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Alternatives to Transit Fare Increases And Service Cuts

by Bruce Schaller, Nov 16, 2004
 The Metropolitan Transportation Authority’s hearings on possible transit fare and bridge and tunnel toll increases and service cutbacks may sound like a repeat of hearings that led to the previous fare increase, in May 2003. The MTA’s proposals in both years were designed to grapple with yawning budget shortfalls. In both years transit advocacy groups, various elected officials and straphangers paraded through the hearings in protest of the Metropolitan Transportation Authority’s proposals.

This year’s drama does indeed replay some scenes from previous years and not only with the visible public hearings. As with previous years, outside officials (this year most notably Mayor Michael Bloomberg and State Comptroller Allen Hevesi) have called on the transportation authority to trim a supposedly bloated bureaucracy. As with previous years, Governor George Pataki has made only a few public comments, his latest comment being that the agency should look for “innovative ways” to solve its financial woes. As with previous years, the extent of proposed fare increases have been scaled back. And as with previous years, the severity of proposed service cuts may also be reduced.

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But this year’s drama is by no means a revival run of a well-worn script. Burned by charges of misrepresenting its financial conditions two years ago, this year the agency released financial projections in July instead of later in the year. Even the harshest critics seem to accept the figures.

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This year, the Metropolitan Transportation Authority’s top leadership is loudly proclaiming the need for additional funding to cover both day-in, day-out operating expenses and the capital program that covers rebuilding, maintaining and expanding transit system infrastructure. This is in sharp contrast to the authority’s approach in 2000, when it patched together funding for the 2000-04 capital program by restructuring its existing debt and issuing additional bonds. Critics at the time correctly predicted that the explosion of debt would badly hurt MTA finances down the road.

Another difference from previous years is that the transportation authority is running out of options. Many observers believe that the MTA has truly maxed out its credit card and cannot further postpone the day of reckoning. If the agency were to again borrow its way out of its financial hole, fare increases in excess of 10 percent a year would be needed to pay debt service, according to the Independent Budget Office. This scenario almost too scary to imagine.

It seems unlikely that infusions of city or state aid will be sufficient to meet the agency’s needs. Both levels of government have drastically reduced their funding to transit over the past decade and both have their own budget gaps to close.

In sum, prospects for additional city and state subsidies are dim. There is a strong consensus that draconian service cuts and rapidly rising fares are not viable options. The only potentially viable solution to the agency’s fiscal woes is an infusion of new money.

Two respected organizations have begun a discussion about possible new, dedicated revenue sources. The Independent Budget Office released a report, “Running on Empty,” detailing the MTA’s budget situation and discussing revenue options. Similarly, the Regional Plan Association, a respected civic group, released an assessment of “Financing Options for the MTA Capital Program.” (The full reports are available through the Transportation Topic Page’s Links In The News)

Some of the options are familiar:

  • Tolling the East River Bridges, perhaps in combination with an increase in MTA bridge and tunnel tolls, and/or use of a peak-period pricing scheme.
  • Re-instituting the commuter tax
These proposals could raise anywhere from $250 million to $730 million a year. But East River bridge tolls have been vociferously opposed by Brooklyn and Queens residents. The commuter tax, abolished in 1999, is vehemently opposed by suburban residents and their elected officials. As Andy Newman reported in a Times article, both options are now dismissed by Mayor Bloomberg (who would be blamed for them, no matter who got the revenue) as “impossible to enact.”

The Regional Plan Association discusses other tax increases that apply to automobiles or auto travel. These include increasing taxes and fees paid with vehicle registration and driver licensing fees. Three different variants of vehicle and driver fees would each raise between $235 million and $290 million, according to the association.

This group also suggests increasing the gas tax by 10 cents a gallon, generating $300 million in revenue annually.

RPA’s most intriguing option is a “mobility fee” applied to wages of all employees in New York City and the New York suburbs. It estimates that a one percent tax on wages excluding the first $50,000 per year earned would raise $820 million a year. This figure is over twice the revenue from the old commuter tax.

A “mobility fee” would recognize that transit funding is vital to all residents of the New York area, whether they use cars, trains, buses, bikes or simply stay home – and thus should be paid through a broad-based tax. A “mobility fee” that applies to income over a certain level (e.g., $50,000) would also be progressive, and even consistent with many New Yorkers’ opposition to the Bush Administration tax cuts that favored the wealthy.

Will the State Legislature adopt any of these options? The legislature in the past has dedicated some sales and corporate income tax revenue to the Metropolitan Transportation Authority. The MTA also receives revenue from dedicated taxes on petroleum, real property transfers and mortgage recording. Whether another tax increase can be hammered out this year will depend on how loudly the debt time bomb is ticking, and whether someone comes up with a new way to postpone finding a long-term solution.

Bruce Schaller is head of Schaller Consulting, which provides research and analysis about transportation, and is also a Visiting Scholar at the Center for Transportation Policy and Management at New York University. 




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