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Real estate makes or breaks MTA budget

By Matthew Sweeney, amNewYork Staff Writer | msweeney@am-ny.com

June 18, 2008

A number of factors have brought the MTA to the brink of yet another fare hike, but none has been a wilder rollercoaster ride than the money it gets from real estate.

"Real estate is something of a boom-and-bust business," said William Henderson, executive director of the Permanent Citizens Advisory Committee to the MTA. "You don't want a large proportion of your revenues tied to the cycles of the real estate market."

The MTA gets more than one-third of its money from a variety of taxes and surcharges on industries and groups that benefit from the transit system.

One of those areas is real estate, which has increased value when there are subways or train stations nearby. Until last year, the taxes on soaring real estate transactions had been keeping the MTA awash in money.

But the MTA underestimated the real estate market in recent years. For example, the 2005 fare hike could have been avoided, as real estate revenue, it turned out, would have covered the budget gap, according to the city's Independent Budget Office.

When the real estate bubble burst last year, the MTA lowered its expectations for income, but not far enough. Through April, the MTA has taken in $462 million, $81 million less than it expected. Meanwhile, its projected surplus this year is rapidly shrinking. And next year, the agency predicts a $500 to $700 million deficit and warns a second consecutive fare hike may be necessary if it can't get more money.

"When the economy suffers in general, as a whole, we suffer as well," said Jeremy Soffin, an agency spokesman.

In 2004, in search of more funds, then-MTA chairman Peter Kalikow proposed increasing the property transfer tax. The real estate community balked at the idea, but Richard Ravitch, a former MTA chairman, and others backed Kalikow at the time. Later Kalikow referred to piles of cash from the property transfer tax as a "junk-food diet."

Now Ravitch is heading a commission with a Dec. 5 deadline to find new ways to fund the MTA. From the agency's perspective, the best answer would be stable tax revenue that, like the real estate taxes, are paid directly to it, but unlike real estate is not subject to such dramatic booms and busts.

The unexpected windfall the MTA made from real estate actually served to hide the agency's financial problems.

"Transfer taxes were also a significant reason why the city has been running surpluses that have been masking underlying shortfalls," said Doug Turetsky, a spokesman for the IBO.

Whatever new sources the Ravitch panel recommends, they will likely be judged for stability. But volatility of the MTA's funding is not the real issue, said Assemblyman Richard Brodsky, who oversees the MTA as chairman of the Authorities Committee.

"What's apparent is we have under-invested in the MTA for decades and the bill is coming up for payment now," he said.