(Bloomberg) -- Delaying New York City’s congestion pricing plan forces the Metropolitan Transportation Authority to shelve $16.5 billion worth of capital improvements and likely shatters the transit agency’s balanced budgets through 2027.
Governor Kathy Hochul says she’s going to fix it, though how and when she’s going to piece back together the MTA’s finances is unclear. She points instead to her success last year in boosting a tax on New York City’s largest businesses to pull the agency back from a fiscal cliff.
“This will get resolved,” Hochul said about MTA’s anticipated funding gaps during an interview with Bloomberg News. “I guarantee this will get resolved and I’m going to take care of the riders.”
Hochul’s decision to indefinitely pause a first-of-its-kind tolling initiative that was set to begin June 30 means the MTA — which runs the city’s transit network — won’t get an estimated $1 billion a year. That money was going to modernize a more than 100-year-old system and improve service to help attract more riders. The pause will also squeeze the MTA’s operating budget — which covers day-to-day operations — with increasing expenses.
MTA officials are analyzing the size of that strain and expect to update later this month its multi-year fiscal plan, which will likely include new budget shortfalls.
“Through a situation entirely of the state’s making, they are in a crisis mode right now where they have to come up with long-term funding solutions to get themselves back on track,” said Dora Lee, director of research at Belle Haven Investments LP.
The transit agency isn’t able to enter into new construction contracts until officials determine another funding source. That won’t happen until Hochul and the legislature hash out the state’s next budget, a process that traditionally starts in January.
“Everybody thinks that this is the only path, the only way you can possibly fund the MTA,” Hochul said about the tolling initiative. “We have figured it out in the past without congestion pricing.”
The murky outlook for the MTA’s finances is a far different picture than in 2023, when Hochul and state legislators raised the payroll mobility tax on the city’s largest businesses to help fix the agency’s budget shortfalls, creating balanced spending plans for five straight years.
“I don’t know that we’re going to see five balanced years in July,” said Ana Champeny, vice president for research at the Citizens Budget Commission, a nonprofit organization that analyzes New York City and state finances. “It’s pretty unlikely. The question is how big are those gaps and what’s the solution?”
Congestion pricing would have charged motorists entering into the most crowded part of Manhattan, in an effort to decrease traffic and improve air quality. The revenue would have generated $15 billion to replace subway signals from the 1930s, purchase new train cars, add elevators to stations and extend the Second Avenue subway to Harlem.
To be sure, MTA’s balanced budgets faced risks even before the decision to pause congestion pricing. Farebox collections are $57 million below estimates through May. Additionally, taxes tied to real estate are poised to come in $300 million short this year if that sector continues to underperform, Kevin Willens, the MTA’s chief financial officer, warned last month during a committee meeting. The agency is pushing to clamp down on fare evasion, which is estimated to cost it as much as $800 million this year.
Delaying the tolling initiative adds to those challenges. Instead of selling congestion-pricing bonds, the MTA will need to issue debt repaid through its operating budget sooner than expected. That would accelerate principal and interest payments by as much as $300 million. The agency will also need to resolve an estimated $2 billion of labor costs for the capital plan budgeted with congestion pricing funds.
Overtime and maintenance expenses are expected to increase because workers will likely spend more time repairing aging equipment and train cars that were due to be replaced. It’s possible farebox collections will need to be revised downwards because congestion pricing was expected to boost ridership.
“These are real costs. They are not going away under the current situation,” Neal Zuckerman, chair of the MTA’s finance committee, said. Though, state and city leadership has a track record of supporting the MTA and its financial health, he stressed.
But given Hochul’s sudden reversal on congestion pricing with no funding alternative in place, it’s possible that state assistance may not match all of MTA’s needs, said Belle Haven’s Lee.
“It used to be that they’ll support it, up to a certain level,” Lee said. “That level appears to have significantly dropped given how hasty this decision was.”
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