Fourth of a Series: NJT Needs More Than 3% (Updated June 24)

While transit in New York City and the railroads that serve its suburbs on the New York side of the Hudson River seem to be out of the woods for the next few years, the same cannot be said about New Jersey.

New Jersey Transit (NJT), the state’s multi-modal transit agency, is facing the fiscal cliff, too. The agency is implementing a 15% fare increase at the beginning of July, in time for the start of FY2025. That’s just a preview of things to come as quickly as one year later, and it has only been recently that state officials have started to look toward figuring out a plan. Can they succeed in implementing it?

According to the agency, NJT is facing a $106 million shortfall for the coming fiscal year. With assorted “revenue enhancements” and cost-saving initiatives, closing the gap still required a fare increase. At the last of a week-long series of hearings that took place in early March, riders and advocates gathered at the agency’s headquarters in Newark to protest the fare hike and ask NJT not to implement it. It represents the first fare increase since 2015, due for the past four years to Gov. Phil Murphy and other state and transit officials refraining from raising fares during the COVID-19 pandemic. While some riders and advocates complained about the service offered by the agency and others asked NJT to wait until the governor’s budget passed the legislature before raising fares, the proposal was approved as requested (dissenting votes among NJT Board members are exceedingly rare).

The current fare increase is not the big story here, but the next one is, along with ones after that. The agency is taking a cue from New York’s MTA and implementing yearly fare increases of 3%. The state has been raising tolls on the Garden State Parkway and the New Jersey Turnpike by 3% annually for several years, and now they are trying the practice with transit fares. Last year, Murphy vetoed an increase in highway tolls, but reinstated it after it was announced that transit fares were going up.

The big question is whether future fare hikes of only 3% per year will make any meaningful difference toward filling in the agency’s shortfall, now expected to be around $900 million. Colleen Wilson reported on April 21, 2023 in the Bergen Record that the warning signs could be seen one year ago: “The Murphy Administration, agency officials and its consultant, McKinsey, overestimated during the past three budget cycles how many people would return to riding trains, buses and light rail after the COVID pandemic, and therefore over-budgeted how much revenue from ticket sales the agency would pocket.”

Wilson reported that NJT was living on temporary money for COVID relief: “Since 2020, the agency has used federal COVID aid to plug those farebox gaps, but it’s burning through that cash faster than planned. Last year, the agency was forced to use $75 million more in COVID aid than it originally forecast. To close budget shortfalls, it also diverted an additional $70.2 million in funds from capital to operating to balance its budget for fiscal year 2022.”

Wilson also reported the agency’s financial predictions as of last year: “By 2026, NJ Transit’s federal COVID relief money is expected to run out. In fact, agency officials are now predicting that there will be a $119 million budget gap in fiscal year 2025 and a $917.8 million shortfall in fiscal year 2026. Last year, there was no prediction of a shortfall in 2025 and the gap in 2026 was estimated at $842.6 million.”

The agency receives transfer payments from the highway side of the Garden State’s transportation scene and money from the Clean Air Fund, but one of NJT’s biggest financial problems through the years is that the agency does not have a stable source of funding from the New Jersey legislature. There have been attempts to pass such a statute, but they have not gotten anywhere.

Corporate Tax for Transit?

Where action will be needed is to plug the much-larger shortfall that will occur when the COVID-19 relief money from the Feds runs out, an event now projected for next spring. Joseph M. Clift, a former Planning Director for the Long Island Rail Road and now an advocate, told Railway Age: “NJT forecast that the COVID relief money would run out approximately on May 1, 2025, so the last two months of that fiscal year, along with all of FY26, will be subject to the shortfall.” There was a call for the New Jersey Department of Transportation (NJ-DOT) to refrain from widening a portion of the New Jersey Turnpike in Jersey City. That project was slated to cost $10.9 billion, which would have been enough to keep NJ Transit going relatively strong for another decade or more, if the money not spent on the Turnpike were turned over to the agency. Predictably, that call got nowhere.

With no dedicated funding source for NJT, agency officials go to Trenton annually and ask for money to keep the state’s transit going. Some advocates have called the process “the yearly begathon,” a source of complaints from advocates and riders for decades. Yet, it appears less likely as time goes by that the agency can keep operating anything resembling present levels of service without a new funding source from the State. That would be up to the governor and the legislature.

Until the end of last year, the State had collected a business-surcharge tax that had raised enough money to keep the transit agency going. It was enacted in 2018 and was due to expire at the end of 2023. John Reitmeyer reported for NJ Spotlight News on Nov. 30: “The special add-on to the state’s existing corporation business tax has generated extra funding for the state budget at a time when Gov. Phil Murphy and lawmakers have been increasing spending in several key areas, including the pension obligations for public workers … However, just as the tax add-on is due to expire, New Jersey is facing several big fiscal questions. They include major concerns about mass transit funding that could soon bring fare hikes and service cuts to New Jersey Transit. And the state budget itself is operating this year with a structural gap because projected annual spending is forecast to outpace revenue collections by a wide margin.”

The tax was enacted early in Murphy’s term, following the federal tax cuts for large corporations that were enacted in 2017. The measure raised the highest rate 2.5%, from 9% to 11.5%, and affected only businesses with at least $1 million per year in net income. Transit advocates, and even some prominent lawmakers, had suggested that the tax remain on the books, with the revenue going toward operations for NJT, but the corporations wanted to be rid of the tax. Murphy allowed it to terminate on schedule.

In his budget message to the legislature on Feb. 27, less than two months after the former tax had expired, Murphy proposed a new corporate tax to fund NJT operations. The proposed 2.5% tax would be dedicated to transit and would apply to roughly 600 businesses in the state that make at least $10 million per year. “Today we are proposing a corporate transit fee. It will provide a dedicated funding stream for NJ Transit at no additional cost to working families,” Murphy said. Brenda Flanagan reported for the local PBS station, WNET-13: “Advocates cheered, while business reps jeered.” Flanagan mentioned Amazon and Wal-Mart as examples. She reported: “The new tax would generate about $860 million in Fiscal Year 2026, but that’s not enough to cover NJ Transit’s project $917 million budget shortfall, the so-called ‘fiscal cliff,’ but fare hikes could close that gap.” She concluded her report with an automotive analogy: “Buckle up for a long and bumpy ride.”

Transit advocates claim that corporations benefit from having transit to take their employees to the work sites. They also say that it would be equitable to expect mega-corporations to shoulder some of the cost of keeping transit going for their workers and other New Jerseyans and visitors to the state.

As expected, the corporations and the organizations that represent them are fighting fiercely against the proposal, arguing that it would hinder New Jersey’s competitiveness, and that Murphy was breaking his word to the corporations by allowing one 2.5% tax to expire on schedule, and then quickly proposing another tax at the same rate. Some lawmakers, including Democrats, have also expressed their skepticism about the proposed tax. In terms of money and access to the media, the big businesses can easily outgun transit advocates and “ordinary” transit riders.

The future of Murphy’s proposal appears at best uncertain, and a realistic prognosis would range from guarded at best to grim, at worst. Murphy is on his second term, and he will leave office in early 2026. As a lame duck, his ability to persuade lawmakers, including from his own party, is not as strong as it was when he could have another term in office. In addition, he was re-elected by a narrow margin in 2021, against a Republican challenger whose name-recognition was not strong.

A Lack of State Support to Blame?

Clift specifically placed the blame on Murphy and his appointees for the financial problems that NJT is currently facing. He blames the State for reducing support for NJT when federal COVID relief money became available, as well as for making the agency lose ground to inflation by refraining from raising fares by small amounts over the years, as New York’s MTA has done. The agency is trying that now, as fares will go up by 3% annually, beginning next July.

“The NJ Transit reform legislation mandated multi-year financial forecasts, which clearly showed that NJT was facing a fiscal cliff when the federal COVID dollars ran out, yet the governor ignored these warnings year after year,” Clift said. He added that inflation from the last fare increase in 2015 until now is 32% according to the urban CPI (Consumer Price Index), and the agency’s operating expense has gone up by 42%, while fares remained flat. He pointed to a decrease in the State’s appropriation for the agency and said that, during the COVID years, state support declined by 83% from FY21 and FY22 to FY23, according to the agency’s numbers (although it has increased somewhat since then), instead of increasing with the overall state budget. He cited four-year budget outlooks presented by the agency on March 11, 2020 (less than one week before the virus shut down much of daily life) and March 12, 2024. These numbers show the State Operating Subsidy for NJT for what turned out to be the COVID years: $590 million (FY22 Forecast from March 11, 2020, pre-COVID, and before three federal support acts that supported operations), $100 million for FY22 and FY23 (actual numbers), $142 million projected for FY24, $145 million in the governor’s budget for FY25, and for the preliminary budget forecast for FY26. None of those numbers count inflation.

Regarding the above-cited numbers, Clift said: “This is a governor-made crisis, because he had the tools to fix it. If NJT had kept its former share of the State budget as an operating subsidy, it would not have this severe problem today.”

NJT issued this statement concerning the situation: “We anticipate using the final $749.3 million in federal COVID funding in the upcoming FY25, which begins July 1, 2024. For reference you can see the chart on page 13 of the presentation (download below) that was given publicly during the fare adjustment hearings. Our strategy for both ensuring NJ Transit’s financial stability for FY25, as well as preparing for growth to meet future demand, is akin to a three-legged stool. The first leg is our ongoing internal efforts to drive efficiencies and maximize cost-savings and non-farebox revenues. The second leg is to solve for the immediate need for our FY25 operating budget gap of $106.6 million, through the fare adjustment proposal the Board of Directors approved in April. While a fare increase is always an option of last resort—and we recognize the impact an increase of any size has on all our customers—[we] remain strongly committed to ensuring that overall service levels are not reduced through FY25. The third, and arguably most critical leg, is to solve the long-term funding needs for FY26 and beyond, which would be achieved by Governor Murphy’s proposed Corporate Transit Fee to provide NJ Transit with stable and predictable funding. This will not only maintain the status quo but will allow us to plan for service expansion where demand is continuing to grow, in what is the most densely populated state in the nation, with a growing population. Together, these measures form a comprehensive financial strategy that allows us to take multi-year look-aheads, ensuring NJ Transit is primed for sustainable service improvements and strategic planning long into the future.”

So NJT is counting on Murphy’s transit tax proposal to deliver the needed operating funds in the future, a prospect that appears uncertain at this writing. If the proposed tax fails, it could be catastrophic for the agency and its riders as soon as next year.

Down to the Wire

Meanwhile, the week of June 17 at NJT was marked by serious ups and downs. On the negative side, service suspensions between New York Penn Station and the part of the Northeast Corridor (NEC) used by NJT and other lines owned by the agency snarled service for hours on two successive days, while Gov. Phil Murphy blamed Amtrak for the disruptions. On the positive side, Murphy’s proposed “Corporate Transit Tax” got a boost in the legislature.

As part of the overall $56 billion state budget, it was reported that Murphy had secured the support of legislative leaders who are fellow Democrats.  

Daniel Han and Matt Friedman reported in Politico on June 21 that a five-year deal for the tax, which would support NJT operations, had been reached: “The preliminary agreement on the corporate tax rate, which is also expected to be applied retroactively, is part of a principle budget agreement between state lawmakers and Gov. Phil Murphy’s office, according to the three peopl, who were granted anonymity to discuss ongoing negotiations. Other details are still being finalized on the proposed $56 billion spending plan.” 

The proposal would not constitute the “permanent” source of funding for the transit agency that many advocates for government reform and for transit riders want, but reports indicate that they still support the plan. Business groups continue to oppose it strongly, especially since it is similar to a 2.5% surcharge for the state’s large corporations that expired at the end of 2023, after being on the books for five years. 

Reacting to reports of progress at the legislature for the proposal the legislature, Jeff Marinoff, a longtime transit advocate from South Jersey, said in a blog post: “GREAT NEWS!! Let’s hope the 15% fare increase is rescinded” (emphasis in original). Marinoff’s hope for the fare increase, which is scheduled to take effect July 1, to be rescinded at the last minute sounds like a supreme long shot, while the fate of the proposed “corporate transit tax” remains uncertain. 

On June 21, Brent Johnson reported on the situation in the Newark-based Star-Ledger: “Next week is a critical time for the budget, which determines how state government spends taxpayer money. Though Murphy introduced a proposed $55.9 billion spending plan in February, it’s up to the Legislature to pass a final version by the start of the fiscal year July 1.”

The fate of the proposal to fund transit for the next five years remains uncertain, as talks continue while the clock runs down—a “tradition” in many states, including New Jersey. Johnson said in his report: “June is usually a time of frenzied negotiations over what to include and how to fund it, with talks usually going down to the wire. If the sides don’t come to a deal in time, the state government could shut down.”

Future mobility for New Jersey Transit riders hangs in the balance.

David Peter Alan is one of North America’s most experienced transit users and advocates, having ridden every rail transit line in the U.S., and most Canadian systems. He has also ridden the entire Amtrak and VIA Rail network. His advocacy on the national scene focuses on the Rail Users’ Network (RUN), where he has been a Board member since 2005. Locally in New Jersey, he served as Chair of the Lackawanna Coalition for 21 years and remains a member. He is also a member of NJ Transit’s Senior Citizens and Disabled Residents Transportation Advisory Committee (SCDRTAC). When not writing or traveling, he practices law in the fields of Intellectual Property (Patents, Trademarks and Copyright) and business law. Opinions expressed here are his own.