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A Better Way to Pay for the MTA

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With the Metropolitan Transportation Authority considering four different fare-increase proposals for subways and buses and holding public hearings next month, now is the time to consider whether there is a better way to pay for the MTA. Fares have to rise in any event, but none of the four proposals addresses the shortcomings in the basic structure of how mass transit is funded.

The issue is crucial, as 2.1 million people entering New York City's central business district each weekday rely on the MTA's commuter rail, subway or bus services. Providing these services is expensive. The annual operating and financing expenditures of the MTA's agencies are $17.1 billion in 2012, and the MTA has been operating with significant deficits over the past decade, continuing a long-term trend. In 2016, the deficit is projected to be more than $3.6 billion. And the deficit exists despite significant cost-cutting efforts begun in 2010, despite the assumption of a three-year wage freeze for most workers, and despite planned fare and toll increases in 2013 and 2015 that will raise almost $1 billion in new revenue in 2016.

The two fare planned increases over the next few years will not fix the underlying problem: the MTA needs more revenue to cover the costs of maintaining the system in good repair and enhancing it so it can continue to run safely and efficiently. Something different must be done. A better approach would be to relate funding more closely to an analysis of who benefits from, and who is harmed by, transportation services.

Individuals benefit directly from the use of highways, bridges and mass transit facilities, and they should pay a price to use them. That price is typically a fare (for mass transit) or a toll (for highways and bridges) but can also include indirect user fees, such as auto registration fees and gasoline taxes.

Transportation networks also provide broader benefits than just the convenience for individual riders. Notably, employers and the labor force benefit from a more efficient labor market. It's appropriate, therefore, to have a public subsidy for the service. For mass transit, riders should pay some of the cost, but the broader set of regional residents and employers should pay a share as well.

For bridge and highway users, the issue is complicated by the presence of significant harmful consequences, including noise, congestion, air pollution and greenhouse gas emissions. User fees imposed on motorists should, therefore, include some compensation for these negative consequences; the charges should exceed the direct cost of providing highways, bridges and tunnels.

This analysis suggests three categories of operating revenue for transportation services -- user fees, general tax subsidies and cross-subsidies from auto users to mass transit services. But what's the appropriate mix? The Citizens Budget Commission, the nonpartisan civic organization that I head, proposes the following approach:

Auto user fees should pay for the facilities available to drivers. Therefore, the cost of bridges and tunnels should be funded entirely through tolls and fees paid by the motorists who use them.
Motorists' tolls and fees should also generate a surplus large enough to cover approximately one-quarter of the cost of providing mass transit services. The cross-subsidy is justified by the need to compensate for the negative effects of auto use on the environment and the benefits to drivers from the reduced road congestion made possible by mass transit.
Mass transit users should pay fares sufficient to cover approximately one-half the operating cost of those services. Riders get a direct benefit, and it is reasonable that they should pay a significant portion of the costs.
State and local tax subsidies to mass transit should cover at least one-quarter of the operating cost of those services and fund "catch-up" capital investments needed to bring the system to a state of good repair. The subsidy is justified by the broad economic benefits to employers, workers and shoppers provided by an efficient mass transit system.

This "25-50-25" approach would provide nearly $2.6 billion in additional annual revenue by 2016 without new taxes. Fares would need to rise to reach the "50" mark, as the MTA currently recovers less than 39 percent of its operating expenses through fares. The only service recovering more than 40 percent is Metro-North, while the Long Island Rail Road recovers a lower figure of 33 percent. Fares will have to rise, but the value of this plan is that increases will be predictable and that it will be clear to riders that the burden is being shared fairly.

Under the 25-50-25, the cost of a single-ride subway ticket would increase to $2.75 by 2016, but in constant dollars a subway ride would cost at most three cents more than it did in 1996.

An analysis of the growth in the base fare of a Metrocard from 1996 to 2012 demonstrates that its cost has risen much more slowly than other essentials: 50 percent, compared with 100 percent for a cup of coffee, 126 percent for a gallon of milk, 177 percent for a gallon of gas, and 209 percent for a New York Yankees playoff bleacher seat.

Motorists would face increased costs for the use of their vehicles, in the range of $167 to $293 more annually; the charges would be consistent with those in other global metropolises and related to the benefits drivers derive from a well-functioning transportation system.

The MTA is crucial to the region's economic health, and it's not funded adequately. It's time to consider a better way.

A fuller discussion of these issues, and this proposal, is contained in a new report by the Citizens Budget Commission, titled "A Better Way To Pay For The MTA" and available without charge at www.cbcny.org.

Carol Kellermann is President of the Citizens Budget Commission.