Hochul’s Reversal on Congestion Pricing Jeopardizes Second Avenue Subway

New York Governor Kathy Hochul surprised just about everyone last week when she put an indefinite hold on plans to charge drivers $15 to travel in Manhattan south of 60th Street. Hochul’s decision to shelve congestion pricing at the last minute, while highly wasteful, could put the brakes on a very expensive plan to extend New York City’s Second Avenue Subway.

Congestion pricing is not objectionable per se. When access to streets in a city’s central business district is free, these thoroughfares are more vulnerable to gridlock. Charging for road access reduces traffic, improving convenience for those with more urgent needs to use the roads as evidenced by their willingness to pay the congestion charge.

But while there is nothing wrong with congestion pricing in theory, there was a lot wrong with New York’s abortive attempt to put it into practice. In 2019, New York’s Metropolitan Transportation Authority (MTA) entered into a $507 million contract with Nashville-based TransCore to “design, build, operate and maintain” congestion pricing infrastructure such as license plate readers and toll gantries . It is not clear if any of this money can be recovered if MTA does not ultimately implement congestion.

Also, MTA had plans for the congestion pricing revenue which are now imperiled. The intention was to issue a $15 billion municipal bond whose debt service would be backed by the estimated $1 billion of annual congestion pricing revenue pricing (state legislators briefly considered alternative taxes to replace the congestion pricing revenue but adjourned on June 7th without taking action). The bond proceeds were to be spent on transit projects listed in the MTA’s Capital Plan .

Components of the capital plan range from essential to dubious. The century-old New York City subway system suffers from deferred maintenance, and a large amount of money is needed to ensure basic safety and reliability.

But the plan also includes costly additions to MTA’s transit infrastructure, such as a three-station, $7.7 billion extension of the Second Avenue Subway. As I discussed previously , the case for this project has weakened in the wake of COVID-19, which reduced overcrowding on the nearby Lexington Avenue Line.

Hochul’s reversal on congestion pricing could jeopardize federal funding for this project. As retired Federal Transit Administration (FTA) official Larry Penner told me:

MTA previously accepted the terms and conditions within the FTA Full Funding Grant Agreement (FFGA) grant offer. This included a legal commitment that the $4.3 billion in local share was real, secure and in place. FTA caps its funding at $3.4 billion based upon the MTA's commitment of a secure $4.3 billion local share. MTA's local share was based upon implementation of Congestion Pricing.

Month after month of continuing to place the project officially on hold and failure to proceed with advancing the project will eventually result in FTA deobligating (i.e., cancelling) its $3.4 billion in funding and closing out the grant.? MTA would lose $3.4 billion in discretionary federal funding.? Never in MTA history, has the MTA lost FTA funding due to reneging on providing its legally required matching local share in any approved FTA grant.?

MTA has already committed $182 million to this project by awarding C.A.C. Industries $182 million to relocate utility lines along Second Avenue between 105th and 110th Streets. These funds could also go to waste if the subway extension project is shelved.

One option might be to scale down the extension as I suggested previously. While a complete forfeit of the federal matching funds might seem attractive to federal taxpayers, the pool of FTA Capital Investment Grant funds is largely fixed by the 2021 bipartisan infrastructure law. As a result, the federal transit funds could well be spent on even less worthy projects elsewhere in the country.

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