In the real world, on the rail lines in North America, where things get done, the rail industry is blessed with more mundane and real-world challenges.
On Jan. 5, 2025, New York City’s congestion pricing was set to begin, albeit at a lower per-vehicle amount of $9, which will escalate to the original $15 by 2031 (after hitting $12 in 2028). Prior to Governor Kathy Hochul’s politically motivated temporary pause of the program, the anticipated revenue of $15 billion was set to contribute the largest percentage of the Metropolitan Transportation Authority’s (MTA) $51.5 billion capital plan.
If you have a record player, this is where you make the scratching noise meant to simulate an abrupt stop.
As reported the day after Christmas 2024 in Railway Age, the MTA Capital Plan has grown as if the MTA is celebrating Thanksgiving every day, from $51.5 billion to the more substantial $65.4 billion. Meh, what’s another $14 billion? (To be fair, this is down from a top number of $68 billion.) The MTA Capital Plan was rejected by the New York State Legislature due to lack of funding for half the planned projects.
An additional gap in the MTA’s funding plans was created when congestion pricing was put on hold. Some portion of that gap remains as the full-year congestion pricing revenue of $1 billion was just about cut in half when the toll was reduced to the new $9 amount. However, congestion pricing seems tertiary when the MTA’s twenty-year budget plan is able to increase substantially, and the MTA funding gap is so large.
There is a fascination in the congestion pricing model and the MTA’s reliance on its revenue. There is no doubt that the MTA’s rail systems (New York City Transit subways and LIRR and Metro-North regional networks) are in need of upgrade, on top of state-of-good-repair maintenance.
As extensive and substantial a system as it is, unlike the freight rail system, the MTA is a global laggard. But the City and State of New York have ample other revenue trees to shake if they wish to reduce the MTA’s funding gaps. In September 2024, hotel rates in New York City averaged $417 per night, a new record. What’s another $20 per night between friends? According to the Wall Street Journal, “It has never been more expensive to visit New York City,” so a few more dollars added to the holiday tabs of the privileged few would most likely go unnoticed. In for a penny, in for a pound. Or perhaps there could be a dining tax added to the bills of the plethora of the city’s dining community (after all, no one in the City cooks in their own kitchen).
2023 New York City tourism generated an estimated $74 billion in economic impact. Tolling revenue from the Port Authority of New York and New Jersey, which manages the bridge and tunnel crossings between the two states, brought in $2 billion. Clearly, the spotlight for the MTA’s problems is facing in the wrong direction.
A congestion charge is, by any other name, a type of tariff. Cities place tariffs on everything they can get their hands on. You want to put a hot dog cart on the street corner? Get a license (tariff)! Want to dress up and harass tourists to take a photo with you in your grimy, smelly Disney Stitch costume? Get a permit (tariff)! Make the world’s greatest mystery meat street taco but can only afford a food truck/mobile rodent home/roach coach? Get a parking permit and a license (tariff 2x)!!
The new President’s plan to hit Canada and Mexico with tariffs seems like a more-outsized attempt to create value with unintended consequences—a treatment of a symptom rather than a cause.
Take for example the fact that one-third of all automobiles costing $30,000 or less are made in Mexico, or that nearly all freight railcars are made in Mexico or Canada.
The U.S. economy has similarities to the MTA: aging infrastructure vs. an aging populace whose repairs are outsized by increasing medical costs and longevity. Tariffs are not going to be the method to solving the projected problems.
Expecting that the proposed DOGE (Department of Government Efficiency), an “advisory group” (not a federal agency, which requires Congressional approval) led by Elon Musk (world’s wealthiest person) and Vivek Ramaswamy (biotech billionaire) will reduce government spending, and that tariffs will add incremental value to U.S. citizens’ bottom lines, seems pretty fantastic. More likely is a series of unintended consequences requiring adjustments and tweaking and creating loopholes. Broadly sweeping, impactful and illogically applied tariff standards will continue to be in the news cycle and influence North American rail for the foreseeable future.
Fun times ahead.
Got questions? Set them free at dnahass@railfin.com.
