Suit Slams Payroll Tax
Luxury Liner’s president cites M.T.A. excesses
By Jennifer Landes
(12/24/2009) The president of the Hampton Luxury Liner and Classic Coach has filed suit against the Metropolitan Transportation Authority as well as other state agencies and officials for enacting a payroll tax to support the agency’s operations.
Bill Schoolman said on Monday that the tax is putting a burden of an additional $20,000 per year on his transportation business, which is just becoming self-sustaining after a significant investment. What’s more, “I am outraged that I am forced to subsidize my competitors,” Metro North and the Long Island Rail Road, he said.
According to Mr. Schoolman, the transportation authority collects $5.9 billion each year in fares with an additional $6.4 billion in taxpayer subsidies from such sources as the state mortgage tax and surcharges on cable and communications bills. Of that $12.3 billion, $7.3 billion, or 60 percent of its budget, goes to personnel expenses. “Normally in a transportation business, it’s 35 percent,” Mr. Schoolman said. “Do you realize how much bloat and waste that is?”
Just last week, the authority’s board approved drastic service cuts to address newly projected shortfalls in its budget. These were the result of the state cutting its funding to the agency by $143 million, some $91 million in salary increases from a lost arbitration appeal, and a shortfall of $200 million in expected revenues from the payroll tax. The agency will cut back bus, subway, and train service by July to help it meet its budget demands.
Mr. Schoolman’s lawsuit states that the legislation that allowed the payroll tax to be applied “violated several New York State constitutional requirements, including the need for a Home Rule Message, failure to pass the State Legislature by a two-thirds affirmative vote, failure to use separate bills for appropriations and unrelated purposes, the state’s guarantee of the debts of a public authority, and violation of the M.T.A.’s self-sustaining requirement.”
State Senator Kenneth P. LaValle said on Tuesday that Mr. Schoolman’s statements in the lawsuit are true — with some exceptions or interpretations. Referring to the state’s legislative process, he said, “this is not a science.”
As an outspoken opponent of the tax, Mr. LaValle said, he would be very interested to see how the suit progresses. “There is a lot of anger on this tax,” he said. “It is very hurtful to our economy, and people are only beginning to discover its meaning.”
At Southampton Hospital, a large employer, the tax is anticipated to cost $150,000 for this year. That could increase if the hospital adds more staff. There are also additional administrative costs related to the tax, such as filing a separate return, Marsha Kenny, a spokeswoman for the hospital, said.
When Mr. LaValle was at his favorite restaurant, he said, its owner told the senator that he has to pay tax on both the salaries of the members of his staff and their tips, something he receives no benefit from.
Mr. LaValle said constituents have confirmed what he had warned about when the legislation was adopted. “We have a bad economy, and people will not hire new people. They cut back hours and eliminated positions to pay for the payroll tax.”
Regarding school districts that have been required to pay the tax with a provision for a refund, the senator said, “I’m not sure given the state of the budget that those school districts will see that money paid out. We will end up seeing that in the form of higher property taxes.” The districts should have been exempt from the beginning, he said this week, as he had at the time of the bill’s passage in May. “I knew they would never see that money.”
Mr. LaValle sponsored a bill in the Senate to repeal the tax, but he said it would probably not move as long as the current leadership was in place. “What is equally important is that there has been no effort to reform the M.T.A. After passage of this act, over the early fall, they indicated that their deficit was even greater than initially calculated, much of which had to do with employees.”
Mr. Schoolman’s lawsuit details how much those employees are costing the transportation authority and state taxpayers. Quoting a report by the Manhattan Institute for Policy Research from June, the suit states that more than 10 percent of the M.T.A.’s work force took home pay in excess of $100,000 including overtime. Some made as much as $102,000 in overtime, pushing their pay over $250,000.
“Eleven of the 654 employees who earned more than $150,000 in 2008 were Long Island Rail Road car repairmen who earned an average of $206,000 — which was $143,000 over their average base pay rate of $63,000,” according to the suit. Other employees, including 62 conductors who made more than $150,000, were paid an average of $83,000 more than their base pay. There were also 40 police officers, 39 foremen, and 30 Long Island Rail Road engineers whose total pay exceeded $150,000 with the addition of overtime.
Even more galling to Mr. Schoolman is that the authority dabbled in risky investments to address problems in paying the interest on its variable-rate debt. These investments included the credit swap agreements that brought many financial firms to ruin. The lawsuit states that the authority owed Lehman Brothers a payment of $23 million from the termination of the firm’s agreements as of June 30. And if all of its similar agreements with other firms were to terminate, its obligations would exceed $360 million.
“The authority concept is a failed business model that no bailout could save,” Mr. Schoolman said.
Mr. LaValle said that as it stands today, the transportation authority receives no real oversight because “it stands outside of direct legislative tools. Its budget is approved by its appointees, who are named by a board.”
Although Mr. Schoolman would love to see his lawsuit repeal the tax, his more immediate goal is to get more businesses involved to write briefs in support of the suit and to write to legislators to voice their outrage over the tax. He hopes they will lobby for its repeal.
“I want to get to every state senator and assemblyman and say, ‘Now you have permission to go after the M.T.A. board,’ ” he said.
Mr. Schoolman has also set up a Web site called mtataxpayerabuse.com to post updates on his progress and for others to contribute their own examples of the authority’s excesses. He said he plans to spend the next year making speeches about the lawsuit to any business association or chamber of commerce that will have him.
“Enough is enough,” he said, “starting right now.”