Wall Street Profits From NYC's Subway Debt


Marching two abreast, blowing high-pitched whistles and chanting militant slogans, they sliced through the crowd of protesters on Friday afternoon. The representatives of ‘Local 100’, from the Transport Workers Union, provided contrast to the rather ragged disorganised mass of activity that has played out in Zuccotti Park over the previous two weeks.

The union had pledged its support for the Occupy Wall Street protests the night before. A week earlier, 700 airline pilots also made an appearance, prompting social commentators and the politically interested to ask, "Could this really be the beginning of a new social movement?"

If American political scientist Charles Tilly were alive he’d be asking whether we’re seeing true displays of WUNC — worthiness, unity, numbers and commitment? Or will it peter out and die like many a "movement" before it?

This week will be pivotal for the Wall Street protesters. A rally is organised for Wednesday and its numbers will determine whether the occupiers’ rather conceptual demands of social justice and an end to corporate greed can gain real widespread recognition.

With the union backing though, what started with a couple of dozen students sitting in a park talking about the ravages of capitalism is slowly gaining traction nationally and overseas. That the union has joined ranks also indicates how touched so many facets of American society are by this "corporate greed". It is just one example of the anger many feel towards the financial sector and their governments.

"The New York City Transit Authority has been in debt to Wall Street for 50 years with no hope of repayment," said Kevin Harrington, acting Vice President of Local 100. "Wall Street has hurt the transit system with their usurious loans, and a good portion of the Transit Authority’s budget is paying back the interest on these loans without even attacking the principal."

The protests resonate with the 65,000-member union at an especially difficult time in its vocal history. The union’s current contract expires on 15 January, and members are steeling for a tough showdown with the deeply indebted Metropolitan Transportation Authority (MTA). The MTA’s budget for 2012 included no wage hikes, and any delay in renewing the contract postpones future raises.

The MTA is currently proposing the largest borrowing program in the authority’s history — $14.8 billion over a five-year period to fund its capital projects. Borrowing would account for 60 per cent of the total funding. If this plan goes ahead, debt service alone would reach $3.3 billion by 2018, a 64 per cent rise on 2011, according to a prediction by State Comptroller Thomas DiNapoli. It would constitute 22.7 per cent of total revenue.

In addition to paying interest to bondholders, the MTA must pay fees to the bankers who package and sell the bonds, amounting to between $2.50 and $5 on every $1000 of debt, according to MTA spokesperson Aaron Donovan. Financial institutions underwriting the bonds include Barclays, Goldman Sachs, BofA, Merriill Lynch, J.P Morgan, Jeffreys and Co, Jackson, Morgan Stanley and Wells Fargo.

Over the last two years, the MTA’s underwriters earned $734,952,813 in fees by issuing bonds. The institutions don’t divulge how they split the fees between themselves, and some make additional fees from arranging interest rate swaps and other products for the MTA. But internal documents obtained by the New York Times last year revealed that Goldman Sachs secured $28.8 million in fees from the MTA between 2000 and 2008.

Last month New York State Comptroller Thomas DiNapoli released an analysis of the MTA’s financial outlook, and it’s not pretty. According to DiNapoli, the MTA is about to embark on an unprecedented journey into deeper debt and budget gaps. "The MTA finds itself in a difficult situation," he writes, "for it needs to complete the expansion projects it has already undertaken and it must also invest in the current transit system to ensure its safety and reliability".

Debt payments are the authority’s heftiest cost behind labour, which sits at $8 billion annually. Its borrowing has grown steadily since 1982, when the MTA first issued bonds, totaling $350 million, to rebuild New York City’s then decrepit subway. MTA borrowing has grown as the share of government contributions to its budget has fallen: between 1989 and 1991, $15.4 billion, 26 per cent of funds capital plans came from the city and state, while 32 per cent came from the federal government. Today the city and state contribute about 9 per cent of the MTA’s capital budget. Refinancing of MTA debt in 2000, in a deal Governor George Pataki arranged with Bear Stearns, stretched payments out to the year 2032, at a cost of $1 billion a year.

It’s in this environment that the TWU has decided to take up its megaphone and question just how much money Wall Street is making from the MTA’s debt.

"Their money has to come from someplace," mused Kevin Harrington, "and it comes from the subways, and the buses, and ultimately out of the pockets of the people of New York."

Time will tell whether Kevin Harrington’s dissatisfaction and despair with Wall Street and the US government is reflected throughout the rest of America, and whether that dissatisfaction is enough to drive a real movement of change.

Don’t forget where the Tea Party started. 

This article was written by Alice Brennan and Alexander Hotz at The New York World, an accountability journalism project covering city and state government, based at the Columbia University Graduate School of Journalism.

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