Gov. Kathy Hochul's idea for New York City payroll tax hike gets rough reception from lawmakers

ALBANY — Gov. Kathy Hochul’s idea to raise payroll taxes on New York City businesses instead of imposing new tolls for driving into Manhattan received a rough reception Thursday in the State Legislature as time to find a solution whittles away.

Nothing is dead just yet, however.

With the State Legislature planning on adjourning for the year on Friday, lawmakers are scrambling to respond after Hochul, in a stunning reversal, declared Wednesday she wants to put congestion pricing for driving in Manhattan on hold “indefinitely.”

The State Senate’s second-most powerful Democrat called the tax hike a “horrible” idea. “A New York City-only payroll tax was used to bail out the MTA just last year,” Senate Deputy Majority Leader Michael Gianaris (D-Astoria) told Newsday. “Doing so again would not only be grossly unfair, it would be bad policy.”

Others said the proposal, floated as a way to fill a $1 billion hole in the Metropolitan Transportation Authority’s budget, was “viewed very poorly” in closed-door Senate Democratic conference.

Congestion pricing, which would have charged drivers up to $15 for driving into Manhattan below 60th Street during busiest times of the day, had been years in planning by state and local officials.

Proponents say the charge would decrease gridlock, encourage the use of mass transit, reduce pollution and provide revenue for New York’s beleaguered subways, commuter rails and buses. Opponents say it was too big a hit for suburban commuters and businesses that drive to Manhattan daily. A Newsday/Siena College poll in November found 72% of Long Islanders opposed congestion pricing.

The plan was approved as state law in 2019, before Hochul became governor. But she had become a big proponent, holding a rallies to tout it. New York would have become the first American city to impose congestion pricing, following the lead of London and other European cities.

Then, just 25 days before the tolls were set to begin, Hochul changed course.

She asked the MTA board to put the plan on hold, contending economic circumstances had changed, in part because of the pandemic. Numerous politicians said Democrats feared congestion pricing might hurt their congressional candidates in elections this fall when control of Congress is up for grabs.

Though Hochul made no public appearances Thursday and her office offered no further comment, state legislators said she pressed them to consider raising the “Payroll Mobility Tax” on city businesses with $1.75 million or more in annual payroll.

Democrats who control the Assembly could be “willing” to consider the tax if it is lopped into to a broad piece of legislation that would combine other elements, sources told Newsday after a closed-door Democratic meeting.

One short-term step under consideration: The Senate and Assembly would approve a resolution whereby the state guarantees the capital borrowing of the MTA without specifying the new revenue stream, sources said. They would figure it out when lawmakers return in January for the 2025 legislative session.

Senate Democrats were much more openly opposed a payroll tax hike.

“What we are seeing now [from Hochul] is a profound lack of leadership,” Sen. Zellnor Myrie (D-Brooklyn), who is running for city mayor, said at a news conference. “To tell New Yorkers that you care about the cost of living and then to propose a raise on taxes” is “incomprehensible.”

Applying the tax hit to city businesses only would appear to neutralize opposition from Long Island and other suburban delegations where “MTA payroll tax” is a phrase that has sunk incumbents in the past.

But it’s not clear just yet what incentives the governor could offer lawmakers to make an 11th hour tradeoff.

Numerous business groups denounced Hochul’s idea. The influential Partnership for New York City pointed out that taxes on business and real estate already account for 44% of MTA revenues compared with 27% from rider fares and 13% from driver tolls.

“Without congestion pricing tolls, the dependence on the [payroll tax] to fund all the MTA needs is unsustainable,” the partnership said in a statement.

Another step that would have to happen is for the MTA board to follow Hochul’s direction and vote to suspend congestion pricing. The MTA Board is not scheduled to meet again until June 26, four days before congestion pricing was set to launch.

Sen. Liz Krueger (D-Manhattan) suggested courts might find such a vote illegal, because congestion pricing legislation is enshrined in state statute.

One MTA board member noted the panel is slated to review a new capital plan this fall, but the funding for it is unclear right now.

“My concern is for the capital plan,” said Marc Herbst, head of the Long Island Contractors Association. “We had a plan in place. Where is the funding going to come from now?”

With Michael Gormley

By Yancey Roy

yancey.roy@newsday.com@yanceyroy