“The ways in which responsibility may have been shirked, or ignored, in the past, to live for another day — that day has come, and we're going to have to make those tough choices,” news sources say that Governor Paterson remarked in response to the Ravitch Commission plan to save the MTA. But in reality, the Ravitch Commission plan is a replica of the previous two — borrow massively for just a few years of ongoing needs, and live another day, maybe. Everyone in the region is paying a ¼ percent sales tax to the MTA, and will be forever, but the money isn’t used to either operate or rebuild the system, it goes to past debts. The same may be said of the MTA corporate income tax. Other bonds were floated against future fare revenues, something the Ravitch plan criticizes obliquely. It instead plans to create an off-balance sheet entity to borrow $35 billion for the 2010 to 2014 capital plan, and operating costs in 2009. But this isn’t a new idea — there is already such an entity collecting the 1/8 percent additional sales tax to pay bonds for the 2005 to 2009 capital plan. In 2010 and forever after we’ll by paying that extra sales tax, but receive nothing for it. The same will be true of the permanent 1/3 percent wage tax the Ravitch plan proposes to fund the 2010 to 2014 plan. In 2015 we’ll still be paying it, but getting nothing. The “tough choice” is to delay the day of reckoning five years by making things even worse for the future. Again.
From The Daily Politics. “’The payroll tax of 33 cents per $100, would have to be paid by every single employer in the MTA service area, including the city, the state and nonprofits’ because ‘everybody in the region benefits from the transit system,’ former MTA Chairman Richard Ravitch said. This would generate $1.5 billion annually and enable the MTA to borrow between $30 and $35 billion over the next five years for its capital plan, which as of today has ‘not one hard dollar’ behind it, Ravitch said.”
They are pushing for a permanent tax, in order to pay for just five years worth of capital expenses, most of which are just ongoing normal replacement. The kind of stuff that will have to be done as well after 2015 if the system is not to fall apart. In fact, as I wrote here, the capital program the Ravitch plan would have us paying for forever would not be sufficient to keep up with the need for ongoing normal replacement, particularly for the subway signal system and station rehabilitation. In five years things would be worse, and going downhill fast. And what does the Ravitch report, which is an empty suit, have to say about that? “Without a doubt the next capital plan must include adequate funding to continue the program of restoring the entire MTA system to a state of good repair, providing normal system replacement, and completing the exiting portfolio of long-awaited expansion projects” but “the Commission’s mandate did not extend to the review of specific capital priorities.”
And then in 2014 we would be right back in the same spot, but further behind on maintenance, with $62 billion in debt instead of $27 billion in debt, and with permanently higher taxes. What would we do then? Did anybody ask?
That is if the money can be borrowed even from 2010 to 2014. Many investors are getting the idea that state and local government debt and pension obligations, shifted to the future by people in the past who felt entitled to a very good deal, won’t be paid back. Just yesterday the Port Authority of New York and New Jersey was forced to cancel a bond issue because nobody was willing to underwrite the bonds. Zero bidders. Moving the future MTA debts to an off balance sheet entity with no claim on the MTA and no general obligation claim on the state (which would require a referendum) is hardly a way to entice bond buyers. And for any bond buyers out there, I’m in favor of bankruptcy and default on the existing debts, let alone new ones, and most people who take the time to learn what I know agree with me.
And what about those existing debts, and unfunded pension liabilities? Who benefited for putting less in, and taking more out, to put us in this position, now and forever? The Ravitch Commission report doesn’t say, other than to note “the MTA’s deficit is rooted in a structural budget imbalance driven by years of over-reliance on self-supported debt to fund its capital needs.” Hence the “solution,” more debt — but off the MTA’s books, somewhere else.
What the proposal does is exempt those who got a good deal in the past for paying a cent to deal with the consequences in the future, by taxing wage income alone. As those who have read my posts know, a few types of people have been getting richer: wealthy executives, today’s senior citizens, and in particular retired unionized public employees and those about to retire. They have gotten richer through control of government and corporate boards, as a matter of power not earning the money by doing more in exchange. Everyone else is getting poorer, particularly the bottom 90 percent of wage earners and younger generations, most members of which don’t get pensions or even health insurance.
Those with power get most of their income in the form of investment returns for the top executives, and pension, other retirement, and non-wage benefit income for senior citizens and public employees with seniority. None of that would be taxed under the payroll tax proposed by the Ravitch plan. Indeed, the retired do not pay any state and local income taxes on retirement income in New York State at all, no matter how high it is.
So who would pay the proposed payroll tax? It may be presented as a tax on business, but anyone who knows what tax incidence is (read the link and more or just accept what I say) knows that private businesses won’t be paying it. In a weak labor market, which it has been perpetually for most people, wages will simply be lower (or co-payments for benefits still higher for those who have them) to make up for the tax, shifting the entire burden to tomorrow’s workers, perpetually. From the lowest wage workers (except for those earning minimum wage, who cannot have their wages cut more) to the highest. Except that government workers have their non-wage benefits, with cost escalation, locked in, and their wages irreducible, by state law, and are granted wage increases by arbitration. So the public employees, unlike private employees, would not have the payroll tax shifted to them. Taxpayers would, as well as paying their own 1/3 of a percent on their own wage income.
So who as benefited from shifting all those debts and pension costs to the future? The very same people who will not be forced to pay under the Ravitch plan. So why not just make the payroll tax a full 1 percent and stop borrowing money? Because Ravitch, Silver, Skelos, Smith, Paterson, Bloomberg and the rest wants to make sure their generation is retired, and no longer subject to wage taxes like these, before the “day of reckoning arrives.” They of the most selfish, irresponsible generations in history, which have done so much damage that the responsible among us ought to doubt their ability to shield their own children from the consequences of the majority, hasn’t paid in the past, and isn’t going to be asked to pay now.
This is government of the senior citizens, by the senior citizens, for the senior citizens, with nothing left for the future but scorched earth. The Buick of state governments, in that the average age of people buying Buicks is age 68, total Buick sales have collapsed, and the brand is likely to go out of business. Note how the retired, represented by their fellow senior citizens Ravitch and the legislature, threatened those still forced to working with massive fare hikes and service cuts, and now expect them to be grateful for a tax that only they will pay that will merely postpone disaster for five years? How manipulative is that? We get everything and pay nothing, or we will make it even worse for you!
There is nothing wrong with social arrangements that make things tough for younger people (unless they have children to take care of) and cushy for senior citizens, as long as these are sustainable. Then everyone who sacrifices in youth benefits later in old age. After all, younger people have other advantages — more energy, better looking, more to look forward to, etc. But what is happening over and over, and here, is that those who have shirked costs and sucked up benefits in the past are ensuring that those following will be much worse off in the future, including in their own old age. Shamelessly. And things may already gone as far in that direction as they can go, as I pointed out here.
Is there really a point in talking about the rest of the plan? “The MTA should be authorized to acquire the East River and Harlem River Bridges from New York City and it should be empowered to impose an electronic, cashless system of tolls that do not require toll booths.” Fine, I’m in favor of congestion pricing and against toll shopping. But acquire for how much?
At its creation, the MTA was given New York City’s profitable Triboro Bridge and Tunnel Authority by Mayor Lindsay, who just wanted to get out of the transit deficit and didn’t worry about the future past his 1969 re-election campaign. For its own transit system, the city was promised 67% of the profits based on a fixed amount plus 50% of the rest. With inflation, that of course fell down close to just 50% (the city would have had it all if it had kept the TBTA), and Pataki actually cut the New York City Transit share to less than 50%, in violation of that agreement. But at least the MTA took over the debts the TBTA had run up to build its bridges and tunnels.
The city has had to rebuild its East River and Harlem River Bridges over the past 30 years at enormous cost. Some of that was federal, but a lot was bonds city taxpayers are still paying interest on. If the MTA is going to get the toll revenues, and spray some of them (or most of them because city transit is closer to break even) around the suburbs, would city residents be left with the debts? Would there be any guarantee people would continue to be allowed to walk or bike over those bridges, or could the out-of-city majority vote to prevent them out of spite? Is there any guarantee, phony or not, of how much revenue from formerly New York City bridges would go to New York City transit? Does Mayor Bloomberg care? He just wants to shift the disaster until after his own 2009 re-election campaign.
They said when he was appointed that Ravitch had a history of telling the hard truths to elected officials. Well I read the report and there is nothing in it. No numbers. No discussion of how we got here, with a financial crisis despite record ridership. No discussion of who benefitted. No discussion of why the cost of capital project has soared, as I discussed here. Ravitch went to the executive elite, at the NYC Partnership, and exempted investment income, went to the unions and exempted retirement income and didn’t call for more value for the buck. Then stuck future generations with the bill.
He didn’t even give credit (or blame) to Lew Fidler for the proposal to make even low wage younger workers pay more through a payroll tax (which would also hit the self-employed, which is a whole additional issue), while exempting public employees, senior citizens and the rich. Just like the Reagan era cut in the progressive income tax balanced by an increase in the regressive payroll tax allegedly to “save Social Security,” but doing no such thing. Just as, as would be discovered in 2015, this would not save the MTA.
This is a political deal to shield past beneficiaries and make the future even worse, again. And not one elected official, as of the evening of the day when the plan was announced, has objected to that aspect of it. The only objections are to the bridge tolls, perhaps because senior citizens and those with placards are not proposed to be exempted. And there is perhaps an unstated, as of yet, objection that a retirement for transit workers at age 50 after 20 years of work, rather than 55 and 25, is not (yet) part of the deal. After all, 20/50 passed the legislature without a single no vote.