The media generated talk these days has many focused on the possibility for an increase in the sales tax as a way to forestall some of the major cuts put forward in the House budget. The Globe has run a couple of stories, with Speaker Deleo indicating he was “open” to discussing a sales tax hike, with a follow up story pointing to increasing support amongst House members for increasing the sales tax. With the House budget creating outrage amongst the many constituencies facing steep cuts the House has a raft of budget amendments that attempt to raise revenue, including hikes in the income tax, (a full point), a 29 cent increase in the gas tax, a two point increase in the sales tax, and a broadening of those items that have a sales tax attached. Quite a lineup. Lets take a very quick peek at some of the numbers involved.
A one cent hike in the sales tax is estimated to bring in $750 million at the top end. With the economy performing as it is I doubt that you would hit that number, so lets say you hit $650 million. The House budget gap for FY 2010 was over 2 billion, and although that huge gap was closed by Chairman Murphy the budget is balanced on a precarious revenue number. (House Ways and Means cut the revenue estimate by Governor Patrick by about a half billion, but their own lower number appears too be to high) With that in mind Senate budget writers may be forced to further downgrade revenue estimates, with the result that an additional $500 million may be needed to keep the level of spending that is contained in the House Ways and Means budget that we are all complaining about. In short, adding one penny of a sales tax increase directly into revenue for FY2010 may, after the Senate gets done, produce the exact same level of spending contained in Chairman Murphy’s budget. That should be a sobering thought for many who think that a sales tax hike of one penny will produce miracles.
The Globe stories also refer to some on the Senate side who have referenced a sales tax hike as a possible substitute for a gas tax hike. That scenario certainly would help clear up some of the mess we are in on the transportation side, but would leave just about nothing for any other budgetary problems. The gas tax will bring in about $27 million per penny of increase. With the MBTA needing $160 million and the Turnpike needing about $100 million for next year the choice for the Legislature is clear. 1) Provide no revenue stream for either, and watch both sink into insolvency 2) Provide a ten cent gas increase, and as the Governor has outlined dedicate 6 cents to the MBTA, and 4 cents to the Turnpike, leaving out the Governor’s other spending requests relative to Transportation 3) Pass a gas tax of less than ten cents (or no gas tax) and provide $260 million to transportation from another revenue stream such as the prospective sales tax increase (less any of that prospective gas tax under a dime). Under scenario 3 there simply will be no additional revenue to pass along to any of the constituencies looking for more help than the ways and Means budget offers, including local aid. With the revenue numbers referenced earlier any attempt to substitute the sales tax for the gas tax will displace normal budgetary priorities in order to put a band aid on the mess we are in on Transportation.
On top of the bad choices outlined above the top leadership in the State do not appear to be in concert on revenue. The Governor, up to this point, has expressed strong reservations about hiking the sales tax. The Governor appears to be standing by his revenue proposals, including additional levies on soda, beverage alcohol, and a statewide meals tax. The Governor’s proposals, unlike anything I have seen in the Legislature, dedicate the meals tax increase to local aid as well as giving municipalities some local option tax choices. Maybe I missed it but a one cent hike in the sales tax does not appear to have any portion dedicated to local aid. If there is to be a revenue solution it needs to have some portion dedicated to local aid, as the Governor’s proposal does.
The dismal outlook tends to support the proposition that revenue alone cannot bring us into budgetary equilibrium. Reform alone cannot achieve the trick either. But the idea that you can defer real reform until later, or not impact the current state and municipal workforce is just not correct. The budget is structurally out of balance, and even if you raise taxes this year budget escalations built in to state and local budgets will overwhelm us again next year. (What will the increase be in the Massachusetts health care budget for FY2011? What will be the increase in local health care and pension costs?) Reform is a critical part of the budgetary equation, and without it we will not get out of this mess.
The below numbers are what the Governor proposes to spend his recommended 19 cent gas tax increase on.
4 cents to roll back the proposed toll increases on the Turnpike
6 cents to preserve current MBTA services and prevent a fare increase
1 cent for Innovative Gas and Toll Solutions
1.5 cents for Regional Transit Authorities
1.5 cents for targeted regional road projects
3 cents for rail projects outside of Boston
2 cents to address the costly practice of paying for personnel with bond funds
Bill Manzi.com 