Transportation Finance: The Gorilla in the Room

The Governor and the Massachusetts Department of Transportation yesterday unveiled the Administration’s much anticipated transportation funding plan. The Governor has built upon the the findings of many studies detailing how deficient our transportation funding system is. You do not necessarily have to be a fan of the Governor’s approach to understand that the way we fund transportation in Massachusetts is seriously broken, and honestly cannot be corrected without either new funding, or pretty stark cuts in services, or fare and toll increases. What the early Republican critics are saying is that funding needs to increase, but that other budget areas need to be cut so that the shortfall can be made up through budgetary re-allocations. Fair enough as far as it goes. But what specifically would that entail, and is there an alternative plan that would show just how this budgetary re-allocation would work? If not then the criticism implies acceptance of the transportation status quo.

The Governor will not be satisfied with simply correcting the transportation funding problem, but he has put forward an ambitious plan of new investment that would be paid for within this package. Those investments include: (From State House News Service)

The plan calls for $1.18 billion to be invested in bridge repairs, $1.25 billion in hundreds of local and regional highway projects, $930 million for Interstate 91 in Springfield and the Interstate 93 and 95 interchanges in Woburn and Canton, and $430 million for bicycle and pedestrian improvements.

Drawing applause from the crowd at UMass, including local leaders like Gloucester Mayor Carolyn Kirk, the plan also recommends an additional $1 billion over 10 years be pay for Chapter 90 municipal road maintenance projects.

Davey said $2.4 billion would be used to purchase new cars for the T’s Red, Orange and Green lines, some of which were purchased as far back as 1969 for the Red Line and 1979 on the Orange Line. Unlike cars and trolleys purchased with federal funds, Davey said using state money would allow the state to require that those cars be built in Massachusetts, creating more jobs.

Another $850 million would be used to replace MBTA and RTA buses, and $300 million would go toward MBTA power and facilities upgrades to reduce frequency of delays and disabled trains.

Envisioning a expansion of commuter rail options that includes the South Coast rail extension ($1.8 billion) and the Green Line extension ($674 million), as well as rail service between Springfield and Boston ($362 million), Boston and Hyannis ($21 million) and a connection between Pittsfield and New York City rail ($114 million), the plan also calls for an $850 million expansion of South Station.

If there is an area that might see some “legislative work” this could be it. But the Governor knows that already, and by bringing such an ambitious agenda for transportation improvements and investments he has stretched the discussion in such a way that the core of his plan is likely to move forward in one fashion or another. He has also created some ready made advocates by identifying specific projects, which will make it hard for legislators to vote against a package that will benefit their constituents.

The Governor has identified some critical areas that have cried out for action in his plan.

1) Forward Funding the RTA’s. This reform will bring budgeting sanity and additional resources to the state’s Regional Transit Authorities, allowing them to forego borrowing for budgeting, thereby saving interest costs and allowing them to spend more on their core functions. The Governor is also bringing additional monies for them to the table for them, which will help expand services and modernize infrastructure. It will also help to create a statewide constituency for the Governor’s plan.

2)Getting transportation employees off of the capital budget, and into the regular budget. This has not been a big secret, but it certainly is not prudent to pay for everyday expenses via a capital budget, leaving our ability to fund capital projects lessened, and incurring unwarranted interest expense for the taxpayers.

3) Adding $1 billion over ten years to the Chapter 90 allocation to cities and towns. An important component, and one that Mayor’s and Manager’s throughout the Commonwealth will appreciate. Additional built in constituency for the Governor.

I have attached some of the comments made by the Governor at the plan unveiling, as well as by Senator McGee. The Governor has begun to tout the benefits of his plan, appearing on radio this morning and saying: (State House News Service)

“Everybody’s going to have to pay more, but we’re going to get more. We’re going to get open-road high-speed tolling on the Pike; we’re going to get a T that is well equipped and runs until 1 or 2 in the morning; we’re going to get regional transit authorities that have updated equipment and operate on the weekends; on the commuter rail, you’re going to be able to take a train from Boston to Springfield, and from Springfield to New York City – or Pittsfield to New York City,” Patrick said. “That is what it means to have a 21st Century transportation system, and we cannot keep acting like we can have it – first of all, that we have it right now, because I think it’s something most people understand that we don’t have.”

This is a comprehensive plan that identifies a menu of options that could be used to fund it. The Governor has identified those specifically, without saying which ones he might favor. That will come in Wednesday’s State of the State address, where he is likely to recommend what he believes is appropriate. Critics of his approach on Wednesday will be in a difficult spot, as he will of course invite them to choose from the other menu options. The full menu of funding options is below, taken right from the Governor’s plan.

Commonwealth Payroll Tax
According to Moving Forward with Funding: New Strategies to Support Transportation and Balanced Regional Economic Growth, published by MassINC in 2011: “A 0.16 percent payroll tax would provide revenue in the range needed to close the MBTA’s annual operating deficit ($140 million to $207 million, depending on how the tax is levied in overlapping RTA districts). This 0.16 percent payroll tax would cost the median full-time worker in the MBTA service area just $1.77 per week. In RTA service districts, a payroll tax at this rate would generate nearly $100 million in revenue…at a cost of approximately $1.50 per week to the median full-time worker in RTA districts.” A payroll tax would be a new tax in the Commonwealth that employers would pay on the wages of their employees.

Motor Fuels Taxes
The current tax of 21 cents was last increased in 1991. Only 14 states have lower per-mile fuel taxes than does Massachusetts, making our fuel tax one of the cheapest in the U.S. Increasing the gas tax by one cent per gallon would yield $32 million per year. To raise $1 billion, consumers would need to pay an additional thirty cents per gallon, resulting in a total gas tax of 51 cents per gallon, which would be the highest in the nation. The Commonwealth could also index the fuel tax to inflation and/or other adjustments in the price of gas, which would allow the Commonwealth to benefit from increases in the per-gallon cost of gas.

State Sales Tax
To raise an additional $1 billion in sales tax in calendar year 2013, the sales tax rate would need to increase from the current 6.25 percent to 7.75 percent.
Income Tax
To raise $1 billion in the personal income tax paid by residents of the Commonwealth in CY2013, the existing income tax rate would have to be increased from 5.25% to approximately 5.66%. This would be approximately an 8% increase over the existing income tax rate.
Green Fee
Under a ‘green fee,’ existing vehicle registration and title fees would be assessed additional fees based on a vehicle’s level of carbon emissions. Under a green fee scenario, owners of motorcycles and hybrid cars could pay an extra $15 every two years for registrations, car and hybrid SUV owners could pay an additional $30 every two years, SUV and light truck owners could pay an additional $60, and heavy truck owners could pay an additional $85. The fee would be adjusted to reflect the age of the vehicle and the anticipated emissions produced – higher polluting vehicles would pay more, while cleaner vehicles would pay less.
Vehicle Miles Traveled Tax
A 2.4 cents-per-mile fee on vehicle miles traveled would produce $1 billion in annual revenue. The fee could be collected at a vehicle’s annual safety inspection or through an onboard device that would record miles travelled but protect user privacy by not collecting location information.

Routine, Regular Increases in Fees, Fares, and Tolls
Some experts recommend shifting the burden of funding transportation services from broad-based taxes to specific user fees in order to more clearly draw a connection between cost and use. To accomplish this over the next decade, MassDOT could enact a series of modest, regular increases to transportation fares, fees, and tolls to keep pace with the cost of inflation. MBTA fares could increase 5% every two years beginning in FY2015, yielding an estimated $145 million in cumulative new revenues by 2023. Tolls could increase 5% every other year beginning in FY2015, resulting in $84 million in new annual revenues by FY2023. For services provided by the Registry of Motor Vehicles, a 10% fee increase every five years beginning in FY2018 would result in $54 million in new annual revenues.

New Tolling Mechanisms
MassDOT could introduce new tolling mechanisms to support state road maintenance or expansion, local roadway improvements, or public transit expansion. This could be done through dedicating existing toll revenue differently than it is done today, implementing high-occupancy/express lane tolls (so-called “HOT” lane tolling), developing congestion pricing policies, or introducing tolls on new facilities such as I-93, I-95, or I-84 as a way to fund ongoing maintenance and capacity improvements. In order to implement innovative toll concepts on interstates other than I-90, MassDOT would need approval from the Federal Highway Administration.

Western Turnpike Tolls
Tolls currently collected on the Western Turnpike generate nearly $120 million in annual revenue. Eliminating these tolls when the bonds on the Western Turnpike reach maturity in 2017, as is currently mandated, would greatly constrain MassDOT’s ability to continue to maintain the Western Turnpike in its current condition, and would exacerbate inequities on the roadway. The financial analysis discussed throughout this document, therefore, assumes that the revenue generated by the Western Turnpike tolls will continue to be available to MassDOT after 2017. MassDOT proposes maintaining tolls on the Western Turnpike in order to continue to dedicate sufficient resources to this important corridor, and to use a portion of those tolls for transportation projects off the Turnpike in the region in which they were collected (for example, dedicating a portion of tolls collected west of Sturbridge to transportation improvements on the Turnpike as well as locally in the Pioneer Valley and/or the Berkshires). This change will require legislative approval.

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