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The Subway Is Next Door. Should New Yorkers Pay Extra for That?

Gov. Andrew M. Cuomo has proposed giving the Metropolitan Transportation Authority the power to impose taxes on property owners near new subway projects.Credit...Hiroko Masuike/The New York Times

Ever since August Belmont Jr. arranged the financing for a four-track “underground railroad” more than a century ago, the subway has fueled New York City’s economy, delivering workers from homes in distant neighborhoods to jobs in Manhattan and enriching landlords and real estate developers near stations.

Today, with the subway in precipitous decline and the city enjoying an economic boom, some policymakers think the time has come for the subway to profit from the financial benefits it provides, including its considerable contribution to property values.

Proponents point to the Upper East Side of Manhattan, where co-op and condominium prices in a 10-block stretch near the Second Avenue subway have risen 6 percent since it opened in January 2017, according to figures from the Corcoran Group, a large real estate firm. In Manhattan’s main business corridors, from 60th Street south, the benefit of being near a subway adds $3.85 per square foot to the value of commercial property, according to calculations by two New York University economists.

The notion that property owners should pay extra for their proximity to the subway is called “value capture” and has long been debated in urban planning circles. Now Gov. Andrew M. Cuomo, a Democrat, has made value capture a prominent part of his plan to salvage the subway system by proposing to give the Metropolitan Transportation Authority the power to designate “transit improvement subdistricts” and impose taxes.

The plan’s final contours are a long way off and would need legislative approval. But at a moment when the subway is facing its worst crisis in decades, there is a growing consensus that property owners should shoulder more of the cost of a subway system that has nourished their bottom lines.

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A building going up on Manhattan’s Upper East Side. Prices for co-ops and condominiums in the neighborhood have risen since the first phase of the Second Avenue subway opened last year.Credit...Hiroko Masuike/The New York Times

Value capture is “the solution of the moment,” said Kathryn S. Wylde, the president and chief executive of the Partnership for New York City, an influential group of business leaders. And Thomas K. Wright, the president of the Regional Plan Association, an urban policy organization, called value capture an “innovative financing mechanism” that New York is missing out on, even as the subway “is making some people very, very wealthy without paying into the system.”

The governor’s proposal has opened yet another front in his continuing war with Mayor Bill de Blasio, a Democrat whose aides maintain that Mr. Cuomo’s value capture plan would commandeer the process of setting property taxes, a paramount responsibility of the city. They said state officials never discussed the proposal with the city. “This is not the way to address the problems of the M.T.A.,” the first deputy mayor, Dean Fuleihan, said.

Michael Slattery, the senior vice president of research for the Real Estate Board of New York, which represents New York’s developers, said the proposal “raises serious questions that need to be evaluated, especially when it deals with a property tax system that we know already has serious problems.”

There is little dispute that access to public transit often results in higher real estate prices. Neighborhoods like trendy Williamsburg in Brooklyn would not have had a resurgence without the access provided by the L line, whose ridership grew at three times the rate of the system as a whole from 1998 to 2012 and which has benefited from an upgraded signal system that allows more trains to run.

The Cuomo proposal calls for before and after assessments in neighborhoods where a new transportation project, like the extension of a subway line, raises property values. Officials would determine the difference between the previous assessment and the new, higher one.

Of the tax on that difference, 75 percent would go to the transit agency and 25 percent to the city.

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Your Train Is Delayed. Why?

The New York City subway has the worst on-time performance of any major rapid transit system in the world. This is the story of how it ended up in a state of emergency.

“The city is awake. Across the length of its five boroughs, a vast stream of humanity will move.” This was what a New Yorker’s commute looked like in 1961. “— can be seen the daily miracle that is the New York City transit system.” But that was then. And this is now. [screaming] “Stand clear of the closing doors, please.” Subway riders demanding an end to their commuting nightmare.” “So fed up with all the delays and cancellations that they are suing the M.T.A.” The New York subway now has the worst on-time performance of any major rapid transit system in the world. And commuters are pissed. This woman’s commute has gotten so bad, she’s considering leaving a job she really likes. “No. I got a new job.” This rabbi was sent into a panic when his train stalled just before Shabbat. And then there’s this guy, who was stuck underground for so long, commuters sang to pass the time. “... Gonna make me lose my mind up in here ...” “It’s been two hours.” They ended up making a Facebook group. They’re still in touch. “Yeah.” “The mornings where every single line is delayed —” “It was like cruel or arbitrary.” But it really wasn’t that long ago that New Yorkers would laugh at other city subway systems. Four lines in Boston, two in L.A.? That’s cute. In New York our trains run 24/7. We have 665 miles of track, 472 stations, 27 subway lines, and almost six million riders every single day. “Does it really have to be this way?” “Also, has it always been this bad?” Turns out the M.T.A. has recovered from a transit crisis before. “Ladies and gentlemen, we are being held momentarily by the train’s dispatcher.” These were the trains in the 1970s. “Poor maintenance, high crime and widespread graffiti.” “It was kind of scary.” And that’s Jim. He’s been reporting on the subway since before I was born. “He wrote the book about the subway, literally. In the ’70s, it was really, really bad.” “Maintenance really had suffered.” So officials poured money into the system, and it improved. [cheering] “They are working on it. They’re doing the best they can.” “They’re fixing the tracks. Well, they’re fixing the track. They put in a new escalator downstairs.” “They improve it in the ’80s. “Today we got better equipment, better parts and better tools.” “In the ’90s it gets to be the best it’s ever been.” The 1990s were the golden era of subway functionality. “So if you want to prove to someone that New York has it all, just show them your MetroCard Gold.” New York’s governor at the time, George Pataki, called it a transit renaissance. But then, that city that has it all started taking the system for granted, starting with Mayor Rudolph Giuliani. “Cut down the size of city government.” Just a year into his first term, the mayor cut the city’s contribution to the M.T.A.’s budget by millions of dollars. Then, Governor Pataki followed Giuliani’s lead. And so began a trend of mayors and governors diverting part of their budgets away from the M.T.A. and toward their own priorities. And then blaming one another for the problems that followed. “Right.” So while the city and state contributions got smaller and smaller and smaller, subway ridership went up, and so did the fares. But fares still weren’t enough to make up for the budget cuts. So a group of Wall Street executives came to the M.T.A. with a deal. [cash register ringing] These Wall Street execs, they went to the head of the M.T.A., also known as the governor, and said, give us your debt. We’ll pay you cash. Pay us back later. Pataki agreed to the deal to refinance the M.T.A.’s debt. “Basically, they used the Amex to pay off the MasterCard.” And these bankers, many of whom were donors to Governor Pataki’s campaign, walked away with $85 million in commissions and fees. And that debt lives on today — “... finally reaches its destination.” — even if some of the equipment we’re still paying for does not. “Great habitat enhancement for fish and shellfish.” Then — “It was a fiscal crisis globally.” “That was a really big turning point for the M.T.A.” “Maintenance was withdrawn.” “You’re checking the cars less frequently, you’re repairing the cars less frequently, then they’re going to break down more frequently.” “So basically —” “The trains became slightly less reliable.” But there were millions of dollars draining from the M.T.A.’s budget that could have been used for maintenance. “So what happened was —” This summer Governor Cuomo’s administration forced the M.T.A. to bail out some upstate ski resorts after an unusually warm winter. “So we set out to try and find out if there were a lot of other examples of the M.T.A. being forced by the state to spend money on things that had nothing to do with the subway. And we found out about these bond issuance fees.” Bond issuance fees may sound a little boring. So I hired a busker to write a song about it. “Let me put it this way — the M.T.A. brings in a lot of money. The state has used that money as a piggy bank for other priorities.” “The next stop is Fulton Street.” “Fulton Street was the pet project of a guy named Sheldon Silver.” He wanted Fulton Street to be the Grand Central Station of downtown Manhattan. So construction started, the years went by, and the day of the grand opening arrived. “Oh, that’s way over budget.” At this point, the M.T.A. board wants to scale things back. And one of the board members — “Nancy Shevell, wife of Paul McCartney, said, we’re not building cathedrals here.” But the next day, Sheldon Silver demanded — ”You’re going to build this thing the way it was originally supposed to be built, or else I’m going to veto your capital budget.” So the M.T.A. complied. “A billion and a half dollars on one station. It didn’t get an extra subway car, an extra foot of track, nothing. Did I say it was in his district?” Fulton Street was just one example. “These politicians really wanted to be able to have a big project they could champion, mosaics and artwork and everything is brand new.” “Clean, shiny subway stations. This is exciting, right?” I did this for you. Here is my gift to you. “Yeah. And I feel good about that.” “Of course you should.” “You can’t really do that with replacing some ancient subway signal system that people don’t even know exists.” “No one wants to talk about the signals.” “I don’t think I understand how the signals even work.” And neither did I. So I watched a documentary released by the M.T.A. to learn more. “People know that the system is old, but I don’t think they realize just how old it is. It’s not just the architecture that’s 100 years old. It’s a lot of the basic technology as well. We never really know where the train is.” “Um —” “Yeah.” “The workers don’t actually know where the trains are exactly, precisely, on the tracks. They know what section they are in. So they have to keep them a safe distance apart as they go through the system. You can’t just go to Best Buy and pick up something to replace this 1930s piece of equipment.” New signals would mean more trains running more efficiently and closer together. But it’s been two decades since the M.T.A. first began its push to upgrade its signals. And so far, they’ve completed just one line. “If you don’t focus on the core needs of the system, bad things can happen.” “So the trains were not as well taken care of, the signal system deteriorated, and there was very little margin for error.” And then that margin gets even smaller with Hurricane Sandy. “The worst disaster in the history of the subway system.” So this is the part of the story where all of those bad decisions of the past really start wreaking havoc. “The M.T.A. is openly violating its own safety directives.” A tunnel wall in Brooklyn collapses onto the track. “We just boarded the rescue train.” “There have been 22 derailments.” Overcrowding is definitely a problem, but the M.T.A. can’t blame everything on overcrowding. “The issue is there’s not one person to blame.” There’s been a lot of back and forth between the governor and the mayor. “Blame everybody who has been in power in New York in the past 25 years.” A train careens off the tracks in Harlem, injuring 34 people. And in summer of 2017, the waiting and crowding and derailments reach a breaking point. And at long last, Governor Cuomo declares a state of emergency. “I mean there is some light at the end of the tunnel. No pun intended. I actually did not intend that pun. There are some signs that politicians are now taking the maintenance of the subway system seriously.” “Elected leaders are finally expected to come out with a plan to pay for the M.T.A. And I think there’s a consensus they can’t just rely on debt anymore.” “I believe in you, subway. But you’ve got to get it together.” “We want to do this. We need to do this. We will do this.” “I think delay is, in a messed up way, our way to bring people together.” “There’s no New York City without the subways. I regard it as the great public commons of New York.” “Yeah, it’s good.” “Nice meeting all of you.” “They ride together. And in this journey can be seen the daily miracle that is the New York City transit system, upon which the very existence of the city and its people, depend.”

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The New York City subway has the worst on-time performance of any major rapid transit system in the world. This is the story of how it ended up in a state of emergency.

“It’s not going to pay in its entirety for the capital requirements for any one project,” said Patrick J. Foye, the president of the transit authority, “but it could over years or decades provide significant new funding.”

Whether value capture could work, given the antagonism between City Hall and Albany, is an open question. Carl Weisbrod, who was named to the transit agency’s board by Mr. de Blasio and was the chairman of the city’s Planning Commission from 2014 until early last year, said value capture demanded “close cooperation between the M.T.A. and the city on a case-by-case basis.”

“To simply impose it on the city isn’t going to work,” he said.

State officials said an existing four-person review panel would have the power to veto proposals the city opposed — and one member is appointed to represent the city. Joseph J. Lhota, the chairman of the transit agency, said that the panel “works under what I call U.N. Security Council rules,” meaning that if one of the members is against a project, “the entire proposal goes down.”

Some public transportation advocates have been calling for special property taxes for years, and the M.T.A. raised the idea in December after a column by Jim Dwyer in The New York Times discussed the subway’s impact on real estate values.

As proposed, the governor’s value-capture plan would apply only to transit projects costing more than $100 million. It could not be used to pay for already completed projects, like the $4.4 billion segment of the Second Avenue subway. But it could raise money for future segments planned to extend that line north to 125th Street.

The proposal also listed other major projects that value capture could be applied to, including East Side Access, which will connect the Long Island Rail Road to Grand Central Terminal, as well as the existing Metro-North and subway stations along 125th Street in Manhattan.

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The subway “is making some people very, very wealthy without paying into the system,’' said Thomas K. Wright, the president of the Regional Plan Association.Credit...Hiroko Masuike/The New York Times

City officials maintain that including railroad projects is unfair because they largely benefit suburban commuters who would not be charged under the governor’s tax plan. Mr. Fuleihan, the first deputy mayor, said 70 percent of the revenue for the transit agency comes from the city through taxes and fares, but suburban commuters who use the subway once they arrive in the city pay nothing but the fare.

The governor’s proposal would allow the transit agency to establish districts around new projects for value capture that could extend as far as a mile from a station. But city officials scoffed, arguing that living a mile from a stop is too far to consider it a convenience.

What improved public transit can mean for a neighborhood is easy to see on the Upper East Side, which became a transit wasteland after elevated trains on Second and Third Avenues were demolished more than 60 years ago. Until the Second Avenue subway opened, residents on the eastern edge of the neighborhood had to trudge blocks to squeeze onto the Nos. 4, 5 and 6 trains on Lexington Avenue, the nation’s most crowded subway line.

“It’s all good, plus people love the way the stations look,” said Lydia H. Sussek, a senior global real estate adviser with the Corcoran Group. “I’ve sold new condos as a result of it, and I had a couple who moved to East End Avenue knowing they’d have transportation, whereas before people never would have looked east.”

Christian Moulin, a co-op owner who has lived on East 85th Street between York Avenue and East End Avenue for 17 years, said the Upper East Side used to be “the less expensive place — rents were reasonable.”

“That’s changing,” he added, “and it’s all because of the subway.”

He said one indication was that fliers from brokers seeking apartments now appear in his and his neighbors’ mailboxes every couple of weeks. “We never had that before,” he said.

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New York City officials oppose the governor’s subway real estate tax proposal, arguing that property taxes were the purview of the city and complaining that state officials never talked to them about the proposal.Credit...Hiroko Masuike/The New York Times

Beth Fisher, a senior managing director for the Corcoran Sunshine Marketing Group, which is handling sales for three new apartment buildings north of East 86th Street, said the distance to the subway had long been “a metric for how people live” but that value capture put too much of an emphasis on the subway’s influence.

“The Second Avenue subway, sure, is the protagonist, the key driver of value,” she said. “But it is not the only driver. It ought not be singled out in that manner.”

Value capture is a familiar concept outside New York and has been used as a way to fund transit projects in other cities, including Los Angeles, Seattle, London and Hong Kong. In New York, Mr. Wright, of the Regional Plan Association, called the Second Avenue subway “a lost opportunity” in terms of value capture.

The extension of the No. 7 line to the Far West Side of Manhattan was financed by what amounted to value capture on Hudson Yards, the megaproject near the Jacob K. Javits Convention Center. Under Mr. de Blasio’s predecessor, Mayor Michael R. Bloomberg, the city took the unusual step of offering to pay the $1.8 billion cost of the extension based on anticipated tax revenues.

But Mr. Wright cautioned that value capture in already developed neighborhoods would be more modest.

“In developed areas — say, the Upper East Side where you’re not looking at new virgin development on a rail yard, what you’re talking about is increased values of buildings,” he said. “The New York property tax system is such that that’s not going to generate short-term and immediate returns.”

A version of this article appears in print on  , Section A, Page 1 of the New York edition with the headline: If Subway Is Nearby, Should You Pay More Taxes?. Order Reprints | Today’s Paper | Subscribe

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