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Kathy Hochul

Analysis: Hochul Turns Her Back on Transit Riders With Her MTA Budget

In this corner… Photo: Streetsblog Photoshop Desk

Filling the MTA funding hole is not merely a battle between the city and state over who's shouldering the larger burden because, in fact, there's no doubt here: Under the current proposal, New York City would be forced to cover the state's obligations while its riders get the same old service for an even higher price, and the state sits on billions of dollars of surplus and reserve funds, an analysis by Streetsblog has found.

Gov. Hochul's budget not only asks city residents to cover the largest chunk of the MTA's budget gap, but does so in part by continuing long-running practices that essentially under-fund the MTA by millions of dollars each year.

A long-standing law known as 18-b requires New York State and City to provide matching dollars from their respective general funds for the MTA's operating budget — but the state, for decades, has refused to provide its match. Gov. Hochul's budget continues that practice. The budget trick has cost the MTA $175 million per year since 2018, according to government watchdog Reinvent Albany.

On top of that, the state has also been shirking its responsibility to reimburse the full cost of some exemptions carved out of the payroll mobility tax early in former Gov. Andrew Cuomo's tenure — and is now asking the city to pay half. Those exemptions, covering small employers, schools and libraries, were created during a prior suburban tax revolt, but were coupled with a state promise to fill in the gaps created by the exemptions. But the state hasn't kept up — and it cost the MTA over $200 million last year alone.

The total missing money this year stands at somewhere around $375 million, according to Reinvent Albany — or 75 percent of the $500 million that Hochul's budget requires the city to contribute to plug the MTA budget gap.

City businesses will also pay for most of the proposed PMT hike, despite flame-fanning by predictably outraged suburban lawmakers. And city residents will bear the brunt of Hochul's plans to impose a 5.5-percent fare hike. Yet city riders are getting little in return other than a pledge to keep the lights on. Hochul's budget isn't enough to increase off-peak service every six minutes on buses and subways as advocates have asked, according to MTA leaders.

Hochul's budget demands half a billion from the city in the guise of tough choices, but the state has the money. State bean counters are projecting an $8.7-billion surplus when this year's budget ends on March 31. For 2024, Hochul's proposed putting $6.5 billion of surplus money into the state's traditional "rainy day fund" and more than $13 billion in a more informal reserve fund she created to cover "economic uncertainty."

The Band-Aid solution is cynical and shortsighted. Subway riders put Hochul in the governor's mansion. Yet she's shirking the state's legal obligations to fund service for those riders, sucking up $500 million from city coffers that could otherwise fund social services on the fiscal chopping block, raising fares and doing nothing to expand train and bus frequency. When New York City is done paying $500 million to the state, there will be no improvements to bus or subway frequencies, and New York City residents will be the ones shouldering most of the weight of a looming fare hike.

"This budget is still an exercise in fiscal austerity, and it shouldn't be, it should be an exercise in fiscal abundance," said Riders Alliance Director of Policy and Communications Danny Pearlstein. "Right now, we're seeing an additional abundance of money going to the wealthier suburbs ... and proportionally even less money going to the numerically much larger number of riders who live in the city."

The state's projected reserves under Gov. Hochul's budget proposal. Graphic: Division of the Budget
The state's projected reserves under Gov. Hochul's budget proposal. Graphic: Division of the Budget
The state's projected reserves under Gov. Hochul's budget proposal. Graphic: Division of the Budget

Legislators to the rescue?

Alongside Hochul's aggressive grab at city funds, suburban legislators have tried to foist even more pain on the city by demanding an exemption from the PMT hike and further exemptions to the tax, even though city taxpayers cover almost 80 percent of the total tax payments already.

Other state legislators, including Assembly Member Jessica Gonzalez-Rojas (D-Queens), are cognizant of what the governor is trying to pull, and have objected to the budget games.

"The 18-b provision was established with the intent to direct funds to the MTA," she told Streetsblog. "We should honor the intent of that legislation. It's a problem that that's not been the practice of the state."

Hochul should be looking to state government for solutions instead of offloading the bulk of responsibility onto the city, said state Sen. Andrew Gounardes (D-Brooklyn), who is asking his colleagues join him in calling on the state to increase its matching 18-b contribution to cover inflation and the entirety of the PMT shortfall. Eleven senators have signed on.

"We can't just isolate this and say this is a New York City problem so it's a New York City-only solution," said Gounardes. "More state support matched with more local support so we can have a fully functional and fully funded regional public transit system ultimately is the goal here.

"What pockets of money are available? What pools can we draw from?" he added. "I think the 18-b transfers are excellent place to start because that money is already allocated for transit, we're just not putting it there at the end of in the day."

Critically, if the state actually did increase its 18-b contribution, it would mean that the city has to increase its contribution, accomplishing Hochul's goal of funneling money from the city budget to the MTA budget.

Hochul's selling, but who's buying?

Hochul's bid to take $500 million from the city has proven unsurprisingly controversial among city elected officials, chief among them Mayor Adams, who's complained that the proposal burdens a city that already gives $2.5 billion per year to the MTA by direct and indirect funding sources.

The state's response to the objections has been to wave away the idea that the city is getting railroaded into picking up the tab, with Hochul justifying the cash grab as a "tough choice" in a tough situation.

MTA leadership has backed her up, with CEO and Chairman Janno Lieber spinning the budget shakedown as a fix to "outdated" fiscal arrangement at last month's MTA board meeting. Lieber even trotted out a ridiculous, Cuomo-era talking point to justify the budget moves while making an appearance on The Brian Lehrer show in February.

"The city owns the subway system. A long time ago, the state said we will run it for you," he said on WNYC last month.

MTA Chief Financial Officer Kevin Willens also recently went out on a ledge to justify the mandate that the city pick up the nearly half of the PMT exemption money, suggesting the city had been getting off easy because the value of the PMT exemptions is roughly 80 percent for the city and 20 percent for the suburbs.

"I would say the $115 million is less than the value of the aggregate exemptions enjoyed by in-city businesses and schools," he said.

The same sentinels who blew the whistle on the state's regularly stiffing mass transit gave a big thumbs down to Willens's explanation.

"When we called for the state to make a full contribution and fully fund the MTA, including this payroll mobility tax obligation, this is not what we meant," said Reinvent Albany Senior Researcher Rachael Fauss.

Lieber's reach back to the disgraced former governor fits though, according to Fauss, who saw a familiar hand in the attempt to throw rhetorical chaff in the air to sow confusion and extract more from the city.

"This is a Cuomo era budget. It definitely seems like a continuation of the Cuomo era," she said.

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