Good news/bad news for NYC MTA: Congestion pricing is moving forward, but the tax cliff is also closer

New York’s Metropolitan Transportation Authority (MTA) is moving closer to implementing its Central Business District tolling program, also known as congestion pricing, but the progress comes as an updated financial plan shows that the transit system is a year closer to financial crisis than projected in February as it faces a deficit expected to grow to $2.5 billion within two years.

“Identifying new dedicated revenue to fund public transit is imperative as we seek to address our fiscal cliff,” said MTA President and CEO Janno Lieber. “Transit is essential to New York’s economic future as we continue to recover from the pandemic, and it must be treated as an essential service, with strategies that don’t just put the problem on the backs of our riders through painful service cuts and fares rise”.

Congestion pricing

The MTA’s plan for congestion pricing, in a nutshell, would charge a toll to vehicles entering or staying in New York City’s central business district. Net proceeds would fund improvements to New York City buses and trains (80% of funds), Metro-North Railroad (10% of funds), and the Long Island Rail Road (10% of funds).

This week, the MTA said the Transit Mobility Review Board, which will recommend toll rates, credits, discounts or waivers for the program, had been whittled down to five members. Members of the Transit Mobility Review Board will include five MTA appointees and one from New York City Mayor Eric Adams; MTA says all members have experience in public finance, transportation, transit or management.

Carl Weisbrod will serve as chairman of the board and will be joined by John H. Banks, chairman emeritus of the Real Estate Board of New York, Scott Rechler, chairman of the Regional Plan Association, Elizabeth Velez, president and director of Velez. Organization and Kathryn Wylde, President and CEO of the Nonprofit Association for New York City.

In addition to the appointment of MTA appointees to the Transit Mobility Review Board, the agency plans to release the program’s Environmental Assessment on or around August 10. Following the release of the Environmental Assessment, MTA will hold six virtual public hearings to collect comments on the assessment throughout August.

The successful implementation of congestion pricing is expected to have a slightly positive impact on the MTA’s public future, but it plays an important role in the authority’s 2020-2024 capital program, which calls for at least $15 billion to finance capital investments.

preliminary budget 2023; updated financial plan

The MTA also released its preliminary 2023 budget and updated financial plan that shows a slower ridership recovery, higher expenses and other factors mean a projected fiscal cliff could come in 2025, a year entire earlier than expected.

Ridership on the MTA’s various modes in late 2021 and early 2022 continued to track McKinsey & Company projections. However, the spread of the Omicron variant drove the number of users down, and it has recovered to about 61 percent of pre-pandemic levels. Continued telecommuting, fewer non-work trips and customer sentiment are reasons the MTA says its ridership hasn’t recovered as expected.

An updated assessment of user numbers by McKinsey & Company predicts that user numbers will reach 80 percent of pre-pandemic levels by the end of 2026, representing a $500 million annual decrease in anticipated income from the price box. MTA says additional costs driving the projected financial cliff include $500 million to $1 billion annually in lost state tax revenue, about $150 million annually from increased operating expenses, $100 million annually for wage increases related to labor negotiations and $500 million annually. per year from 2025 in deferred rates and toll increases.

Emergency aid provided by the federal government should be enough to cover budget shortfalls through 2024, but would cover roughly $327 million in shortfalls in 2025 and 2026. The MTA says all of this results in an annual structural deficit of 2,500 million dollars in two years. which will rise to $2.75 billion by 2028.

“The forecast of ridership projections has created a new higher and earlier fiscal cliff for the MTA,” said MTA Chief Financial Officer Kevin Willens. “While there is enough federal aid to cover structural deficits through 2024, state and city action in 2023 to create new revenue streams dedicated to the MTA can reduce the fiscal cliff to $1.6 billion and save billions in costly debt service costs.”

Willens presented a scenario to the MTA board to make up the outstanding shortfall by $1 billion. He says instead of spending all of the federal funds on deficits in 2023 and 2024, those funds could be spread around to reduce the cost structure in the medium term and avoid costly borrowing. For that to work, Willens says new revenue streams would be needed by 2023, and the MTA is engaged with stakeholders to identify new funding sources needed to avoid large future fare increases and service reductions. In addition, the MTA says it will continue to seek operational efficiencies.

New York State Comptroller Thomas P. DiNapoli strongly supports the move away from borrowing, warning in September 2021 that long-term borrowing to pay for short-term needs was a “dangerous practice.”

Comptroller DiNapoli noted that the updated financial outlook means the MTA should act “quickly and creatively to provide options to increase revenue amid changes in service demand and generate cost efficiencies and savings solutions to mitigate the widening gap” between income and expenditure.

“Fortunately, the MTA has deviated from its ill-advised plan to cover operating gaps through borrowing, which will reduce the recurring debt service costs associated with the bonds. The authority also took a step forward in pricing congestion by appointing its Transit Mobility Review Board, a critical step in funding its capital plan,” DiNapoli said. “Safe and reliable mass transit is critical to revitalizing New York City’s economy in an equitable manner. Monthly customer satisfaction surveys and recent quarterly Transit Summit discussions with New York City on the state of service are good steps forward, but the MTA needs to show how it intends to use this information to keep the public informed about how it plans to provide quality service for years to come.”


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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!