A recent California law requiring many San Francisco-area businesses to provide federal transit commuting benefits will bring pocketbook relief to businesses and transit riders, and could be a good model for New York City.

The federal tax code allows employees to deduct up to $125/month for transit commuting expenses, but only if their employer chooses to offer this benefit. (Perversely, the tax code provides a larger benefit — $240/month — for parking. Between 2009 and 2011, the transit and parking benefits were equal, but due to Congressional inaction, the transit benefit was cut at the start of the year.)  The MTA has estimated that, for a worker in the 15% federal tax bracket, the transit benefit acts as a 29% fare reduction. With the tax savings factored in, a $104 monthly MetroCard costs an employee just $73.74, saving that rider over $360 per year.

California’s law (SB 1339, full text here), passed last month, effectively requires businesses with at least 50 employees in the nine-county San Francisco Bay Area to provide a direct subsidy for transit commuting, run their own shuttle service, or provide the federal transit benefit.

Most businesses are likely to choose to provide the federal benefit, because, in addition to providing tax relief for transit users, the benefit also lowers businesses’ taxes. Because of this, the law passed with strong support from the business community. Writing to California Governor Jerry Brown in June, Jim Lazarus of the San Francisco Chamber of Commerce described the ordinance as “a win-win whereby the employer saves on federal payroll taxes, the employee saves on their commuting expenses and we are all better off as a result of lower traffic congestion and better air quality.”  Stuart Baker of Edenred, a benefits company, estimates that a firm where 3,500 employees take the transit benefit will save about $300,000 in annual payroll taxes (assuming participants spend $100/month on public transit).

The law builds off of several local efforts, such as a 2009 San Francisco ordinance which required businesses in the city to provide the transit benefit. San Francisco’s Department of the Environment estimates that in 2011, use of the benefit by employees of San Francisco companies reduced vehicle miles traveled by 2.8 million miles a day, and cut daily carbon emissions by over 1,000 metric tons. Forty percent of San Francisco companies which offer the benefit did so because of the city’s 2009 law, according to an agency survey.

According to TransitCenter, 15,000 companies in New York City currently offer the benefit, and a half-million employees use it. A California-style law would extend the benefit to hundreds of thousands, if not millions, of additional employees. In our region, a local approach may be the best way to start. If New York City passed such a law, it would be a de facto tax cut for many employers and a fare cut for transit riders throughout the region, at a time when transit fares continue to increase.