Kathy Hochul Eyes Higher Payroll Taxes, Casino Revenue to Avoid New York City Subway Cuts

The governor’s budget also includes more than $1 billion to help New York City pay some of the cost of housing some 40,000 migrants who have arrived in the city after entering the United States illegally have entered. Many seek asylum.

The MTA proposals would generate enough money to fill a budget gap caused by a loss in fare revenue from lower ridership since the start of the Covid-19 pandemic in 2020, officials said. The new funding would also help foot the bill for additional police patrols in the subway system, which were launched in October amid crime concerns.

MTA Chairman and Chief Executive Janno Lieber, who has lobbied lawmakers for additional funds, said in an interview that the governor’s proposal would allow the agency to avoid service cuts, but not a 5.5 percent fare increase that the MTA adopted in its 2023 budget.

The number of subway riders is about two-thirds of pre-pandemic levels, which analysts say is mainly driven by employees working from home at least part of the week. Additionally, increased crime has displaced some drivers in 2022, customer surveys show. The influx of police officers has lowered the crime rate, Mr Lieber said.

The MTA funding plan was included in Ms. Hochul’s $227 billion budget proposal. The governor will negotiate with other Democrats who control the State Assembly and Senate to pass a spending plan to take effect after the current fiscal year ends on March 31.

The state forecast it would end the current fiscal year with an $8.7 billion surplus, half of which Ms. Hochul plans to reserve. Budget documents said expected slower growth will result in deficits totaling $22 billion over three years, beginning in fiscal 2024-25.

Ms Hochul previously said she would not raise income taxes, but her budget extends an expiring corporate tax surcharge that brings in about $800 million annually. She also proposed raising the state tax on a pack of cigarettes from $4.35 to $5.35.

Her budget would increase spending on mental health services, school aid, and childcare subsidies. Some of the additional spending was planned last year after a spate of income tax receipts and federal pandemic aid swelled state coffers. Ms. Hochul said the state is also using surpluses to increase reserves.

“We used these funds to help our people,” she said. “I knew then that we couldn’t count on the sun to shine forever.”

“It’s not a short-term problem, and it’s one we need to face together,” she said.

Thousands of migrants arriving in New York City last year have pushed the city’s homeless shelters to record levels, prompting New York Mayor Eric Adams to open aid centers in hotels and a cruise ship terminal.

Mr Adams said the city will pay $1 billion to care for migrants in its current fiscal year, which ends in July. The mayor has called on the state and federal governments to shoulder the costs of food, health care and emergency shelters.

Acting state budget director Sandra Beattie said the state will cover a third of the cost of running the aid centers, up to $667 million. The state also covers part of the migrants’ health care costs and funds the National Guard personnel who work in the aid centers.

Mr Adams said he was still reviewing Ms Hochul’s budget when asked about proposals for the MTA and migrants on Wednesday. His office issued a statement saying the governor’s request for $500 million to fund the MTA “could further strain our already limited resources.”

About half of the MTA’s revenue came from pre-pandemic fares and tolls. The remaining funds came from sales, fuel and property taxes, as well as direct city and state subsidies. That includes about $1.8 billion from a mobility tax that lawmakers enacted in 2009.

Businesses in the MTA’s metropolitan area, which includes New York City, Long Island, and the lower Hudson Valley, are charged 0.34% of employee wages, excluding schools, libraries, and small employers.

Under Ms. Hochul’s proposal, that tax would increase to 0.5%, resulting in around $800 million in additional revenue per year. For example, an employer would pay an additional $160 per year for each employee with an annual salary of $100,000.

Kathryn Wylde, president and chief executive officer of the Partnership for New York City group of companies, said corporations are sensitive to tax levels but supporting the MTA is a priority. “The bigger picture will matter to the business community,” she said.

Suburban officials have complained that businesses pay the tax but don’t enjoy the same level of transit services as New York City. Rep. Michael Fitzpatrick, a Long Island Republican, said the MTA should focus on changing the rules mandated by employment contracts to reduce its costs.

“When is enough, enough? It’s going to roil the island,” he said of the tax proposal.

In the Hudson Valley, Dutchess County Regional Chamber of Commerce President and CEO Frank Castella Jr. said, “The businesses in this county can no longer sustain taxes to benefit New York City.”

The MTA, which recently passed a total budget of $19.2 billion, has relied on federal Covid relief to make up shortfalls. Mr. Lieber said the budget includes $400 million from operational savings and said the governor’s plan is a balanced approach.

“It makes sense for the business community to cover some of the cost of providing regular, reliable connections every day so they’re available whenever their employees come to work,” Mr. Lieber said.

Beginning in 2026, Ms. Hochul also proposes directing revenue from casinos in and around New York City to the MTA. The state is asking for bids for arcades in outlying areas, and several companies are offering casinos in the heart of Manhattan.

The governor’s plan to channel casino revenues to the MTA would require a change in state laws that require tax revenues from gambling be spent on education, a spokeswoman for the governor said. The specific funding amounts depend on the concession award process, said the spokeswoman.

Danny Pearlstein, a spokesman for the transit advocacy group Riders Alliance, said he hoped lawmakers would consider even more funding that would allow the MTA to expand the service.

“The governor has listened to her constituents and laid a solid foundation for the continued survival of the MTA,” he said. “We think there is room in further negotiations to do more.”

Write to Jimmy Vielkind at [email protected]