The MTA’s credibility has not been helped by its decision to delay planned service improvements; the news broke just three weeks after the agency announced that the improvements would go forward. But the immediate cause of the delay — March real estate tax revenue which came in $31.5 million lower than projected — points to the underlying instabilities in the MTA’s current funding formula and the need for more predictable funding streams like congestion pricing and increased state and local aid (the latter are less likely to shift within a fiscal year, though they can change year-to-year).
The MTA’s operating budget is funded primarily by fares (which will pay for 39% of the MTA’s 2008 adopted budget expenses), tolls (13%), various dedicated taxes (33%), and state and local subsidy (8%). While fares, tolls, and subsidies are fairly predictable funding sources, tax revenues — which include portions of the real property transfer tax, mortgage recording tax, corporate franchise tax, state sales tax, and petroleum business tax — have fluctuated dramatically over the last few years as the New York real estate market has exploded and lately begun to cool off. A NY Times article on the MTA announcement included a graph showing that quarterly revenues from the real estate transfer and mortgage recording taxes averaged under $200 million between 2000 and 2004, shot up past $400 million in parts of 2007, then fell to just over $300 million by the last quarter of 2007.
When revenues came in lower than expected, it was the proposed service increases which were delayed. This was likely because most of the MTA’s operating expenses are inflexible — labor costs, pensions, and debt service. Debt payments on bonds issued to fund capital projects make up 14% of the MTA’s 2008 expenses. By providing a new source of revenue for capital projects, congestion pricing will reduce the MTA’s need to take on additional debt, making fare and toll increases less likely.
As an aside, MTA reliance on fluctuating taxes also seems to contribute to low public confidence in the agency. Suspicion of the MTA probably peaked in 2003, when the state comptroller’s office alleged that Peter Kalikow’s MTA was keeping two sets of financial records (see MTR # 413). The allegations were later dismissed, and the records have since become more transparent, but fluctuations in the MTA’s budget, though caused by swings in tax revenue, often appear to be evidence of malfeasance to some politicians and members of the public.
Like nearly every public transit agency in the world, the MTA operates at a loss. However, this accounting doesn’t reflect the environmental and health benefits the MTA provides by taking cars off the road; nor does it include the economic benefits of improved mobility. Transit is the backbone of the NYC regional economy, enabling densities that would be infeasible without transit and allowing millions of workers to avoid traffic that would add hours to their commutes. New York State Comptroller Tom DiNapoli estimated in a report released earlier this month that every $1 billion in MTA capital spending creates 8,700 jobs, $454 million in total wages, and $1.5 billion in economic activity. The national economic downturn is beginning to affect the MTA — but the relationship goes both ways: an investment in transit would be an investment in the New York regional economy. Congestion pricing is one such investment.
Story edited April 8, 2008.