Home MTA Economics IBO: MTA needs consistent revenue streams

IBO: MTA needs consistent revenue streams

by Benjamin Kabak

With the MTA’s release of its 2012-2015 budget, the analysts came out in full force. While most were skeptical of the various assumptions tenuously supporting the authority’s plans, the city’s Independent Budget Office takes a different approach. The MTA revenues, they say in a report released on Friday, are resting on some highly volatile taxes and fees, and small shifts in the economy and political winds could leave the authority flailing for dollars.

For many transit policy wonks, the IBO report simply reinforces what we already know. By relying so heavily on real estate transfer taxes, an unpopular payroll tax and various other subsidies instead of a relatively steady stream of revenue generated by fares and tolls, the MTA risks financial instability tied to the economy. When, for instance, the real estate market collapses as it did in 2008, the MTA’s own financial outlook plunges.

Take a look at the following chart from the IBO report:

It ostensibly showcases the volatility of fees and taxes as compared with fares and tolls, but it tells another story as well. That story focuses on addition. By adding the payroll tax the previous mix of various fees and taxes that support the MTA, the state was able to push its contributions in line with the 2005-2007 trend line after three years of collecting amounts below normal. As the MTA depends upon these revenue streams to stay afloat, how often can they expect Albany to add more? Based on recent responses, the answer is “not very.”

The IBO’s report is short, but it sheds some light on the appropriations process. It walks through the convoluted ways in which various taxes and fees are collected by the start, siphoned into general funds or specific appropriations buckets and then redistributed to the MTA. Along the way, the state often reappropriates funds for other uses, and that’s how the MTA has seen $260 million in supposedly dedicated revenue vanish at the click of a button.

For a sense of the process, take a look at this table. Click to enlarge.

From the IBO’s perspective, the problems involve volatility. The MTA expects to draw in nearly as much in dedicated taxes and fees as it does from fare revenue. Adding the dollars collected from its tolls alters the balance to an extent, but the agency is still depending upon fees and taxes for over 40 percent of its annual budget. The IBO sees these revenue streams as too volatile and would prefer the MTA rely on fares and tolls — which have a tendency to remain constant over the years.

“While dedicated taxes and fees can hold down upward pressure on fares and tolls, the transportation authority’s growing reliance on these revenue sources does not assure fiscal stability. Some of the authority’s largest dedicated revenue sources are among the most sensitive to the ups and downs of the business cycle and the even more pronounced swings in the market for real estate,” the report says.

So what can the MTA do? The IBO clearly wants to see the authority rely more on fares. “Dedicated revenues do not assure stable funding,” they say over and over again. But the MTA’s current fare policies are the result of legislative bargaining. By agreeing to avoid fare hikes more frequently than every other year, the MTA earned the $1.5 billion in payroll tax revenue. If the payroll tax were to disappear, the MTA would have to institute a steep fare hike, and if they institute a steep fare hike off schedule, they risk incurring the wrath of Albany.

Finally, the 800-pound gorilla in the room concerns spending. The IBO report doesn’t delve into the MTA’s expenses, but they do highlight how in 2003, the authority’s overall revenue hit $6.4 billion while in 2010 it was over $10 billion. Even accounting for inflation, a jump in revenue — and concurrent spending — by nearly 50 percent is alarming. A good chunk of that money is going toward debt service on the never-ending capital plans while others are going toward increased labor expenses. Either way, spending has to be curtailed as well. Just as the MTA’s revenue streams cannot keep increasing ever upwards, neither can its expenses.

Ultimately, the issue circles back to the purposes behind mass transit. If the subways and buses are a public good for everyone, fares cannot be too high, and the MTA must depend upon a steady stream of taxes and fees for support. If, however, Albany is reticent about balancing the taxes and fees, the fares must go up, and public transit starts to become to expensive. The MTA has managed to walk that tight rope without falling, but the latest from the IBO seems to pull the safety net out from underneath the precariously balanced authority.

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Alon Levy August 8, 2011 - 8:50 am

I don’t get why they’re lumping the payroll tax with real estate taxes. The payroll tax is a stable funding source; it’s unpopular, but stable as long as it’s still the law. STIF manages to fund itself adequately from a payroll tax, though the level is much higher than in New York (1.2-1.9%, if I remember correctly). It’s the other sources the MTA uses – real estate revenues, especially – that are extremely cyclical.

Streetsblog New York City » Today’s Headlines August 8, 2011 - 8:58 am

[…] IBO Faults MTA Funding System For Relying on Volatile Taxes (Crain’s, Kabak) […]

JD12 August 8, 2011 - 10:06 am

“Even accounting for inflation, a jump in revenue — and concurrent spending — by nearly 50 percent is alarming.”

According to the various CPI inflation calculators, inflation accounts for a 22 perecnt increase from 2003 to 2011. It would be instructive to see a breakdown of MTA expenses by the IBO or another credible agency that would illustrate where those additional billions have been going. I’m guessing that incresed debt-service payments and ballooning benefits expenses would show up as major culprits.

Jason B. August 9, 2011 - 2:58 pm

The line graph concerns me because it doesn’t show the amount being received from the state in non-dedicated revenue, i.e. out of the general fund. That has severely diminished, no?

Streetsblog New York City » Cutting “Waste and Inefficiency” Won’t Eliminate the MTA’s Budget Problems August 10, 2011 - 3:43 pm

[…] revenue structure [PDF] which has been getting a bit of play. At Second Avenue Sagas, Ben Kabak focused on the report’s main thesis: that the volatility of dedicated taxes and fees threatens the […]


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