On brink of 'fiscal cliff,' MTA looks for $1.3B bailout while critics want reforms

Gov. Kathy Hochul’s proposed $1.3 billion bailout of the MTA, which includes higher taxes for many Long Island employers, is being praised by transit officials and advocates, and criticized by those who don’t believe the beleaguered transit agency is serious about cutting its own costs.

For months, Metropolitan Transportation Authority leaders implored state officials to pull them back from what they’ve dubbed a “fiscal cliff” — a recurring $2 billion annual budget shortfall, largely attributed to the COVID-19 pandemic’s impact on fare and other revenues. 

The MTA has been relying on federal COVID relief funds to balance its books, but is running out of that money, and predicts a $600 million deficit by the end of this year.

Although MTA leaders have said for years they are “agnostic” about how lawmakers go about creating a new, recurring revenue stream for the MTA, board members and elected officials agency have floated various ideas, ranging from a gas tax to “value capture” models that would charge real estate owners whose properties increase in value as a result of being located near transit.

Ultimately, Hochul turned to an old idea that has proved particularly unpopular on Long Island — a payroll tax. The "Metropolitan Commuter Transportation Mobility Tax," more commonly known as the payroll mobility tax, was passed in 2009 as a means of bailing the MTA out of its last major fiscal crisis. It charges eligible employers in the MTA region up to 34 cents for every $100 of payroll.

Under Hochul’s proposal, the tax would grow to 50 cents for every $100, a 47% hike. For an employee making $100,000, a business would pay $500, instead of $340.

Hochul called it a “small increase.”

“We have to face the harsh reality of the MTA’s fiscal cliff — a problem that was created by almost a complete cessation of ridership during the pandemic,” Hochul said in her budget address Wednesday. “This is not going to be a short-term problem. It’s one we’re going to have to face together, going forward.”

Hochul’s MTA rescue plan also includes sharing potential revenue from casinos that could be developed in the MTA service region, increased aid from New York City, and a “one-time” $300 million bump in state aid.

It also requires the MTA to move forward on a plan, announced in November, to cut $400 million in annual costs, and to raise fares by 5.5% — the biggest hike in a decade.

The agency already has laid out plans to cut costs, including by running trains less frequently during off-peak hours on some subway lines, reducing the number of cars on some LIRR trains, and reducing railroad service on Mondays and Fridays, when ridership is lower.

In total, the package could generate $1.3 billion each year for the MTA. The transit authority’s chairman and CEO, Janno Lieber, praised it as a “balanced plan” that requires all parties to do their part, including the state, city, the MTA, and employers, who “would be stepping up to support essential, top-tier transit services every day of the week even though their employees may be commuting less frequently.”

Lisa Daglian, executive director of the MTA’s Permanent Citizens Advisory Committee, said the proposed payroll tax hike was not the new idea many transit advocates had hoped for, but called it a “welcome addition” and “step one” in a monthslong legislative process.

Daglian said the plan to raise revenue is “the least of a lot of bad options” that could otherwise include steep fare increases, service cuts and layoffs. Employers who “expect there to be transportation and transit to get their workers to the office” should pay their share, she said.

But Sen. Dean Murray (R-East Patchogue) said that reasoning “makes zero sense” on Long Island, where most large employers have workers arrive by car.

Before turning to taxpayers, Murray said he’d like to see the MTA get serious about curbing waste, including an estimated $500 million in unpaid fares each year, and onerous LIRR union work rules that allow some workers to get significantly more pay for relatively little more work.

“Before coming with your hand out, constantly saying you need more, how about cleaning up your act?” said Murray, who was surprised that Hochul would double down on the payroll tax, given how politically unpopular it was on Long Island when it was first proposed more than a dozen years ago.

“As soon as the budget announcement came out and the words ‘MTA payroll tax’ came out, my phone was blowing up with people saying, ‘Is she serious?’ … I think, politically, that’s crazy.”

Ken Girardin, fellow at the Empire Center for Public Policy, a fiscally conservative Albany think tank, said Hochul’s plan only provides “a series of Band-Aids” for the MTA’s financial problems, rather than more meaningful, structural reforms to shrink the agency’s biggest expense — labor.

Nearly 60% of the MTA’s $19.2 billion in annual expenses go toward labor costs, including payroll, benefits, pensions and overtime. In the way of a meaningful overhaul of that structure, Girardin said, are powerful unions, including those at the LIRR.

“If MTA leadership sits down at the table viewing a strike as completely untenable, they are not negotiating a contract. They are negotiating a surrender,” Girardin said.

Asked if LIRR management would take a harder line than usual with unions during their next contract negotiation — which is expected to begin later this year — railroad interim president Catherine Rinaldi said she would not publicly address collective bargaining. But she believes it is “incumbent upon the entire MTA family … to identify cost savings and efficiencies wherever we can.”

While Girardin questioned the state’s ability to enforce its cost-cutting mandate, MTA Board member Samuel Chu, who represents Suffolk County, said he and other board members will hold the transit agency accountable.

“The MTA has made a significant ask of the state and that deserves a serious commitment on the part of the MTA,” Chu said. “I am very determined to ensure that we’re following through on promises that we made to hold up our end of the bargain.”

By Alfonso A. Castillo

alfonso.castillo@newsday.com@alfonsoreports

Alfonso Castillo has been reporting for Newsday since 1999 and covering the transportation beat since 2008. He grew up in the Bronx and Queens and now lives in Valley Stream with his wife and two sons.