April 1, 2007
SENATORS NICKERSON AND MCDONALD
ANNOUNCE REPLACEMENT FOR $1 FARE SURCHARGE

Senator William H. Nickerson (R-Greenwich) and Senator Andrew J. McDonald (D-Stamford) today announced their preliminary plan for replacement of the $1 Metro North rail fare surcharge – see attached plan outline.  This is in response to Governor Jodi Rell’s request that they chair a working group to develop recommendations for the Governor and the legislature as to how to replace the surcharge.

The central problem is that the $1 surcharge represents an unsustainable 12% or higher fare increase every year for 7 years.  This raises $140 million needed toward the purchase of new Metro North rail cars.  The new plan would provide that the state would borrow $20 million every year for 7 years with 20-year bonds and the debt service on the bonds would be covered by increasing rail fares approximately 1% each year for 7 years beginning 2010.

Nickerson/McDonald issued a joint statement saying, “We are very pleased to have found a solution which greatly reduces the amount of the proposed fare increase, while still providing for the financing needed to purchase the new rail cars.  We have scheduled a public hearing at 8:00 PM on Thursday April 5 at the Government Center in Stamford in order to get input from commuters and the public.  While the plan is still in draft form it represents a major step forward in keeping fares as low as possible in order to encourage ridership.”

REPLACEMENT PLAN FOR $1 METRO NORTH SURCHARGE

PROBLEMS

  • TIMING -  The surcharge is scheduled to commence January 1, 2008 but new rail car deliveries will not begin until late 2009, and even in that year car deliveries will be very small.  Commuters should not be asked to pay for new cars until they can sit in them.
  • DISPROPORTIONATE EFFECT – The $1 per ticket surcharge brings about a greatly disproportionate increase in fares as between local intrastate tickets and monthly NYC commuter tickets.  For example, a Fairfield to Stamford one-trip ticket costs $2.25 and the $1 surcharge is a 44% increase, whereas the contemplated $40 surcharge (allowing for 20 round trips) on a Fairfield to New York ticket of $308 is a 13% increase.  The largest percentage increases fall on local intrastate riders, the very market we most want to draw onto  Metro North.

 

  • AGGREGATE FARE INCREASE - The total annual Connecticut Metro North fare box collection is $173 million.  The $140 million proposed surcharge ($20 million annually for 7 years) represents an unsustainable 12% fare increase every year for seven years (excluding intervening operating increases).

SOLUTION

  • Cash flow needs require that all $140 million from the $1 surcharge be replaced.  However, the initial flow of funds is not needed to begin until the year 2010.  Thus the new financing program will begin January 1, 2010, not January 1, 2008. 
  • The DOT will borrow $20 million annually during each year, beginning 2010 through 2016, providing a total of $140 million.

 

  • The debt service cost of borrowing one dollar on a 20 year bond is 9¢ per dollar.  Note that 9¢ is a very conservative number - it could be 8¢ or even as low as 7¢.  This includes both principal and interest repaid on a “level debt” schedule.  The annual debt service cost to borrow $20 million each year will be $1.8 million ($20 million x 9%).
  • Beginning January 1, 2010 all rail fares will be raised by approximately 1% across the board each year for seven years.  The annual increase of approximately 1% on the current $173 million fare box revenue will yield a minimum of $1.73 million (probably more as ridership grows) which is equal to the amount needed to cover each year’s debt service.

 

  • The total fare increase will be an aggregate of 7% total over the 7 year period.  (There will undoubtedly be other fare increases for operating reasons.)

KEYS TO THE PLAN

  • Commuters will pay the entire principal and all of the interest on the $140 million borrowing which will replace the $140 million previously raised by the $1 surcharge.  The proposal does not contemplate any increase in the gross receipts tax or any other tax payable by the general public, nor does this proposal contemplate any fare increase for Shore Line East, though it will benefit by obtaining approximately 12 cars..
  • A 20 year bonding is appropriate as a component of the financing for rail cars which will have a life considerably longer than 20 years.

 

  • The fare increase which commuters will pay will be incurred roughly over the same period that the new cars will be delivered, beginning in 2010.