With congestion fee discontinued, NYC enters new era of economic stagnation

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As American cities recover from the pandemic and inflation, New York City was expected to provide an important national test for the economic value of congestion pricing. The cost-of-living crisis, unpreparedness for climate challenges, and aging infrastructure, including public transportation, all made a congestion pricing plan understandable to many.

The basics of the Metropolitan Transportation Authority plan were easy to understand: a $15 toll for daytime automobile travelers entering New York City at or below Manhattan’s 60th Street—which would have been the first of its kind in the United States—with an estimated $1 billion in annual funding designed to improve the transit system. The MTA estimated that the tolls would reduce car traffic in the nation’s most automobile-congested region by roughly 100,000 The number of cars per day has increased by 17%.

On Wednesday, in scrapping the latest version of the plan, which was to go into effect in just a few weeks, current New York Gov. Kathy Hochul nixed the idea, which she had championed as a model for cities to improve mass transit, quality of life and environmental sustainability.

Hochul cited the city’s post-pandemic economic recovery and concerns about deterring commuters from working in or visiting the area she calls the “Central Business District” as the main reason behind the decision. At the time of the pre-COVID state legislature’s approval in 2019, workers were in the office five days a week and tourism was at record highs. Still, the plan was federally approved in June 2023, and scheduled to go into effect on June 30, even though Office Vacancy Rate in Manhattan Up to 15%.

Has remote work eliminated congestion pricing?

Hochul cited the three-day in-person workweek of many office workers as a symptom of the pandemic, and expressed concern that people would return to fully remote work with this toll. A 2024 Gallup poll found that 54% Remote Enabled JobsSectors such as finance and technology operate on a hybrid model, and 27% are fully remote.

It’s true that the owners of some of the city’s biggest businesses want employees to come back more often. JPMorgan Chase CEO Jamie Dimon has been one of the most vocal about the importance of working in the office. Hochul said that under the plan, commuters “would have to tell employers that they need to work fully remotely again.”

But that may be impossible. Fully remote job listings are declining, and executives are laying down strict rules for office attendance in 2024. A return to five-day-a-week, in-person work may not happen — with or without congestion pricing.

Even before congestion pricing, crossing a bridge and parking in New York City could cost up to $75 a day, a price many white-collar workers were already willing to pay, or their employers paid. It’s hard to say whether a $10-$15 fee, including a break for commuters paying other tolls — especially in cases subsidized by employers — would be a breaking point, or rather, anywhere near the level of a deal breaker.

Hochul supported delaying the plan to avoid harming lower-income families, which she said could “strike the budgets of the hard-working middle class” and “put pressure on the people who keep our city running”, referring to small business owners, nurses, and other working and middle-class New Yorkers.

Yet the New York Department of Transportation found that congestion losses would primarily affect commuters whose incomes are 31% higher than the average Manhattan worker. In 2023, the subway carried 3.2 million people per day and MTA buses carried 1.4 million. Many New York City residents, especially low-income residents, use MTA services as their primary mode of transportation.

Katherine S. Wild, president and CEO of the Partnership for New York City, a nonprofit organization representing the city’s business leaders, said on CNBC’s Squawk Box after the decision that about 3% of commuters to the city drive cars, and they tend to be “high-wage people or government employees.” In fact, she said, congestion-related deaths will reduce “discretionary” driving.

A study by the Community Service Society Similarly, 4% of outer-borough workers drive into Manhattan for work, while 56% of outer-borough residents use public transportation to get to work in Manhattan. Of the workers who drive into Manhattan, 55% were high-income.

“Most people use public transportation,” Wild said, “whether it’s the train, the subway or the express bus that comes into town.”

Wild said many of his members in the business leader community expressed concerns about the policy, but he strongly supported it as a member of the MTA Traffic Mobility Board. His group has also supported the congestion pricing plan for two decades. Its loss would result in what he estimates will be more than $20 billion in lost productivity, overtime and fuel expenses, as well as environmental and health damages.

There is another reason business leaders have supported this plan. Governor Hochul has suggested taxing the city’s largest businesses to make up for the $1 billion in revenue lost each year by increasing the payroll mobility tax, which would target employers with payrolls of $1.75 million or more in New York City’s five boroughs. The initial response from state legislators was not positiveWilde said the tax could help solve the issue of raising new revenue, but it does nothing about traffic.

A big win for the suburbs

The biggest wins went to the suburbs. “This is a huge win for families in New Jersey and New York,” Rep. Josh Gottheimer (D-NJ) said on CNBC’s “Squawk Box.”

Gottheimer referenced the increasing financial pressure on commuters in New Jersey’s Sussex County, who have little access to public transportation and must use cars for essential errands. New Jersey commuters make up 9.6% of New York City’s workforce, according to the Regional Plan Association. The MTA does not fund Jersey Transit, but oversees public transportation in Connecticut, Long Island, southeastern New York and New York City.

Rep. Gottheimer on stopping congestion fees: This is a huge win for New Jersey and New York families

However, every driver who commutes to New York City suffers in actual experience on the road. The MTA has found that since 2010, the average car travel speed has dropped by 23% to 7.1 mph. Smaller streets — a result of increased bike lanes, bus lanes and space for outdoor dining after the pandemic — are also a factor in workers spending more time in traffic.

The long and often damaging history of congestion pricing

The history of the congestion charge battle in New York City is longer than you might think. For more than 70 years, local residents who love to complain about traffic and debate the best ways to avoid it have been discussing ideas to make life in the city a little less congested. Nobel Prize-winning economist William Vickrey first proposed the concept of a congestion charge in 1952 — at the time, ironically, for subway riders, though he later proposed a similar idea for roads. Last week’s surprising turn is in keeping with the history of recent losing battles among elected officials.

In 2007, then-New York City Mayor Michael Bloomberg made the case for congestion pricing, but he didn’t get enough support in the state capital. Former Governor Andrew Cuomo first proposed the latest plan in 2017, but political tensions and the financial challenges of the pandemic delayed its adoption. And Hochul, while expressing support until the earliest date, has never been transparent with the public about her concerns. New York Times report on Sunday.

Cuomo has come out against his own congestion pricing plan in recent months, citing a number of reasons to at least halt the implementation of what he says remains “the right policy,” ranging from the migrant crisis to crime, homelessness, quality of life and taxes — but mainly, he wrote An editorial from the New York PostBecause recently there has been a wave of crime in the public transport system and there is a need to restore passengers’ confidence in using public transport.

Cuomo also cited fare evasion on the public transit system, which has increased since the law was passed in 2019. “A top priority,” Wild said on “Squawk Box,” noting that his group has helped staff an MTA task force to address fare evasion. “We have to stop the money that is wasted by fare evasion, but that’s not going to cost [MTA] “This is the capital program,” he said, which is $50 billion over five years, $15 billion of which was to come from congestion pricing based on a law passed four years ago. Fare and toll evasion have been encouraged. Estimated $700 million In 2023.

Ideas about where this future money will come from have spread throughout the state, including the governor’s hometown of Buffalo. Representative Gottheimer said in a “Squawk Box” interview, “The Buffalo Bills are going to get $600 million for a new stadium, the owners there … don’t give them that money to build a new stadium.”

Lisa Washburn says stopping congestion fees would blow a 'huge hole' in the NYC MTA's budget

Many opponents see Hochul’s sudden announcement to delay the policy months before the election as a political move to ensure re-election and support from local politicians in swing districts. This is nothing new, Wylde said, referencing a commuter tax that was eliminated decades ago at a time when Democratic seats in the state Legislature were “up for grabs.” “It’s the same kind of situation,” she said. “It’s a suburban backlash and concern about candidates and particularly Democratic candidates. The politics of it are old and there’s not much we can do about it from the business side.”

Wilde hopes the delay is temporary, and that the MTA can move forward with its plans to take advantage of the increased funding. He said wherever congestion pricing has been implemented around the world, it has worked, from London to Stockholm and Singapore. “There’s resistance to it, and then when people see the results they’re thrilled. Because your cost of doing business goes down significantly. … The quality of life is much better after congestion pricing.”

Vickery’s former colleague at Columbia University, Dr. Steven Cohen, Senior Vice Dean at Columbia, pioneered congestion pricing. I wrote in a recent post Unintended consequences and the need for policy revisions are inherent in any new venture, but the city and its commuters can look to big businesses for proof that the concept is working.

“There [undoubtedly] The new policy will have unforeseen negative effects. Every new policy and product has some downsides that you can’t predict without experience. … The point is that we can adjust policies and products to address the negative effects. But the underlying policy design of congestion pricing is solid. Congestion fees will generate revenue for mass transit and reduce traffic jams. Surge pricing works. It works for Uber and JetBlue.”

Rep. Gottheimer hopes this is the end of the road for congestion pricing, and as far as it coming back after the upcoming elections, “I don’t think so,” he said. “We’re done with this. … Indefinite pause, the word indefinite is important here,” he said. “I’m not saying this is all easy. Things need to be fixed, but today we should be focused on the fact that the answer is not just to tax people more.” He sees the issue as more fundamentally about the MTA’s management.

Meanwhile, congestion is not getting any better. “We’re in gridlock in the city,” Wylde said. “The governor has said his concern is to make sure we’re doing this the right way and not doing anything that will hurt Manhattan’s economy. … We’d be in a much better position if we reduced the gridlock.”

,By Kaya Ginsky, CNBC News Intern

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