MTA revenue loss state's responsibility

County Executive Edward Mangano seeks to repeal the payroll tax after the transportation agency said it would withdraw financial support for Long Island Bus. Videojournalist: Howard Schnapp (July 29, 2010)

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If the New York State court ruling that struck down a tax that funds mass transit survives appeal, the problem of replacing $1.48 billion would ultimately fall on the state.

When lawmakers agreed in December to repeal the payroll mobility tax on certain small businesses and private schools, the state agreed to kick in $250 million to the Metropolitan Transportation Authority to make up for the loss. The legislation also required that any further reductions in the tax would be offset through "alternative sources" to be included in the state budget.

"By law, they [the state] have to find another source," said Edmund J. McMahon, a senior fellow at the Empire Center for New York State Policy, a conservative think tank. "What . . . [the statute] does say is any alternative has to be done in the context of the budget."

One alternative was raised by MTA chairman Joseph Lhota Thursday: fare and toll increases, service cuts and worker layoffs.

Then-Gov. David A. Paterson and the State Legislature imposed the tax on employers in New York City and suburban counties in 2009 as part of a bailout of the MTA after a proposal called "congestion pricing" -- which would charge cars a fee to drive in parts of Manhattan -- died in the Assembly. Currently the tax and the state's replacement funds contribute roughly 12 percent of the MTA's revenues and subsidies.

"There would have to be some kind of a state response as far as figuring out some new revenues for the MTA, but I would be shocked if there isn't a haircut involved," said Richard Barone, director of transportation programs at the Regional Plan Association, an urban research and advocacy group. In addition to fare hikes and cuts, "they'd have to look for additional state and local aid because right now there's nothing in the queue to replace" the payroll tax, he said.

The state can't simply borrow the money, even if it wanted to, because it's nearing its debt ceiling. Next year, the state will be $732 million under the ceiling, compared with $1.37 billion this year.

The court said the payroll tax law was unconstitutional in part because it applied to local governments rather than the whole state. Charles Brecher, research director at the Citizens Budget Commission, a business-oriented fiscal watchdog, said lawmakers could broaden the tax to get around the ruling.

"You could do a tax like this statewide and take the portion of it that's raised outside of the MTA region and allocate it for highways," he said.

"The lawyers could craft something if there's a will and a need to do it."

It could be months or even years before the case winds its way through the appeals process. The state will continue to collect the tax while the case is on appeal.

The state budget division declined to comment on whether an ultimate ruling against the state and MTA would mean tax refunds.

McMahon said refunding billions of dollars in taxes would be unprecedented.

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