Gov. Hochul eyes NYC tax hike to fund MTA in closed-door talks, sources say

New York Gov. Kathy Hochul’s office has floated the idea of increasing a tax on large New York City employers to help pay for billions of dollars in repairs and improvements to the MTA’s bus and rail systems, three people with knowledge of the governor’s plan told Gothamist.

In closed-door state budget negotiations with legislative staff this week, the governor’s team discussed the possibility of hiking the payroll mobility tax in the five boroughs for the second time in three years, according to the sources, who were granted anonymity because they were not authorized to discuss the negotiations publicly. The MTA would then leverage that money to borrow additional funds to at least partially close a $35 billion gap in its five-year capital plan, a list of planned construction projects meant to modernize the subway’s aging infrastructure, including its electrical systems and train yards.

The private talks come as President Donald Trump’s administration has threatened the MTA’s federal funding and attempted to stop a congestion toll on drivers in part of Manhattan, either of which would blow an even bigger hole in the transit authority’s budget.

The potential tax increase is among a menu of proposals under consideration to help fund the MTA, the sources said. The state Assembly has publicly floated the idea of surcharges on for-hire vehicles or online deliveries, though the negotiations between Hochul and legislative leaders remain ongoing.

Avi Small, a Hochul spokesperson, declined to comment on Thursday.

The negotiations over MTA funding options broke what had been a monthslong budgetary staring contest with the Legislature, a period in which the governor and legislative leaders had been waiting each other out to see who would be first to put a proposal on the table.

The governor didn’t include a specific MTA funding plan in her $252 billion state budget proposal in January; nor did the state Senate or Assembly when they unveiled their budget plans last week.

But with time running short, staffers for Hochul and legislative leaders have begun discussing possibilities. The state budget is due by the end of the month, leaving the governor and legislative leaders to hash out a funding plan for the biggest transit system in the country entirely in private, away from the public’s prying eyes.

“Creating new revenue sources is never popular, but doing it in the dark of night in Albany is certainly not a way to build public confidence,” said Rachael Fauss, senior policy analyst for Reinvent Albany, a group that advocates for government transparency.

Speaking with reporters at the Capitol on Thursday, Assembly Speaker Carl Heastie, a Bronx Democrat, acknowledged the governor and legislative leaders are discussing different possibilities for the MTA.

”The discussion on revenue raisers is definitely going to have to be a part of the MTA, since we're going to request [help] from our federal government, but I told you I don’t expect much on that end,” he said.

The existing mobility tax is a fractional percentage of a business’ payroll costs, and applies to those within the 12 counties within the MTA’s service region. The hike Hochul floated, however, would likely only apply to employers with large payrolls within New York City, though it’s not clear exactly what the threshold would be, according to the sources.

That’s a similar method Hochul and lawmakers used when they increased the tax to bail out the MTA two years ago amid a significant shortfall in the transit system’s operating budget. By keeping the tax hike within the city, it insulated them from criticism in the New York City suburbs where the payroll tax has long been a politically volatile issue.

But lawmakers were less keen on the idea last year, when they rejected Hochul's behind-the-scenes push to increase the tax again after she temporarily paused Manhattan’s congestion pricing toll before it was due to take effect. She later lowered and reinstated the toll but the Trump administration appears determined to stop it.

Kathryn Wylde, president and CEO of the business group Partnership for New York City, said the state shouldn’t increase the payroll tax at a time when the federal government is reportedly weighing limits to state and local corporate tax deductions.

“It’s just not the moment to be raising corporate taxes,” Wylde said.

Republicans had been calling on Hochul to resist increasing the payroll tax, saying it would be harmful to city businesses.

“Democrats need to stop taxing our business community and everyday New Yorkers,” Sen. Steve Chan, a Brooklyn Republican, said last week. “It's completely out of touch with today's realities and a slap on the Brooklyn businesses struggling for survival in my district.”

The state Assembly’s Democratic majority mentioned the payroll tax hike as a possibility to fund the MTA when it issued its budget proposal last week, along with a surcharge on online deliveries, such as those from Amazon, or a fee on taxis and ride-share apps, like Uber and Lyft.

Heastie said he believes the federal government should be expected to pitch in more for the transit system, but — with Trump in charge — he’s not anticipating it.

“ I don't expect that we’ll be told anything positive, that they will assist in any way,” Heastie said. “And then we'll have to figure out how to fund the MTA.”

A federal funding boost is, at best, a wild longshot, given Trump’s efforts to cut federal spending and his ongoing battle with the MTA over the fate of the congestion toll.

Those odds got even longer Tuesday evening, when U.S. Transportation Secretary Sean Duffy threatened to withhold funding from the MTA unless the authority’s leaders provided “actions and plans to reduce crime on its system.”

Hochul and the MTA received a bit of a reprieve on Thursday, when Duffy announced the federal government would give the state a 30-day extension to cease its congestion pricing program, which charges drivers a toll when they enter Manhattan below 60th Street.

Duffy had previously set a Friday deadline to end the toll, though Hochul had vowed to ignore his order unless a court told her otherwise.

The money from the congestion toll is being used to fund the MTA’s prior capital plan.

The state budget, meanwhile, is due before the April 1 start of New York’s fiscal year.

Includes reporting by Stephen Nessen.