Bloomberg News

New York MTA Payroll Tax Rejected by Judge in Blow to Agency (1)

August 23, 2012

A payroll tax projected to pump $1.26 billion into the New York Metropolitan Transportation Authority’s budget this year may not provide another penny after a state judge struck it down as unconstitutional. The MTA said it may lead to “extreme” service cuts and fare increases.

Judge R. Bruce Cozzens Jr. held the levy violated a so-called home-rule provision in the state constitution, and required a two-thirds vote to pass the Legislature, which it didn’t get, according to a copy of the decision sent by the MTA. Cozzens agreed with Nassau County Executive Edward Mangano’s request to overturn the law that created the tax.

The suit against the tax that feeds a transit agency that carries an average of 8.7 million riders on weekdays was brought by Mangano and officials from suburban communities served by the agency. The tax was adopted by the Legislature in May 2009 as part of a rescue plan for the system, which faced a $1.8 billion budget shortfall. It was approved by margins of 60 percent in the Assembly and 52 percent in the Senate under then-Governor David Paterson.

“We will vigorously appeal today’s ruling,” Aaron Donovan, an MTA spokesman, said yesterday e-mail. “We believe this opinion will be overturned, since four prior challenges to the constitutionality of the law making the same argument have been dismissed.”

‘Catastrophic’ Ruling

In a follow-up statement today, the agency said: “Removing more than $1.2 billion in revenue from the Payroll Mobility Tax, plus hundreds of millions of dollars more from other taxes affected by yesterday’s ruling, would be catastrophic for the MTA and for the economy of New York state.”

The MTA may be “forced to implement a combination of extreme service cuts and fare hikes,” the MTA said.

Mangano, a Republican who led the plaintiffs in the suit filed in 2010, celebrated today alongside state and county legislators at a news briefing in Mineola. He called the decision as a “victory for taxpayers and job creators throughout the state.”

He and others present urged the MTA to drop its appeal. Mangano said his administration was studying whether it could retroactively get the taxes back from the MTA on behalf of the businesses that have paid them, which have totaled $9.9 million since 2009. The MTA “should find another way for efficiencies and cost-cuttings before they turn to the taxpayer or the rider,” Mangano said.

Not Presumptuous

He said he didn’t think it was presumptuous to celebrate in the face of the MTA’s pledge to appeal the decision and the agency’s prior legal victories.

Mangano pointed to his own success in cutting costs as an example for the MTA to follow. In Nassau, which is under the control of a state oversight board after years of deficits, he said he has cut $290 million and reduced the workforce by 20 percent

The MTA also has been working to improve its fiscal condition. The agency has cut more than $700 million from its annual operating budget and eliminated 3,500 jobs after the recession depressed revenue and led it to enact service cuts and raise fares.

The levy that was struck down requires employers to set aside as much as 34 cents for every $100 in payroll costs, Donovan said.

Revenue Sources

Partly reduced under Governor Andrew Cuomo’s tax overhaul in December, the levy was forecast in February to produce $350 million less than anticipated this year. The MTA predicted budget shortfalls of $129 million in 2014, $14 million the next year and $231 million in 2016, in documents released July 25.

While the court decision reduces the agency’s revenue, the mass-transit provider has other means to generate cash, said Daniel Solender, who helps manage about $17 billion of municipal bonds, including MTA debt, at Lord Abbett & Co. in Jersey City, New Jersey.

“Clearly any source of revenue that’s turned down is not a positive,” Solender said. “At the same time, it’s not having a market impact at this time. You don’t want to have to go back and raise fares, but that’s always a possibility too.”

The tax covers a 12-county area including the city and surrounding suburbs. Cozzens made the decision in New York Supreme Court in Nassau County.

“Public transportation is critical to the New York City metropolitan area,” said Paul Steely White, who heads Transportation Alternatives, an advocacy group for bicyclists, pedestrians and mass transit. “We hope Governor Cuomo resolves this crisis, and that the appeals court will consider the substantial state interest when reviewing this ruling.”

To contact the reporter on this story: Esme E. Deprez in New York at edeprez@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net.


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