More on the Governor’s Revenue Proposals

Governor Patrick, as we know, outlined a very ambitious agenda for revenues and new spending on infrastructure and education in his State of the Commonwealth speech last week. The Massachusetts Budget and Policy Center has come out with an analysis of the Governor’s proposals that is fairly detailed. Let us take a look at some of what the Governor is trying to accomplish, without the politics.

As the Governor began this process the goal was (nominally) to fix the large structural deficit that everyone involved acknowledged we had in transportation. That deficit involved far more than the MBTA. It includes the money to repair roads and bridges, and to allow our road system, as well as our mass transit systems, to have enough funding to bring both into a “state of good repair”. Are you angry about some of the performance problems at the T? Well many of those issues center around poor, outdated equipment that the T is using due to lack of capital funds.

How bad is it? Capital funds are being used to pay employees, which means that we are incurring interest costs for every day work at the Department of Transportation. The Governor has invested in road and bridge repair, but we simply cannot keep up within the current revenue stream. So his commitment of dollars there has been insufficient, a fact with which I think the Governor would readily agree.

So the Governor, as he had two years back, was looking to plug an obvious hole. But rather than play for the short ball the Governor decided to add education, and new transportation spending, and go for the gusto. His proposal would transform the sales tax, alternately lowering it, but rededicating all of it to school building and transportation. (The Massachusetts School Building Authority would continue to receive 1 penny of the sales tax revenue.)He in essence replaces some of that revenue, and pays for additional education and transportation spending, by increasing the income tax from 5.25% to 6.25%. That is about a 19% increase in the relative tax burden.

But the Governor does not stop there. He looks to add some provisions that would make the income tax slightly progressive, by doubling the Personal Exemption, from $4400 to $8800 (single filers) and from $8800 to $17,600 (for married filers). The Governor would also eliminate a host of income tax deductions in the code, with the bottom line being that higher income earners would feel more of a pinch from this increase than folks who earn less. If enacted in that fashion it would almost certainly be subject to a court challenge on Massachusetts constitutional grounds. But that is a story for another day.

The Governor has identified the new Transportation projects he is looking to fund in this package, and it is a pretty big group. From the Budget and Policy Center:

Specific projects funded under this proposal include improving highway interchanges; increasing annual funding for Regional Transit Authorities; resurfacing several major roadways; completing the Green Line extension into Somerville and Medford; connecting rail service between Springfield and Boston, Boston and Hyannis, and Pittsfield and New York City; replacing outdated buses and Red, Orange, and Green Line cars; completing the South Coast rail extension; and expanding South Station.

The Governor, in his many stops after the speech, has defended the proposal on taxes as “bringing choices to the table”. I recognize that the Governor’s proposal is very likely to be scaled back in the Legislature. But what I consider to be important is the concept that the Governor starkly brings forward. If you want it you must pay for it. If the Legislature scales back the revenues they will have to scale back the investments, unless they can find other revenues that nobody is aware of. Over at the conservative Pioneer Institute Jim Stergios has written, and talked about, the Governor’s proposal. Stergios is against, but he does talk in terms that I can understand. He openly says two things that I consider important.

1) That a major part of our existing transportation finance problems come from “expansion spending” that would have been better spent on maintenance. From the Pioneer website:

Just as the Big Dig drained money from other state road projects, new transit lines diverted funds from maintenance to expansion. Today, nearly half the MBTA’s $8.6 billion debt can be traced to building, operating, maintaining and paying debt service on those projects. So can much of the T’s $3 billion maintenance backlog.

I happen to agree with Stergios here. If a project must be done then it should be paid for. I may not agree with Stergios on the relative merits of the projects he includes on that list, but his point is well taken, and the idea that transit expansion can be done for nothing has put us in this mess. In making his filing in this fashion the Governor appears to agree as well.

2) The Governor’s new list of transportation “expansion” projects is also undeserving of new dollars. From Pioneer:

We need to stop calling the same old political projects “transportation needs.”

Compounding past mistakes, the report includes no mention of what these projects will cost to operate and maintain over their lifetime, instead focusing only on construction costs over the next decade.

The $1.02 billion annual number is hyper-inflated with a wish list that includes South Coast commuter rail, passenger rail from Boston to both Springfield and Cape Cod, and even between the Berkshires and New York City, over $40 million a year for bike and pedestrian projects, a doubling of Chapter 90 local project funding.

That debate will now be had. But Governor Patrick has placed that debate on a new, higher plane. And the Governor, while being a strong advocate for his own transportation spending recommendations, has also struck what so far seems to be an unnoticed blow for fiscal responsibility in transit spending. If you want it you must pay for it. And the Governor is willing to step up and have that debate. After you look at this you realize that on fundamental principles maybe the Governor and Jim Stergios are not that far apart. And that principle will force the Legislature, like it or not, to make some very difficult choices in the months ahead.

A clip from Michael Widmer of the Massachusetts Taxpayers Foundation is below. Mr. Widmer was a member of the Transportation Finance Commission, and is a budget and policy analyst without peer.

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