The city toll in NYC seems dead – in favor of the income tax

In a surprising reversal, Governor Kathy Hochul announced that the planned introduction of a congestion charge in Manhattan’s Congestion Relief Zone would be put on hold indefinitely – seemingly putting an end to a previously controversial policy.

The plan, which was to take effect on June 30, would have charged drivers up to $15 to travel south of 60th Street in Manhattan. It would have been administered by the Metropolitan Transportation Authority and was intended to limit car traffic in Midtown – particularly that of out-of-state drivers.

In the short term, lawmakers appear to be considering raising taxes on local businesses to make up the difference.

Congestion charges put on hold

Governor Hochul cited economic concerns and the ongoing impact of the pandemic in her plan to put the congestion charge on hold. She particularly acknowledged the financial burden the measure would place on New Yorkers, citing the increase in the cost of living over the past five years.

In her address on affordability and the cost of living, Hochul emphasized that the $15 toll would place a burden on working- and middle-class families and potentially hinder the city’s economic recovery.

However, implementing a payroll tax on local businesses as a means of helping the city recover is fundamentally wrong and could exacerbate existing challenges. Small businesses, as Governor Hochul noted, are already struggling with the effects of the pandemic – implementing a payroll tax would increase their operating costs.

A payroll tax could further discourage new businesses from setting up in the city and encourage existing businesses to move to lower-tax areas. In addition, the abolition of the congestion charge would not mitigate the cost of additional traffic to residents.

Instead of creating a conducive environment for business growth and recovery, a payroll tax instead of a congestion charge would simply impose an additional tax on companies – for the privilege of continuing to struggle with the same problems.

Not only does congestion charging generate much-needed revenue for public transport improvements, it also addresses the significant environmental and health impacts associated with traffic congestion and pollution. By forcing drivers to internalise the externalities caused by their chosen mode of transport, such as higher emissions and traffic delays, the city can promote a more sustainable transport culture.

outlook

Ultimately, the Metropolitan Transportation Authority board must decide whether to vote in concert with the governor. The board is made up of 23 members, with voting members nominated by the governor, the mayor, and one representative each from various state governments.

Major decisions require the participation and approval of the MTA Board, which consists of a chair and sixteen other voting members appointed by the Governor with the approval of the Senate. Substantial or general changes require a simple majority of the Board in some cases. Therefore, it seems clear that a deferral of the Board-approved congestion pricing plan would require a majority of the Board.

If congestion charging is put on hold indefinitely and there is no mechanism to internalise the costs of car congestion, the burden will continue to be shifted onto the wider population, including those who have nothing to do with the actual problem. Ultimately, this will lead to a less efficient allocation of resources and burdens and perpetuate environmental damage and health problems.

Abolishing the city toll in favour of a payroll tax for companies could well be worse than simply doing nothing.