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NYC IBO report finds that the MTA’s revenues are becoming increasingly unstable

August 5, 2011

According to a report issued today by the New York City Independent Budget Office, the Metropolitan Transportation Authority’s revenues are becoming increasingly unstable as the authority grows more reliant on dedicated taxes and fees and a smaller portion of its budget is drawn from fares and tolls .

The report explains that “the transportation authority’s growing reliance on [dedicated taxes and fees] does not assure fiscal stability. Some of the authority’s largest dedicated revenue sources are among the most sensitive to the ups and downs of the business cycle and the even more pronounced swings in the market for real estate.” The new payroll mobility tax, for example, which was expected to be MTA’s largest source of funds, fell far short of expectations in 2009.

Despite the unreliable nature of these funding sources, dedicated taxes and fees have grown to account for about 40% of the MTA’s budget this year, up from about 30% in 2003. Fare and toll revenues, on the other hand, have grown by only 4.7% and 4.8%, respectively, over the same time period.

Among the other key findings in the report, the IBO determined that:

  • On a year-to-year basis, revenues from dedicated taxes and fees show greater variation than fare and toll revenues.
  • Gyrations in the transportation authority’s property transfer taxes have been far steeper than in the economy as a whole; from a peak of $1.6 billion in 2007, total transfer taxes plummeted 75.4 percent in just two years.
  • Another large source of dedicated revenue, the corporate franchise tax surcharge, has also been very sensitive to the business cycle. Receipts surged from $500 million in 2003 to a peak of $975 million in 2007, and then dropped to $842 million in 2008. Surcharge revenue has since grown modestly to $875 million in 2010.

The report also notes that the flow of dedicated funds through various state accounts is “convoluted” and makes it difficult to predict expected revenues. According to the IBO, $260 million in funds “dedicated” to the MTA have been redirected to other state uses over the last three years. Some of the authority’s funds are distributed to upstate transit agencies, some of the revenue flows are set by statute, and others are subject to the approval of annual appropriations by the New York State Legislature. Each of these factors, the report said, add to the complexity and volatility of the MTA’s funding stream.

The MTA declined to comment on the report for Crain’s New York Business.

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