Over the next few days, legislators will cast votes on the transportation finance plan recently released by the House and Senate Ways and Means Committees.
My hope is that the plan will evolve and expand before our final vote. I would like to see us add to the plan a stream of additional dedicated transportation revenue that will rise to roughly $500 million per year over the next 10 years. I am open to any fair and practical approach to generating that additional revenue.
A decision to raise taxes is never easy, especially in difficult times, but I believe that unless we raise more revenue and dedicate that revenue to transportation, we will not make enough progress to reduce the deep backlog of necessary maintenance in the transportation system. The discussion below explains the plan and offers my view of how the numbers work.
The package before us would raise over $500 million in new annual tax revenues by (a) increasing the gas tax from 21 cents to 24 cents per gallon and indexing the tax to inflation (yielding $120m on average per year over the next five years); (b) increasing the cigarette excise tax from $2.51 to $3.51 per pack and also taxing some smokeless tobacco products (yielding $170m); (c) increasing some business taxes — expanding the sales tax to cover computer system design services, ending special tax treatment for utility companies and modifying corporate tax rules in a way that favors Massachusetts companies selling out of state (yielding $244m).
We are not voting on a capital investment program — a collection of projects like new Red Line or Green Line cars or the reconstruction of the I-93/I-95 intersections. As I’ve outlined in articles over the last two weeks, legislative committees will take months to vet the actual investment program and to consider the overall fiscal prudence of the resulting debt burden.
However, because both the state’s budget and the MBTA’s budget need to be in place before July, we will vote soon to put in place the revenues to cover both the transportation operating gap and the capital investment program. In taking that vote, we are indeed hampered by the lack of a legislative consensus about the size of the investment program, but most analysts feel the program should be roughly on the scale of the 21st Century Transportation Plan offered in January by the state Department of Transportation (MassDOT).
The total proposed tax increase roughly equals the combined projected operating gap of the MBTA and the state Department of Transportation (MassDOT). However, the plan assumes that MassDOT and the MBTA will raise increasing amounts (up to $230 million in FY18) from their own sources — savings, fares, tolls, and other revenues. The Governor’s budget makes a similar assumption, but the legislative plan assumes $78m more than the Governor’s plan from MBTA operations. (As a comparison point, the MBTA’s own source revenues (mostly fares), are budgeted at $615m out of a total budget of $1.866b in FY14.)
Since the plan assumes the agencies will more heavily fund themselves, not all of the tax increase is dedicated to cover the transportation operating gaps. As a result, roughly $240m is available annually for education and other purposes.
At this point in the process, there is no active dispute about the size of the twin operating deficits of the MBTA and MassDOT. The two agency budgets total together approximately $4 billion, but the difference between the cost assumptions of the administration and the legislature is under $100 million even in the 5th year of the projection. There is also little disagreement about tax revenue estimates. It does appear that the revenues dedicated to transportation in the Ways and Means plan will cover the transportation operating gap for at least 5 years and possibly longer given that they slightly exceed the currently projected gap as time goes on.
The harder question to evaluate is how much of MassDOT’s proposed 21st Century Transportation Plan can be funded under the Ways and Means plan. In considering this question, we should focus only on the new taxes which are dedicated to transportation. Cost-effective planning for major capital investments depends on certainty about available revenue. Given all the needs in other areas of the budget, it seems very likely that the $240 million in tax revenues in the legislature’s plan that are not specifically dedicated to closing the transportation operating gap will be absorbed by competing needs.
Out of the $13.7 billion contemplated in the 21st Century Plan, the Ways and Means plan would definitely fund at least $2.5 to 3 billion over the next ten years — MassDOT borrowing capacity currently used to plug its operating gap would be freed up.
Additionally, some of the projects in the 21st Century plan have previously appeared in MassDOT and MBTA baseline capital programs. There is no published reconciliation across the capital plans, but it appears that this overlap might total $2 billion or more. With the operating gaps closed, the baseline capital plans could be fully implemented and some of these projects could be completed.
However, the baseline capital plans under MassDOT (see for example the Boston area plan, esp. Chapter 7) and the MBTA both were developed under existing fiscal constraints and they note explicitly that they fail to fund many important projects. One goal of funding the highest priority projects as part of a separate 21st Century Transportation plan is to create headroom to reach some of the many worthy projects excluded from the baseline capital plans.
Finally, MassDOT has estimated that over the next 10 years another $2 billion of general obligation bond proceeds would be available for transportation spending — this amount appears not to depend on any dedicated tax increase, but is rather based on the natural growth in the Commonwealth’s borrowing capacity, so it would also be available under the Ways and Means plan. The availability of this amount does, however, depend on economic growth and future policy and political decisions.
Summarizing the last three paragraphs, it seems fair to say that the legislature’s tax proposal funds, at a minimum, $2.5 billion out of MassDOT’s $13.7 plan and, in a more favorably framed analysis, approximately half.
As I consider this legislation, I am influenced by the years that I have spent in project review meetings as an advocate for road and transit projects for my district. In all of those meetings, I have been profoundly impressed that behind my projects were dozens of projects of almost equal merit and readiness that remained unfunded. I’m also influenced by the repeated findings by independent reviewers that we are way behind on transportation maintenance.
The Big Dig put transportation funding in a deep hole. We need to do more now to clear the project backlog. If we could add to our legislative package a stream of additional dedicated transportation revenue that rose to roughly $500 million per year over the next 10 years, we could come pretty close to funding the 21st Century Plan. I’m hoping the conversation will move in this direction and I’m personally open to any practical approach to generating that additional revenue.
I welcome your thoughts.
Will, I don’t see why fare increases and tax increases are the only options discussed to keep the MBTA above water. The MBTA labor contracts surely have to be reexamined. The labor costs are huge and the contracts, especially the pension/health benefits and work rules, should not be left out of any plans to bring more economic rationality to running the T in the 21st century.
I agree with the governor that we shouldn’t kick the can another year.
Thanks for your thoughtful exploration of the problem.
Hello Will, I’ve been meaning to harass you about this, so why not now?
I lean towards the Governor’s proposal. Generally I favor a higher level of tax-and-spend, generally I favor a more progressive tax code (achieved with a “flat” tax by increasing the personal deduction), generally I think we have underspent on road maintenance and local aid (reducing pressure on property taxes makes the overall tax code more progressive). My understanding is that “uncertain times” is the right time for tax-and-spend — the economic boost from increased spending exceeds the economic burden from increased income taxes, so that the result is a net win. (That is, the recession is demand-driven; people cut spending because they fear economic risk, and their reduced consumption results in job losses results in more economic risk. If government piles on and does the same, that makes it even worse.)
I have read (contra raising the gas tax) that trucks are undertaxed relative to the damage they do to the roads; that road damage (on a new or well-maintained road, rare around here) is proportional to the cube or perhaps even the 4th power of the weight on a wheel, which means that one wheel of a fully loaded 18-wheeler (4400lb load) is worth 700 wheels on 1-ton subcompacts (500lb load).
I’m pro-transit expansion for two reasons. #1, we may eventually decide to take serious steps to reduce greenhouse-gas emissions, or we may run short of relatively cheap oil. We’ll want more alternatives that we’ve got now when that finally happens. #2, we do a poor jobs at delivering usable transit to people outside 128. Some of them (people I know) have considered commuter rail, but the combination of uncertain parking (why is their only option to drive to the station?), sparse schedules, and travel that’s not actually faster than driving force them into their cars.
I remain more than a little mystified at the way we do some things up here — no carpool lanes on 128, but driving on the shoulder during rush hour is legal (in some places). ???????
This year is an opportunity to improve our transportation funding and management in many long-neglected ways. The patronage jobs and disability abuse have been whittled down somewhat, but surely, as Roy Epstein notes, there’s more room for progress. David Chase is right to highlight truck damage to roads and the lack of commuter parking.
Overall, I support something broader than the Legislature’s plan but less than the governor’s plan. Clearly, we need to repair what we’ve got and improve it in thoughtful ways. Of the expansion proposals, I support the South Station expansion and the Green Line extension (with bike path accompaniment.) The rail to Cape Cod, if done right, should soon pay for itself and earn expansion; that may also be true of the Berkshires to NYC.
I’m more dubious about the inland route: why would this be better than buses? Unlike the Cape route, which is a comparatively cheap way to bypass a horrendous bottleneck, bus routes to Worcester and Springfield seem to work just fine.
Worst of all is the ludicrously expensive South Coast Rail, which is also environmentally destructive. It would cut right through the Hockomock Swamp, the largest freshwater wetland in Massachusetts. Admittedly the route follows a former rail bed, but the amount of dredging and filling needed to turn what is now a hiking path into a modern two-track train line is appalling. Surely it shouldn’t take $1.8 billion — almost half of the $3.8 billion in expansion funds proposed — to improve traffic on Route 24.
Here’s a link to pictures of the proposed South Coast Rail route through the Hockomock: http://www.nature.org/ourinitiatives/regions/northamerica/unitedstates/massachusetts/explore/hockomock-swamp—page-2.xml.
Hi Will,
I agree with you on many of the issues that you bring to the table, however, I want to voice some caution on this issue.
It is clear that, compared to the public transport in other developed parts of the world, the MBTA looks old and dilapidated. However, most of the public transport systems outside of the US have been more or less self-funded.
By increasing gasoline excise tax, income or sales tax, or increasing road/tunnel/bridge tolls to fund part of the shortfall, we ask the people that do not or cannot use the MBTA to extraproportionally fund a transportation method that is only used by a relatively small percentage of Baystate citizens.
I agree with a previous commenter that we need to first look for efficiencies in the system itself. I’d take it even further — in the Netherlands, most public transport services are provided by private companies that commit to a specific quality of service (routes, stops, frequency). Incidentally, Veolia, a US company who is already an MBTA contractor for many of the commuter rail services of the MBTA, is the largest bus provider in that country. Even though commercial outsourcing is not a solution to all problems, it will help increase efficiency and it works if the contractual obligations are carefully managed and if the system is judged by its output: price/service towards the users.
(As a sidenote — the average per-trip cost in those Western European countries is 2x or more what the MBTA charges. Still – because of efficiency (speed, no parking issues, etc.) ridership is a lot broader than with our “T”. See here for ticket price comparisons across the globe: http://www.priceoftravel.com/595/public-transportation-prices-in-80-worldwide-cities/ ).
I have to disagree that the burden of increased funding for the MBTA affects people who do not or cannot use the system unfairly or “extraproportionally”. These people, for whatever reason, chose to locate themselves outside of the metropolitan area where public transportation isn’t available on a large scale. The vast majority of people who use the MBTA regularly are those who MUST use it for financial reasons i.e. the high cost of parking in the city and the cost of owning and maintaining a vehicle. Therefore, I would argue for a greater tax on individuals who can financially afford to NOT use the MBTA system like commuters from the north and south shores. A toll on Route 95 for passenger cars could raise a substantial amount of money to divert to the MBTA’s solvency. Tolls are probably unlikely to attract many supporters at the State House, especially from representatives from the north and south shore, but it seems ridiculous that only the MassPike has tolls on it. I can imagine that Senators and Representatives whose constituents rely on the MassPike for easy access to Boston wouldn’t mind some other regions picking up some extra responsibility for contributing to the Commonwealth’s infrastructure.
Good morning, Will, and thanks for your thoughtful discussion of this issue. I strongly support the Governor’s plan – – partial measures are simply insufficient, and legislative leadership’s plan not only lacks needed funds, but raises its funds through regressive taxation. Labor costs are less an issue for the T than poor management – – would focus there.
Best regards.
Josh Alper
I believe that universities should carry some of the weight for transportation. They benefit from the transit that runs directly through their campuses but do not provide much assistance to improve that transit.
I hope for mutually beneficial solutions though, so I do not favor blindly throwing a tax at the universities. How about if the universities were required to provide transit passes for all their students? There are around 250,000 students in the metro Boston area. No more than 15% of those students buy into existing university transit programs that provide discounted LinkPasses at around $62 per month. If universities were required to provide transit passes for all of their students for at least 10 months out of the year, that would mean at least $150 million in guaranteed revenue for transit.
This plan would not only benefit the MBTA, but it would benefit the students and universities as well. The MBTA could even be required to run overnight service as part of the plan. Overnight service is projected to result in an annual net-loss of $1 to $2 million for the MBTA. . . the $150 million would more than cover that expense.
Hi Will
I personally think that the gas tax is a terrible way to raise money for transportation. This is because cars and trucks are get better and better gas mileage. The amount of money a gas tax raises in relationship to how much people drive has to goes down. This is a death spiral, and raising the gas tax will will only encourage tax avoidance through the purchasing of say, Tesla’s or other plug in hybrid type cars which do not use gas and pay gas taxes, but do use roads.
A better way would be to look at using the annual inspection to measure ones actual miles driven, and send a bill on a annual bases payable in monthly installments by the DOR or registry. The legislature would then have to set a price of a mile driven, a use tax.
This would allow the state to lower or end the gas tax, and work out all the all the other issues like how to charge out of state drivers & Mass residents who go out of state. But at least the tax for transportation would not erode over time in terms of the amount of money it brings in compared to the amount of driving being done. Which to my mind is the real problem with transportation taxes today. The funding system does not stay even with the use and demands placed on the transportation system.
Once the funding system for roads is properly funded… car owners pay closer to the real cost of providing the roads and bridges, it may be that tax avoidance will be to use the MBTA, and to charge enough for T service to solve many of the T’s financial issues.
This is also to say that good and accountable management is need to ensure that the T, and the State DOT are well run. And the history of game and favor trading by the stake holders in the transportation system needs to be brought under control.
I think the Governor and MassDOT are right to view proposed Transportation improvements and support for operations and maintenance as investments for the benefit of the whole Commonwealth. Our roadway, transit, train, biking and pedestrian infrastructure – which all agree is in woeful shape and needs comprehensive planning and upgrade – is vital to the economic viability and competitiveness of the state and the region. Independent of whether residents are located to utilize the MBTA or RTA services, they gain advantages from the enhancement of economic development and efficiency from better transportation service, and the overtaxed roadway network is significantly relieved of added burden and congestion by drawing some portion of the population to transit-bike-pedestrian modes.
While there may be valid questions about some of the rail projects included in the MassDOT plan, the major investments in Green Line extension, South Station expansion, bus replacement, bicycle and pedestrian networks, electricity and control systems improvements, and MBTA and RTA operations support are fully justified and will return significant return to the whole Commonwealth. Total financial support in the range of the Governor’s proposed package is esssential to address the large scope and backlog of valid need. The Legislature’s proposal is terribly inaedquate and deceptive as a strategy to correct Massachusetts’ approach to addressing our long-deferred infrastrcuture enhancements.
It is reasonable for all citizens of Massachusetts to share in support for this comprehensive investment, and the revenue approach should be structured in a progressive manner, so those who can afford it pay a more appropriate portion. Limiting the revenue increases to gasoline and tobacco tax incrmenets is a regressive burden on the sectors of the population that can afford it least. A significant measure of income tax increase should be incorporated in the legislation to provide progressive balance. This should also be expanded to address the many Educational system needs that the Governor’s plan proposes, which are equally essential investments in the economic viability and quality of life for the citizens of the Commonwealth. I trust our vital, interactive public political and community input process to help ensure that the use of the new revenues will be directed in the most boradly beneficial directions.
Just a question about the draft transportation bill: in one section, we find
“Section 36. (a) There shall be an advisory board to the authority consisting of a voting
representative of each of the following cities and towns: Braintree, Bedford, Brookline,
Cambridge, Chelsea, Cohasset, Concord, Everett, Hingham, Hull, Lexington, Lincoln,
Malden, Melrose, Medford, Milton, Nahant, Quincy, Revere, Somerville, Weymouth, and
Winthrop; provided further, that the city of Boston shall have eight voting representatives,
one of whom shall be a resident of the Beacon Hill section of the city of Boston, one of
whom shall be a resident of the South End section of the city of Boston, one of whom shall
be a resident of the East Boston section of the city of Boston, one of whom shall be a resident
of the Dorchester or Roxbury sections of the city of Boston, one of whom shall be a resident
of the Charlestown section of Boston, one of whom shall be a resident of the South Boston
section of the city of Boston, one of whom shall be a resident of the Roslindale or Hyde Park
sections of the city of Boston, and one of whom shall be a resident of the West Roxbury or Jamaica Plain sections of the city of Boston. ”
??? What happened to Allston & Brighton? The Town of Lincoln gets a rep, but Allston & Brighton citizens do not even have a chance of serving?
Government activities normally should be paid for by taxes that are impractical or impossible to avoid, such as income tax and sales tax. Avoidable taxes — excises and fees on specific activities — should be imposed only in order to create incentives and thereby influence behavior.
If a gas tax is a good way of decreasing traffic and pollution, then hooray, let’s have a gas tax. If a cigarette tax is a good way of decreasing the harms that result from smoking, then hooray, let’s have a cigarette tax. But let’s not earmark a gas tax for transportation, or a cigarette tax for medical costs, no matter how good a slogan it makes. There’s no particular connection between the efficacy of another cent of tax in reducing those harms, and the benefits of another cent of spending on those programs.
Hi Will:
I pretty much support the Governor’s plan. Thanks!
Eric
Will
I am with the Governor and his plan. I think the legislative leadership’s plan is cowardly and short sighted. I would like to see some of these long awaited projects (especially bike paths and rail extensions) get the funding they need to proceed.
Matt
Good question! We’ll get back to you on this.
I wholly support the Govenor’s plan because it was put together from the perspective of actual transportation needs, and then figuring out how to pay for it with a compressive package. What was proposed is fair and progressive–I particularly like increasing the income tax and lowering the sales tax. And I would not be opposed to a higher tax on cigarettes, or any of the funding streams proposed by DeLeo.
The framing that the Governors plan is a burden on the middle class is ridiculous. The biggest burden on the middle class is forcing them to drive for every basic need and maintain a car for every family member because there are so few transportation choices.
The Way Forward is a plan vetted widely by the citizens in an open discussion in the public realm through months and months of open meetings held around the state. Everyone had a chance to speak.
DeLeo’s plan is a back room haggling based on what is politically easy.
That contrast alone makes the governors plan more reasonable and justifiable. The main impediment to our success is the will to move forward.
Hi – I prefer the governor’s plan. The legislative plan is a good compromise but I feel we cannot compromise on the safety of our roads and bridges. Also I think that drivers SHOULD subsidize the MBTA. A very large number of people use the MBTA every day and many people have no other option. By having more people take the public transportation, there will be more parking downtown for those who must drive and for tourists. I am willing to pay more taxes in return for better roads, bridges and MBTA. Somehow accountability needs to be built in. It’s hard to advocate for more taxes when new corruption is uncovered monthly in the Globe.
Debbie Lowe
Hi Will,
Count me as another voter who strongly supports Governor Patrick’s plan. I really depend on public transportation.
Thanks,
John f.
I appreciate your articulate description of the various perspectives. I favor:
– increasing taxes on cars
– increasing public funding of mass transit
– reducing fares, increasing service and increasing quality at the T
– establishing competitive labor practices at the T
I suppose that means I support the Governor’s current plan, but I support a lot more than that.
How typical. Allston/Brighton so often gets left out in the cold. This is how you end up with boondoggle Commuter Rail projects being funded while the core system falls apart. But there’s more. Check out this section w/regard to the MA Port Authority:
“(f) Three members of the authority shall be appointed by the advisory board, in accordance with section 2 of this chapter. Two of those members shall be residents of one of the following communities: Braintree, Brookline, Cambridge, Chelsea, Cohasset, Everett, Hingham, Hull, Lincoln, Malden, Melrose, Medford, Milton, Nahant, Quincy, Revere, Somerville, Weymouth, or Winthrop; and one of whom shall be a resident of the communities of Bedford, Concord, or Lexington.”
No mention of Boston at all!
Then there’s this:
SECTION 37. On January 1, 2015, the tax per gallon established under section 1 of chapter 64A of the General Laws shall be adjusted by the percentage, if any, by which the Consumer Price Index as defined in section 1 of the federal Internal Revenue Code, for the preceding year exceeds the Consumer Price Index for the calendar year that ends before such preceding year.
Is this the only provision which links the fuel tax to inflation? Because it looks like it’s written to occur only once. Shouldn’t this be an annual, recurring revision, to ensure that the tax isn’t devalued by inflation again?
I prefer the Governor’s plan, or similar plans that invest further in public transit, and connect some of the more troublesome gaps in the walking/cycling network (River St. bridge, anyone?).
Has the legislature considered, instead of treating tax hikes vs. fare increases as an either/or proposition, raising fares but providing relief for low-income citizens? For example: transportation vouchers, or tax credits to businesses that provide passes to employees earning less than a certain amount. It seems like that would offset some of the perception that the western parts of the state are subsidizing transit that they don’t get to use.
And let’s keep some perspective: compared to purchasing, fueling, and maintaining a car in order to access infrastructure that you’re already paying for, any tax hikes would be pretty minimal.