New York City enters a new era of economic gridlock with the end of congestion pricing.

• The indefinite delay in New York City's congestion pricing plan announced by New York State Governor Kathy Hochul this past week exposes conflicting views about the city's economic future.
• Officials, including Hochul, have expressed concerns about the post-Covid economic recovery in relation to the $15 fee for daytime automobile commuters entering New York City at or below Manhattan's 60th Street.
• The short-term focus on city finances after the pandemic is a mistake and will result in billions of losses, according to critics.

New York City was expected to serve as a national test for the economic benefits of congestion pricing as the city recovers from the pandemic and inflation, and faces challenges such as a cost of living crisis, climate change, and aging infrastructure, particularly in public transportation.

The Metropolitan Transportation Authority plan was simple to comprehend: a $15 fee for daytime automobile commuters entering New York City at or below Manhattan's 60th Street, which would have been the first of its kind in the United States, aimed to fund transit system improvements with an estimated $1 billion in annual funding. The MTA predicted that the toll would reduce car traffic in the country's most congested area by approximately 100,000 cars per day, or 17%.

On Wednesday, New York Governor Kathy Hochul rejected a plan that was set to be implemented in weeks, which she had previously supported as a model for cities to enhance mass transit, quality of life, and environmental sustainability.

The decision to implement the plan was driven by the citywide economic recovery post-pandemic, and concerns about discouraging commuters from working or visiting the "Central Business District." At the time of the pre-Covid state legislature approval in 2019, workers were in the office five days a week and tourism was at a record high. Despite office vacancy rates in Manhattan being as high as 15%, the plan was federally approved in June 2023 and set to take effect on June 30.

Did remote work kill congestion pricing?

According to Hochul, the three-day in-person workweek of many office workers is a symptom of the pandemic, and she expressed concerns that people would return to fully remote work with this toll. A 2024 Gallup poll found that 54% of remote capable jobs operate on a hybrid model, and 27% are exclusively remote.

Some city's largest businesses' bosses want workers to return to the office more frequently, as JPMorgan Chase CEO Jamie Dimon has emphasized the importance of in-office work. The plan, Hochul stated, would prompt commuters to inform employers to work remotely fully once again.

The decline of fully remote job listings and the stricter mandates for office attendance in 2024 suggest that the return of five-day-a-week, in-person work may not be coming, even with or without congestion pricing.

Even before congestion pricing, a bridge crossing into New York City and parking could cost up to $75 a day, which many white-collar workers were willing to pay or had been paid by their employers. It's unclear whether a $10-$15 fee, including discounts for commuters who pay other tolls, would be a deal breaker or simply not enough to break the bank.

Hochul supported postponing the plan to prevent harming lower-income families, who she stated could strain the budget of hardworking middle-class individuals and put pressure on small business owners, nurses, and other working-class New Yorkers.

The congestion toll, which was proposed by New York's Department of Transportation, would mainly affect commuters with an income 31% higher than the median Manhattan worker. In 2023, the subway had a daily ridership of 3.2 million people and MTA buses had a ridership of 1.4 million. A significant number of New York City residents, particularly those with lower incomes, rely on MTA services as their primary mode of transportation.

Kathryn S. Wylde, president and CEO of the Partnership for New York City, stated on CNBC's Squawk Box that approximately 3% of commuters into the city drive cars, and they tend to be "higher paid people or government employees." As a result, the congestion toll would discourage "discretionary" driving.

The Community Service Society's research revealed that 4% of outer-borough workers drive to Manhattan for work, while 56% of outer-borough residents use mass transit to commute to work in Manhattan. Among those who drive, 55% are high income.

Wylde stated that the majority of individuals utilize public transportation, including rail, subway, or express buses, to travel into the city.

Wylde, an MTA Traffic Mobility Board member, advocated for a policy that was opposed by many of her business leader community members. Her group has supported a congestion pricing plan for two decades. The loss of this plan will result in a $20 billion-plus cost in lost productivity, overtime, and fuel expenses, as well as an environmental and health toll.

Another reason business leaders may have supported the plan is that Governor Hochul has proposed a tax on the largest business in the city to make up for the $1 billion in lost revenue annually. Additionally, she has suggested increasing the payroll mobility tax, which would target employers in New York City's five boroughs with payrolls of $1.75 million or more. However, the initial response from state legislators was not positive, and Wylde pointed out that a tax may help solve the issue of raising new revenue, but it does nothing about traffic.

A big win for the burbs

The suburbs emerged as the largest victor in the race," stated Rep. Josh Gottheimer (D-NJ) on CNBC's "Squawk Box.

Sussex County commuters in New Jersey face increased financial pressure due to their limited access to mass transit and the need to take cars to essential jobs. New Jersey commuters make up 9.6% of the New York City workforce, according to the Regional Plan Association. The MTA does not fund Jersey Transit but oversees mass transit in Connecticut, Long Island, Southeastern New York, and New York City.

Since 2010, the average car travel speed in New York City has decreased by 23%, to 7.1 miles per hour. This is due to the presence of smaller streets, which have been created to accommodate bike lanes, bus lanes, and increased outdoor dining space post-pandemic. As a result, workers are spending more time in traffic.

The long, and often losing, history of congestion pricing

The debate over congestion pricing in New York City has a richer history than you might realize. For over 70 years, a local populace that is known for grumbling about traffic and arguing over the best ways to avoid it has been discussing various ideas to make life in the city less congested. Nobel Prize-winning economist William Vickrey first proposed the concept of congestion pricing in 1952, initially for subway riders, though he later suggested a similar idea for roads. Among elected officials, the recent turn of events is consistent with the pattern of losing battles.

In 2007, Mayor Michael Bloomberg advocated for congestion pricing but failed to gain enough support in Albany. Governor Andrew Cuomo first proposed the latest plan in 2017, but political tensions and pandemic financial challenges delayed its implementation. Despite expressing support up to the start date, Hochul was never transparent about her concerns, according to a New York Times report on Sunday.

Recently, Cuomo has opposed his own congestion pricing plan, citing various reasons such as the migrant crisis, crime, homelessness, quality of life, and taxes. However, the primary reason he gave in a New York Post op-ed was the recent crime wave on the public transit system and the need to restore passenger confidence in using mass transit.

Fare evasion on the public transit system has increased since the law was passed in 2019, according to Cuomo. Wylde, who is a top priority, has helped staff an MTA task force to find a solution to the issue. However, she noted that the $50 billion capital program over five years, which includes $15 billion from congestion pricing, will not be enough to cover the cost of fare evasion, which is estimated to be as high as $700 million in 2023.

The Buffalo Bills are set to receive $600 million for a new stadium, but Rep. Gottheimer believes the money should not be used for stadium construction.

Hochul's sudden announcement to delay the policy months before the elections has been viewed as a political move to secure reelection and favor from local politicians in swing districts, according to many opponents. This is not a new phenomenon, as Wylde noted, referencing the elimination of a commuter tax decades ago when Democratic seats were at risk in the state legislature. "This is the same kind of situation," she said. "It is a suburban backlash and concerns about candidates, particularly Democratic candidates. The politics of it are chronic, and there is not much we can do about it from the business side."

The MTA's plans for leveraging increased funding may be temporarily delayed, but Wylde hopes it's only a short-term setback. She has observed that congestion pricing has been successful in improving quality of life and reducing business costs in cities such as London, Stockholm, and Singapore. "Opposition may arise initially, but once people see the positive results, they become thrilled," she said.

Dr. Steven Cohen, Senior Vice Dean at Columbia University, wrote in a recent post that unintended consequences and policy revision are inherent in any new undertaking, but the city and its commuters could look to big business for evidence that the concept is effective.

"The new policy will undoubtedly have unforeseen negative consequences. Every new policy and product have unpredictable downsides that can only be identified through experience. However, we can adjust policies and products to mitigate their negative impacts. The congestion pricing policy's underlying design is sound. A congestion fee will generate revenue for mass transit and reduce traffic congestion. Surge pricing is effective and has been successful for Uber and JetBlue."

Rep. Gottheimer believes that the end of congestion pricing is near and unlikely to return after the upcoming elections. He stated, "We got it done. It's an indefinite pause, and the word 'indefinite' is crucial here." Although he acknowledges that the issue is not easy to solve, he believes that the answer is not just to tax people more. Instead, he views the issue as fundamentally about the management of the MTA.

Wylde stated that the city is experiencing gridlock, and the governor is concerned about ensuring that the Manhattan economy is not harmed. He added that reducing congestion would improve the situation.

—By Kaya Ginsky, CNBC News Intern