MTA Economics

While most of the country had its eyes trained on the Supreme Court down in D.C. on Wednesday, New York’s Appellate Division in the Second Department issued an opinion that should pique the interests of transit advocates throughout the region. Ten months after a Long Island Supreme Court justice ruled that the MTA Payroll Mobility Tax was unconstitutional, an Appellate Division judge has overturned that ruling, guaranteeing that the MTA can continue to collect nearly $1.4 billion annually. While the ruling was expected to be a favorable one for transit, those fighting for the tax can breath a sigh of relief.

In a statement issued on Wednesday, the MTA called its transit network “the backbone of the region’s economy” and thanked the judges for the ruling. “Removal of the tax’s revenues would have had a catastrophic impact on the region’s 8.5 million daily transit riders,” the MTA said. On the other hand, Edward Mangano, the Nassau County Executive who brought the case, bemoaned the ruling. “We maintain the tax is overburdensome and just plain unfair,” he said.

As to Mangano’s second point, the Appellate Division disagreed. When Justice Bruce Cozzens issued his original ruling last year, he claimed that the Payroll Mobility Tax — and, by extension, state schemes to fund the MTA — did not serve a legitimate state function and did “not bear a reasonable relationship to a substantial State concern.” It takes only a class in basic municipal economics and not law to know how laughable Cozzens’ line of argument was, and the Appellate Division quickly dismissed it.

Citing precedent that found rapid transit in New York City to be a substantial state concern and previous cases that involving Nassau County that upheld regional funding plans because they “transcended the concerns of Nassau County alone and affected a sizable portion of the State as a whole,” the Appellate Division reversed Cozzens. They four-judge panel wrote:

Here, the Sponsor’s Memo for the MTA Employer Tax Law noted that continued investment in mass transit provides direct benefits to mass transit users and to the regional and state economies. Chapter 25 of the 2009 Session Laws enacting the bill announced that “[m]ass transportation services in the [MCTD] are essential to meeting the basic mobility and economic needs of the citizens of the [MCTD], the state and the region.” The 2008 report of the Commission on Metropolitan Transportation Authority Financing also observed that the benefits of the MTA’s capital program boost economic activity across the State and could create jobs in New York City and in “communities as far away as Buffalo, Albany, and Plattsburg[h].”

Thus, the MTA Employer Tax Law, which provides a funding source for the preservation, operation, and improvement of essential transit and transportation services in the MCTD, serves a substantial State concern. As such, it was not unconstitutionally passed without a home rule message. Absent constitutional inhibition, the Legislature has “nearly unconstrained authority in the design of taxing impositions.” The plaintiffs’ arguments that the MTA Employer Tax Law violates article III, § 20 of the New York Constitution, article X, § 5 of the New York Constitution, and the equal protection clause of the New York Constitution lack merit.”

In Albany, efforts to repeal or pare down the payroll tax will continue, but that’s the right approach. A legislative response is now required, and the payroll tax, imperfect but necessary, lives on as a permissible, constitutional exercise of legislative power that clearly serves a substantial state interest.

Toward the end of March, with a general increase in state tax revenue and a slightly rosier financial picture emerging, the MTA revealed a surplus of $40 million that would make its way into the perennially strained budget. Since then, everyone and their mothers has tried to lay claim to these dollars, but the MTA is playing coy. The agency hasn’t determined how to spend or who gets it, and the race is on for the big bucks.

The money itself comes from Andrew Cuomo’s budget. Despite the obvious lessons of Superstorm Sandy, our car-lovin’ governor hasn’t quite seen the transit light yet. Rather, as the overall state economy picks up, there are more dollars to go around, and the MTA will get to benefit. That said, when Cuomo announced the new funding, he called upon the MTA to better serve as the “circulatory system” for the region’s economy. How best to accomplish that is the latest debate.

The loudest calls have been for more service. Over the weekend, the Riders Alliance (of which I’m a board member) held a rally with various MTA Board Members and local politicians urging the agency to reinvest in long lost services. Restoring lost buses, reducing off-peak subway headways and expanding the CityTicket were all on the agenda. “Any budget surplus should and must go toward restoring and improving the transit services on which our city relies — especially in the wake of yet another fare increase,” State Senator Daniel Squadron said.

Others echoed this call. “The MTA must realize that now more than ever the loss of service continues to impact our community and the MTA must do everything it can to restore and expand service for riders who all depend on it,” Assembly representative Nily Rozic, a rising star from Eastern Queens, said.

At various MTA Board and Committee meetings this week, Board members, especially those from Staten Island, argued to use the money to restore services lost in the 2010 cuts. Increasing bus service would be a big help to the city, and reducing subway headways is seemingly a no-brainer. The MTA though remained non-committal, and others have called for the money.

On the labor front, TWU President John Samuelsen has called upon the MTA to use the money to up his union members’ wages. At the Board meeting yesterday, Tom Prendergast, future Chairman and CEO, discussed using the dollars to steep avoid a 2015 fare hike. No one, meanwhile, has mentioned applying the money to the MTA’s crushing debt load and paying off some loans ahead of schedule. In a sane fiscal world, that’s likely the wisest solution and the one that would help the MTA and its riders most in the long run.

But we live in the here and now, and New Yorkers, still adjusting to the new MetroCard prices, want more bang for their bucks. Service should be increased, and the $40 million could go a long way. “I’ve asked the staff of all the agencies to look at service proposals in terms of either restoration of services or enhancement of new services,” Prendergast said yesterday. In July, the MTA must release its annual budget, and we’ll know then how we all will enjoy the fruits of an additional $40 million in spoils. My money is on increased service, and that’s OK.

While overseeing an annual budget of $13 billion and employments rolls in the tens of thousands, the MTA CEO and Chairman earns $350,000 a year and a housing bonus, but by many accounts — particularly that of the TWU — that compensation is far more than he deserves. Even though a mid-six-figure salary sounds good, there’s an argument to ebe made that New York State is under-compensating the MTA head, and that’s just what Josh Barro put forth on Bloomberg News yesterday.

As Barro argues, we as a society should be willing to pay top government officials far more than we do, in part in order to entice them to stick around and in part in order to entice them to do a good job. As he notes, in the private realm, someone tasked with leading a $13 billion organization would be compensated much better than the MTA head is, and as we saw with Jay Walder, when the right opportunity — notably at triple the salary — comes around, jumping ship is on the table. As Barro argues of recent MTA departures:

Unlike presidents and governors, it’s hard to say that MTA executives are compensated in prestige: As Lhota’s poll numbers make clear, the public generally doesn’t know who runs the MTA, and if they do, they’re predisposed to think he’s doing a bad job. So Walder left for a job that … pays more and Lhota to seek one that would bring greater non-monetary benefits…

Voters expect a lot from top public officials. We want them to be talented managers who run the government well. We want them to stay in their jobs long enough to see projects to completion. We want them not to be corrupt. And we want them to work for a lot less than they could make elsewhere. Dropping the last goal would make it easier to achieve the first three, which is a reason to give Prendergast a big raise.

Over the last few years, we’ve tried to figure out how to get transit executives to stay in place for longer than a year or two. Absent employment restrictions in contracts — which aren’t legally permissible — a higher salary may be the only way to go. It’s a tough argument for the public to swallow, but how else can we retain top talent anyway?