Joe Lhota: The MTA Needs New Tax Revenue

MTA Chairman Joe Lhota said the agency needs new tax revenue, despite his generally anti-tax politics. Image: ##http://transportationnation.org/2012/01/10/lhota-dont-hate-on-the-mta/##Stephen Nessen/WNYC##

The MTA needs new revenues, announced chairman Joe Lhota during a broad-ranging panel discussion at Fordham University this morning. “There’s going to be the need for broad-based tax revenue somewhere within the system over the next couple of years,” Lhota said, noting that he’s generally the kind of conservative person loath to call for tax increases.

In calling for new revenues, the new transit chief gave notice that the system can’t succeed by cutting costs alone. While Lhota said little about specific revenue sources, bridge tolls or congestion pricing don’t seem to be high on his list.

Both Lhota and his co-panelist, Port Authority Executive Director Pat Foye, spoke at length about the need to expand the transit system in the New York region. “Brooklyn is the new Hicksville. Queens is the new Stony Brook,” said Foye, referring to Long Island suburbs whose population boom is past. Arguing that the new urban residents would likely be “even greater consumers of mass transit,” he called for greater investment in the public transportation system.

“We have the need for funding for the ongoing needs, we also have the need for funding for the growth that’s going on,” agreed Lhota. To pay for that growth, Lhota repeatedly said that some form of new tax revenue would be necessary. “The money coming from Albany, coming from the feds is reducing, and the pressure on tolls is increasing,” he said.

Though he declined to discuss specific revenue streams, Lhota said that “an expansion of the sales tax, the small proportion that’s received, would be very very helpful, would go a long way.” The existing 0.375 percent regional MTA sales tax netted the transit authority as much as $803 million in 2009, according to the Independent Budget Office.

Lhota and Foye both expressed skepticism about using toll increases to fund transit and other important infrastructure investments. Lhota said that biennial toll increases were part of the MTA’s long-term budget moving forward, but worried the levels were already too high. “I’m concerned about the level that we have on the bridges right now,” he said, “because they are extremely high and are reducing economic growth and economic development in the region.” Foye seemed supportive of the Port Authority toll hikes passed under his predecessor, Chris Ward, but worried about “upper limits on tolling authorities in this country’s ability to pass tolls along.”

Lhota and Foye instead pointed to public-private partnerships and tax-increment financing as ways to raise needed revenues, prompting a debate with the panel’s moderator, former MTA chairman and lieutenant governor Richard Ravitch. After Foye praised Canada, among other nations, for extensive use of private infrastructure financing, Ravitch replied, “There’s no such thing as a tax-protected security in Canada,” meaning that the government, unlike in America, doesn’t have an inherent ability to borrow money at a lower cost than the private sector. “Why wouldn’t you finance it tax-exempt?” Ravitch asked. Foye responded that the private sector should only be brought in if they had something to offer besides capital, such as particular technical expertise or the ability to absorb the financial risk of project costs.

Lhota added that public authorities, including the MTA, had little ability to borrow more money. “We’re almost at a capacity limitation right now unless there’s additional revenues.” The Cuomo administration is proposing a major increase in the MTA’s debt ceiling due to the significant borrowing needed to pay for repairs and system expansions without new revenues. It would be the first time the MTA’s debt ceiling has been raised so soon after the last increase, which was enacted in 2010.

Tax-increment financing, which attempts to capture the increase in real estate values created by new infrastructure (the city is using it to fund the extension of the 7 train to Hudson Yards), didn’t receive the same kind of pushback. According to Foye, TIFs can’t be used in most of New York without a change to state law. Lhota pointed to developments planned for the route of the Second Avenue Subway to make the case for using TIFs to help pay for new infrastructure.

Lhota also previewed what could be the next front in the labor-management battles at the MTA, once the TWU contract is completed. After Lhota discussed his goal of further integrating operations between the Long Island Railroad, Metro-North and New York City Transit, Ravitch raised one potential obstacle to integration. Workers on the LIRR and Metro-North are covered by the federal Railroad Labor Act, while transit authority workers are subject to the state’s less labor-friendly Taylor Law. Ravitch himself tried to cover the railroads under the state labor regime, only to be rebuffed by the United States Supreme Court in 1982.

Now, however, Lhota suggested that he might attempt to get that decision overturned. “The desire to make everyone subject to the Taylor Law… there is a desire,” he said. In fact, Lhota recently assigned his general counsel to brief him on the issue. If presented with the case again, “today’s court would probably end up with a different opinion than the court did in the 1980s,” Lhota guessed, “but I’m not sure I found the reason yet to get back into court.”

  • Ian Turner

    TIF would be a great way to fund the remainder of the 2nd Avenue Subway. Lots of other transit systems (HK, Japan) get funding by acquiring real estate near system improvements, but TIF is a reasonable way to capture the same value.The potential gains in property values are huge for a major system expansion like the 2nd Avenue Subway, so if the MTA can capture some of that increase, it should be enough to fund construction. If it can be done without new legislation, so much the better.

  • Larry Littlefield

    A couple of comments.

    On new revenues, the MTA has been given one new revenue after another.  But only with enough money to pay to service the new debt.  Thus the next 30 years of the payroll tax and the 1/8 cent sales tax increase has already been spent.

    What is needed is for the state to take over all the excess debts, so the MTA can use its ongoing revenues for ongoing expansion.

    On TIF, that only works if you have new service, generating new development, at high densities.  Communities resist high densities, the market may not build (ie. Hudson Yards) and most of the MTA Capital plan is not for new services.

    “The potential gains in property values are huge for a major system expansion like the 2nd Avenue Subway.”

    Politically, gains in property values mean the replacement of rent regulated housing occupied by less well off people with luxury high-rises.

    On the LIRR and MetroNorth:  the Taylor law is very favorable to the privileged members of labor, and hostile to other workers.  It assumes more and more for them, never less, even if there is less and less for everyone else.  And although the law says the public interest, and the cost of benefits, can be taken into account in arbitration, that never happens.

    What is needed on the LIRR is the willingness to take a long strike, or even shut it down for years if need be.

  • Eric McClure

    No toll hikes, no congestion pricing… wait! How ’bout funding transit with casino revenues?!  If we’re willing to go regressive with a sales-tax increase (which will only get stolen in Albany, anyway), why not go “all in,” as they say around the poker table, and pay for transit with gambling revenue?  After all, Lotto has made our education system the envy of the free world, right?  

  • Mark Walker

    Lhota: “I’m concerned about the level that we have on the bridges right now, because they are extremely high and are reducing economic growth
    and economic development in the region.” The East River bridges are not tolled at all. That’s “extremely high”? How do you lower a toll of zero? Is Lhota suggesting PAYING DRIVERS to use the East River bridges? It would be more sensible to equalize tolls across all the bridges to discourage toll-shopping — and to raise the revenue Lhota correctly says is so badly needed.

  • Bolwerk

    Larry, communities don’t resist high densities.  Or, at least, many don’t. Almost everywhere the problem is one group of anti-community loudmouths can trip up something that is good for everyone.  It’s why every supposed transit expansion bang goes out with a whimper, and we feel lucky if we get a whimper – usually an expensive whimper, at that.

  • Larry Littlefield

    I was speaking directly to the Second Avenue Subway.   The Upper East Side is essentially built out along the avenues, and the side streets were downzoned in the early 1990s to maintain light and air in the mid-blocks.  There has been virtually no large scale development there since the 1990 “packing the bulk” rules.

    What happened on the UES was the development took place, but the neighborhood never got the subway, and ended up packing on the Lex as a result.  Now all the taxes from that already-existing development goes to other things.  And let’s just say that upzoning the mid-blocks for even more density — high rise after high rise a few feet apart — would not be popular.

    Moving up into East Harlem, site of Phase II, you run into public housing projects and old tenements that could in theory be replaced.  You have R8 and R8A zoning on the avenues, which is plenty dense, but not R10 dense (floor area permitted up to 10 times the lot area, with possible zoning lot mergers bringing in more density from off site).  But if you try mapping R10, you run into gentrification conflict.

  • Andrew

    Not thrilled.  He sounds like a politician.

    If Richard Ravitch says something, listen.

  • Ian Turner

    @EricMcClure:disqus : What we really need is a gambling car. That would make the rush hour commute a lot more fun!

  • Ian Turner

    @f9b2cb395abd5a101456b3b0a40912e1:disqus : I would dispute the idea that the value of the 2nd Ave Subway has already been taxed. Yes, there is development there, but it is hard to argue that the existence of the subway would not make existing development more valuable. I fully expect that the subway will cause retail and residential rents to rise, as it will shorten commutes for those living in the area, especially those working on the West side. This means the subway will increase land values, even in the absence of new development.

    And there is also scope for new development; the high-rise at 79th & 3rd would probably not be going up if not for the 2nd avenue subway.

    But I was mainly thinking of the sections beyond Phase I, which cover territory far less built out than the UES.

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