Gov’s Proposed NYC Tax Hike: A Testament to Your Local Pols, New Yorkers

So it’s come to this. With transit revenues plummeting to the point where the MTA has to deal with a $400 million shortfall on top of an austerity plan that already calls for deep cuts in service, Governor Paterson yesterday proposed shifting the burden of the MTA payroll tax to fall heavily on New York City businesses. The idea is to tax city payrolls at .54 percent and suburban payrolls at .17 percent, skewing the flat .34 percent rate established last spring.

fidler_kruger.jpgPerhaps the "Mobility Tax" should be renamed in honor of Lew Fidler and Carl Kruger.

The proposal would raise $230 million for transit — enough to avoid some damage but not enough to stave off the service cuts that have been announced or restore funding for student MetroCards. It would also come at a heavy price, discouraging businesses from hiring while unemployment remains stubbornly high. If the choice is between horrific service cuts and a 60 percent increase in the local payroll tax, then the New York City economy is between a rock and a hard place.

Despite the fact that the MTA’s commuter rail lines, which keep
suburban roads from turning into parking lots, are already more heavily
subsidized than the subway
, we are poised to enact a policy that will
lessen the burden on the suburbs and hit the core of the region’s
economy the hardest.

Are bridge tolls or congestion pricing an option right now? The window to prevent this particular transit catastrophe by putting a price on wasteful driving probably isn’t open any longer — the revenue stream couldn’t start flowing fast enough to balance the MTA’s books. And the fact is, the same State Senate crew who killed bridge tolls last spring is still in power, and we’re nine months closer to election day.

So think of the New York City payroll tax hike, if it comes to pass, as a testament to the obstinacy of Carl Kruger, Pedro Espada, Ruben Diaz, Sr., and the disgraced Hiram Monserrate — as well as their GOP counterparts like Marty Golden and Andrew Lanza who sat idly by and did nothing to help the Ravitch plan last year.

Nine months after these NYC-based State Senators killed bridge tolls and
nearly two years after members of the city’s Assembly delegation
stopped congestion pricing in its tracks, we now face the distinct possibility that NYC businesses will end up shouldering more than three times the
payroll tax rate as suburban businesses. Think back to all the city politicians you’ve heard float make-believe proposals
about reinstating the commuter tax or making only non-NYC motorists pay
bridge tolls. This new tax on New York City — on their constituents — is their handiwork too.

  • Howard K.

    Everyone who discusses the MTA’s crisis seems to miss an issue I think is crucial: the pay and benefits of the employees that are severely taxing the system.

    Go to http://www.seethroughny.net, and you can check out the MTA’s payrolls. You’ll see that a median employee made about $66,000 for the 2009 fiscal year – note that that was before the recent contract arbitration decision, which included pay raises across the board as well as back restitution for pay raises that were deemed withheld.

    How is it that in an economy where people can’t even find work, we are paying some city bus drivers upwards of $25 an hour (seethroughny shows this) in addition to their astronomically good benefits package (ask anyone in the private sector about their health care and pension – many don’t have them anymore!)

    The bottom line is that the TWU is starting to price its members out of jobs… the more they demand pay raises in these bad times, the more services will get cut and the last work there will be.

    Why not get rid of them all and hire tens of thousands of out-of-work New Yorkers to take their place at the same salary but without all the crazy benefits?

  • Boris

    The Fare Hike Four, et al, are now officially Job Killers. Where is the media blitz?

  • Anon

    Yes, MTA workers are relatively well-treated compared to other blue collar or clerical workers. But meanwhile there are many, many people in NYC and its suburbs who make multiple times that $25 an hour. Just try to live in a “decent” neighborhood or town while making less than that amount.

  • Larry Littlefield

    “Why not get rid of them all and hire tens of thousands of out-of-work New Yorkers to take their place at the same salary but without all the crazy benefits?”

    You fail to note that transit workers in the suburbs are paid far more than TWU workers, as are teachers and police officers — one reason NYC’s state aid is being cut more. We could close more of the gap by having TWU members take jobs on the LIRR.

    It is also the case that the best paid NYC local government workers were long ago permitted to move to the suburbs — by state law. A large share of them live there. Less well paid employees of the City of New York recently followed.

    Governemnt employment and payroll account for a far larger share of total employment in payroll in the suburbs than in the city. So the state legislators are not about to allow the MTA to “hire tens of thousands of out-of-work New Yorkers to take their place at the same salary but without all the crazy benefits.” Or hire New Yorkers at all. Among younger generations, New Yorkers tend not to get any benefits at all.

  • J:Lai

    Howard K, I don’t anyone is missing that issue. It is the proverbial elephant in the room.
    The MTA needs 2 things, if it is to avoid catastrophic cutbacks and deterioration.
    These are additional dedicated revenues sources, and reduced overhead costs.

    The costs side has come to be dominated by the labor costs, but no state politician is going to go head to head against the TWU. It would be almost guaranteed political suicide, and there is a good chance it would not do much to control costs as the TWU has shown their willingness to strike over far less than the types of cuts needed today.

    The only real hope I can see to control labor costs is to force the MTA into bankruptcy/restructuring. This would allow the agency to pay less than the full value of all the pension and other benefits that it is now funding, and to negotiate an entirely new contract with labor. This is the “nuclear option”, but I don’t see any other way for it to happen. Maybe that is the secret game plan in the legislature.

    Regarding revenue, I thought this mobility tax was a bad idea when it first came out, and even worse now that it is tiered to tax the city more heavily than the suburbs. A tax that increases the marginal cost of employing people will raise some revenue, and result in fewer jobs at the margin. Compare that with a tax on driving or road usage, such as some kind of bridge toll or congestion charge, which would raise some revenue and result in fewer or shorter car trips at the margin.
    Skewing the tax so that businesses within the city pay a higher rate than the surrounding counties just adds another layer of distortion with lots of poential for unintended consequences.

    I agree with Bloomberg on this one: bad economics.

  • Tubulus

    One thing you’re forgetting is that many of the people who benefit from the excess subsidy on commuter lines (ie those who commute into the city from the suburbs and vice versa) are also going to have to pay the increased payroll tax (or their employer will- same thing).

  • JK

    You’re missing the big picture if you think TWU comp is the big problem. The big problem is that NY has the most expensive (by far) Medicaid and among the highest K-12 spending in the nation. Education and Medicaid costs have crowded out state support for transit, and for infrastructure of any kind. The pols aren’t afraid of the TWU, they’re afraid of WFP, UFT, 1199 and GNYHA— the teachers, hospitals and hospital workers. If the pols were afraid of the TWU they wouldn’t have started defunding the MTA decades ago.

  • Larry Littlefield

    Well that’s true Tubulus, and it sound like a justification for eliminating all MTA taxes outside NYC. Except that most of the MTA payroll lives there.

    How about cutting all MTA taxes outside NYC, using the residual to pay off the suburban share of debt and pension obligations from the past, and shutting down MetroNorth and the LIRR? I think the locals, even those who don’t commute to NYC, might eventually notice an effect on property taxes and local business activity.

    And then, after a decade or two, perhaps new organizations could gradually restart the service.

  • J:Lai

    JK, while that may be true, I don’t think it’s immediately relevant.
    Even if you cut back funding for those other programs, there is no reason to believe it would increase funding for the MTA.
    In terms of making funds available right now for the MTA, cutting payroll and benefits would have a huge effect (if it were possible.)

  • JK

    Um, on the issue of relevance, J:Lai, do you really think TWU comp and pension are going to be cut to solve this latest funding crises? Nope. Anyway, take a look at the relative cost per subway and bus ride in NYC that Larry Littlefield posted at Room 8 today (should be Sblog repost/summary and chart of this, it’s interesting.)The cost per ride here is not the problem. The problem is that both the city and state government have decided that public transit is not a public service worth adequately funding. If runaway TWU costs were the problem, and funding was at pre-cut levels, the MTA would face operating deficits but still have a robust capital plan. That’s not the situation. Riders are funding the capital improvements, and an ever increasing share of operating costs.

  • Giffen

    Howard K.,

    If the MTA offers such good jobs, why don’t you go and take one up yourself?

  • Niccolo Machiavelli

    It is really a tribute to Mr. Kruger’s and Mr. Fidler’s politics to see how quickly the debate on this blog degenerated from a solid piece accurately recounting how the opposition to bridge tolls has led inexorably to a reallocation of transportation resources from city to suburb into hyperventilating anti-labor rants.

    There used to have to be at least a kernel of some kind of labor related critique in the body of the blog for the artillery volleys to commence. Now, even when you write a piece strictly concerning the behavior of two outer borough Democrats, neither favorites of TWU or any other MTA unions by the way, you still lead to a chorus of race-to-the-bottom, anti-labor hallelujahs.

    $66,000 is not a shocking median income for NYC employers. Yes Larry is right, they make more on LIRR and more is owed on pensions. For only the waste of an hour it would be pretty easy to take apart most of this, but to what good effect?

    How about this? This proposed shift in the payroll tax was the subject, deal with that, there is plenty to chew on, you will have plenty of future opportunities to whack the TWU, they aren’t going anywhere.

    Neither, probably, is this legislation. It is however a clear shot-off-the-bow of an upcoming campaign for Governor. It is Patterson’s Nassau strategy. It may force Lazio to explain his position, compromised as it is by the history of suburban Republican control of the MTA (and the pension debt). And, more importantly, it is designed to pull Mr. Cuomo out of the bushes.

    What would Andrew do?

    Hate on the TWU all you want for protecting their members, it makes it much easier for the likes of Fidler, Kruger, Espada, and Diaz.

    This is like one of those Ukranian Eggs made up of institutional scapegoats. The MTA is the big egg, it takes all of the blame for the political class. But inside of it is the TWU egg, it takes up all of the blame for the MTA. Kruger and Fidler aren’t inside the TWU egg.

  • JK

    Be nice to see the mayor start raising tolls/pricing again as a real world solution. There is opportunity in this crisis and the next one etc. The mayor is lame duck, he has nothing to lose and calling for tolls/pricing again would not effect a senate or presidential run. The mayor is always asked for his reaction to MTA money problems, instead of just blasting the payroll tax hike, he could call for tolls/pricing instead. For that matter, Richard Ravitch could say “tolls” every other word. It’s not going to make or break the chances for his guy. Kathy Wylde is also well placed to beat the toll drum. They don’t need to do anything other than mention it to reporters to keep it in play.

  • mrbadexample

    Look, the suburbanites are not paying their way here and Patterson’s payroll tax gift makes things worse. I’ve been looking for work for months now, and it’s an extremely tilted playing field– my outbound commute to some remote suburban office complex in Valley Stream or Parsippany is impossible, while the suburbanite mass transit commute to the city is a piece of cake. Instead of arguing about tolls or overly generous pay for transit employees, let’s reinstate the commuter tax.

  • Everyone is going to be talking about tolls and zone pricing again. We’re in a prolonged funding crisis and those are available sources of revenue that will not significantly affect a majority of voters whether you’re looking at the state, city, and almost every district. It was simply innumerate of the NY senate to reject bridge tolls and impose a tax on jobs when unemployment was spiking. We don’t know how many jobs the state senate killed, but we do know they didn’t raise as much money as they promised, which was itself less than what was needed and what the tolls could have brought in. (They’re like a faucet, with positive externalities.) Every clown in our senate deserves to pay for this failure of policymaking, Republicans and Democrats alike. I can’t wait to vote for any primary or general election challenger that displays a basic familiarity with the economics and demographics of local transportation. You can run on this issue from the left or the right; the incumbents made objectively bad decisions and their constituents are paying the price.

  • Niccolo Machiavelli

    Mr. Bad Example is correct though my favorite metaphor is a check valve or a ratchet. The system works in one direction but not in the other. Metro North has an excellent farebox recovery ratio relative to other commuter systems. Part of how they have driven those numbers is by pumping up the reverse commute market. Not so LIRR. Nassau politicians NIMBY concerns continue to throttle the development of LIRR reverse commutes from Queens. Coupled with the funding devastation of LI Bus the MTA in this respect is just helping pump value out of the city.

    This can’t be resolved by breaking the systems apart however. It can only be resolved by pulling together greater political and economic forces in the interest of economic growth and community development.

  • Erin

    In response to Howard’s criticism of Union wages and benefits: Since when is $66,000 big money in NYC? It’s not. This city is expensive and that’s not a big income.

    Also, for everyone who complains about Unions (and no, I’m not a city worker, and no, I’m not allowed to form a Union at my job): A decent salary (‘living wage’) and good benefits is what we WANT. It’s what we should all be striving for. Don’t try to take away the good benefits others have achieved. Use them as an example for how things SHOULD be.

    I don’t believe for one second that the MTA’s (or any public/semi-public agency for that matter) would cure their financial ills by taking away decent benefits and living wages. The general employees aren’t the problem. There are whole levels of project mismanagement and disorganization in the MTA and DOT, etc.

    Don’t even get me started about the MTA – the misappropriation of funds (and BIG salaries for unqualified “personal secretaries”…) goes way up to the very top of MTA Capital Construction…

  • Nicole Gelinas

    More comprehensive cost figures (including benefits) are here:

    http://www.nypost.com/f/print/news/opinion/opedcolumnists/mta_vision_the_same_old_denial_5QN7n9wlo9HzXTnOKaALnN

    “Here are some specifics. The MTA spends $6.4 billion a year on current-worker wages and benefits. A unionized city transit worker earns nearly $94,000 a year, including more than $26,000 in benefits. The unionized commuter-rail worker earns even more — well above $120,000.

    “Nor is it just union jobs. The average white-collar worker at NYC Transit and Metro-North earns well above $120,000, too. And LIRR administrators beat them by a mile, topping $142,000 each. (Patronage, anyone?)”

  • J:Lai

    Labor costs are a big part of the problem, any way you want to slice it (both redundancy that leads to overstaffing, and overpaying for certain positions.)

    However, lack of sufficient sources of funding, or reliance on sources that are too variable, or the ability of the state to divert funding sources away from the MTA arbitrarily, is an even bigger problem.

    Yes, you can raise fares to make them an even larger portion of the total revenue. I believe that the demand elasticity of transit users is pretty small (subjective belief) at the current fare levels. However, this would amount to a very regressive tax and only makes sense if you believe that there are few or no positive externalities to transit.

  • mrbadexample

    The generosity (or lack thereof) of current municipal salaries can only be measured by the fact that most muni workers can’t afford to live here (police and firefighters and teachers as well). It’s a side discussion relative to the fact that thanks to Kruger & friends the system is chronically underfunded. You could drop the starting salary to $13/hr and you still can’t pay for the $30 b in capital improvements needed in the next 20 years. And frankly I like my bus driver not worrying about money as he negotiates Flatbush Ave.

  • tedsunday

    Here in Lake Placid NYSDOT funds a train that only 8,000 people ride and the towns have asked to have the tracks removed. DOT ignores the towns request and has plans to spend another 45 million without a feasibility study. It comes from the NYS politicians catalog of stupid ideas. Nobody can stop the wasteful spending on stupid things.

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