MTA's Fortunes Rise, Fall on Real Estate

When New York City more than 90 years ago needed to start spreading its 5 million residents to the suburbs of Harlem and Brooklyn, city leaders tied the cost of expanding "radial rapid transit'' to real estate taxes.
    
It was seen as reliable and reasonable because the value of a property rises with its proximity to a subway or bus stop.
    
What had worked for nearly a century burst right along with Wall Street's bubble less than a year ago. And the Metropolitan Transportation Authority, which had grown to depend on 15 percent of its revenue from real estate transfer taxes and related fees, saw that share of its budget drop by two-thirds. The result was last week's $2.26 billion state bailout that means subway riders will pay $2.25 a ride, a quarter more than the current fare. The bailout, which wards off even higher fare hikes, service cuts and layoffs, also comes with higher tolls, fees and a payroll tax on employers in surrounding counties.
    
"I always felt that real estate was a highly appropriate revenue source for the MTA,'' said Gene Russianoff of the Straphangers Campaign of the New York Public Interest Research Group. "The MTA made their best estimates of how the economy would go and, like the state and the city and other major institutions, they are in trouble.''
    
MTA's revenue stream -- a mix of real estate transfer taxes, sales and corporate taxes, fees and tolls -- is set by the state Legislature, which created the public authority.
    
"It's just hard for me to say they relied too much on the real estate tax and that's why they crashed,'' Russianoff said.
    
That sentiment from the campaign, a watchdog of the system that has sued the MTA for fiscal reforms, flies in the face of Albany politicians who have for years blamed the MTA's fiscal problems mostly on mismanagement.
    
"We're going to have just a widespread cleanup and cleanout of the MTA and start getting this place working in an effective way,'' said Gov. David Paterson on Thursday. "The one thing that I learned through this process is that the public doesn't trust anything the MTA says.''
    
But Wall Street's meltdown and the national recession hit MTA hard in revenue and ridership, tearing a $1.2 billion hole in the budget. For example, in January 2008 the MTA benefited from $122.2 million in real estate tax revenue. As the economy started to sour, MTA board budgeted for just $73.4 million in January 2009 then took in less than half that -- just $35 million.
    
The long view is even more stark. Real estate tax revenue tripled from 2002 to 2007, only to be cut in half in 2008.
    
The records also show fiscal problems were stalking the MTA years ago, but real estate tax revenue that exceeded even the authority's own forecasts masked it. No one saw the good times ending.
    
And that puts blame for part of the deficit on Albany, and raises concerns over whether last week's bailout will be enough in even the near future.
    
Nicole Gelinas, a senior fellow at the fiscally conservative Manhattan Institute, said the bailout fails to address the high cost of labor, including $24 an hour for sales clerks, the inflexibility of labor contracts, and overly generous and unaffordable pensions that workers can collect as early as age 55.
    
Those are conditions and benefits that can be changed by pension reform and labor negotiations in Albany, where public employee unions have great influence in the Legislature.
    
"This is a political problem that shows up in finances,'' she said.
    
Instead, the bailout allows the MTA to raise one-way subway fares and its monthly fare pass to from $81 to $89, instead of $103 under the MTA board's proposal. And employers -- except public school districts -- will face a payroll tax to raise $1.5 billion from the 12-county MTA service area.
    
In the end, the Transport Workers Union, which represents MTA workers, not only saved all 1,100 jobs the MTA board planned to cut, but avoided concessions even as newspaper editorials screamed they shouldn't be exempt from sharing the pain of the fiscal crisis.
    
"You have a tremendously outdated labor cost and nobody is saying we are going to get rid of these,'' she said. "If we are not going to address them now, when?''