NYC’s Transit System to Raise $2 Billion Through Real Estate Bonds Backed by ‘Mansion Tax’

It takes a mansion sale to fix a subway tunnel.

To you and me, it may look like an average one-bedroom apartment in the heart of New York City, but in the eyes of tax collectors, it’s a “mansion” because the price tag exceeds a million bucks. Now the Metropolitan Transportation Authority (MTA) plans to raise $2 billion via real estate bonds, backed by the mansion tax, to pay for much-needed infrastructure upgrades. The money was supposed to come from a planned congestion tax whose political engine suddenly failed. 

Train of Fraught

Two factors are pressing the brakes hard on the MTA’s route to fiscal stability: real estate and fare-dodging skimps. The MTA gets funding from mortgage recording taxes and taxes on commercial real estate sales, but home sales have slowed — 2,582 were sold in NYC in June, down 17% year-over-year, according to Redfin data — and commercial property values have tanked amid enduring post-pandemic vacancies. On the fare side, the MTA said half of bus riders and 14% of subway riders evade paying.

Last week, the MTA also revealed it’s staring down potential deficits of $428 million in 2027 and $469 million in 2028, with a projected $790 million less in income from real estate taxes and $811 million less from fares between this year and 2027. The agency plans to cut expenses by $400 million this year and $500 million in 2025, and intends to hike fares and tolls by 4% in both 2025 and 2027, but it still needs more revenue and/or ridership. Even more urgently, the MTA is staring at a $16.5 billion hole — the new real estate bonds will plug a fraction of it:

• The agency had to defer upgrades and repairs to its subway and bus networks, as well as work on East Harlem’s Second Avenue Subway expansion, after New York Gov. Kathy Hochul indefinitely paused a planned congestion tax on motorists entering Manhattan in June. The levy would have covered $15 billion of the $16.5 billion shortfall in the MTA’s $54.8 billion 2020-2024 Capital Program.
• The $2 billion raised from mansion tax bonds will go toward the Capital Program by borrowing against revenue from an additional levy on the transfer of residential properties worth $2 million or more (the first apron of the mansion tax kicks in at $1 million). Kevin Willens, the MTA’s CFO, told Bloomberg that the bonds will go on sale this year or in early 2025.

Lifestyles of the Median and Obscure: Introduced in 1989, New York City’s mansion tax didn’t take inflation into account. The median home price in Manhattan was $1.3 million in June, according to Redfin data.