Tough Times Call for More Regionalism, Not Less

What do the drawn out MTA budget battle and this week's Group of 20 international economic summit in London have in common?

For starters, both are vitally important to the future of the regional and global economies, respectively.

Negotiations in Albany, still ongoing at the time this article went to press, will determine whether legislators representing different constituencies can get their act together to prevent the deterioration of a fundamental underpinning of the region's economy.

The London talks will help determine whether the world's economic powers can coordinate regulatory, fiscal and trade policies, or let a rising tide of protectionism make the global meltdown even worse.

These examples also demonstrate a paradox that complicates efforts to develop effective responses to universally recognized problems. In times of crisis, when it is most important to unite against a common challenge, cooperation can be even more difficult to achieve.

Whether on an international or metropolitan scale, it is easy to win agreement on the theoretical need to cooperate. But even in the best of times, it is far more difficult to agree to share actual power or resources. When the economic pie is shrinking, this is even more true. There is a reflex to fight even harder to hold onto what you have, even when the sum of individual actions worsens conditions for everyone. It is the political equivalent of market failure.

It is widely accepted that the Great Depression was precipitated not so much by the 1929 stock market crash as by the disastrous international response. A surge of protectionism and a failure to coordinate global monetary and fiscal policies insured that the depression would be far deeper and longer than it needed to be. While we are not likely to repeat the exact mistakes of that time, we are still a long way from overcoming wide differences between the United States, Europe, China and Japan, and developing an international response that is up to the current challenge.

Within the tri-state metropolitan region, there are increasing signs that the usual battles over jobs and tax revenues are intensifying. New York, New Jersey and Connecticut are ratcheting up competition to lure firms across their borders to stave off accelerating job losses. Some of the latest examples are Connecticut's bid to lure PepsiCo from Westchester with tax breaks and other incentives, and New Jersey's offer of a $75 million subsidy to the Depository Trust and Clearing Corporation to relocate from Lower Manhattan. Federal stimulus dollars are setting off intense competition between municipalities, and between local and state governments, for their fair share of the pot. Negotiations over how to solve the enormous financial difficulties of the Metropolitan Transportation Authority have bogged down with warring factions focused on protecting particular interest groups within their own geographic constituencies.

Some level of intra-regional competition is healthy, in that it gives states and municipalities incentives to improve quality of life and economic productivity. The problem is that any one jurisdiction cannot create or even maintain the infrastructure, institutions, natural resources and human capital on which everyone depends. Focusing excessively on how the pie is divided can result in under-investment in these assets, resource allocations that perpetuate existing inequities and, at worst, paralysis in times of genuine crisis.

The battle over how to resolve the MTA's enormous operating and capital deficits is perhaps the most dramatic example of how difficult it is to forge a regional consensus in an economic downturn. Even in prosperous times, calls for new taxes and tolls of any kind would run into fierce opposition. In the current economic climate, the resistance to the proposals made by the Ravitch Commission — a 0.33% tax on all payrolls in the region, tolling drivers who cross all the East and Harlem River bridges, and an 8% increase in fares — is even greater.

Even among citizens, business leaders and elected officials who recognize that a package of taxes and fees are needed, there is the natural tendency to resist the piece that falls most directly on them or their constituents. Outer borough legislators single out tolls on the currently free bridges as unfair, even though far more of their constituents are transit riders who would suffer disproportionately from the MTA's proposed service cuts and fare increases. Suburban legislators target the payroll tax as inequitable to areas that have few transit riders, even though their economies would deteriorate should a declining transit network weaken the global competitiveness of the entire region.

Part of the challenge is to convince legislators to look at the entire package, rather than one part in isolation. For example, the argument that a business in the outer suburban counties shouldn't pay the same payroll tax as one in a location that is more dependent on transit would make sense if the proposal was to pay for the transit system entirely through a payroll tax. But what is on the table is a package of tax, fare and toll increases that attempts to balance the burden according to who benefits. The payroll tax only constitutes about half of the revenue proposal. Since transit riders and drivers in the areas that are more transit dependent pay the other half, and since the current revenue structure is even more heavily dependent on revenues from transit riders and existing tolls, suburban businesses are being asked to shoulder a much smaller share of the burden for a system that benefits them in real, if less visible, ways.

The challenge represented by the MTA budget and intra-regional competition will quickly spread to other arenas as the states and municipalities wrestle with declining revenues. There is a real question as to whether the region's institutional structures are up to the task. Even if they seem to face long political odds, it is time to take a fresh look at some perennial non-starters, such as a regional infrastructure bank or revenue-sharing across jurisdictional boundaries. Both of these concepts would provide a formal mechanism for sharing resources to address common needs — the first would be a fund that would receive dedicated revenues from all three states to pay for agreed-upon infrastructure needs, and the second would be a compact to pool a portion of tax revenues resulting from new development.

These and similar ideas would not eliminate debates of how burdens and benefits are shared, but they could provide mechanisms for resolving disputes and reduce incentives for inefficient forms of competition. If the world is really changing, then we need the tools to keep pace.