A Proposal for New MTA Revenue by Taxing All Foreigners Living Abroad

The New York MTA is in a semi-permanent state of financial distress. Over the decades this had led to an array of various funding mechanisms that bring needed revenue to the system, but the prospects of new revenues are shaky at best. The state legislature is not exactly forthcoming with new taxes or other money.

Without making normative claims about the structure of MTA finance or transit finance in general, I have a suggestion for new MTA money based on the ideal form of taxation: taxing all foreigners living abroad. The way this would work is that all hotel rooms in New York City (average nightly rate is about $200) would be charged $5 per occupied night, and then the room key would work as a transit pass.

In New York City there are about 90,000 hotel rooms. At an 85% occupancy rate, 76,500 rooms at $5 per night will generate about $140 million annually. Obviously some of this revenue will be offset by fewer tourists and travelers buying MTA fares because the key will be their transit pass, but I suspect that the net gain in revenue will still be over $100 million each year. The fare pass can be limited to only the room key(s) so that families and groups will still have to buy some fares, and visitors not staying in hotels will still have to buy conventional fare passes. Overall this plan can raise a lot of money and is a way that tourism and business travelers can directly improve the lives of New Yorkers by making the transit system more financially solvent. This doesn't solve all of the problems of MTA finances, but will help quite a bit.

This proposal will correct current transit subsidies going to tourists. Since the MTA effectively loses money on each fare paid, tourists who use the subsidies are having some of their travel costs paid by the city and state through MTA operations. By charging travelers for their transit use through a hotel tax the travelers will be paying closer to the full cost of providing transit service.

Geographic Equity and Road Tolls

Equity concerns are a major source of trouble for implementing road tolling programs. (Here are two things I have written about equity and the politics of tolls: "For Whom the Roads Tolls" and "Remediating Inequity in Transportation Finance".) This is from my paper for the TRB Committee on Equity:

Policymakers are strongly considering new tolls and fees to manage congestion, provide environmental benefits, and raise money for transportation investment and maintenance.Understandably, such a shift in the way transportation is financed raises concerns about equity. In the United States driving is so ubiquitous that any efforts to raise the marginal costs of driving will have implications across a broad swath of the population, including raising the cost of travel for many people who are poor and have no alternatives. Understanding how existing transportation financing schemes compensate for inequities is critical for developing policies that will ensure fairness in the future. To this end this essay explores how inequity is remediated through revenue recycling and dedicated programs using transportation finance.

 Concern over inequities and fairness is as old as toll roads.  The early toll roads in the United States frequently exempted farmers and folks going to church from paying tolls due to such complaints (1).  More recent supporters of congestion pricing are concerned with equity (2-7), and many scholars have identified potential winners and losers from various pricing schemes (5, 8).  Yet if the revenues from congestion pricing are not distributed—so the only benefit is less congestion—then high-income groups gain and low-income groups will lose (6). This situation has obvious implications for remediating inequity, and suggests that if inequity is a concern at least some of the revenue should be used to promote fairness and compensate those who are made worse off.  In particular, the people who lack meaningful alternatives to paying the new tolls and fees should be afforded some type of compensation.

(The number are citations and are available through the paper at the link above.)

Now that Sam Schwartz and others are reigniting the policy interest in NYC tolls it seems timely to think a bit more about equity. There are essentially no efforts to remediate income inequity caused by road tolls in systems around the world (See my TRB paper for details). But geographic inequity is commonly compensated. For instance, on Wednesday (4/11/2012) the NY MTA announced that the Rockaway Resident Toll Rebate Program has regained it's funding. From the release:

Thanks to $4 million in funding provided in the State budget, tolls for eligible residents using the Cross Bay Veterans Memorial Bridge will once again be fully rebated by the MTA.
“We are pleased to be able to return this program to the residents of the Rockaways and Broad Channel,” MTA Chairman and Chief Executive Joseph Lhota said. “Following the approval of a budget that will allow the MTA to complete a very aggressive capital plan, restoration of the rebate program is another sign of support that Governor Cuomo and the Legislature recognize the need to maintain and provide an efficient, affordable mass transit system.”
The restoration of the rebate plan will be retroactive to April 1st when the State budget was passed. Residents in the six valid zip codes (11691, 11692, 11693, 11694, 11695, and 11697) will continue to be charged for the first two trips within a 24-hour period on the same E-ZPass tag until back office software modifications to the resident E-ZPass tags are completed by late July. Once these back office operations are accomplished, customers will receive credit for tolls incurred on the bridge retroactive to April 1st.
The Rockaway resident rebate program was modified in July 2010 as part of the MTA’s efforts to close a large budget deficit. Under the modified plan, residents in the six valid zip codes paid the discounted resident E-ZPass rate of a $1.13 for each of the first two trips across the bridge. All subsequent trips taken in the same day on the same E-ZPass tag were rebated by the MTA.
As a result of the State funding, all trips for those in the Cross Bay program will be rebated by the MTA. If funding for the program is eliminated, the modified Cross Bay rebate plan will go back into effect.
The rebate plan is only valid at the Cross Bay Veterans Memorial Bridge for passenger vehicles using E-ZPass and enrolled in the Rockaway Resident Program. It does not apply to commercial trucks, motorcycles, taxis, buses or limousines.

In 2009, prior to the rebate plan’s modification, 3.6 million trips were taken by residents participating in the Cross Bay Resident Rebate program. In 2011, 3.2 million trips were taken.

Geographic inequity is generally considered a problem that needs redress, justified by the difficultly of moving. Income inequity, however, is not seen as a problem that needs compensation. Why some types of equity are worth paying for and some aren't is a bit of a puzzle.

Gov. picks London transit official for NYC MTA head

The guy Gov. Paterson picked to run the MTA is an old new face. He was great for the MTA when he was there in the 1980s, and since then he has worked all over, including in London where he was instrumental in implementing the Oyster smart cards. This is probably a really good pick, and it is likely the beginning of the end for Metrocards. This is potentially good for congestion pricing, too.

I now suspect the NYC MTA will switch to smart cards in the next few years, but who knows if the cards will be used to their full potential (a good thing) or if they will just be an expensive way to do what Metrocards do now (that's a bad outcome).

Bad ideas in transit finance

New York's MTA has not been able to get on the gravy train of corporate sponsorship. They have been trying to sell the naming rights to the subway station closest to Citi Field, the new home of the Mets. They don't have any takers, however. That's probably for the best since it is unlikely that the name of the stadium will remain Citi Field very long. Stadia tend to get renamed every few years through mergers, acquisitions or fraud. (Remember Enron Field?) That's fine for a stadium. If Citi is replaced there won't be any confusion about where the Mets play. For a subway stop, that's bad. If the station is replaced, or worse yet, if the name gets moved, there is a lot of potential confusion. System knowledge makes transit easier to navigate. Switching station names reduces this knowledge and will likely discourage some future transit trips. I know the MTA needs to raise money, and I'm all for selling advertising on trains and within stations, but the naming rights are a bad idea.