Home Asides Ratings agencies warn of MTA Payroll Tax ruling fallout

Ratings agencies warn of MTA Payroll Tax ruling fallout

by Benjamin Kabak

S&P’s and Moody’s warned Monday that fallout from the ruling that overturned the Payroll Mobility Tax could have a negative impact on the MTA’s bond ratings if the decision is upheld by a higher court. Moody’s issued a so-called credit-negative yesterday while S&P’s statement warned of a “weakened” financial position for the authority “absent added support from the state, fare increases, or service cuts to offset the loss of revenue.”

A Moody’s analyst warned against reading too much into the statement, for now. “It doesn’t mean there is a ratings change,” David Jacobson said to Transportation Nation. “What we are saying is that the court case, could — key word ‘could’ — have a negative impact, but it is not enough to warrant a change in the rating or the outlook.” However, if these agencies decide to lower the MTA’s rating, the costs of borrowing will increase, and that is a spike the MTA can ill afford right now.

Meanwhile, as the MTA continues its offensive against the controversial ruling, Joe Lhota sat down last week with Transportation Nation reporter Alex Goldmark to review the authority’s finances. According to the Chairman, the MTA more heavily subsidizes commuter rail trips over the subway. The MTA spends $7 to each LIRR ride, $4 per Metro-North rider and $1 per subway rider. Of course, with far more subway riders than anything else, the $1 quickly adds up, but it’s more expensive to provide that commuter rail service on a per-rider basis than it is to keep the subways going. Just some food for thought.

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19 comments

Roxie August 29, 2012 - 10:10 am

Hand control of service outside of NYC to the greedy suburban governments, then run the trains within NYC as “subways” (in the sense of service rather than of physical placement) and don’t let the suburban trains into city limits. Let NICE and Bee-Line eat the cost of shuttles to/from suburban stations and inner-city stations.

It’s a flawed idea, and it’s the most unlikely idea ever, but hey, a girl can dream, right?

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Larry Littlefield August 29, 2012 - 10:23 am

And 87 percent of the payroll tax revenues are collected in the city. Now the city businesses that pay them do so to gain access to workers and customers from outside as well as inside the city, but still.

1) Turn bus and paratransit services over to NYC and the counties. NYC could keep the free transfer, but the fare would count as a subway fare, since the subway is expected to cover its costs.

2) Eliminate direct state subsidies for suburban bus services within the MTA region. Use that money for the MTA capital plan instead.

3) Allow NYC and the suburban counties to keep the payroll tax revenues for their bus and paratransit systems, if they want. NYC would also save the subsidy to the MTA for MTA Bus. If the counties don’t want bus services, or don’t have them, fine.

4) Require the LIRR and MetroNorth to cover the same share of their costs as the subway. If they don’t, shut them down for a few years until new, less costly arrangements can be made.

5) Direct state municipal aid to NYC has been eliminated. Eliminate it as well for any municipality that has a higher median household/income and/or lower poverty rate than NYC.

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Bolwerk August 29, 2012 - 10:40 am

Nice to see Lhota trying to fight this nonsense, but is there anymore information about where the payroll tax is coming from? The conventional wisdom that the payroll tax is a tax on suburban businesses to subsidize the city’s transport always seemed flawed – evidenced by the fact that right-wingers keep repeating it as Gospel – but there is little hard data.

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Alex C August 29, 2012 - 1:25 pm

The most important thing the MTA can do is present all the data to the people. New York City needs to know how much Nassau is demanding to rob the city of. If the MTA can present its case (and it has the facts on its side), it can get enough people to fight for it.

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Eric F August 29, 2012 - 11:45 am

Is there any level of taxation in support of the MTA that would be deemed excessive? A 2% payroll tax? 20%?

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Larry Littlefield August 29, 2012 - 11:53 am

The MTA would have plenty of taxes, were it not for past debts and retirement obligations.

Basically, the costs run up by Generation Greed will make every public service seem like a ripoff.

Look at the public schools. Crain’s NY Business reports that per student school spending in NYC increaed 54 percent from 2002 to the present in real dollars (inflation adjusted), due mostly to a near doubling in per child spending by NYC taxpayers.

But there are fewer teachers, and the starting pay for NYC teachers has fallen relative to inflation. And pensions have been cut for new teachers. The reason? All the money is to pay for the retroactive pension enhancements of 1995, 2000, 2008, etc. for those cashing in and moving out.

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Bolwerk August 29, 2012 - 12:47 pm

Do you even have any objective basis for knowing when something is “excessive”? The payroll tops out at somewhere around 34¢/$100, which means typical proceeds somewhere south of 3.4. There is no discussion of a 2% or 20% payroll tax, presumably because the budget has for now been more or less balanced with that 0.0034% rate.

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Alex C August 29, 2012 - 1:24 pm

He’s brought that up before. I don’t think facts and numbers are getting through to him.

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LLQBTT August 29, 2012 - 1:40 pm

The way I’m reading it is that there’s plenty of tax revenue to operate the system, HOWEVER because of past unfunded obligations, i.e. debt, then future revenue never realized, that there’s insufficient funding for BOTH.

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Eric F August 29, 2012 - 1:50 pm

The tax is 0.34% of total payroll expense. Again, we tax cigarettes to discourage use, we tax car usage to reduce usage, what do you think a payroll tax’s incentive effects are?

No one is talking about a 2% payroll tax. For now. Rent control was a temporary expedient to solve wartime housing shortage, the NYC income tax was a temporary measure to address a fiscal crisis, extended and raised through additional temporary add-ons that continue in perpetuity. This is no different, and because it’s a tax hidden to employees it’s very easy to raise when the MTA comes screaming again because there are fewer employers than employees when it comes to counting votes.

Eric F August 29, 2012 - 1:53 pm

I was just wondering if someone would lay down a marker as to what level of payroll tax he/she would deem excessive. It sounds like there are no takers, and the ratchet tightens…

Bolwerk August 29, 2012 - 2:46 pm

The marker is: don’t raise more than necessary.

Personally, I think the payroll tax is entirely stupid. At most, part of it could have been a last resort after East River bridge tolls or a congestion charge failed to collect enough. But apparently those were even less politically tenable, probably because entitled drivers can outvote the management class and business owners.

Bolwerk August 29, 2012 - 2:20 pm

Those taxes all go toward paying for the costs of those activities. That drivers maybe directly pay 50% of the costs of their own driving ought to tell you how well “we tax car usage to reduce usage” is going. The government pays people to drive. Cigarettes have obvious public health implications. Even the payroll tax is rationally related to transport, since much (probably most) of the point of public transportation is getting people to their jobs – something people won’t have much incentive to do if they’re completely unable.

And you’re also blaming the wrong people. The MTA may not have the smartest work rules or the best staffing policies, but it didn’t legislate pension enhancements or NYS’s decades of borrowing. Most of the blame there lies in the legislature.

Eric F August 29, 2012 - 3:49 pm

Ah yes, the drivers are subsidized. It’s a funny subsidy where they pay gas taxes for transit and tolls for transit, and yet there’s no train ticket surcharge that pays for my Camaro. I even had to buy the fuzzy dice without getting the government to pitch in.

Larry Littlefield August 29, 2012 - 6:05 pm

Only federal and state highways are paid for by gas taxes, and they are a small share of the pavement. Local streets are funded by local taxes that everyone pays.

Bolwerk August 29, 2012 - 9:51 pm

You can’t possibly be this dense. Just because a few short stretches of bridge see some cash flow diverted to transit doesn’t mean other roadways aren’t seeing much, much bigger diversions in their favor. Is that so hard to conceptualize?

It apparently confused you, but I already showed you how gas taxes and user fees don’t even cover 50% of the highway system’s (not the entire road system’s, which would make this look worse) spending needs. Ya think it might be connected to the fact that NYC pays twelve figures ($xx,xxx,xxx,xxx) more in taxes than it receives back in spending?

Alon Levy August 31, 2012 - 8:32 am

In the Paris area, the payroll tax supporting the transit system is 1-1.7%, if memory serves. But this is instead of various MTA real estate taxes.

I’m conflicted about which approach is better. It’s better for the economy to have cyclical taxes, and real estate and income taxes yield windfall revenues in good times (when the budget needs to be in surplus) and crash in bad times (when budget deficits may be required to stimulate the economy). But this is truer on the federal level than on the local level, where unless you can sell bonds or make sure your budget is exactly balanced over each business cycle you need to raise taxes or cut spending when receipts crash.

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Bolwerk August 31, 2012 - 10:24 am

People imagine taxes have a much bigger effect on the economy than they do. A cursory look at hiring numbers in our region doesn’t seem to suggest the payroll tax had a meaningful impact. Given the real estate market, real estate transfer taxes probably aren’t having an impact either. But we do know not raising that revenue somehow might eat into hiring and economic activity.

Meanwhile, the MTA definitely should favor steadier income streams. The effect (for the MTA) of keeping debt service payments down probably is a bit more important than whatever negligible effect incrementally more MTA borrowing can have on the local economy – an effect that might be (at least damn near) zero vs. just keeping a steady income stream, in fact, because the economic benefit to borrowing more to pay for operations pretty much equals the economic benefit of paying upfront with a stable income stream.

(Of course, borrowing for capital projects makes sense for obvious reasons.)

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LLQBTT August 29, 2012 - 1:33 pm

We’ve got at least 10 more years of this suburbs first non-sense because Gov. Cuomo failed in 1 of his key campaign pledges to stop the way pols re-district themselves to retain power (and thus keep the power in the ‘burbs).

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