More Bad News for Transit Funding: Payroll Tax Comes Up Lame Again

The MTA’s budget picture took another turn for the worse today. The payroll tax instituted as part of last year’s funding package continues to raise far less revenue than expected. Which means that even if the extensive service cuts on the table take effect, the MTA will still have to deal with a $400 million deficit in 2010.

What’s more, the MTA noted in a statement today that the payroll tax shortfall is probably a fact of life. The agency now projects revenue from the tax to come up $200 million short of what was predicted each year after 2010. In other words, the payroll tax just doesn’t raise the money it was supposed to. And even that wasn’t enough to shore up the MTA’s finances in the first place.

The MTA must maintain a balanced budget, which leaves two options: increasing revenues or decreasing costs. The Daily News floats the possibility of fare hikes on top of next year’s planned 7.5 percent increase, while noting that those fighting to overturn service cuts — including the phasing out of student MetroCards — now have a steeper hill to climb.

The current round of service cuts is painful enough. With transit funding absorbing body blows every few weeks, how long will riders have to wait before New York’s elected leaders put more options on the table?

In yesterday’s Huffington Post, John Petro of the Drum Major Institute laid out the stakes, arguing that congestion pricing "is the only option left to Albany and City Hall." Without it, Petro writes, "the cycle of short-term fix followed by financial crisis will continue, and there won’t be much mass transit system to save anymore."

  • Niccolo Machiavelli

    Call Lew Fidler.

  • Shemp
  • Larry Littlefield

    I’m sure Fidler would be willing to raise taxes, as long as senior citizens (because retirement income is not taxable), public employees (because that’s the one case where contracts prevent the “employer” payroll tax from being shifted to the employee in lower wages) and the rich (with capital earnings) don’t have to pay.

    In the the end, people will end up working at second jobs off the books to get by, even as the public services and senior benefits those who came before received disappear. Argentina.

  • JK

    That pending MTA bond sale is to raise operating cash? Yes?

  • Ian Turner

    JK, the MTA is prohibited by law from borrowing to fund operating expenses, but can get around this by classifying some work as capital expense even though it’s really just regular maintenance. For example, painting stations and replacing broken switches are classified as capital expense and funded with debt, even though they’re really just a normal ongoing cost.

    Does that answer your question?

  • Larry Littlefield

    “the MTA is prohibited by law from borrowing to fund operating expenses, but can get around this by classifying some work as capital expense even though it’s really just regular maintenance.”

    Can and has to the tune of $billions of dollars, ever since the start of the Pataki Administration. I would argue that much of what the MTA has done for the past 20 years isn’t really capital — just the ongoing replacement required to keep the system from falling apart.

    More than that, however, they charge everything they can to the capital program. A train that passed through a mid-day work area arrives late, and the train operator and conductor get overtime? Charge the capital program! Borrowed money is less green! (Trying to fight this kind of thing off is much of what I did in my second tour at NYCT).

  • JK

    Thanks Ian, I was aware of both the legal prohibition and the “capital maintenance” scheme Larry mentioned. Let me try again. How does the MTA actually keep its money? Are capital and operating funds truly kept separate, or are there ways of moving money around internally to maintain cash flow? Per this, could (or has) the situation arisen in which the MTA has run out of money for payroll while still paying contractors to build big capital projects or vice versa?

  • Ian Turner

    JK, I think the MTA is pretty careful to keep the accounts separate. Their statements are externally audited and the agency is generally under a lot of scrutiny.

    That said, there is certainly some fungibility. For example, the MTA can choose to contribute less money to its capital campaign in order to save enough for operations, the end result being more debt and (temporarily) sustained operations.

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