NYC Congestion Tolling: Winners, Losers and Unintended Consequences

New York City and the Metropolitan Transportation Authority (MTA) have created a stir in the tri-state area as the MTA moves ahead with a controversial tolling program intended to reduce traffic in Manhattan’s central business district (CBD) and raise billions of dollars for the fiscally challenged MTA. New Jersey’s Governor opposes the proposal, calling it “poorly designed” and vowing to “protect New Jerseyans” working in the CBD from being unfairly burdened. New Jersey is suing the Federal Highway Administration (FHWA) to challenge the government’s approval of the CBD Tolling Program.

The need for additional revenue streams at the MTA is exacerbated by the weak ridership recovery following the pandemic, as ridership in the MTA’s subways remains 60% of pre-pandemic levels. Weak farebox collections create operating pressures and challenge the agency’s ability to finance its $55 billion capital plan. Investors in municipal bonds are following the situation closely as the MTA is a frequent borrower in the $4 trillion municipal bond market with over $21 billion of transportation revenue bonds outstanding.

The MTA is not the only borrower that will be affected by the CBD Tolling Program, and the impact on each entity’s creditworthiness is not all the same. The following sections explore the CBD Tolling Program and the potential impact on several NY area credits. 

What is the CBD Tolling Program intended to achieve? 

The CBD Tolling Program is designed to reduce congestion in the Manhattan CBD, the commercial center of the New York City metropolitan region. As home to 22.2 million residents and more than 10.7 million jobs, the New York City metro area is the largest metropolitan region in the U.S.  Approximately 1.5 million of these jobs are located within the CBD-proper. As cited in the CBD Tolling Program Environmental Assessment, nearly 7.7 million people come into Manhattan daily, with 75% utilizing transit options and 24% accessing the island by car. The resulting congestion has contributed to reduced travel speeds (22% decrease within the CBD since 2010), translating to 102 hours of lost time per driver per year. The related economic loss is estimated to be $1,595 per driver per year.

At the same time, the CBD Tolling Program is intended to provide a lifeline to the MTA. The MTA is a state authority which operates an integrated public transportation system for the New York City region, including the city and seven suburban counties. In 2019, prior to the pandemic, MTA subways and buses carried 1.7 billion and 557 million passengers, respectively. However, in 2022, MTA subways and buses carried just 1 billion and 343 million passengers, respectively (Figure 1). 

Figure 1: MTA Subway Passenger Volumes

Source: MTA as of April 2023.

Like most U.S. mass transit systems, MTA operations are not self-supporting, and the agency relies on government subsidies to make up operating deficiencies. Thus, while outside approval of fares and tolls is not required, the timing and amount of toll increases may be affected by other state, local, and federal financial conditions and budgetary processes.

The MTA’s $55.3 billion capital plan (2020-24) represents a substantial increase over the $33 billion 2015-2019 capital plan. Major components of the core capital program include $37 billion for New York City Transit (67%) and $5.6 billion each for the LIRR and Metro North. Importantly, 27% of the necessary funding ($15 billion) for the capital plan is to be generated from the CBD Tolling Program.1

How will the Central Business District (CBD) Tolling Program work?

New York State passed legislation in 2019 authorizing a toll on motor vehicles entering Manhattan south of 61st Street, excluding the FDR Drive and West Side Highway, with a two-pronged goal of reducing traffic congestion and raising revenue to fund the MTA’s capital needs.

The authorizing legislation sets the boundaries for the congestion zone, stipulates that passenger cars may only be charged once per day for entering or remaining in the zone, and provides residents of the zone with incomes below $60,000 per year a tax credit equal to congestion charges paid. As the legislation specifies the system must generate sufficient revenue to support $15 billion of bonding for the MTA capital plan, the more toll exemptions and credits offered, the higher the toll rates must be to meet the revenue target. Revenue derived from the system will be directed to a lockbox fund, with 80% of the proceeds devoted to NYC subways, buses and Staten Island Rapid Transit, 10% to the Long Island Railroad and 10% to the MetroNorth Railroad.2

Several scenarios have been proposed to meet the state’s dual goals of reducing congestion and raising revenue. The impact on traffic patterns and transit utilization would vary depending on the ultimate configuration of the program, resulting in varying environmental costs and benefits. Of note, unlike cars, trucks cannot shift to transit to avoid paying the toll; and would therefore likely divert around the CBD, increasing truck traffic in the surrounding communities (South Bronx and Staten Island identified in the EA).

How will the CBD Tolling Program impact Regional Municipal Credit?

Implementation of the CBD Tolling Program will have far-reaching effects, and there inevitably will be winners and losers.  The most direct beneficiary will be the MTA, as it will gain a significant funding source for its capital program. Indirect benefits include likely increased transit ridership and reduced congestion in the CBD, easing bus travel through the area.

We expect the following issuers will also be impacted, positively and/or negatively, by the introduction of congestion pricing:


Tolling access to the Manhattan CBD is a complex proposal and key decisions remain to be finalized, as evidenced by the numerous tolling schemes under consideration. Despite New Jersey’s attempt to block the CBD Tolling Program by suing the FHA, PGIM Fixed Income’s Municipal Credit Research Team believes the MTA is likely to ultimately prevail. The introduction of a congestion toll is a potential disruptor, with far-reaching effects on many borrowers in the municipal bond market. As always with municipal credit, political considerations will affect the outcome. The potential impacts we outline above are a starting point and will evolve as the borrowers react. For now, we expect the Triborough Bridge and Tunnel Authority, as well as New York State and City, to be positively impacted, while the Port Authority of NY and NJ could be adversely impacted due to the potential for lost toll revenue. We will continue to monitor the impacts of this historic proposal on the NYC region, with particular attention to the unintended consequences of these decisions. 

1 MTA.
2 New York State Department of Taxation and Finance.

The comments, opinions, and estimates contained herein are based on and/or derived from publicly available information from sources that PGIM Fixed Income believes to be reliable. We do not guarantee the accuracy of such sources or information. This outlook, which is for informational purposes only, sets forth our views as of this date. The underlying assumptions and our views are subject to change. Past performance is not a guarantee or a reliable indicator of future results.

Source(s) of data (unless otherwise noted): PGIM Fixed Income, as August 25, 2023.

For Professional Investors only.  Past performance is not a guarantee or a reliable indicator of future results and an investment could lose value. All investments involve risk, including the possible loss of capital.
PGIM Fixed Income operates primarily through PGIM, Inc., a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended, and a Prudential Financial, Inc. (“PFI”) company. Registration as a registered investment adviser does not imply a certain level or skill or training. PGIM Fixed Income is headquartered in Newark, New Jersey and also includes the following businesses globally: (i) the public fixed income unit within PGIM Limited, located in London; (ii) PGIM Netherlands B.V., located in Amsterdam; (iii) PGIM Japan Co., Ltd. (“PGIM Japan”), located in Tokyo; (iv) the public fixed income unit within PGIM (Hong Kong) Ltd. located in Hong Kong; and (v) the public fixed income unit within PGIM (Singapore) Pte. Ltd., located in Singapore (“PGIM Singapore”). PFI of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. Prudential, PGIM, their respective logos, and the Rock symbol are service marks of PFI and its related entities, registered in many jurisdictions worldwide.

These materials are for informational or educational purposes only. The information is not intended as investment advice and is not a recommendation about managing or investing assets. In providing these materials, PGIM is not acting as your fiduciary. PGIM Fixed Income as a general matter provides services to qualified institutions, financial intermediaries and institutional investors.  Investors seeking information regarding their particular investment needs should contact their own financial professional.

These materials represent the views and opinions of the author(s) regarding the economic conditions, asset classes, securities, issuers or financial instruments referenced herein. Distribution of this information to any person other than the person to whom it was originally delivered and to such person’s advisers is unauthorized, and any reproduction of these materials, in whole or in part, or the divulgence of any of the contents hereof, without prior consent of PGIM Fixed Income is prohibited. Certain information contained herein has been obtained from sources that PGIM Fixed Income believes to be reliable as of the date presented; however, PGIM Fixed Income cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. PGIM Fixed Income has no obligation to update any or all of such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy.

Any forecasts, estimates and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Forecasts and estimates have certain inherent limitations, and unlike an actual performance record, do not reflect actual trading, liquidity constraints, fee. These materials are not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services and should not be used as the basis for any investment decision.  PGIM Fixed Income and its affiliates may make investment decisions that are inconsistent with the recommendations or views expressed herein, including for proprietary accounts of PGIM Fixed Income or its affiliates.

Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government, government agency or private guarantor, there is no assurance that the guarantor will meet its obligations. High yield, lower-rated securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Commodities contain heightened risk, including market, political, regulatory and natural conditions, and may not be suitable for all investors. Diversification does not ensure against loss.

In the 
United Kingdom, information is issued by PGIM Limited with registered office: Grand Buildings, 1-3 Strand, Trafalgar Square, London, WC2N 5HR. PGIM Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) of the United Kingdom (Firm Reference Number 193418). In the European Economic Area (“EEA”), information is issued by PGIM Netherlands B.V., an entity authorised by the Autoriteit Financiële Markten (“AFM”) in the Netherlands and operating on the basis of a European passport. In certain EEA countries, information is, where permitted, presented by PGIM Limited in reliance of provisions, exemptions or licenses available to PGIM Limited under temporary permission arrangements following the exit of the United Kingdom from the European Union. These materials are issued by PGIM Limited and/or PGIM Netherlands B.V. to persons who are professional clients as defined under the rules of the FCA and/or to persons who are professional clients as defined in the relevant local implementation of Directive 2014/65/EU (MiFID II). In certain countries in Asia-Pacific, information is presented by PGIM (Singapore) Pte. Ltd., a Singapore investment manager registered with and licensed by the Monetary Authority of Singapore. In Japan, information is presented by PGIM Japan Co. Ltd., registered investment adviser with the Japanese Financial Services Agency. In South Korea, information is presented by PGIM, Inc., which is licensed to provide discretionary investment management services directly to South Korean investors. In Hong Kong, information is provided by PGIM (Hong Kong) Limited, a regulated entity with the Securities & Futures Commission in Hong Kong to professional investors as defined in Section 1 of Part 1 of Schedule 1 (paragraph (a) to (i) of the Securities and Futures Ordinance (Cap.571). In Australia, this information is presented by PGIM (Australia) Pty Ltd (“PGIM Australia”) for the general information of its “wholesale” customers (as defined in the Corporations Act 2001). PGIM Australia is a representative of PGIM Limited, which is exempt from the requirement to hold an Australian Financial Services License under the Australian Corporations Act 2001 in respect of financial services. PGIM Limited is exempt by virtue of its regulation by the FCA (Reg: 193418) under the laws of the United Kingdom and the application of ASIC Class Order 03/1099. The laws of the United Kingdom differ from Australian laws. In Canada, pursuant to the international adviser registration exemption in National Instrument 31-103, PGIM, Inc. is informing you that: (1) PGIM, Inc. is not registered in Canada and is advising you in reliance upon an exemption from the adviser registration requirement under National Instrument 31-103; (2) PGIM, Inc.’s jurisdiction of residence is New Jersey, U.S.A.; (3) there may be difficulty enforcing legal rights against PGIM, Inc. because it is resident outside of Canada and all or substantially all of its assets may be situated outside of Canada; and (4) the name and address of the agent for service of process of PGIM, Inc. in the applicable Provinces of Canada are as follows: in Québec: Borden Ladner Gervais LLP, 1000 de La Gauchetière Street West, Suite 900 Montréal, QC H3B 5H4; in British Columbia: Borden Ladner Gervais LLP, 1200 Waterfront Centre, 200 Burrard Street, Vancouver, BC V7X 1T2; in Ontario: Borden Ladner Gervais LLP, 22 Adelaide Street West, Suite 3400, Toronto, ON M5H 4E3; in Nova Scotia: Cox & Palmer, Q.C., 1100 Purdy’s Wharf Tower One, 1959 Upper Water Street, P.O. Box 2380 – Stn Central RPO, Halifax, NS B3J 3E5; in Alberta: Borden Ladner Gervais LLP, 530 Third Avenue S.W., Calgary, AB T2P R3.

© 2023 PFI and its related entities.

PGIM Fixed Income
PGIM Fixed Income

PGIM Fixed Income is a global asset manager offering active solutions across all fixed income markets. The company has portfolio management and research teams in Newark, New Jersey, London, Amsterdam, Zurich, Munich, Singapore, Hong Kong, and Tokyo. As of December 31, 2022, the firm has $770 billion of assets under management, including $350 billion in institutional assets, $169 billion in retail assets, and $251 billion in proprietary assets. Nearly 1000 institutional investors entrust PGIM Fixed Income with their assets.

Rupal Shah
Principal, Client Advisory Group
655 Broad Street
Newark, NJ, USA 07102

View the contributor page

Related Articles

Register for Insurance AUM Journal

Register today to confirm your status as an institutional investor and gain access to the latest thought leadership in the industry.

  • Thought leadership delivered to your inbox
  • Confirm your status as an Institutional Investor
  • Complete CFA Continuous Professional Development requirements

By clicking submit you confirm that you qualify as an institutional investor and you consent to allow Insurance AUM to store and process the personal information submitted above.

Lost password