Federal Tax Reform Could Damage NYC Transit System

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By John Herzfeld

The U.S. tax reform bill being finalized in Congress will have a damaging effect on New York City’s transit system, local transportation advocates said.

The timing of the tax bill coincides with an operations crisis for the city’s antiquated subway system, requiring billions of dollars in modernization investments, according to a report by the Riders Alliance and the Tri-State Transportation Campaign.

The report added to a chorus of protests from New York Gov. Andrew M. Cuomo (D), New York City Mayor Bill de Blasio (D), and other state and city officials. The chairman of the Metropolitan Transportation Authority, the agency responsible for the city’s subway, bus, and commuter rail systems, called the bill’s impact “particularly jarring” for mass transit.

The legislation “will result in a reduction of federal funding for mass transit, will significantly impede the MTA’s access to the capital markets, and will increase the tax burden for all of our customers,” MTA Chairman Joe Lhota said in a statement issued after the Dec. 18 report.

Lhota was a chief aide to Mayor Rudolph W. Giuliani (R) in the 1990s. He was appointed by Cuomo to lead the MTA in 2011 but left in 2012 to run unsuccessfully for mayor against de Blasio. He returned to the MTA in June to address the subway crisis.

The transportation advocates said in a news release that the bill “would undermine existing federal funding for transit while also making it more difficult for state and local governments to raise tax revenue or borrow money to modernize transit infrastructure.”

The tax bill faces a procedural vote Dec. 21 in the House, which it is expected to survive, before going to President Trump for his signature.

Commuter Subsidy to End

The bill would also eliminate tax breaks that encourage private employers to subsidize transit for their employees, they said.

The bill’s $1.5 trillion in federal tax cuts would squeeze the overall federal discretionary budget, “threatening key programs that the MTA is relying on to fund upgrades and expansion of the transit system,” the groups said.

They also faulted the bill’s approach to repatriation of offshore corporate profits for not setting any of the money aside for infrastructure funding. They further argued that provisions limiting the state and local tax deduction would curb revenue sources “that would otherwise be expected to support public transit.”

City and state officials have been locked in an impasse over how much funding each level of government must provide to revive the transit system.

Municipal Bond Strictures

The bill’s strictures on advance refunding of municipal bonds, which the MTA has used to lower interest payments on its debt, also came under fire in the advocacy group report.

The GOP tax plan would prohibit state and local government issuers from refinancing their tax-exempt bonds to take advantage of lower interest rates more than 90 days before the bonds can be bought back, the report said.

The MTA has used the tax policy to save money on loan interest. In November, for instance, the MTA issued $2.2 billion in advance refunding bonds.

“Locking state and local governments into higher interest rates—or else taking their savings on new lower interest but non-exempt bonds—will raise their long-term overall borrowing costs and deter them from taking on debt to finance transit infrastructure,” according to the report.

Without a new sustainable revenue source, such as congestion pricing charged against automobiles entering the city’s central business district, “New York’s transit crisis is more likely to worsen than it is to improve,” the groups said.

To contact the reporter on this story: John Herzfeld in New York at jherzfeld@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

For More Information

Text of the report is at http://src.bna.com/u83.

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