Give us the money... or else. (MTA)

The MTA, nor its allies, will stand idly by as a state judge knocks down the payroll tax providing the transit agency nearly $2 billion a year in fund. Yesterday, they rallied at Grand Central Terminal to insist the tax does not conflict with the state constitution and they will be launching a vigorous appeals.

“For the eight and half million passengers who ride with us every single day, and for everybody in the New York metropolitan area, the transportation mobility tax is a key component of the transportation system that drives the economy of New York City, of Long Island and of our New York suburbs,” Mr. Lhota declared. “In fact, it drives the entire economy of the state of New York. Without the service that the MTA provides, New York would choke on its own traffic.”

This tariff required employers and self-employed individuals, located within the MTA’s 12-county region and who earned more than $50,000 per year, to set aside between 11 and 34 cents for every $100 in payroll costs. Governor Cuomo already signed legislation on December 12, 2011, revising the Mobility Tax structure by exempting or reducing some categories of taxpayers who had been paying the 0.34% rate. However, to compensate for the reduction in funding, the State agreed to make the MTA whole with direct payments.

If Wednesday’s court ruling stands, the MTA will lose $1.8 billion dollars of its budget, which is 15 percent of its total annual revenue.

“We’ve created a concentration of people and jobs that simply cannot exist without the public transportation system that the MTA provides,” added Robert D. Yaro, President of Regional Plan Association. “We simply cannot afford to pull the economic legs out from under the MTA.”

The State Legislature passed the tax in 2009. Upon taking office in 2010, Nassau County Executive Edward Mangano,  initiated a lawsuit to challenge the MTA’s payroll tax. The court ruling sympathized with the residents of Nassau County who were “unfairly burdened” by the tax. Nassau County alone has paid nearly $10 million in MTA Payroll taxes since the law went into effect.

“The bill is unconstitutional because it appropriates public monies for a local purpose,” the court ruling found. “And that it is unconstitutional for imposing liability onto political subdivisions for the debt of a public corporation.” Furthermore, the MTA must be “self-sustaining” under Public Authorities Law section 1266(3).

Mr. Mangano declared victory for taxpayers and job creators throughout the New York State.

“This is a great victory for every taxpayer and tax relief as the Supreme Court decision buries the job killing payroll tax,” Mr. Mangano rejoiced. “This success sends a strong message to job creators that we will not allow residents to be nickeled and dimed to the poor house nor will we allow job killing taxes to go unchallenged. This is a historic victory for tax relief and tax reform.”

Four similar lawsuits have been overturned, a fact the MTA hopes will eventually play out in this case.

Denise Richardson, director of the General Contractors Association, was keen to point out that this may be a hollow triumph. “To every elected official cheering this ruling, I have one simple question,” Ms. Richardson retorted. “Will your constituents support you when they realise that you put their jobs, their families, their quality of life and their communities at risk?”

Mr. Lhota was confident that the court ruling would be overturned.

“I am optimistic that we will prevail,” he simply said. Mr. Mangano declined to comment on whether he thought the MTA would be successful in this endeavor.

The problem is what is sometimes called "combined sewer overflows." In cities like New York, the sewage from your home and the rainwater in the street both end up in the same sewer system. During big rainstorms, the surge of water through the system is too much for our sewage treatment plants to process and so the raw sewage is dumped straight into our waterways.

This is less of a problem in New York City than in other places, because our drinking water comes from upstate reservoirs. However, in places like Long Island that rely on groundwater for household use, pollution of this sort is a major problem. Serious health problems can also result from raw sewage back-ups in people's basements. And while the issue of private dumping of toxins into public water systems seems to be a case of lax law enforcement against corporations that can easily modify their practices, the combined sewage overflow problem is much more difficult to address. A solution would require massive investment and major public resources.

Duhigg's piece notes that the government has spent over $35 billion in the past thirty years to improve the city's water quality, yet over $50 billion more would be needed to prevent these combined sewer overflows. The issue is clearly one of resources, technology and investment in infrastructure. This is yet another example of a society that refuses to tax itself sufficiently to provide adequate investment in the transportation, park, educational, library, health and environmental facilities that we require.

The recent financial crisis seems to have caused some scaling back of our high rates of consumption, and we even see private savings rates starting to grow.  However, as a society we seem to be unwilling to admit our need to invest in infrastructure. The American political culture currently rejects taxation almost as a reflex at virtually every turn.

Governments' highly visible failures are one reason for this continued anti-tax fervor. So too is the culture of consumption that gets people trampled to death at Black Friday store sales the day after Thanksgiving. In the case of the combined sewage problem, the $50 billion solution is probably not a great idea anyway. It is based on a bricks-and-mortar approach typical of traditional engineering thinking and technology that I believe is being supplanted by more ecologically-oriented, creative and cost-effective pollution control technologies. One of the causes of combined sewage overflows is that we have paved over land that used to absorb water during rains. If we encourage green roofs and other decentralized ways of collecting the water during storms, we can more easily reduce surges and avoid spending at least part of the $50 billion that some think is needed.

Still, new large-scale investments are needed to improve treatment of sewage in New York City. When this is added to funds needed for transportation, energy, new school buildings, and other basic needs, it is easy to feel overwhelmed.

What we need both in New York and nationwide is an infrastructure investment strategy and financial model - sort of a business plan for the United States. For a variety of reasons, our federal government does not have a capital budget. Our cities and states have capital budgets, which separate funds allocated to long-term projects from funds allocated to day-to-day expenses, but not the federal government. The federal government has a single budget that incorporates both immediate expenses and expenses that should be paid off over time into one lump sum. Consequently, the U.S. doesn't have a means of managing its borrowing - all borrowing is considered part of the federal deficit. Some of that borrowing is for capital improvements that we should finance and some is for day-to-day expenses that in good times should not be paid for with borrowed funds. In that respect we are like those people that use their credit card to buy groceries and other necessities, but don't pay the full balance on their bill each month.

State and local government debt is relatively transparent and is analyzed and rated by private firms that guide investors. The ratings of state and local finances by private rating agencies such as Moody's influence the interest rates that states and cities must pay to borrow money. This serves to encourage at least a little bit of financial planning by these governments. But the federal government has no similar incentive to plan their long-term borrowing or think about the investments the nation truly needs and can actually afford.

The issues of combined sewage overflow and the capital needs of our society as a whole require that we give some thought to a long-term capital investment plan for this complicated business called the United States of America. I know that our policy and investment decisions are based on a wide variety of political factors that have nothing to do with rationality and even common sense. But shouldn't our national, state and local infrastructure investment decisions be based on a plan that looks realistically at our capacity to generate the revenues needed for investment and the priorities among capital facility needs? I do not think we are rich enough to do everything, and I know we need to start making some strategic investment choices.