The MTA and the Real Estate Bubble: $88 M. Apartments Do Not Mean Transit Agency Is Rich Again

One57 won’t save the MTA. (Matt Chaban)

Yesterday, MTA chief Joe Lhota was on the Brian Lehrer Show, where he almost immediately walked back his earlier radio statements that he was leaning toward a base fare hike to $2.50. But Mr. Lehrer was more interested in discussing the question on many New Yorkers’ minds: Do we really need another fare hike, especially coming so soon after the last one?

Mr. Lhota said we do, because costs like pensions and debt-service have not kept up with revenue—and this was mandated in 2009 anyway, when Gov. Paterson and Richard Ravitch created their MTA bailout. But how could there not be more revenues, particularly from real estate? The economy is still mediocre, for sure, but in a year that has seen more blockbuster sales than we can keep track of, shouldn’t the far-too-dependent-on-real-estate-taxes transit agency be flooded with cash?

In a word, no.

The MTA provided The Observer with a breakdown of the money it has brought in from real estate transactions, both residential and commercial.

Mortgage Recording Taxes from homes in the 12-county MTA region, in millions:

2004: $637.3
2005: $731.3
2006: $763.1
2007: $703.5
2008: $418.6
2009: $241.8
2010:  $239.1
2011:  $244.8
2012:  $256.7  (mid-year forecast)

Urban Taxes on commercial transactions within the MTA region, in millions:

2004: $322.5
2005: $551.5
2006: $669.0
2007: $883.1
2008: $523.5
2009: $150.5
2010:  $173.7
2011:  $352.9
2012:  $376.0 (mid-year forecast)

The simple answer for why revenues remain down is volume—the bubble led not only to high prices but also to a record number of sales. While values have recovered in some areas, there are still far fewer transactions, particularly for commercial properties, and that is holding down tax revenues.

The fact that a few Central Park apartments have traded for close to $100 million will never be enough to rescue the MTA (never mind these apartments may not be paying their fair share of taxes, anyway). Remember, this is a 12-county region; it’s not just Manhattan, that Holy Grail of real estate. Many parts of the metro region are still suffering from the effects of the real estate bubble.

If anything, this is yet another reminder that the MTA is far too dependent on cyclical funding streams and that it sure could use a more reliable source of income to ensure better service and capital investment and prevent yet further fare hikes.

When he unveiled the new fare schemes last week, Mr. Lhota suggested that if the economy does begin to recover, we might be able to stave off fare hikes scheduled for two years from now—yes, again. But again, should the MTA’s well-being really be so reliant on the ups and downs of the free market? This is a government bureaucracy, after all. It ought to be impervious to such things.

This also serves as a reminder to just how crazy the real estate bubble was. Nowadays, a few rich oligarchs and emirs may be sinking their precious dollars into our most exclusive real estate (in large part because they want to get their money the hell out of the Euro zone), but it is nothing like the buying spree before, when everyone could get a mortgage and prices were popping off in every corner not only of the city but the country.

Now, it is a different story, and until the market fully recovers, the MTA will be hamstrung, perhaps permanently, for it is unlikely it will ever see the cash spigot that was those few fiery years in the middle of the Aughts.