Home MTA Economics Is Cuomo aiming at the MTA’s payroll tax?

Is Cuomo aiming at the MTA’s payroll tax?

by Benjamin Kabak

It’s no small feat to run a transit system without any leeway in the budget, but lately, that’s what the MTA has had to do. It’s suffered through bad spending, a bad economy and bad politicians who have taken dedicated funds away from its coffers, and now, it might suffer through another bout of bad economic times if Gov. Andrew Cuomo and the State Senate has their way.

The news today focuses around an off-hand comment Cuomo made at Marist College yesterday afternoon. While responding to student questions, he levied an indictment of the payroll tax. “It is a very onerous tax, not just in this area,” he said. “People are complaining on Long Island, the entire metropolitan region. I’ve said from the beginning I understand the need to finance the system. If we can find a better way to do it, I’m open.”

For Cuomo, this is a more nuanced approach on the payroll tax than what we heard during his campaign. In late October, Cuomo threatened to reassess the tax, and the MTA had to issue a spirited defense of the dollars. “The payroll tax has proven to be crucially important to the MTA,” MTA spokesman Aaron Donovan said at the time. “Its existence prevented service cuts and fare increases from being even worse, and it is reducing the funding gap in our five-year capital plan.”

In its coverage of Cuomo’s statement, the anti-tax Post tried to spin the news as an obvious sign that the payroll tax is flawed. It rehashed a story from last February about projections coming in under budget and noted how business owners in the suburban counties claim the tax is “counter-productive, because the MTA mostly serves New York City.”

Of course, the reality is a bit more complex. The payroll tax is structured such that 75 percent of the revenue comes from within the five boroughs, and the suburban counties are paying a far smaller share of the total. Furthermore, those outer-lying areas are better off with Metro-North and the Long Island Rail Road, and they can’t reap those benefits without paying for them in return. Somehow, someway, suburban riders and residents will have to pay to enjoy the services.

Furthermore, since the early 2010 projections were reduced by the state budget office, the revenue collected has actually been higher than anticipated. According to the MTA’s most recent budgetwatch publication, the payroll mobility tax totals came in at $1.351.9 billion or around $3.8 million higher than forecasted. As Cuomo noted and as the MTA has said, it will require significant compromises to cut the payroll tax and generate that money elsewhere. Without it, the MTA would be bankrupt.

Meanwhile, in the Daily News yesterday, Gene Russianoff and Paul Steely White issued a spirited defense of the dedicated transit funds. As Gov. Cuomo has yet to issue his budget, we don’t yet know how the state’s budget deficit will impact transit funding. The two advocates though have urged the governor to keep his hands off of dedicated funding:

Not only does raiding a dedicated tax fuel public cynicism, which could hardly be higher than it already is in New York, but it shifts some of the high costs of state government onto the shoulders of transit riders and downstate taxpayers. There is no free lunch. The money Albany takes out of dedicated transit funds will result in higher fares and expensive repairs of a system hurt by deferred maintenance down the line.

More raids will also mean more service cuts. That will create a drag on the economy as employers have a smaller workforce to draw on, and workers have to spend more time getting around.

We don’t need to look at ancient history to prove this. The last series of transit raids, just last June, triggered the worst transit service cuts in memory – axing 36 bus routes, closing 570 bus stops, eliminating all or parts of three subway lines and burdening millions of city riders with longer waits, more crowding and longer trips. Commuter rail riders had trains eliminated and stops added to remaining trains. Paratransit service for individuals with disabilities has been made even less convenient or, in some communities, eliminated completely.

Nobody likes paying taxes. But the wide range of businesses and people who pay dedicated transit taxes generally accept them. That’s because, in one way or another, they get what they pay for. What the public will never and should never support is seeing their transit taxes spent to plug the state’s huge budget gap.

These are tough choices that Cuomo must make, but the future of the MTA, our public transit network and the city’s economy depends upon it. Trade the payroll tax for congestion pricing and bridge tolls, but keep those dedicated funds flowing to their intended recipients. It’s just good government.

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Aaron January 21, 2011 - 2:55 am

It’s times like this that I kind of want to see a vote overall on whether or not the MTA has any role in the suburbs. Lay it out for them in simple fashion – they can either choose to tax themselves fairly to pay for their share of MTA service, or MNR, LIRR and other suburban MTA services can be dismantled; NYC Transit fares would be doubled or more in price, with a 50% discount to City residents and perhaps tourists as well, in the same way that Japan discounts Suica and airport access for visitors; perhaps require proof of residency in a state other than NY, NJ or CT to pay “City” fares. I think it quite possible that the eastern parts of LI would vote themselves out of the MTA, even in the face of those terms, given their special hostility to the Authority.

Of course, given Albany’s culture of denial, the likelihood of it being laid out in the stark fashion that Jerry Brown is doing so in California is rather low. I know that nobody likes their state’s government, that most people only see local and state government when something goes wrong, but as far as governance goes, Albany has to be near the bottom in terms of capacity to admit when the Emperor has no clothes. States like California can fix a substantial amount of their problems through Constitutional revisions to undo prior shortsighted enactments, but I don’t see how you fix Albany.

Chris A January 21, 2011 - 12:02 pm

Let’s deconstruct some items here…

In general, MTA funding comes from the fare box, Bridge/Tunnel tolls, and regional taxes. Suburbanites who live in the affected counties hate the commuter tax when they don’t receive benefits from MNRR & LIRR or NYCT. Can you blame them? Yet, commuters from these counties complain when a NYC commuter tax is imposed to support the cost fo transit they will likely use when in NYC. People expect something for nothing – they don’t see the real costs of the services they use.

There always has been, and always will be a tension between upstate and downstate, where each region will claim the other bleeds the system dry, taking too large a share of state funding. So it is too easy to garner votes from upstate voters to gut NYC’s direct and indirect tax base for short term political gain. Sadly, upstate doesn’t see that NYC is NY State’s golden goose. Kill NYC, and the rest of the state falls apart.

I’ll bet that we end up seeing 100% fare based revenue for NYCT and MTA-MNRR & LIRR in our lifetimes, and someone will finally say – privatize these entities, so they can be managed well. And knowing the political cronies, we’ll see rates jump even higher under bad management beholden to none….

Benjamin Kabak January 21, 2011 - 12:05 pm

Privatization and good management don’t often go hand in hand. Just out the London Underground how that worked out for them.

Bolwerk January 23, 2011 - 11:50 pm

Indeed, privatization comes with serious disadvantages attached. Private companies can’t finance projects as cheaply as public agencies can. And, of course, working in the interest of shareholders doesn’t necessarily mean the customer’s interests (or needs) are met.

I have to wonder what this 100% revenue from fares assumption is based on. It will take serious labor, managerial, administrative, and pension reforms, to say the least.

Alon Levy January 24, 2011 - 3:38 am

On the commuter railroads, I’m fairly confident 100% farebox recovery is achievable given modern operating practices. On the subway, I have no idea; I suspect it’s possible, based on the examples of Tokyo and Seoul, but requires much more sweeping changes.

Justin Samuels January 21, 2011 - 3:28 am

Aaron, if the budget crisis gets bad enough, things change, even in New York and even in Albany. I too wonder if things would be better if New York transit were separate from MNR and the LIRR (and the suburban buses).

Wages may have to go DOWN and the MTA. The automakers, when the auto companies were in danger, got union concessions. The MTA may have to get concessions from the unions.

Alon Levy January 21, 2011 - 5:36 am

In New York wages are not a problem. New York City Transit pays its average employee a few percent more than Toei Metro, including benefits, even though average incomes in New York are much higher than in Tokyo. The major difference is in staffing levels: Toei carries one half the subway traffic as New York City Transit, using about one quarter the train operating hours, but it has around one seventh the workforce.

(Tokyo Metro is even more efficient, but I have no idea what its wages and benefits are. Any Japanese speaker here willing to spend half an hour looking at Japanese-language corporate data on its website will have my kindest appreciation.)

Andrew D. Smith January 21, 2011 - 9:41 am

Just because better run places pay similar amounts doesn’t mean that pay isn’t too high. The test of that is whether you get too many qualified applicants for every opening.

On the other hand, productivity is the more important issue. Total compensation is likely way too high but it certainly isn’t twice what it should be while staffing levels are almost certainly beyond that.

On the third hand, you can at least negotiate pay levels in a pretty straightforward manner. The sort of productivity gains you’re whimsically envisioning would require implausible amounts of time and flexibility — a ten year contract with essentially no designated jobs so mgt was free to constantly experiment and, probably, pay based on productivity.

I can sort of envision a big cut in total compensation — say, 25 percent, mostly gotten by raising retirement age and increasing copays — but I cannot imagine the union ever accepting anything that would halve its membership via productivity improvements.

Alon Levy January 21, 2011 - 5:13 pm

The union wouldn’t accept pay cuts, either. Generally speaking, any reduction in payroll spending will face massive resistance. The difference is that certain forms of layoffs, for example raising the number of operating hours per train driver (Toei has 50% more revenue hours per driver than NYCT), or rationalizing the maintenance procedure, can be framed publicly as issues of technology and progress.

On top of the politics, there’s also good management practice. MTA management is so rotten that the best way to improve is to import good practices from elsewhere – and it’s much easier to find staffing reductions than pay cuts that don’t kill professionalism and morale. I know of some agencies that pay much less than NYCT, for example Singapore’s SMRT and SBS, but only in cities where the average wages are much lower than in New York.

(This, by the way, is just for NYCT. For commuter rail, the potential for service expansion is so great that reducing staffing per service provided can be matched nearly one-to-one with additional off-peak service.)

al January 21, 2011 - 6:10 pm

While getting more productivity from the equipment operators is one way, it must be a part of an overall personnel overhaul. Administrative, managerial, technical, and executive positions need reduction and productivity improvement. If the PA can shed 2000 jobs over the last 10 years, then the MTA can manage some trimming too. The public would be more supportive of a shrinkage that saw execs and white collar workers let go, than one that canned only union workers.

The MTA needs to hold the line on compensation, from top to bottom and across the board. Housing prices have flattened/declined and inflation minimal from late 2008-current, and will be for the foreseeable future. The MTA can push for multi-year pay/hiring freezes or small cuts, and the public is currently inclined to support such methods, rather than having more taxes or fare/toll/fee hikes.

Tsuyoshi January 21, 2011 - 10:30 pm

I tried looking on the Tokyo Metro site, but as best as I can make out (my Japanese is not phenomenal) the expenditures are not broken down by salaries versus anything else. The closest I could find was “?????????????” or “transportation operation and sales expenses” at 255,498 million yen (about $3 billion). Bond payments, depreciation, pension payments, etc. are listed separately from this so I think this is pretty close to salaries (but not benefits – employee housing, commuting reimbursment, pensions, etc. seem to be accounted separately). This is in the 2010 balance of accounts statement. I can’t find any information on the number of employees except on this page that says 8379, but that seems way too low to me… it must be just employees of the holding company or something.

R. Graham January 21, 2011 - 9:05 am

I’ve been a pro-separation for quite some time now. It needs to happen.

Hell this city should be it’s own state, but that will NEVER….I repeat, NEVER EVER happen.

Benjamin Kabak January 21, 2011 - 11:34 am

Here’s the problem with a separation argument though: If control over the NYCTA is returned to the city, the state can easily just stop their funding contributions. The politics and the economics could get really ugly.

R. Graham January 22, 2011 - 1:19 pm

You’re right. If separation were to take place. It has always been my belief that the city would have to walk away with a iron clad legal agreement for funding from the state. No agreement? No city control.

Tsuyoshi January 21, 2011 - 3:41 am

The good thing about the MTA, at least compared to the way things were before, is that bridge tolls help fund transit. The bad thing is that transit in New York City, where most people do not have a car, relies on political support from people outside the city, where most people do have a car.

I think one way you could reform it would be to separate the service area into four subareas: New York City (perhaps minus Riverdale/Northeast Queens/Staten Island), Westchester/Putnam/Dutchess counties, Orange/Rockland counties, and Nassau/Suffolk counties. Then you let each subarea decide on their own what their fares and taxes should be, and allocate toll revenue in proportion to the fare/tax revenue in each subarea.

This would be sort of similar to how Sound Transit in the Seattle area operates (although they have no bridge tolls). It’s separated into 5 subareas, and the tax revenue raised in each subarea is required to be spent in that subarea.

Part of the issue is that people in the suburbs are under the impression that they are subsidizing the city, but it’s probably the opposite. I don’t know what the breakdown would be in tax revenue by county, but I would be surprised if Manhattan wasn’t subsidizing everyone else (like in every other realm), even if you allocated the tax revenue by where someone lives as opposed to where they work. So in practice this would mean more money for the subway and less for commuter rail.

Andrew January 21, 2011 - 6:58 am

What do you do with the services (such as several subway lines) that cross from one subarea to another?

Chris A January 21, 2011 - 12:20 pm

Subway and bus lines that cross areas aren’t much of a problem, as long as you can measure use at the fare box. Commuters paying for a service will pay at both ends, and one can cross match user totals based on the number of people initiating their round trips from a given point…. (The germ of an idea, not yet fleshed out….)

But I am concerned that all the bridges are in NYC, where the users often are Long Islanders who must pass thru NYC to go home or leave home…. Why should they subsidize NYC if they don’t gain much from NYC?

Aaron January 21, 2011 - 3:44 pm

Phoenix does this, and it ends with bizarre and undesirable outcomes – major bus routes stop perhaps 3/4 of a mile from intersecting each other because a city (usually Mesa and occasionally Chandler or Gilbert) refuses to pay for its bus routes, and so plainly obvious transfers aren’t made because of a municipal game of chicken. A similar problem happens in Southeast Los Angeles County, where Long Beach Transit and LA Metro rarely intersect with the nearby-but-not-quite-walking-distance Orange County bus routes due to OCTA parochialism. People who live along the borders of each region suddenly discover that they’re surrounded by transit routes that make no logistical sense.

Alon Levy January 21, 2011 - 5:29 pm

I don’t know how it is on the county level, but on the agency level, the LIRR loses the most money (its farebox recovery is about 26%), whereas Metro-North and New York City Transit both lose less (their farebox recovery is about 40%).

R. Graham January 21, 2011 - 9:02 am

Quite frankly I’m too tired of Westchester and Nassau pretending as if the MTA doesn’t exist for them. If they don’t want to pay the tax then fine.

Lay out the terms. You don’t pay the tax? Then you tell your politicans and people to pay for it. The MTA can approach those counties the same way the MTA approaches Nassau when it comes to their bus services. These services never benefited from the farebox alone. There has always been some sort of political funding, but now it’s time to take some counties to court. And if you don’t pay don’t fume when the matching service cuts follow and then we can increase the fare again at the beginning of 2012 by 6% and at the beginning of 2013 by 13% for LIRR and Metro-North.

Allow the city to continue on with the tax since no one here complains about it as much as the burbs do and the subway fare can stay the same.

al January 21, 2011 - 11:50 pm

“The payroll tax is structured such that 75 percent of the revenue comes from within the five boroughs, and the suburban counties are paying a far smaller share of the total.”

There are close to 5 million residents suburbs within New York State north and east of NYC. NYC has more than 8.5 million residents. 8.4 million pays 75% and 5 million pays 25%. This is skewed in favor of the counties north and east of the 5 Boroughs. NYC is able to function in its present form ONLY with a expansive functional mass transit system. Someone needs to hammer this point again and again in the media.

ajedrez January 21, 2011 - 4:15 pm

Just one question: The payroll tax is on employers only, correct? Not employees.

al January 21, 2011 - 11:53 pm

Sort of; check it out:

“This new tax is imposed on certain employers and self-employed individuals engaging in business within the Metropolitan Commuter Transportation District (MCTD). Specifically, the tax applies to (1) employers required to withhold New York state income tax from employee wages and whose payroll expense exceeds $2,500 in any calendar quarter, and (2) individuals with net earnings from self-employment allocated to the MCTD that exceed $10,000 for the tax year (according to the Department of Taxation and Finance, this includes partners in partnerships and members of a limited liability company (LLC) treated as a partnership).”



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