Transit users await congressional action on pretax benefits

December 10, 2011

Transit users could be faced with paying more to commute on rail, on buses and in van pools next year if Congress doesn’t extend pretax benefits by the end of this month.

Commuters can set aside as much as $230 a month in pretax income for transit use, but that amount is set to fall to $125 a month when a temporary increase expires. Under Internal Revenue Service rules, pretax parking benefits would rise from $230 a month to $240 a month because of inflation.

Metro and public transportation advocacy groups have said the pretax transit benefits keep more riders on buses and trains and out of cars.

“Unless Congress acts, there will be a financial bias in the federal tax code against public transit use,” Michael P. Melaniphy, president and chief executive of the American Public Transportation Association, said in a statement. “We are seeking to maintain parity with the parking benefit to ensure that there isn’t a disincentive to take public transportation.”

Because Congress has not extended the benefits, human resource managers can only allow employees to set aside as much as $125 pretax for January because the disbursements are done a month ahead, according to Paul Dean, a vice president at Transit Center, which oversees transit benefits for 15,000 public agencies and private companies. Dean said about 25 percent of the companies in major metropolitan areas offer the pretax benefit options.


In some cases, employers offer the entire transit benefit as a perk. It’s unclear how the change will affect those workers, but they could see the most dramatic change.

“It’s up to [the employers] but [the benefit] likely will go down to match the pretax limit,” Dean said.

The pretax transit issue could be part of a bill to extend a variety of tax provisions and benefits. But the bill has been stalled over larger debates on many tax issues. Twenty-two senators sent a letter Thursday to the Senate Finance Committee asking for an extension of benefits.
Transit advocates are pushing for the benefits to be included in the final package and say a decline would be ironic, given that for the first time since 2008, ridership for public transportation has risen three quarters in a row nationwide, according to the transportation association.

For Metro, about 256,000 area employees are registered for its SmartBenefits program, which allows transit benefits to be assigned directly to SmarTrip cards. About 86,000 work in the private sector and 170,000 for the federal government.

Metro officials have projected that its rail ridership could fall 2.8 percent next year if employee transit benefits expire. That would be on top of a decrease already expected, which they have blamed on the weak economy, resulting unemployment and a large fare increase in 2010.

In Northern Virginia and Maryland, officials have expressed concern that cutting the pretax benefits could lead more people to drive on the area’s congested roads.

Sharon Bulova, chairman of the Fairfax County Board of Supervisors, recently wrote to members of Congress, backing a permanent increase.

“Federal and private employees who rely on transit services will feel the impact of this reduced transit tax benefit during these difficult economic times,” she wrote.

Sen. Barbara A. Mikulski (D-Md.) signed on to a bill that Sen. Charles E. Schumer (D-N.Y.) introduced to make the transit tax credit permanent. She said Friday in a statement that extending the tax credit “has an immediate impact, easing the burden on middle-class families and Maryland’s federal workforce.

“It also provides much-needed relief for everyone who uses the region’s strained highway system,” she said. “As we work to put people back to work, we should do all we can to help them get to their job.”

Some transportation experts say the reduction would not have as much of an effect as others fear.

“People who are habitual Metro riders don’t want to get back in their cars and commute,” said Lon Anderson, director of public and government relations at AAA Mid-Atlantic. “They’ve gotten spoiled.”

“People typically don’t want to drive in the worst congestion in the U.S. twice a day ,” he said. “People who can easily make Metro work for them are already doing so.”

If the pretax transit benefits are cut back, Anderson said people will weigh their options and costs. Driving, Anderson said, can often be more costly than using transit because the driver has to pay for the vehicle, insurance, gas, repairs and parking.

“It will cause a drop [in transit ridership],” he said, “but it won’t be as big as some would expect. It’s going to have a measurable, statistical impact on rail ridership, but you’re not going to see people leaving transit in droves.”

Dana Hedgpeth is the Washington Post’s lead reporter in covering the Metro rail and bus systems in the D.C. region and the Washington Metropolitan Transit Authority (WMATA) that runs them.
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