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.