Gov. Kathy Hochul says there’s no need to fear: A laundry list of construction projects to improve New York City’s subway system will still go forward even though she paused a planned toll on drivers in the busiest parts of Manhattan that was supposed to pay for them.
She just needs some “alternative funding” to do it.
The Democratic governor says she and state legislative leaders are committed to plugging the congestion pricing-sized hole in the MTA’s capital plan, which relied on $1 billion in annual revenue from the now-paused toll to bankroll an array of improvements, including modern signals, new elevators and making stations wheelchair accessible.
She’s raised the possibility of lawmakers returning to the state Capitol in Albany before the end of the year to do so — perhaps as soon as July, in the weeks after the June 25 primary elections.
But budgetary experts say there are only so many ways New York can raise that kind of revenue, and that the list is even more limited by Hochul’s resistance to raising income taxes, one of the state’s main sources of money. Meanwhile, lawmakers aren’t fond of Hochul’s preferred fix to date: a payroll tax hike on New York City businesses.
“I understand the level of concern at this time,” she told reporters June 10. “But I, as the governor of the state of New York, I'm committed to continuing those projects with alternative funding.”
Hochul’s June 5 decision to “indefinitely” pause the congestion-pricing toll — which was set to take effect on June 30 for drivers who enter Manhattan below 60th Street — marked a severe disruption to the MTA’s infrastructure plan, forcing the transit agency to begin reprioritizing its planned projects to focus on its most basic needs.
The base daytime toll was slated at $15 and the expected revenue would have allowed the MTA to borrow billions more to make more ambitious upgrades.
Until earlier this month, Hochul was a major supporter of the congestion pricing plan. But then she said the toll would have negatively affected blue-collar New Yorkers at a time when inflation is high and New York City is still recovering from the COVID pandemic.
State lawmakers ended their session in Albany two days later, declining to take up the governor's proposed payroll tax hike on New York City businesses with payroll costs of more than $1.75 million annually to fill the gap. The proposal, which Hochul shared with legislative leaders but never released publicly, also would have contained a tax cut for a small number of city businesses.
Since then, she has publicly raised the idea that the Legislature could return to the Capitol at some point before January to provide a new funding source for the MTA. But so far, Hochul and legislative leaders haven’t appeared to make progress on a potential solution.
“I think people need to step back and think much more smartly about this rather than try to scramble to cover a major hole,” said Andrew Rein, president of the Citizens Budget Commission, a New York City-based, fiscally conservative think tank. “It's a really important hole, but scrambling to cover a hole will end up being a political save rather than a fiscal and infrastructure save.”
Lobbyists and other special interest groups have plenty of suggestions for how to fill the budgetary gap. That includes casino gambling interests, who are using the MTA’s budget hole as a way to push something they’ve sought for years: the legalization of online casino games.
Light & Wonder, a Las Vegas-based company that provides slot machines and table games — both in person and online — to casinos, said the state could easily pull in $1 billion a year in tax revenue by legalizing online gaming, enough to replace the lost congestion pricing revenue.
“The message to New York is: Please tax us,” said Howard Glaser, a former aide to ex-Gov. Andrew Cuomo who is now Light & Wonder’s global head of government affairs. “We have a billion dollars for you and it can start virtually tomorrow.”
Left-leaning organizations, on the other hand, have perennially pushed to increase the income tax on New York’s wealthiest earners to grow the state’s revenue base. At the same time, some say they don’t want to give up on congestion pricing, with New York City Comptroller Brad Lander starting to put together a legal challenge to overturn Hochul’s unilateral pause on the program.
“We want to first pursue if there’s any way to bypass the governor's pause and make sure congestion pricing goes through,” said Jasmine Gripper, codirector of the New York Working Families Party. “Plan B, if we can't bypass the governor's pause, then the Legislature absolutely should explore taxing the ultra-wealthy as a way of filling the gaps for the MTA.”
Hochul has insisted her congestion pricing pause is meant to be temporary, but she hasn’t said how long she intends for it to remain in place. That’s yet another complicating factor for negotiations, since the MTA needs a stable, recurring revenue source to be able to borrow money for its capital plan. The transit agency was planning on using congestion pricing revenue to borrow $15 billion to fund that plan.
Nathan Gusdorf, executive director of the Fiscal Policy Institute, a fiscally liberal think tank, said one appeal of congestion pricing is that it would create a stable revenue source that falls outside the normal debates around tax hikes and cost-cutting proposals. Endorsing an alternative revenue source, Gusdorf said, could be akin to “accepting the demise” of congestion pricing, which his organization isn’t willing to do.
But if Hochul and lawmakers do end up plugging the gap, Gusdorf said they have to look at “broad, stable categories of economic activity that generate recurring revenues.” “There aren’t that many, right?” he said. “The state’s three main sources of tax receipts are individual income, corporate profit and sales.”
Rein from the Citizens Budget Commission said the MTA has enough funding available to move ahead for the next year — a situation he said lends itself to coming up with a thoughtful solution for the transit agency's budget crunch rather than a quick one. Still, he said the best solution is the one that was already in place.
“Frankly, congestion pricing is the way to go,” Rein said, noting that Hochul has insisted the pause is temporary. “I want to take the governor at her word … and figure out how we can move this forward in the smartest way possible as soon as possible.”
