Background:

Since its creation in the 1960s, the business model behind the Metropolitan Transportation Authority (MTA) has been insufficient to make it work. Transit systems, like other essential public services, aren’t profitable, nor should they be expected to be. They rely on taxes and other revenue streams to provide mobility, which is a fundamental need in urban life. Can you imagine if you were billed by the police each time they walked past your home, responded to your 911 call, or investigated a crime of which you were the victim? Or if you were charged each time you put trash in a public waste receptacle? These are services that make the city and the region work. Transit is as essential as the other services we rely on.

The MTA has an ongoing, structural problem with its operating budget finances. An outsized reliance on fares and continued reliance on variable and potentially volatile funding sources has been historically unsustainable. The COVID-related loss of ridership has laid bare the problem of quick fixes and kicking the problem down the tracks by political actors since the Authority’s inception. The ridership losses have also pushed the Authority to the brink of a fiscal cliff. One-off cash infusions stave off collapse but the structural problem persists. The region needs a stable MTA. To be stable the MTA needs dedicated, predictable funds. At this point, additional delays will only mean that larger amounts will need to be raised later and the MTA will be forced to start planning for service reductions and layoffs that can and should be avoided. The sooner New York State Legislators and the Governor agree on a new funding package, the better.

The current crisis in NY is a perfect storm of lower revenues due to decreased ridership, climbing expenses due to prior ​“survival” borrowing, and changing conditions in the global and national economies. The infusion from the federal government post-COVID is the only reason transit fares have not skyrocketed, it is the only reason service has not been slashed in recent years. Either outcome could prove crippling to New York City and State.

Though it sounds appealing, there is no ​“once and for all” solution to the MTA’s financial straits. Expenses are dynamic and revenue sources are fluid. The MTA today is funded by a mix of fares, tolls, taxes, and subsidies that need to occasionally be reviewed. Three examples of funding sources illustrate the problem:

The current crisis:

MTA is projecting a $2.6B annual funding gap in the near future. After debt restructuring and operating efficiencies are implemented, they still expect the gap to be $1.2B.

The table below illustrates the 2019 actual and 2023 expected revenue. Currently committed Federal money, $2.9B, will be greatly diminished by 2024 and depleted by 2027 (the last contribution will be small ~$200M in 2026).

While farebox revenue is down, toll revenue and dedicated taxes are higher. State and local subsidies are half what they had been. Meanwhile, debt service is outpacing inflation.

The major difference in the expense category is that debt service as a percentage of tolls and fares was 32% in 2019 and increased to 53% in 2021. It is projected to remain in the range of 48 to 52% through 2026.

Labor costs from 2010 to 2019 rose at twice the rate of other expenses. These costs need to be renegotiated while continuing to ensure a living wage and quality working conditions for MTA employees.

The immediate fix:

New York City and State will have to do more to support the MTA. Fortunately, both the Governor and the New York State legislature are taking the problem seriously and have advanced proposals to stabilize the agency.

The Governor’s proposal includes a modest fare and toll increase; an increase in the payroll mobility tax (PMT); dedication of casino-related license fees and ongoing casino taxes; the transfer of responsibility for paratransit services and student MetroCards to the City; and a one-time infusion of $300M. In addition, the Governor’s budget commits to $400M in annual operating savings.

The Assembly proposal provides $197M from the general fund instead of a fare hike; a business income tax increase from 7.25% to 9.25% on businesses within the MCTD; and agreement with the Governor on the casino fees and taxes. The Assembly opposes transferring costs that the State has borne with respect to student metrocards and paratransit to the City. The Assembly provision of business income tax expires after four years, leaving the MTA, once again, facing large deficits. The proposed cash infusion postpones the need for a fare and toll hike but fails to provide the ongoing, predictable funding the MTA needs.

The Senate proposal also rejects the PMT and the transfer of State responsibility to the City. The Senate agrees on some portion of casino license fees being directed to the MTA but future casino tax streams would be preserved for education. The Senate proposal includes eliminating the Madison Square Garden tax abatement and dedicating those funds to the MTA and also allowing the City to implement a residential parking permit program to raise funds for the MTA.

It is hard to assess and compare the proposals as the Senate and Assembly Bills were released without detailed financial plans.

Generating new funds:

Between Governor Hochul and the two houses of the State Legislature, these ideas for new or increased revenue sources are on the table:

• Increase payroll mobility tax by 0.16 percentage points from .34 to .5

• Increase business income tax by 2 percentage points, devote the portion collected within the MCTD to the MTA

• Rescind the Madison Square Garden tax abatement and commit the proceeds to the MTA

• Create a residential parking permit for NYC and devote the proceeds to the MTA

• Create a new tax on streaming services such as Netflix, Amazon Prime Video, Disney +, Hulu, etc.

PMT and Business Income Tax

The Governor’s proposal to increase the PMT applies a modest charge on a relatively small number of businesses. The current PMT applies to businesses in NYC and seven surrounding counties, the area defined as the metropolitan commuter transportation district (MCTD). All of the counties in the MCTD benefit from services provided by the MTA. In total, fewer than 6% of the region’s businesses are subject to this tax, and even fewer are affected by the Governor’s proposal.

Over 94% of businesses are not touched by the PMT.

Only 4.6% of the region’s businesses are affected by the proposal. About 80% of the increase applies to New York City businesses.

In business-as-usual politics, the media debate has been framed as pitting the suburbs against the city. Here is the truth:

Sixty percent of the businesses affected by the proposed PMT modification are New York City businesses, they contribute 80% of the revenue.

Rockland County businesses make up less than 3% of the businesses affected by the modification. In Orange and Dutchess it is 2% and in Putnam county, only 84 businesses will see any impact from the Governor’s proposal. Westchester County businesses comprise less than 8% of businesses subject to PMT. Finally, Nassau and Suffolk County businesses comprise 12% each.

The increment, less than ⅕ of 1 percent, can also be deducted from federal corporate taxes, so only a portion of it would be realized in any business’s bottom line.

A business with an annual payroll of $2M is subject to the PMT. The Governor’s proposal would require them to contribute an additional $3,200 per year to support the MTA. Depending on their tax bracket that business would pay some amount less than $3,200. The table below illustrates the pre-Federal tax impact:

If the employees earn the State’s median income, the per day, per employee cost of the PMT increase is about 16 cents, if the employees average twice the region’s median income the cost is about 32 cents per employee, per day. That’s right, $0.16 dollars. And if the business pays an average wage of five times the median income, the cost to the company is still below $1 per employee/day. As noted, the PMT is tax deductible. In cases where Federal income tax is not zero, the business would pay less income tax, the amount of the deduction depends on the particular business’s tax bracket. Thus the monetary impact would be less than the amount shown.

Some of the concerns are that the PMT is unfriendly to business. Far worse than paying $1 per day per employee would be to operate with a diminished transit system. That would be devastating to businesses in this region.

While some businesses may feel they do not rely directly on the transit system, there are countless ways that all businesses benefit indirectly and directly from transit including:

• Employees who use transit

• People who come to meetings via transit

• When an employee’s spouse uses transit to commute to their job, and without transit the family might relocate, costing the business that employee

• Without transit, more drivers would be on the road creating more congestion and making it more difficult for existing drivers to reach their destinations

• More drivers on the road contribute more to air pollution and greenhouse gas emissions

• General access to cultural, educational, medical, housing, and other opportunities attracts a superior and diverse labor force to the region

The New York State Senate and Assembly have both rejected an increase in PMT, proposing an increase in business income tax instead. The business income tax would apply to companies with business income greater than $5M. The tax would fall on a smaller number of businesses; it would raise a similar amount of total dollars, but the amount on each business taxed would be greater.

The same concerns about business friendliness apply. One advantage of the PMT is that it may be easier to protect the dedication to transit.

Madison Square Garden (MSG) Tax Abatement

The New York Senate has proposed to rescind the MSG tax abatement which is estimated to be $42M per year. The abatement was meant to be temporary but was written into the law without a sunset date.

Residential Parking Permits in NYC

The Senate has also proposed allowing NYC to implement a residential parking permit system the proceeds of which would accrue to the MTA. Residential parking permits are implemented in many cities but NYC has historically rejected them for excellent reasons. Some of the downsides of residential parking permits include restricting access of non-New Yorkers and New Yorkers alike from the areas where permits are in effect. The details of a permit program are critically important but from a revenue perspective it may be more equitable to create a single zone allowing any permit holder to park within the city, but also ensure, whether by meter or some other mechanism that non-permit holders be able to pay to park as well.

Creating such a program would require cooperation between the City and the State, it would require the City to assign the hypothetical revenue stream to the State.

Casino license fees

Although casino license fees do not create new revenue streams they are important enough to merit a mention. The Governor has proposed that a portion of the license fees and future taxes from three casino licenses that have yet to be assigned be diverted to the MTA. The Assembly has agreed to this idea but the Senate has expressed a preference that those monies be maintained for educational purposes. This source remains highly contentious and speculative.

Conclusion:

In the mess of intra-regional competition, there is a lot of worry about who benefits and who is burdened. The success of this entire region is lifted by employers’ access to the talented labor force. Employees’ access to diverse work opportunities and everyone’s access to cultural, educational, medical, housing, and other opportunities is what draws them to and keeps them in the region. New York City is responsible for an outsized proportion of the NYS GDP.

Transit makes it possible.

This is not a question of pitting suburbs against cities or vice versa. This is a defining crisis for the region. Protecting imagined turf only wins a race to the bottom.