The courts can get rid of the M.T.A.'s payroll tax, but then what?

The LIRR in Massapequa. (HBarrison via Flickr)
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What if suburban legislators get their way, and a transit-dedicated payroll tax is finally eliminated? And what if the M.T.A, for lack of a better option, makes up the resulting revenue loss by raising fares on its suburban customers?

It would mean Long Island Railroad and Metro-North riders would face fare hikes of 46 percent and 32 percent respectively, according to a report released by the non-partisan Citizens Budget Commission today.

In real terms, that would mean the price of a monthly ticket from White Plains to Grand Central would catapult from $229 to $302 a month. A ticket to Ronkonkoma on the Long Island Railroad, meanwhile, could jump from $334 to $488 per month.

"As is often the case, people should be careful about what they wish for; the theory of an unconstitutional [payroll mobility tax] could be far less pleasant in reality," write the report's authors, Charles Brecher and Rahul Jain.

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Another possible solution for the M.T.A. would be to reduce service for those counties that have rebelled against the tax, resulting in cuts equivalent to "ending service one day per week" on suburban lines.

Suburban legislators have called for the elimination of the payroll mobility tax pretty much since the legislature approved it in 2009 as part of an effort to stabilize the transit agency's teetering finances.

The tax levies $.34 on every $100 of most employer payrolls in the 12 counties served by the agency's Long Island and Metro-North railroads, and New York City subways and buses. 

In August, opponents of the tax won a symbolically important, though probably only temporary, victory, when a Long Island judge ruled that the the New York City-based agency did not serve a "substantial state interest," and therefore taxes to support it could not be levied on suburban municipalities without their explicit approval.

Legislators in Long Island and upstate hailed the ruling as a victory, while Joe Lhota, the M.T.A.'s chairman, warned of "devastating service cuts."

But he also said that if the ruling were upheld, he would, more likely than not, spread the pain around, rather than concentrating it in those places whose residents would like to defund it.

"Unlike the decisions that were made regarding this case, and unlike the press conferences that were held all around their area, I'm gonna be fair in this process," he told reporters in Grand Central Terminal's Vanderbilt Hall.

Last year, the tax injected $1.4 billion into the M.T.A.'s operating budget, $428 million from the suburbs, and the rest (the bulk) from New York City.

This year, the suburbs are expected to contribute $459 million. 

Long Island and Metro-North riders are already more heavily subsidized on a per capita basis than New York City subway and bus riders.

Suburban opposition to the tax nevertheless remains strong, despite the chairman's enthusiastic efforts to win over suburbanites, and Lhota has acknowledged that he's looking for a replacement revenue stream.

"I need to find a way ... whatever happens with the payroll mobility tax, to find a substitute for it that's more equitable and more fair," Lhota told a group of Dutchess County business leaders, in August, during a good-will mission to Poughkeepsie.

Yesterday, Crain's New York Business columnist Greg David argued that the best solution would be to both implement a tax on commuters and institute a congestion pricing scheme:

The most obvious alternative is to reinstitute the commuter tax, which was repealed in 1999. At least the people paying that tax would be those benefiting from it. The money would be substantial—$800 million a year if imposed at the previous rate of 0.45%, said the Independent Budget Office.

That won't fill the gap alone, and it won't fly politically, either, because it will be assumed that the money will be spent in the city and for city residents. So it will have to—and should—be accompanied by the original bridge-tolling scheme.

As he notes, both would be politically unpalatable. Why, after all, would the suburban legislators who decry the payroll tax endorse a separate tax on their constituents?

Those same suburban legislators might, theoretically, prove more amenable to congestion pricing, since that would more directly affect city residents. But then it's not clear the city's legislators in Albany would be on board, even though New York City's economy could not exist in its current form without mass transit.

Nor, for that matter, has transportation guru Sam Schwartz's new, more borough-friendly congestion pricing scheme—the one he argues would be more palatable to city voters than Mayor Bloomberg's, which died in Albany a few years back—won any champions among those vying to succeed Bloomberg in 2014.