Cutting “Waste and Inefficiency” Won’t Eliminate the MTA’s Budget Problems

The Independent Budget Office criticized the MTA for relying too heavily on volatile dedicated taxes and fees, but almost all the volatility comes from a single source: property transfer taxes. Image: IBO

Last week, the city’s Independent Budget Office released a report on the MTA’s revenue structure [PDF] which has been getting a bit of play. At Second Avenue Sagas, Ben Kabak focused on the report’s main thesis: that the volatility of dedicated taxes and fees threatens the financial stability of the transit agency. Steven Higashide of the Tri-State Transportation Campaign picked out a graph showing that the recently enacted payroll mobility tax already makes up 30 percent of all dedicated revenues, or around one-eighth of all operating revenue.

He also highlighted the graph on the right, which jumped out to us. It shows the extent to which the difference between the MTA’s flush budgets of 2007 and the painful cuts of today is attributable to the catastrophic drop in a single revenue stream: property transfer taxes. Those taxes brought the MTA $1.58 billion in 2007 but only $389 million in 2009.

As Gene Russianoff told Streetsblog before the crash, the heady days of the real estate boom masked underlying weaknesses in the MTA’s budget. When the  economy plunged into the worst crisis since the Great Depression, in one fell swoop the MTA lost more than a billion dollars in revenue every year. Almost every dollar brought in by the payroll tax is being spent just to patch up the hole left by falling real estate taxes.

The scale of that drop lays bare how the standard excuse for opposing additional transit funding — cries of “waste, fraud and abuse” at the MTA — misses the mark. Comptroller Tom DiNapoli has been steadily auditing segment after segment of the MTA’s operations. In his first eight audits, his office found $296 million in wasteful spending and unrealized opportunities [PDF]. That’s worth some attention, but still equates to only a quarter of the decline in revenue from the property transfer taxes.

DiNapoli’s most recent audit of the MTA, done jointly with City Comptroller John Liu, found all of $10.5 million in wasteful spending on construction during off-peak hours. (It also identified how the MTA might be able to reduce the time that service is disrupted while repairs are underway.) The report came out just days after the MTA released a capital budget which relied so heavily on borrowing that transit riders can expect to pay hundreds of millions of dollars in additional debt service each year before the decade is out.

When politicians like Long Island Republican Lee Zeldin point to DiNapoli’s reports and claim that another billion and a half dollars in payroll taxes could be cut from the MTA each year by targeting “waste and inefficiency” without leading to fare hikes or service cuts, it’s beyond wishful thinking. It’s delusional.

  • Mark Walker

    The MTA-waste meme thrives on a symbiotic relationship between lazy politicians and lazy journalists. The pols can’t be bothered to properly fund the agency, and the reporters (especially teevee reporters) can’t be bothered to tell the truth about it. The reporters reinforce the inaction of the pols by failing to shine a light on the real causes of the MTA’s downward spiral. The pols reinforce the complacency of the reporters by giving them plenty of easy anti-MTA soundbites. No wonder Walder got out. For people who are actually dedicated to keeping the subways and buses running, this is a no-win situation. The pols won’t pony up the funding and the car-ad-funded press won’t tell the real story.

  • Larry Littlefield

    “As Gene Russianoff told Streetsblog before the crash, the heady days of the real estate boom masked underlying weaknesses in the MTA’s budget. ”
    But a few years earlier, Russianofff and the Straphangers had claimed those same revenue meant fares could be kept at the low level of all the fare discounts of the 1990s. And that the MTA had two sets of books.

    And the TWU claimed those same revenues made their pension enhancements affordable.

    Of course there is no reason to use tax dollars for the MTA when it was rolling in those revenues.

    The MTA brass knew the real estate transfer taxes were temporary, and tried to bank some of them.  Everyone grabbed, grabbed, grabbed.

    Those real estate transfer taxes weren’t real.  They were temporary.

  • carma

    exactly.  the MTA should never be tied to real estate deals.  i cant stand that every transaction records a 1.75% tax for any mortgage i take out.  and ive been hit many times.

    Fund the mta properly.  that means albany needs to take more money out of their budget instead of tying it to real estate.  real estate is the most volatile of industries.  while the trend is up,  it also does go down.  and when it does.  the citizens of ny are screwed.  id rather pay a higher fare and have stability and good quality of service than to always hear about service cuts and proposed higher fares and introduction of commuter taxes, payroll taxes etc… to fund this shitty system.

  • financier

    @d8d46f16f380afef59ca318522397233:disqus 

    Where are you getting 1.75%? The MTA receives proceeds from four real estate-related taxes:
    “Mortgage Recording Tax-1? (MRT-1) is imposed on the borrower at the rate of 0.3% of the value of mortgages taken out on real properties in the 12 counties served by the MTA.“Mortgage Recording Tax-2? (MRT-2) is imposed on the lender of mortgages on buildings containing one to six dwelling units in the 12 counties, at a rate of 0.25% of the value of the mortgage.
    “Urban Tax – Real Property Transfer Tax” (RPTT) is imposed on the sale of commercial properties in the five boroughs valued over $500,000.“Urban Tax – Mortgage Recording Tax” (MRT) is imposed on mortgages exceeding $500,000 on commercial properties in the five boroughs.

  • Mike

    carma has consistently misrepresented and distorted numbers on many threads here. the word “troll” comes to mind.

  • Larry Littlefield

    Real estate is a perfectly legitimate source for infrastructure (and park) funding, since infrastructure and parks create property values.  The problem is not only blowing all the proceeds from a bubble, but encumbering the agency as if the bubble would continue.

    The MTA isn’t losing $1 billion in real estate transfer taxes because of the economic crisis.  It is probably losing about $200 million per year.  Meanwhile, it collected $billions extra during the bubble, and it’s gone.

    Start that chart back in 2000 and you’ll see what I mean.  The property transfer tax revenues should have gradually increased with the economy, with the sales tax revenues.  The bubble and bust has probably knocked one-third off what the MTA would have been getting without it.  And it is lucky.  In many areas of the country, real estate investment sales have pretty much shut down — even in places with growing economies such as Texas.

  • Larry Littlefield

    “Where are you getting 1.75%?”

    That’s probably the total real estate transfer burden on residential properties, or just part of it.  I think the total on the seller and the buyer (MRT) is around 3.0%.  The good news is this high burden on real estate sales may have discouraged flipping here vs. other places during the bubble. 

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  • financier

    @d8d46f16f380afef59ca318522397233:disqus 
    Where are you getting 1.75%? The MTA receives proceeds from four real estate-related taxes:

    “Mortgage Recording Tax-1” (MRT-1) is imposed on the borrower at the rate of 0.3% of the value of mortgages taken out on real properties in the 12 counties served by the MTA.

    “Mortgage Recording Tax-2” (MRT-2) is imposed on the lender of mortgages on buildings containing one to six dwelling units in the 12 counties, at a rate of 0.25% of the value of the mortgage.

    “Urban Tax – Real Property Transfer Tax” (RPTT) is imposed on the sale of commercial properties in the five boroughs valued over $500,000.

    “Urban Tax – Mortgage Recording Tax” (MRT) is imposed on mortgages exceeding $500,000 on commercial properties in the five boroughs.

  • carma

    Mortgage Recording Tax
    The mortgage recording tax is imposed on the recording of real estate mortgages in New York City. The current tax rate ranges from 1.0 percent for mortgages securing a debt of $500,000 to 1.75 percent for commercial mortgages securing a debt of $500,000 or more. In addition, the State imposes a 1.0 percent tax, half of which is dedicated to the Metropolitan Transportation Authority (MTA) and the State of New York Mortgage Agency (SONYMA).Mike, Go fuck yourself.  anytime something disagrees with you, you call someone a troll.  perhaps you should learn to get an education yourself first.

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