United States / Analyst Insights
Congestion Surcharges on Ride-hailing Apps Bolster Tax Revenue
by Jonathan Hadad Analyst
Jun 19 2018

The recently-passed New York State budget for fiscal 2019 (year-end March) includes a surcharge on all for-hire rides throughout much of Manhattan, a change that will likely impact many commuters in New York City. The new legislation, set to go into effect in January 2019 on rides south of 96th Street, imposes an added fee of $2.75 per ride on ride-hailing services such as Uber and Lyft, $2.50 per ride on taxis and $0.75 on ride-sharing services such as Via and UberPool. The legislation follows a precedent established by Chicago, Seattle and Portland, which have already instituted fees on ride-sharing trips. Revenue generated by the state-imposed surcharge is estimated to exceed $400.0 million per year, which will be sent directly to New York State’s Metropolitan Transportation Authority (MTA). Notably, the congestion surcharges only target taxis and ride-hailing services, with no fees levied against other personal and commercial vehicles.

System Decay Spurs Public Action

The MTA is the largest transit authority in the domestic Public Transportation industry, with more than 73,000 employees and a 2017 operating budget of $15.2 billion. While millions of passengers use its two commuter rail systems, the Long Island Rail Road and the Metro-North Railroad, the MTA is widely known as the parent organization of the New York City Transit Authority (NYCTA), which oversees the city’s bus and subway system, a sprawling network of 27 subway lines and 235 bus routes. Many argue, however, that the NYCTA and MTA have failed New Yorkers, as the subway system has become increasingly plagued by delays resulting from technical malfunctions and decaying infrastructure that is prone to flood during storms and reach sweltering temperatures throughout the summer. In June 2017, New York Governor Andrew Cuomo declared a state of emergency for the subway system and pledged $1.0 billion toward its rehabilitation. However, just last month, NYCTA president Andy Byford estimated the total cost of system reinvigoration at $19.0 billion.

“Recently imposed congestion surcharges on taxis and ride-hailing services in major cities have boosted municipal funding for mass transit.”

NY Construction Share

 

Byford has ambitious goals; while many transportation experts estimate a 50-year timeline for total system improvement, the newly-appointed NYCTA president anticipates progress on many subway lines within five years. The Heavy Engineering Construction industry in New York , for which nearly a third of revenue comes from mass transit construction, is sure to get a tremendous short-term boost should Byford’s plans come to fruition. However, raising $19.0 billion is no small feat; the new for-hire surcharge pricing aims to make that sum more attainable.

Legislation Still Falls Short

However, that revenue will not be enough. While it will likely bring in substantial sums, this surcharge cannot possibly bridge all the gaps in the MTA’s funding, nor is it expected to do so. The MTA and NYCTA are highly reliant on government subsidies, which generate about half of their revenue. This surcharge simply provides yet another source for this public funding; adding $400.0 million each year will increase subsidy revenue more than 6.0% (based on 2017 total subsidy revenue). Though not an earth-shattering increase, this may represent just the first of many new (and controversial) revenue-generating ideas. For example, NYC Mayor Bill de Blasio has pushed for increasing taxes on the city’s highest earners, which he claims would generate more than $700.0 million for the transit system in 2018 alone, while the state-backed Fix NYC Advisory Panel recommends congestion pricing in midtown Manhattan on all cars and trucks, which could provide more than $1.0 billion in additional revenue. Though both of these (and any other) proposals would certainly encounter a degree of public backlash, should either or both of these ideas be implemented, funding for the city’s transit system would surge.

Ride Share Tax Infograph

A First Step

NYC’s transportation network is in disarray. On top of subway delays that cost commuters nearly $1.0 million each day in lost work according to the NYC Independent Budget Office, as well as the system’s need for a major, possibly $19.0-billion overhaul, a report by the NYC Comptroller’s office ranked the city’s buses as the slowest of the country’s largest systems. Making matters worse, increasingly popular ride-sharing and -hailing apps such as Uber, Lyft and Via, while convenient and affordable, have contributed to soaring traffic in Manhattan; CityLab reports that street traffic on the island has slowed 15.0% since 2010. This has compounded the effects of sluggish bus service: as commuters have turned to the subway for faster travel times, the increased ridership has placed untenable pressure on the subway system. If all goes as planned, the for-hire surcharge price law may help alleviate some pain at street level while contributing substantial funding to fix subway infrastructure. If rhetoric by Governor Cuomo and Mayor de Blasio is any indication, this may be the first of many laws aimed at promoting the public transit system and reducing congestion in the city’s busiest districts.

Edited by Kieran Newton. Designed by Vicky Wolak.

Industry Impact: Heavy Engineering Construction in New York;  Public Transportation