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| Gov. Cuomo and administration officials announcing the state FY 2020 budget deal (Photo: Gov. Andrew Cuomo) |
The law places the authority for implementing and operating congestion charging (and collecting all of the money from it) squarely within the realm of the TBTA/MTA, not the city, and the city is required to cooperate with/not hinder the implementation or operation of the congestion charging program.
The state budget does not establish what the congestion charge will be specifically, or what vehicles may be subject or not subject to the congestion charge, rather it must generate enough revenue necessary to fund $15 billion for the MTA's 2020-2024 Capital Program. It then charges the TBTA to establish a new "transportation mobility review board" to determine congestion charge rates (which can be variable) and policies to generate that amount of money. The law does specifically state that the congestion charge may only be assessed once per day, cannot apply to any authorized emergency vehicle or a qualifying vehicle transporting a person with disabilities, and shall be discounted based on any tolls paid on certain bridges and crossings to be determined.
That "transportation mobility review board" will be a six-person panel established by the MTA's Board of Directors. It will contain just one member recommended by the NYC Mayor, one member who lives in the LIRR region, and one member who lives in the Metro-North region—and all members must be approved by the MTA Board. This has been a point of early criticism from some, as it significantly limits the amount of say New York City has over what happens with its streets, effectively ceding full control to the MTA.
All revenue generated from the congestion charges have to be deposited into a "central business district tolling capital lock-box fund", which will be 100% dedicated to capital construction expenditures, not operations. Also deposited into this CBD tolling fund is revenues from two other smaller taxes also enacted as part of the 2019 state budget. These join the litany of other dedicated taxes and fees that currently go straight to the MTA.
- Progressive mansion tax: a progressive tax on real estate property transfers with a combined top rate of 4.15% on the sale of properties valued at $25 million or above from July 1, 2019. This is expected to generate enough revenue necessary to fund $5 billion for the MTA's 2020-2024 Capital Program.
- Internet sales tax: a new framework for imposing sales taxes on internet sales. Under the legislation included in the state budget, 100% of the 8.875% sales tax revenues generated on sales in New York City will go to the MTA. Outside of New York City, the sales taxes will be allocated to the state and counties (plus the 0.375% MTA sales tax surcharge in the seven suburban counties in the MTA region) as ordinary sales taxes are now. This is expected to generate enough revenue necessary to fund $5 billion for the MTA's 2020-2024 Capital Program.
At this point it is very important to stress a key point that is easy to miss in the language of all of the celebratory press releases and articles about congestion charging. The three new funding sources together are NOT generating $25 billion in cash for the MTA's next capital program, rather they are only generating enough revenue necessary to fund $25 billion for the next capital program. In other words, that means that these new tolls and taxes are only generating enough cash to pay the interest on $25m in new bonds for the MTA's 2020-2024 Capital Program.
The progressive mansion tax is only expected to generate $365 million in cash for the MTA, and the internet sales tax only $320 million. That means that these tolls and taxes are not actually funding the next capital program, rather just financing the debt that will fund the next capital program. This should be cause of great concern, as it will only make worse the MTA's debt problem. While the MTA's burgeoning debt problem is a topic that requires much more discussion, the quick version is the MTA is currently carrying a large amount of outstanding debt, an amount that is appears to have no plan to pay down, other than paying the interest on that debt indefinitely.
According to the most recent estimation by NYS Comptroller Thomas DeNapoli, in his office's 2019 annual report on the MTA's financial outlook, the MTA's debt load (before even considering the 2020-2024 program or any of this new revenue) is expected to top $42 billion by 2022. If the MTA bonds against all of the revenue provided by the congestion charging scheme and the other new dedicated taxes, the MTA will increase its debt load by 60% to over $67 billion.
The MTA's annual expenditure on debt service costs were expected to top $3.2 billion by 2022, and with the news today, that will skyrocket even higher. Debt service payments (interest costs on bonds) come out of the operating side of the MTA budget.
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| (Figures: NYS Office of the State Comptroller) |
Issuing debt is a very slippery slope. The MTA's bond covenants require the agency to make debt service payments before spending a cent on providing transit service. That means the MTA must pay all of its bondholders before it can spend anything on running buses and trains. The Comptroller's estimates of the MTA debt burdens assumes a relatively steady ridership projection...but in the event ridership drops (either due to worsening service or a period of economic stress, similar to the 2008 financial crisis, where MTA ridership dropped significantly), the MTA's revenue will drop as well. In order to balance the budget, the MTA would have to make cuts to service in other areas, so to not compromise debt service payments.
The MTA issues bonds backed on the transportation revenues it generates from fares and tolls. Because these billions in debt are backed by fare and toll revenue (now including the congestion charging revenue), and changes or instability in revenue will result in a downgrade of the MTA's credit rating, which has been downgraded as recently as last summer, which means the MTA has to pay higher interest rates, further increasing debt service costs. This means that not only is transit ridership and toll crossing volumes a threat to the MTA's credit, but now congestion in Manhattan will be too. If the new congestion charging is too successful at keeping traffic out of Manhattan (to the point where fewer people than expected are paying the congestion charge), it could send the MTA's credit spiraling when they don't have enough cash to support these bonds.
Lastly, while the congestion charging and two new taxes will generate enough revenue necessary to fund $25 billion for the next capital program, that $25 billion infusion will be a one-shot deal for the MTA, for their 2020-2024 Capital Program. Once the revenue is bonded against, that's it...to put a similar amount of money for the following capital program, the agency will need new funding sources above and beyond congestion charging. This also means that the congestion charging and other revenue will be needed in perpetuity for the sole purpose of paying the interest (not principle) on all the new debt being issued as part of this plan—50 years from now we will very likely still be paying the interest on this debt, even though the railcars or infrastructure built as part of this capital program may be retired or replaced anew by the time that comes.
While the news that congestion charging is moving forward is welcome to some, the devil is in the details, and there are a lot of details that are still to be flushed out in the two or so years before this program can go live. These details could make or break the plan, and the MTA as a result. I have great concern over the MTA's debt problem...whether the new debt is being issued to support projects like the Main Line Grade Crossing Elimination project (which is being financed mostly through debt), or other worthier projects, we should take great care when worsening the MTA's debt load.
