Jim Brennan's Commentaries

The MTA received two significant infusions of new money in the State Budget adopted effective this April 1^st. The first is a full $836 million to be provided to the MTA by December 31^st of this year, to fund the Phase One Subway Action Plan developed last July by Chair Joseph Llota and the MTA management. The second is a new tax on for-hire vehicle trips by taxis, Uber, and other for-hire vehicles, that starts Jan. 1,2019, to be imposed on trips in Manhattan south of 96^th street. The tax revenue will put an estimated $400 million a year into the MTA  budget to provide regular, ongoing support for the increases in maintenance related to the Subway Action Plan. The new money is very welcome for the beleaguered transit system, but major policy and funding questions like the MTA’s long-term capital construction program and whether congestion pricing will become integral to future sources of funds remain unanswered.

The $836 million to be delivered in 2018 is a combination of about $500 million in operating funds to cover the expense of several thousand new maintenance positions in subway car overhauls, replacing track and signals, deploying emergency personnel, and other staffing, with the rest investments in related physical assets. Half the money for the 2018 infusion was initially put into the proposed Executive Budget submitted by the Governor to the Legislature from State funds. The State Legislature agreed to compel the City of New York to come up with the other half of the funds, $418 million, despite Mayor De Blasio’s objections to the City being required to provide the money when proposed last year after Governor Cuomo declared the Transit Emergency. The ongoing deterioration of subway service that led to the emergency declaration impelled the Legislature to agree that both the State and the City must provide additional support to the MTA.

Two other proposals in the budget by the Governor to force the City to pay even more money to the MTA were rejected by the Legislature, with the Assembly specifically denying the approvals in both its One-House budget and later in its summary of the Enacted Budget. These proposals were viewed as far more onerous than the Subway Action Plan mandate. One required the City to pay the full cost of the New York City Transit Capital Plan, which is supposed to be $17 billion over the five years of the current 2015-19 MTA Plan. Right now the City’s scheduled contribution is $2.5 billion. The second proposal gave the MTA the authority to determine how much property tax revenue in New York City it could take from “Value Capture “. This budget bill allowed the MTA to decide how much property tax value is added due to transit improvements it makes around the City, and then direct the incremental property tax revenue to itself without the City having a right to approve it, or even have a say in how much money is involved.  The Citizens Budget Commission called this proposal “confiscatory “. Although rejected, versions of these proposals are likely to resurface in the future as the Cuomo administration tries to find ways to shift financial responsibility from the State to the City to fund the MTA.

The State Assembly deserves thanks from the public for the $400 million for-hire vehicle trip surcharge for mass transit. Governor Cuomo never put legislation to create a congestion pricing plan into his proposed budget, despite endorsing the concept last summer and creating the FixNYC Advisory Panel, which offered a congestion pricing framework in a report that was released at the time of the budget. However, in early March the State Assembly, in its one-House budget, proposed the surcharge to fund the recurring maintenance program. A similar surcharge had been a lesser part of the FixNYC Report, the main element of which consisted of the charge to enter Manhattan south of 60^th street for most vehicles, and was designed to yield up to $1 billion a year. But both the main entry fee and the trip surcharge had not actually made it into the Governor’s budget.

Governor Cuomo had the good sense to rapidly endorse the Assembly’s trip surcharge, and it was approved by the Senate after the tax was limited solely to Manhattan, with no new charges in the outer boroughs or the suburbs. The new tax, however, has not included a congestion pricing set-up. There is no funding for any infrastructure to electronically record entries into the Manhattan business district. Existing technology in the taxi and for-hire vehicle industry will pinpoint when those vehicles traverse Manhattan south of 96^th street.

A congestion pricing plan remains in limbo, even as the MTA’s long-term capital construction budget may unravel. In March of this year Standard & Poor downgraded the MTA’s bond rating one notch after an MTA report showed the agency would have a $400 million operating deficit in 2020 and a $600 million operating deficit by 2021, even after two fare and toll hikes. The primary cause of the deficit was reported to be a drop in real estate transaction revenues like the mortgage recording tax, which in part are dedicated to mass transit. The $32 billion 2015-19 MTA Capital Plan, to which the MTA is now committing significant funds as it finally wraps up the prior plan, includes $11 billion from the MTA itself, primarily from money it will borrow. The forecast deficits, however, are very likely to constrain the ability of the agency to actually borrow that much money. Not only that, but the State government’s share of the 2015-19 Capital Plan, $ 8 ½ billion, included $7 billion for which there was only an I.O.U. with no stream of revenue to back it up. Shortfalls in the 2015-19 Plan could materialize soon.

The MTA also has to propose its 2020-2024 Capital Plan in October 2019. The recent five-year plans have cost about $30 billion each- but if the current plan begins to unravel the 2020 plan will be in trouble. A fall 2017 State Comptroller report expressed concern that the 2020 plan might have shortfalls ( meaning lack of sources of funding to pay for projects) similar to the $15 billion shortfalls that plagued decision-makers for both the 2010 and 2015 plans before funding schemes were patched together.

The public and the State Legislature need critical information from the MTA very soon to determine the agency’s ability to sustain a meaningful capital program. In 2007 the Legislature made the MTA accelerate submission of its Capital Plan at that time earlier than the law had provided – and it could do so again, scheduling a submission for early 2019 rather than the end of the year to get a better handle on what the problems really are.

Congestion pricing involved rational policy proposals to deter vehicles from entering Manhattan to reduce pollution and congestion, and provide a long-term funding stream for the MTA. But this is the second time in ten years a push for congestion pricing has not been successful in the State Legislature.  If congestion pricing won’t fly there is no shortage of possibilities for taxes to fund the mass transit system. There are payroll taxes, personal income taxes, corporate income taxes, sales taxes, millionaires’ taxes, mansion taxes, you name it. The issue is the political will. A consensus on funding this most vital of services remains frustratingly elusive, along with the leadership to forge that consensus.

With the New York State budget deadline of April 1 fast approaching, the Assembly, Senate, and the Governor are now actively negotiating to adopt the budget on time. Despite the Governor’s Fix NYC Advisory Panel proposing a congestion pricing plan in January, Governor Cuomo never actually submitted legislation, either as part of the budget or in the ensuing months, to implement the main proposal, to charge private vehicles entering a Manhattan business district zone.

The Assembly did advance a major funding proposal for the MTA. Its one-House proposal included $488 million in new funds for the MTA, divided between a small surcharge on for-hire( cabs, Uber,etc.) vehicle trips in the metro region, with a larger surcharge for trips south of 96th street in Manhattan. It also proposed an additional levy on real estate transactions of more than $5 million. The Assembly proposal is similar to a part of the Fix NYC report that advocated a for-hire vehicle surcharge. The new money would be sufficient to fund the Subway Action Plan developed by MTA Chair Joe Llota last summer to add mostly maintenance improvements to cut delays and breakdowns in the subway system. The Assembly rejected several of the Governor’s proposals to force New York City to pay more to the MTA. The rejected budget bills include requiring the City to pay the entire New York City Transit Capital Plan( $17 billion over 5 years), giving the MTA unilateral authority over determining how much of the City’s property tax revenue to take for transit projects that add real estate value, and forcing the City to pay half the cost of the Subway Action Plan.

The State Senate proposed no new funding at all for the MTA in its one-House budget. Instead, it rejected the Governor’s revenue proposals, intended to balance the budget, and actually threw $750 million more in tax cuts on the table for the short term. For the long-term the Senate proposed removing senior citizens from having to pay property taxes at the end of ten years. While the Senate offered little specifics on this idea, a plan of this nature would likely cost school districts and local governments at least $4 billion a year when fully implemented. The State would either have to make up the difference or the schools and local communities would lose the money or raise taxes on everybody else. Where the State would get this extra revenue is not clear. The Senate proposal is on top of a plan advanced by the Senate to cut income taxes by $4 billion a year by 2025, which was adopted by the Legislature just two years ago and is being phased in.

Earlier this month Standard & Poor downgraded the MTA’s bond rating one notch, to A-plus, and issued a negative outlook for the agency. This action was likely related to a Feb.25 quarterly budget update to the MTA Board. This report stated that the MTA would face a $400 million deficit in 2020, and $600 million by 2021, notwithstanding fare and toll hikes in 2019 and 2021. The main cause of the deficits was reported to be declines in real estate transaction revenues like the mortgage recording tax, a part of which is dedicated to the MTA within the region.

Left unsaid in the bond rating downgrade and the MTA deficits is the impact on the agency’s capacity to borrow funds to meet its commitments to the 2015-19 Capital Plan. Those commitments are scheduled to be $13 billion of the $32 billion adopted in 2016-17. A $600 million shortfall in available cash flow could translate into an inability to sustain, or borrow, about $9 billion of its $13 billion commitment.

Adoption of the funding plan advanced by the Assembly would help mass transit in a meaningful way, funding both maintenance improvements and some essential capital improvements like signals. These funds still do not address long-term issues like the 2020-2024 Capital plan or shortfalls in the current 2015 plan that seem likely to materialize, but would be a big step in the right direction. We will know the outcome of the budget shortly and can take stock of the next steps needed to address deepening challenges for the mass transit system.

There is plenty of debate ongoing in Albany now about the pros and cons of congestion pricing-but little discussion yet about the purpose of creating such a large flow of money($1-1.5 billion a year), which logically must be a way to fund the next MTA Capital Plan. That plan is due out in the fall of 2019 for a five-year cycle from 2020-2024. The MTA had estimated that both the existing plan(15-19) and the prior plan(10-14) would cost about $30 billion each. But the Agency, the Governor, and the Legislature had trouble figuring out how to raise the money to cover the immense costs of both plans, and the 2010 plan was ultimately downsized. The next cycle will have the same problem-where to find money to pay for it. In fact, the problem of paying to keep the mass transit system in a state of good repair and pay for expansion projects will continue for decades.

In 2013 the MTA put out its 20-year Capital Needs Assessment for 2015-34. This assessment identified system needs which would cost $106 billion to keep mass transit in a state of good repair, without even considering the cost of the expansion projects. In the current plan, the big expansion projects like East Side Access and Second Avenue Subway cost $7 billion. The State of Good Repair( regular replacement of track,signals, stations,subway cars and buses, etc.) for the existing system costs $25 billion.

Governor Cuomo, MTA Chair Joe Lhota, and legislative leaders have said very little about just how problematic the MTA’s long-term funding needs really are. There is a proposal in the new State budget to force New York City to pay half the recurring maintenance costs of Lhota’s Subway Action Plan, estimated at $300 million a year by 2020, but that is primarily for a step-up in regular maintenance, not capital projects. Mayor DeBlasio has refused to support the idea. The current capital plan had a shortfall of half, or $15 billion, of the $30 billion in needed funds. The Governor and the Legislature patched up the problem in 2016 by promising in State law in 2016 that the MTA would get the money when it needed it, meaning it would have to spend down what it had available first.

There is still no congestion pricing bill to accompany the Fix NYC Panel report released by Governor Cuomo at the same time as his January budget,that gave a framework for a congestion pricing setup. The Legislature has already left Albany for its annual Presidents’ week break and will not return until the end of February, at which time it will have to begin the process of negotiating with the Governor and adopting the main budget, due April 1. The main budget itself is controversial, as always, with the Governor seeking $1 billion in new revenue to plug the deficit, and Mayor DeBlasio protesting cuts and cost shifts of $750 million to the New York City budget, excluding any MTA-related costs shifts.

Each house of the Legislature will adopt its own preliminary one-House budget in mid-March, and must decide what will be in those budgets by the end of the first week in March. With so many tough issues to resolve just for the regular budget, it is very possible that resolving major mass transit issues will be delayed until after the budget, with congestion pricing still an open question. This will leave the mass transit debate to continue until the end of this year’s legislative session in June.

State Comptroller Tom DiNapoli reported last fall the MTA was likely to face another $15 billion shortfall for its 2020-24 Capital Plan, and possibly much more because the MTA’s Subway Action Plan Phase Two indicated a need for another $8 billion for New York City Transit. But right now the State’s leadership is not articulating this problem. It is an election year and if congestion pricing fails there would be a shortfall for the MTA of the sum of money congestion pricing would raise. If that was the case, there would be no place to go to except tax increases or fare hikes to fund the long-term needs of the mass transit system. The City of New York can only raise its property tax. Only the State government can raise the payroll tax, the corporate income tax, the personal income tax, the sales tax, the real estate transaction taxes, and others. The City must get approval from the State to raise any of its own taxes except the property tax.

Chair Lhota claimed the City is responsible for the capital needs of the New York City Transit Authority ( $16-17 billion in the current 5-year plan) on the grounds that a 1953 law said so. That law, Section 1203 of the Public Authorities Law, did in fact say that but added that the City was responsible for a limit of $5 million a year without approval of the New York City Mayor. That $5 million cap has not been changed since 1953, making the law obsolete; an anachronism.

The concepts that have funded mass transit since have radically changed and are connected to the fact that New York City can only raise its property tax and is responsible for the City’s basic services and much of its social welfare and health care funding. When the MTA was created in 1968 the Legislature allowed the City to draw down bridge and tunnel surpluses to fund New York City Transit. In 1981 the Legislature began passing new State taxes within the MTA region to dedicate to the MTA because of the obvious limitations on the capacity of the City government.

Back to the obvious: it’s an election year and in my considered opinion the Governor and the Legislature are not likely to raise taxes, and the MTA will not do a fare hike. That means it’s congestion pricing or bust this year as far as mass transit is concerned.

Governor Cuomo’s “Fix NYC” Commission produced a framework for a congestion pricing plan, released just after the Governor’s Executive Budget for the 2018-19 Fiscal Year, whihc begins April 1. The congestion pricing framework outlines a three-year phase in that would provide revenue of $1 billion to $1.5 billion a year by 2020, most of which would be intended for the MTA Capital Plan.

That is also the year the MTA must begin its next five-year capital plan for continued investment in the upgrade and preservation of the subway, bus, and commuter rail systems. The current $30 billion plan, the 2015-19 plan, faced a shortfall of $15 billion when initially proposed in 2014, and it was not until 2016 that the Governor and the Legislature finally adopted a framework for that plan. The 2020-2024 Five Year Plan likely faces a similar funding shortfall of $15 billion, so money flowing from a congestion pricing plan for the MTA in 2020 would arrive just in time to fill much of that shortfall, although the Fix NYC framework did not outline a specific disposition of the money from a congestion pricing setup.

A November 2017 report by State Comptroller Tom DiNapoli, “ Financial Outlook for the MTA,”  stressed that the MTA’s capital funding shortfalls could be even larger than $15 billion because more than $7 billion in the 2015-19 plan that the State government committed to providing the MTA still does not have an identified funding source.

Beyond that, Chair Joseph Llota’s Subway Action Plan Phase Two indicated a need to add $8 billion in capital funding for the subway system. The MTA is not under an obligation to offer the details of its 2020-2024 Capital Plan until the fall of 2019 so it is not clear how all these unmet needs and proposals might fit together. But a shortfall of more than $20 billion is likely.

The Comptroller’s office suggested the MTA accelerate the release of the details of its 2020-24 plan to enable greater public engagement in the process of coming to terms with these important decisions. The MTA should do this- the Governor, the Legislature, and the public need to get a handle on what the MTA thinks is needed sooner rather than later. ( The Comptroller’s report confirmed the concerns raised in my September 30 Gazette column, “The MTA’s Long-Term Financial Problem is Severe and May Soon be Worse. “)

If the Legislature does not enact a formidable congestion pricing plan, worth $1 to $1.5 billion a year, enough revenue to support $10 billion or more in bonded funds for the mass transit system, or find some other alternative, it will be catastrophic for the subway, bus, and commuter rail systems, the fundamental infrastructure that allows for the wealth of the New York City metropolitan area. In fact, even if the congestion pricing plan was adopted, the MTA’s greater than $20 billion shortfall  would only drop by half, $10 billion, and there would still be $10 billion to find unless the Federal government stepped in to provide much larger amounts of money than at present.

Mayor DeBlasio’s proposal to tax millionaires was envisioned to raise ¾ of a billion a year, with $500 million to fund $8 billion worth of bonds for the MTA, and $250 million to subsidize low-income New Yorkers’ subway and bus rides with ½ Fare Metro cards. Together the congestion pricing plan and the millionaire’s tax might raise nearly $20 billion for the MTA, coming close to closing the gaps in meeting mass transit capital needs.

Both proposals face significant opposition in the Legislature, from State Senate Republicans opposed to the millionaire’s tax, to everyday legislators of both parties who simply don’t wish to impose new charges or fees on their constituents to drive into Manhattan, either because they feel the charges are unfair or won’t solve the congestion problem.

Governor Cuomo has not yet submitted a bill to the Legislature that provides the details of the congestion pricing plan or how the money would be used. He has said he wants to discuss the issue with the legislature first, although he has embraced the concept advanced by MOVE/NY that the tolls on the outer borough bridges that don’t feed the Manhattan Central Business district should be reduced. That means some of the FIX NYC revenue would be diverted to reduce those particular tolls and not available to the MTA for its capital needs.

The Governor has also submitted bills in the budget to force the New York City government to come up with much more money for the MTA, a move the de Blasio Administration is strongly opposing.

One bill would force New York City to pay the 50% of Chair Llota’s Subway Action Plan that the Chair had demanded of the City and that Mayor DeBlasio had refused to pay. Another bill would give the MTA the power to create special districts in New York City where subway expansions add property value, and allow the MTA to obtain portions of New York City’s property taxes related to the new value created, for the MTA Capital Plan. The concept was used to pay for the #7 Train Extension by dedicating revenue from property in the Hudson Yards area to cover the costs, although that plan was a creation of the City of New York and the City controlled the dispositions of funds, unlike the Governor’s proposal here, where it does not appear the City has a say in the matter.

Another budget bill is perhaps the most dramatic of all- it says the City of New York must pay the full cost of the New York City Transit Authority capital plan. The City of New York has a seat on the MTA Capital Program Review Board and a vote on the New York City Transit Authority Capital Plan, so it has the power to veto that part of the plan. This power does not quite fit with the obligation to fund the plan, nor does it square how parts of the New York City Transit Authority Capital Plan might get funded from other sources of revenue and how the City negotiates the package. The MTA’s capital needs are so immense it is reasonable to ask the New York City government to increase its contribution- perhaps even in a major way- but the Governor’s proposals are orders rather than requests and may simply be opening gambits in what must come from a negotiation, not an order from the State.

Another major issue is the gargantuan expense of the MTA’s construction programs and purchases. A recent New York Times series described the immense wastage of funds in the projects. The MTA, the Governor, and the Legislature cannot ignore the problem- the size of the MTA’s needs just costs too much money and the City and State just can’t afford to just write checks to cover $20-30 billion shortfalls.

Right now congestion pricing is the main issue on the plate. Mayor DeBlasio and the Legislature should support it.

Governor Cuomo and Mayor DeBlasio should bury the hatchet- at least as far as the mass transit system goes. There needs to be a consensus about addressing the giant shortfalls faced by the capital needs of the system. It’s also worth mentioning that both former Mayor Bloomberg and the newer MOVE/NY Plan sought to use congestion pricing funds to improve express bus service in areas of the City poorly served (or even not served at all ) by the subway system, and that issue, among others, certainly needs to be taken into account.

The MTA needs an astonishing $2 billion a year in new sources of revenue for the cash and debt service on bonds to cover more than $20 billion needed through 2024-25. If congestion pricing fails and there is no meaningful replacement the prosperity and public safety of the metropolitan area will be threatened