Home MTA EconomicsDoomsday Budget Doomsday avoided with imperfect MTA compromise

Doomsday avoided with imperfect MTA compromise

by Benjamin Kabak

In the eyes of the vast majority of New Yorkers, Gov. David Paterson will emerge as something of a transit savior this week. As the press has noted in detail, he brokered the the deal to save the MTA. He worked out a compromise among Assembly Speaker Sheldon Silver, State Senate Majority Leader Malcolm Smith and the Senate Democrats that guarantees around $2.2 billion a year to the MTA.

It is a plan without bridge tolls and without much in the way of resources for the MTA’s capital needs. It is a plan that includes a payroll tax, a taxi charge and a slew of registration fees. It features a 10-percent fare hike this year and mandated hikes in 2011 and 2013. It also avoids Doomsday, and for that — for the simple act of getting something together months after a March 26 deadline — the politicians will pat themselves on the back.

“This has been very difficult on the commuters of the MTA region,” Paterson said last night. “We can assure them this evening that there will be no surprises, that there will be no further cuts or fears about fare hikes or toll increases. We have resolved that issue this evening.”

If only life were that simple. Anyway, let’s look, courtesy of Gotham Gazette at what we do know. David King writes:

The plan will raise $1.5 billion a year from a payroll tax of 34 cents of every$100 dollars of payroll that will target all employers in the 12 counties that serve the MTA. The state will reimburse school districts for the payroll tax they contribute.

  • $500 million will be raised from a 10 percent increase. Politicians had hoped to limit any fare increase to 8 percent.
  • 85 million will be raised from a fifty-cent surcharge on taxi rides. The fee was reduced from the originally proposed $1.
  • $130 million will be raised from a $25 fee on vehicle registrations in the 12-county MTA region.
  • $35 million will be raised from an increase of the fee on car rentals.
  • $10.5 million will come from an increase on the fee on driver’s licenses.

And thus, as long as the economy doesn’t continue to nose dive, as long as payrolls stay steady, as long as taxi rides stay constant and driver’s licensing and car registration numbers do not dip, the MTA won’t have to worry about that pesky multi-billion-dollar budget gap.

On the fare front, details are still sketchy. We’ll know more once the MTA releases its official figures later this week. William Neuman and Nicholas Confessiore have some preliminary numbers. The base fare will increase from $2.00 to $2.25 and a 30-day unlimited ride MetroCard will cost around $89, up from $81 but a far cry from Doomsday’s $103 price tag. Fares are also set to rise by 7.5 percent in 2011 and 2013 to match cost-of-living increases..

On the capital funding front, Nueuman and Confessiore offer up a few details. They write, “Under the agreement, about $400 million will be set aside each year from the payroll tax proceeds for capital needs. That will pay the cost of borrowing about $6.5 billion through bonds, enough to get a start on the capital plan.”

The problem of course is that final phrase. It’s “enough to get a start on the capital plan,” and it’s enough to set the MTA back on a course of building through borrowing. I guess we should be thankful the capital plan was given any consideration. Earlier this week, as Streetsblog noted on Monday, Paterson had removed capital funding from the rescue plan after a weekend tirade from Sheldon Silver. Facing pressure from transit advocates and editorials from The Post, The Daily News and The Times, the politicians caved.

While the legislature will probably vote later today to approve this funding package, the work of the transit advocates is just beginning. As this debate has shown, New Yorkers are woefully uneducated on transit issues, and politicians aren’t helping the cause. The MTA needed to avoid this Doomsday, but it also needs the other half of the Ravitch Report — long-term capital investments and system-wide improvements. We can’t rest until that day arrives.

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Phil May 6, 2009 - 5:48 am

“400 million will be set aside each year from the payroll tax proceeds for capital needs. That will pay the cost of borrowing about $6.5 billion through bonds, enough to get a start on the capital plan.”

How does that work?

Doug May 6, 2009 - 8:56 am

It’s the same as any other borrowing: you get the cash up front and make interest and principle payments over time. In essence, the MTA gets $6500 million tomorrow from issuing bonds. In this case, let’s say they pay a 6.2% interest rate, or $400 million per year. Good business would say they should get that $400 million as profit from their operations or from their power to tax.

There is an excellent discussion in the Power Broker of how Robert Moses leveraged toll receipts to pay interest and principle on bonds used to fund enormous amounts of highway construction.

Andy May 6, 2009 - 9:01 am

ok but still levering up with another $6500 million?

petey May 6, 2009 - 9:30 am

“let’s say they pay a 6.2% interest rate”

surely less, around 5% or a little above. not being snarky, it looks like you used 6.2 to make the 400mil work, but just sayin’.

Doug May 6, 2009 - 11:39 am

No offense taken; I did exactly that.

Yes, they now have the $6.5 billion to spend on the capital projects today. The actual “leverage” can be defined different ways, and I’m no expert on it, but I would guess you would look at it as a function of the revenue they can actually generate (i.e. how much leeway do they have to pay the interest).

Chris May 6, 2009 - 8:30 am

So, in the end, instead of forcing drivers to pay their fair share for the benefits they receive from an efficient mass transit system, non-drivers will pay more in subway fares, taxi fees, and additional taxes on car rentals.

Imperfect indeed.

John May 6, 2009 - 9:17 am

A year from now, or two years down the line when the MTA is experiencing another budget shortfall or contemplating raising fares will Albany have the fortitude to enact Congestion Pricing and/or toll the East River Bridges?

Fairness May 6, 2009 - 11:02 am

It won’t even be a year from now before the MTA is crying poverty again. It will be within the next 2-4 months.

JAR May 6, 2009 - 9:54 am

Terrible plan! It’s not a rescue, it’s more taxes.
Payroll tax: will be paid by working New Yorkers – not insubstantial. Multiply your income by .0034. Now a NYer earning $49k will, after fare increases essentially, be paying the Doomsday price for a monthly.
Car rental tax: New Yorkers will pay this, too – most tourists don’t rent cars, but plenty of transit-dependent NYers do.
Taxi tax: really hurts taxi drivers, and they don’t have a role in this fight otherwise.
Still no charges for those who drive across free bridges, even during rush hour. I wonder how the revenue of .50 per cab ride compares with charging everyone crossing a free bridge a measly $1 or $2.
And no clear requirements on how MTA will become more efficient.

Mike May 6, 2009 - 10:23 am

This is insane — we pay for two years of capital program with a perpetual payroll tax? So what happens in two years? More bonds?

The whole point of the Ravitch plan was that tolls would bridge the budget gap, and the payroll tax would fund the capital plan, on a one-year-for-one-year sustainable basis. This is the worst of both worlds — we don’t get tolls, and the perpetual payroll tax gets blown in the first two years, leaving us even more screwed in 2011.

DMIJohn May 6, 2009 - 11:38 am

The $400 million to support bonds is better than what the MTA was doing for the past two capital plans, which was issuing bonds without a revenue stream to back them up. Revenue backed bonds are less expensive forms of borrowing.

However, the continued reliance on borrowing is still troublesome. The problem is, its now unclear whether the Ravitch Plan would have been able to stop the MTA’s reliance on borrowing since the budget deficit continued to grow. The Ravitch Plan said that the payroll tax would have provided enough money to pay down the debt and finance future capital plans. If that would have been true, even after the MTA announced that its financial situation was much worse, is unclear.

I’ve heard no mention of whether this new plan included the provision that would have given the state legislature veto power over items in the capital budget. If it does, I foresee some trouble down the line.

DMIJohn May 6, 2009 - 12:41 pm

Looking back to the conversation around congestion pricing, there were estimates that congestion pricing would raise between $400 and $500 million a year. The MTA drew up an accelerated 2008-2013 Capital Plan in response to the possibility of congestion pricing. According to those plans, congestion pricing was supposed to support $4.5 billion in bonds over five years, or approximately $1.7 bonds a year.

Now Albany’s plan is saying that it is going to use $400 million in revenue to back about $3.25 billion in bonds a year ($6.5 billion divided by two years)?

Something doesn’t add up.

Senate approves questionable MTA package :: Second Ave. Sagas | A New York City Subway Blog May 7, 2009 - 2:43 am

[…] acted at the 11th Hour and at the behest of a very unpopular governor. The resulting compromise — discussed in detail here — are far from satisfactory, and while the ink has hardly dried on the approved bill, it is […]

The impact of overturning the payroll tax :: Second Ave. Sagas March 16, 2010 - 12:01 am

[…] the MTA funding package last year with the payroll mobility tax as its centerpiece, I called it an imperfect compromise. It was a plan that, as state comptroller Thomas DiNapoli reported a month after enactment, would […]


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