever debt financing for it to overcome the infrastructure deficit the U.S. faces, not to mention any internal shortcomings that need to be fixed to prevent another accident like the one that occurred in The Bronx.
"The MTA is not the greatest organization. It's all about the money. It's 'save money first and safety second,'" said William Herbert, relative of one of the survivors and former MTA employee cited in the Daily News.
It will be interesting to see how MTA balances those needs in light of yesterday's tragedy.
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