New York’s central business district, the 8.5 square miles below 60th Street in Manhattan, is one of the most prosperous clusters of economic activity in the world. This dense concentration of jobs – nearly 2.3 million people work in the central business district – is critically dependent on an extensive and efficient transportation system that enables workers from surrounding boroughs, counties and neighboring states to get to work. The Metropolitan Transportation Authority (MTA) is by far the largest provider of transportation services in the region.

In order for the New York region to maintain a strong and vibrant economy, its transportation system must be operated efficiently, well maintained and expanded to meet future needs. Yet despite its essential role in sustaining the New York economy, the MTA is not financed in a sensible and stable manner. Its current financing arrangements are so volatile and insufficient that they result in 1) repeated operating deficits and 2) serious underfunding of capital assets such that facilities cannot be brought to a state of good repair nor system enhancements implemented.

This report examines these problems and suggests a new financing policy for the MTA to encourage efficiency, balance its operating budget and provide sufficient capital to accelerate the pace at which its facilities are brought to a state of good repair and to complete currently planned system enhancements. The recommended financing policy recognizes all New Yorkers benefit from the New York region’s mass transit system to varying degrees and that all should contribute to its support. There are three major sources of revenue for the MTA: fares, tolls and other fees paid by those who use its facilities; cross-subsidies from auto users who get additional indirect benefits from the reduced congestion and pollution that mass transit makes possible; and local and state taxpayers generally who benefit from the efficient regional labor market facilitated by the mass transit system.

To fund this system adequately, the Citizens Budget Commission suggests a formula – referred to as 25-50-25 – to allocate the costs of operating and maintaining the MTA among the three categories of revenue and the sectors of the public from which they each derive.

The 25-50-25 policy would mean that mass transit riders would pay higher – but still reasonable – fares. The cost of a single ride ticket would increase to at least $2.75 by 2016 but in constant dollars a subway ride would cost at most three cents more than it did in 1996. Motorists would face increased costs for the use of their vehicles, in the range of $167 to $293 more annually, but the charges would be consistent with those in other global metropolises and related to the benefits drivers derive from a well-functioning transportation system.