As New York state leaders in Albany look to reform the tax code, the payroll tax that, in part, funds the MTA will be cut, Gov. Cuomo announced this afternoon. The new plan, which enjoys the support of a bipartisan coalition of lawmakers will see the state directly reimburse the MTA for last payroll tax revenues, but I’m wary of any plan that weakens the MTA’s dedicated revenues.
The payroll tax cuts are part of a larger plan that relieves the tax burden on middle class New Yorkers while targeting the upper classes instead. It’s also designed to spur job creation through infrastructure investment, although the transit part of that picture appears to be missing. For more on the overall package, feel free to browse through the Governor’s press release. The following bit buried at the end of the release though is important:
The Governor and the legislative leaders have agreed to reduce the MTA payroll tax on small businesses while maintaining the necessary funding for the MTA from other sources. The payroll tax would be eliminated or reduced for 294,900 taxpayers overall. The tax would also be eliminated from an additional 415,000 taxpayers by raising the self-employment income exemption. In addition, private elementary and secondary schools, as well as parochial schools, would be exempt from the tax. The State would compensate the MTA for the $250 million in lost revenue.
When the original plans for a payroll tax overhaul were leaked earlier this week, the reimbursements were backwards. The state was going to reimburse tax payers for the monies they had to pay out under the payroll tax, and the MTA would see no loss in revenue from the state. Now, the state will use “other sources” to ensure that the MTA gets its $250 million while the taxpayers won’t need to pony up the dough any longer.
Of course, we know how that story ends. Without a steady stream of money from the payroll tax, the state will suddenly be unable to find the $250 million it owes to the MTA, and legislators will blame the MTA when the authority comes forward with a budget deficit. It’s unclear right now if that $250 million payment would cover just 2012 or would be implemented on an ongoing basis. As it stands now, the MTA’s budget projects long-term deficits with over $1.5 billion in payroll tax revenue. Reducing that figure by $250 million a year would increase the MTA’s deficits as well as the pressure on the public to carry that debt through fare increases, service cuts or both.
Furthermore, this move by the state highlights the need for the lockbox legislation. Not only would it make it more difficult for the state to rearrange MTA finances, but it would require the state to explain what $250 million in loss subsidies would mean for the MTA. Instead that legislation has languished on Cuomo’s desk.
The MTA in a statement was diplomatic: “”We are grateful to the Governor, Majority Leader and Speaker for reaching an agreement that ensures the MTA will continue to receive the level of funding needed to keep New York and its economy moving.” I can’t help but feel pangs of fear that the $250 million will disappear, and the MTA will slip further into the red as time goes by. A healthy MTA can spur the economy just as much as a reorganized tax code. Just ask these guys.
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