New York’s transportation funding debacle could get a whole lot worse. Last week, the state senate passed a repeal of the deeply unpopular MTA payroll tax, which is levied against businesses in New York City and the 7 suburban counties comprising the system’s service area. If the state assembly backs the repeal without passing the senate’s “transit lockbox” measure, the MTA could have a nearly $850 million hole in its budget within the next five years:

The phase-out would begin on January 1, 2012, by exempting small businesses of 25 employees or less, as well as public and non-public schools. The tax would be fully phased out by January 1, 2014 for the seven suburban counties outside of New York City. Within the five boroughs of New York City, the tax would be phased down to .21 percent and would remain at that level. The bill includes several provisions to provide the MTA with $465 million in revenues by 2014 to significantly offset revenues lost due to the significant reduction and repeal of the payroll tax, leaving $375 million, or about three percent of the overall MTA budget, for the MTA to absorb.

Senator Golden, a member of the MTA Capital Program Review Board, stated, “The Transit Funding Lockbox is necessary simply because we must stop the reallocation of funds within our state budget originally dedicated to our transportation system. This legislation approved by the state Senate is designed to guard all who travel by public transportation from a pattern of having to pay more for less service. Now, knowing that these funds are not going to disappear from their budget, the MTA can better plan to meet the needs of the commuters of the City and State of New York.”

State Senator Lee Zeldin says that “one must question the motives and veracity of any individual or group” claiming that the MTA can weather an $850 million loss in dedicated tax revenue without having to cut service or raise fares. One wonders where he’s been for the past few years, when the MTA’s gaping budget shortfall has led to a nearly 45% increase in the cost of a monthly Metrocard (a monthly unlimited was $76 in 2006; today it’s $104). Indeed, there seems to be a pretty clear relationship between the MTA having less money and its ability to provide cheap, efficient public transportation.

Zeldin isn’t like, wrong, though. The payroll tax is an unpopular and counterproductive way to raise money for New York’s suffering public transit system—indeed, it is essentially a commuter tax that applied to commuter and non-commuter alike. Not that this is unfair. A business in Westchester County certainly reaps some reciprocal benefit from being located in an area served by the MTA’s Metro North commuter rail system, even if that business isn’t physically within the borders of New York City. But there’s a certain political liability attached to asking all of your constituents to pay for services that someone else will use, and there are better ways to fund the MTA than a politically toxic tax on people who may not even use public transit. That might be what senator Zeldin is saying here.

But what are the alternatives? Congestion pricing has been revived as a possibility in New York, as have tolls on the city’s still-free East River bridges. These are certainly better ways of raising money for the MTA than a poorly-implemented tax, as they apply to people who 1) are within the boundaries of New York City, and 2) whose currently behavior (i.e. driving) carries negative social and environmental externalities that a responsible government should be targeting anyway. The question is whether the state legislature will embrace any of them. History says don’t count on it. Instead, if the assembly passes the Senate’s repeal of the payroll tax, count on riders having to absorb an $850 million loss in transit-specific tax revenue.