Doomsday (Mostly) Averted: New York's Transit Financing Crisis

When I was in New York City this spring, I was amazed that the base rate for a subway or bus ride was $2.00, only $.25 cents more than here in Minneapolis. Even more surprising was New York did not have a rush fare, meaning that taking public transit in rush hour  in New York was actually a quarter cheaper than in Minneapolis. There were rumblings however of a doomsday approaching, meaning massive service cuts and the possibility of a 25% fare increase. I was lucky enough to be offered a position in New York during my trip and I will be moving to the city at the beginning of June, right when the doomsday will hit. Out of interest in the topic, and for my own personal budgeting plans I have been following this topic over the past couple months. It appears the doomsday has been (mostly) averted, though many players (including transit riders) in this process will still feel some pain.

The New York Metro Transit Authority operates as a unit under the state government of New York. The MTA network includes the New York City Transit system of buses and subways (forth largest in the world),  the Long Island Railroad, Long Island Buses, The Metro-North Railroad, and tolls on bridges and tunnels that connect to Manhattan, MTA service extends from New York City through Long Island, north to upstate New York, and even into Connecticut (the state of Connecticut does provide some funding to MTA in the form of grants). All of these services make up an annual operating budget of nearly $11 Billion. Page II-1 of this document provides a nice overview of funding sources and expenditures in the operating budget. 

Notably, the largest revenue source (45%) for MTA's operation budget is through fares, but a significant portion also comes through real estate and state dedicated taxes (28%). The current economic crisis has resulted in a 2% decrease in ridership for 2009 from 2008 and decreased real estate tax revenue, leaving the MTA with a nearly $2 Billion budget deficit for 2009. 

In December, 2008, Gov. Paterson called upon former MTA director Richard Ravitch to create a commission that would draft a plan to cover the budget gap. The Ravitch Commission Report contained the following new revenue sources:

-A "regional mobility tax" taking the form of a payroll tax for the 12 counties primarily served by the MTA (Net Revenue: $1.5B)

-The purchase of the East River and Harlem bridges by MTA from New York City to impose tolling on the previously toll-free bridges (Net Revenue: $600M)

-Cyclical fare increases, not to exceed twice annually

These recommendations were strongly supported by Gov. Paterson, yet did not take immediate ground in the legislature. In late March, it appeared that the budget gap would be covered primarily by fare increases and service cuts when the state legislature refused to take action, prompting much disdain from the public.

This past week, a deal finally passed through, three weeks before the June 1st deadline. There will be new fare increases, but they will not be as drastic as expected. Although doomsday is much tamer than originally thought, major pains are still being felt across the state. Gov. Paterson and the Legislature appear to be politically damaged due to the drawn out process, and many fear that the payroll tax increase may not be sustainable if the economic downturn continue. Additionally, as painful as this process has been, a new financial crisis may be brewing in the MTA's capital budget.