How NYC will pay for the unprecedented repairs to flooded subways

November 02, 2012 11:30AM

As the MTA rushes to drain the corrosive salt water and repair the subway system, the resulting price tag is sure to be astronomical. According to Bloomberg Businessweek, a 2011 study predicted that the levels of flooding experienced as a result of a Hurricane Sandy-like storm would cost approximately $10 billion to undo. But where is that money coming from?

One way the MTA will pay for repairs is through insurance. In 1997 the MTA determined that it would be cheaper to pay premiums to itself than to another company and started its own insurance firm, First Mutual Transportation Assurance. But just because the MTA is self-insured does not mean that is can pay the full costs of the storm-related repairs. The MTA’s insurer covers only the first $25 million of property damage. When a disaster triggers larger losses, First Mutual Transportation Assurance recoups up to $1 billion in losses from reinsurers — basically insurance for insurers, according to Businessweek.

But after $1 billion, what happens? That tab will be picked up by FEMA, which is required to reimburse municipalities for 75 percent of repair costs, but in extreme cases can pay the full cost — which is exactly what Governor Cuomo has asked the federal government to do.

“The cost to restore the complex electrically driven subway and rail transportation systems after total inundation from saltwater flooding will place a tremendous financial burden on New York State,” Governor Cuomo said on during his October 31 request to the federal government.

Yesterday, it was announced that FEMA has agreed to bear the full costs for the first week-and-a-half of the recovery. [Bloomberg]Christopher Cameron