MTA to appeal judge's payroll tax ruling

Passengers run to board a New York City

Passengers run to board a New York City bound Metro-North train at the Port Chester train station. (Feb. 10, 2012) Photo Credit: Rory Glaeseman

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Local government leaders lined up Thursday to praise a judge's decision overturning an MTA payroll tax that's been called "the vampire of all taxes," while state officials threatened service cuts and fare hikes to cover a $1.2 billion loss in revenue if a court challenge fails.

"We will vigorously appeal it and we expect it will be overturned, since four similar Supreme Court cases making the same argument were previously dismissed," the MTA said in a statement Thursday.

Known as the Payroll Mobility Tax, it allowed the Metropolitan Transportation Authority collect 34 cents of every $100 of payroll from employers in the MTA region.

On Wednesday, a Nassau County Supreme Court judge sided with local leaders who've accused the MTA of a wrongheaded attempt to close a yawning budget gap by dunning local business owners struggling to survive in a challenging economic environment.

Judge R. Bruce Cozzens said the MTA violated the state Constitution by changing the tax policy of certain municipalities for a purpose that did not benefit the rest of the state.

"The payroll tax is one of the insidious hidden taxes that have made the public mistrust the state government," said Rockland County Executive Scott Vanderhoef. "It places an unfair, job-stifling burden on businesses that receive little if any benefit from the MTA."

Westchester County Executive Rob Astorino agreed.

"The MTA payroll tax is essentially an unfunded mandate from Albany," Astorino said. "In this case, we were allowed to challenge it. We did. And now we've won an important victory with the court's decision that this unfair burden on taxpayers was unconstitutional."

The MTA said the decision could mean the loss of about $1.2 billion in revenue -- a hit it called "catastrophic."

"The MTA is getting its fiscal house in order," the statement added. "We have cut more than $700 million from our annual operating budget and eliminated 3,500 jobs. We are on track for this year's discretionary spending to actually be lower than last year's. Without the Payroll Mobility Tax, or another stable and reliable source of funding, the MTA would be forced to implement a combination of extreme service cuts and fare hikes."

Last month, the MTA announced the largest expansion of train service in more than 30 years thanks in part to surging off-peak and weekend ridership on its Metro-North railroad. The plan calls for the addition of 230 trains, most of them east of the Hudson River, which would lead to trains leaving every half-hour -- instead of every hour -- from suburban platforms heading into Manhattan.

State Sen. Greg Ball promised to work with New York lawmakers to force a repeal of the law and demand refunds for businesses forced to pay the tax while the legal challenges drag on.

"I am so happy to hear that this job-killing tax was ruled unconstitutional and now it's time to demand a full repeal as well as a retroactive refund," Ball said.

Business leaders welcomed the news.

"The MTA payroll tax did nothing to help stimulate economic development and with yesterday's court decision it is our hope that one huge obstacle has been removed which will help business grow in our region," said Marsha Gordon, the president of the Business Council of Westchester.

Transit advocates urged the MTA to find other revenue streams, such as congestion pricing or tolls to close budget gaps.

"With persistent raids by New York State elected officials on dedicated state transit revenues in recent years, the MTA has been forced to operate in a climate of fiscal uncertainty, and yesterday's ruling only makes matters worse," said Veronica Vanterpool, the executive director of the Tri-State Transportation Campaign.

"The 8 million daily commuters that depend on LIRR, Metro-North, and subway and bus service deserve better and the metropolitan region's economy depends on it. Now more than ever, Governor Cuomo and state lawmakers must find revenues to keep the largest transit system in the country alive," she added.

Nassau County filed the lawsuit challenging the tax in 2010 and was joined by 11 other counties from the region served by the MTA, including Westchester, Putnam and Suffolk counties.

The tax was created in 2009 at a time when the MTA, which operates buses, subways and commuter railroads in the New York region, was facing a record deficit.

Republicans accused state Democrats of pushing through a tax that unfairly singled out business owners.

Cozzens said state lawmakers failed to meet a key element required to enact such a law. He ruled that they should have included a home-rule message along with the law.

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