NJ Transit’s fiscal crisis has dominated news headlines for the last year and has become a fixture of budget negotiations in the Garden State. It’s worth reviewing how we got to this point, and detailing some solutions to NJ Transit’s budget woes.
How We Got Here
NJ Transit is the biggest statewide public-transit system in the United States, but unlike most large transit systems around the country, it does not have a dedicated, consistent source of operating funding. Instead, its funding is cobbled together from passenger fares, Federal COVID-19 relief funds, state sources like the NJ Turnpike Authority, and budget diversions, including transfers from its capital fund to cover operating expenses. With Federal support diminishing, NJ Transit is staring down an approximately $100 million gap for FY 2025 and $1 billion for FY 2026.
To cover the FY 2025 gap, the agency is increasing fares. A 15% fare hike starting in July 2024 followed by 3% annual increases each year thereafter was approved in April 2024. The fare hikes are projected to yield around $120 million, which would cover the nearterm gap, but is nowhere near enough to address NJ Transit’s projected $1 billion fiscal cliff in FY 2026. At a time when we should be encouraging more people to take public transit, RPA and the Fund NJ Transit Coalition have cautioned that a double-digit fare increase was punitive and shortsighted. It doesn’t fix NJ Transit’s budget issues. It simply discourages riders who have a choice and creates a heavy burden for riders who are dependent on the service. Despite our Coalition’s advocacy efforts, on April 10th, 2024, the NJ Transit Board of Directors approved the fare hike, the removal of FlexPass, and the creation of a 30-day expiration for tickets.
In response to pressure from riders and advocates, Governor Phil Murphy proposed a Corporate Transit Fee (CTF) of 2.5% on businesses with over $10 million in profit in his February 2024 budget address. The CTF is anticipated to bring in $800 million annually and tax only the 600 largest corporations by profit in NJ. But business groups and some legislators have pushed back against it, and there is no guarantee that the CTF will make it through budget negotiations. Meanwhile, NJ Transit is facing more cuts: consultant North Highland was retained to do a restructuring analysis that identifies $300 million in cuts for FY 2025 and $300 million for FY 2026.
How Can We Fund NJ Transit
There are many options available to fund NJ Transit. Some are currently being debated within New Jersey, several have been enacted by other states, and others are more theoretical. They include but aren’t limited to the following:
Broad-Based
Corporate Transit Fee: Governor Phil Murphy proposed a 2.5% tax on businesses with over $10 million in profit, which is anticipated to bring in $800 million annually and impact only 600 businesses. While significant, it’s been flagged as a potentially volatile tax.
Payroll Tax: Another way to engage with businesses is through a payroll tax. New York State implemented a Metropolitan Commuter Transportation Mobility Tax on employers acting within a designated transportation district, with proceeds going to the MTA. A similar payroll tax could be implemented in New Jersey on businesses around major transit corridors.
General Sales Tax: Other transit agencies, like Dallas Area Rapid Transit (DART), receive funds from a local sales tax. Moving NJ’s sales tax from 6.625% back to 7% and allocating that portion to NJ Transit would yield about $600 million. However, a sales tax is regressive for low-income families. In this case, though, households making below $79,000 would only pay an additional $0.62 - $1.65/week, or $32-$86/year in sales tax to fund NJ Transit.
Mansion Tax: In 2020, New York State introduced a mansion tax on both residential and commercial properties to fund capital improvement projects at the MTA. It is calculated at 1% of the purchase price for each $1 million in price, with a sliding scale for more expensive properties. New Jersey could enact a similar measure and dedicate the funds to cover NJ Transit’s operating expenses.
State Operating Assistance Fund (STOA): New York State has a dedicated STOA that is a repository for operations funds. This allows funds to be pooled and then transferred to the MTA, instead of relying on a direct appropriation from the state legislature. This is theoretically a way to protect funds from being raided, versus trying to constitutionally dedicate each funding source, which NJ currently relies on.
Car-Specific
Vehicles clog up roads and contribute significantly to our state’s carbon emissions. Below are a few recurring sources of funding for NJ Transit based on new or increased fees levied on vehicles:
Heavy Truck Fees: A $0.03 “diesel differential” on the motor fuels tax used to be dedicated to the Transportation Trust Fund, as recently as 2001. This used to bring in $25-30 million dollars between 1986-2001, and could be revived.
Ride Hail Fees: Charging a surcharge per ride, akin to New York’s improvement surcharge, MTA surcharge, and NYS congestion surcharge, could be a potentially significant source of revenue. The NYS congestion surcharge, not to be confused with congestion pricing, has brought over a $1 billion to the MTA in New York since its 2019 implementation. Approximately 6 billion rides nationally are conducted with Uber, which makes up two-thirds of the rideshare market, with Lyft making up the remaining third. Without specific ride numbers from these entities for New Jersey, however, it is difficult to calculate the exact benefit to NJ Transit.
Fuel-Inefficient Vehicle Surcharge: Adding an emissions fee on new passenger vehicles purchased or leased that have a fuel efficiency rating of less than 25 miles per gallon could bring in funds and incentivize residents to purchase more fuel-efficient vehicles or to take transit.
Good Driver Surcharge: During the early 1990s, New Jersey collected surcharges on all motor vehicle registrations. These were dedicated to the Transportation Trust Fund in 1995, but the Authority stopped receiving these funds in 2001. These fees still exist and could be rededicated to NJ Transit.
Sales Tax on Vehicles, Including Electric Vehicles (EVs): A more targeted sales tax allocation could be the allocation of sales taxes from vehicle purchases to NJ Transit. Approximately half a million new and used cars are sold annually in New Jersey, and sales tax revenue from dealerships generates about $1.7 billion per year. EVs in NJ have not been subject to NJ’s 6.625% sales tax, though Governor Murphy has recently proposed rolling back the sales tax exemption. Transferring the new sales tax from EVs to NJ Transit could net approximately $70 million a year. While EVs and public transit are both important for reducing carbon emissions, public transit can more drastically reduce vehicle miles traveled and carbon emissions. NJ Transit recently shared figures suggesting that the agency reduces 1.5 billion miles in vehicle travel every year and 3.9 million metric tons of carbon dioxide. Allocating just a portion of the sales tax revenue generated from vehicle sales, including EVs once the sales tax is reimposed, could generate upwards of $100 million a year.
Tire Tax: NJ currently charges a Motor Vehicle Tire Fee of $1.50 per tire. Doubling this to $3 and sending the proceeds to NJ Transit could potentially bring in an additional $15 million a year, assuming New Jersey’s approximately 3 million registered vehicles have about 11.2 million tires, and that tires are replaced every 5 years.
Land and Land Value Capture
Review and Develop Existing Land Assets: NJ Transit could arrange for an independent audit and review of its real estate assets and create an inter-agency panel to steward development efforts, prioritizing by projected income based on station traffic and location, and partner with municipalities, developers, and other entities to create mixed-use commercial properties near train stations. A good example of NJ Transit developing on agency-owned land is the Metropark development in Woodbridge, NJ. Where necessary, NJ Transit can sell underutilized assets to local municipalities or the private sector.
Land Value Return: Land value return involves the sale of land whose value has been enhanced by infrastructure investment. This has been used internationally by countries such as China, which has used this mechanism heavily in its redevelopment efforts. On a major project, the state or local government would transfer the land surrounding the highway or station to a P3 development corporation. The corporation then borrows against the land as collateral, finances asset construction, then repays debt and obtains profit by selling or leasing land whose value has been enhanced by the new or improved asset.
Transportation Utility Fee (TUF): This is a form of land value capture that considers the transportation system like a utility. Residents (owners/renters) and commercial entities within a certain proximity to a NJ Transit train station or park and ride would pay monthly fees predicated on the use of the system, based on estimated trip generation rates for different land uses. Entities in close proximity to high-volume stations would have a higher monthly fee than less frequented suburban and rural park and rides. TUFs are recommended by the U.S. DOT and were first implemented in Oregon in the 1980s. They have been used in smaller cities in states across the country, including Colorado, Florida, Idaho, Missouri, Texas, Utah, and Washington. Some caveats are that they are generally enacted at the municipal level rather than state level and are usually used for roadway maintenance. Exemptions can also be given to households below a certain income level.
Federal
Looking to the federal government for a sustainable solution for NJ Transit’s operating expenses is very unlikely. Below are current initiatives being proposed but face steep political hurdles.
Increasing the Federal Subsidy for Public Transit: The Biden administration’s FY 2025 budget proposes using highway funds (including unobligated balances) transferred to the FTA in FY 2025 for operating assistance. Given the current contentious nature of Congress, the path for this to be included in the final FY 2025 budget is unclear.
Stronger Communities through Better Transit Act: Introduced in the House of Representatives by Congressman Hank Johnson (D-GA) in January 2024, H.R. 7039 would have U.S. DOT create a grant program to give $20 billion a year for four years for operating expenses for public transit. While the bill has many co-sponsors, it unfortunately hasn’t moved.
We Need a Plan
NJ Transit is incredibly important to the state’s and the region’s economy, environment, and quality of life, especially as we work to reduce congestion and curb carbon emissions. We implore Governor Murphy and the legislature to be bold and consider the many options at hand to fund NJ Transit.
