Transportation Projects Funded by Governor

Posted on January 27, 2013 by billmanzi

The Governor has unveiled a large and ambitious set of transportation infrastructure investments in his recently released budget and transport finance plans. The Mass DOT has released the full list on their website, and I have posted those projects below. As mentioned in earlier posts the Legislature will now have some choices to make. Don’t like the South Coast Rail project? Cut it and save $1.8 billion. You get the idea. No funds, no projects. Any projects that you think are important? Not so important?

Regional Priority Projects ($930 million) – Funds three major highway projects, including the I-91 viaduct in Springfield, the I-93/I-95 interchange in Woburn and the I-93/I-95 Interchange in Canton. These projects will address safety and mobility concerns in severely crowded areas.
Chapter 90 ($1.0 billion) – An additional $100 million per year to help the Commonwealth’s 351 cities and towns improve local roads and bridges.

Bridge program ($1.175 billion) – Funds a new targeted program modeled after the successful Accelerated Bridge Program (which ends in 2016) to accelerate repair to local bridges and complete several larger bridges.

Multimodal Highway Program ($1.25 billion) – Funds a statewide portfolio of local and regional projects designed to improve safety, reduce the number of high crash locations and reduce congestion. This also includes $250 million for the transportation assets owned by the Department of Conservation and Recreation (DCR).

Highway Preservation Facilities & Systems ($400 million) – Targeted funding for a municipal small bottlenecks program; safety and operational improvements at depots; deployment of roadside traffic and travel information; equipment procurements and completion of an integrated asset management system.

Bicycle & Pedestrian Facilities ($430 million) — Dedicated funding to construct and improve bicycle and pedestrian facilities owned and managed by MassDOT and DCR.

RTA Vehicles ($400 million) — Funds a 10-year program to replace regional buses that have exceeded their useful life, add buses for expanded service and support replacement of other equipment and facility upgrades, resulting in fewer delays and improved reliability.

New MBTA Red and Orange Line Cars ($1.5 billion) – Funds the replacement of 43-year-old Red Line cars and 31-year-old Orange Line cars as well as improvements to tracks, signals and systems. The new cars and system upgrade will result in faster and less crowded commutes. The cars will be made in Massachusetts, supporting the local economy.

Red Line Car #3 Overhaul ($200 million) – Overhauls the newest Red Line cars, which are nearly 20 years old.

Green Line Cars ($732 million) – Funds new Green Line cars and system improvements, reducing wait times and allowing for more 3-car trains that enable increased passenger capacity. The cars will be made in Massachusetts, supporting the local economy.

MBTA Buses ($450 million) – Accelerates a 10-year program to replace buses that have exceeded their useful life, increasing capacity and reducing breakdowns.

MBTA Power Facilities & Operations ($300 million) – Funds critical upgrades to decades-old electrical service, fuel systems, water pumps, track, tunnel and other infrastructure that is essential for the timely operation of trains and buses. Coupled with new subway vehicles trips will be faster and more reliable.

Aeronautics ($125 million) – Addresses maintenance and safety improvements at our general aviation airports. These investments will help support jobs in the aviation industry.

Registry of Motor Vehicles ($150 million) – Funding to allow for the consolidation of current registry branches into new regional super centers; development and installation of self-service kiosks at retail and municipal centers for customer convenience.

Modernization Pilot Projects ($200 million) – Funds the piloting of Bus Rapid Transit and Diesel Multiple Unit services. These innovative transit options would increase mobility for residents expand business and economic opportunities.

The Patrick-Murray Administration has made targeted infrastructure investment a cornerstone of its economic development efforts. Current projects like Assembly Square Station, Wonderland Garage and Brighton Landing are leveraging major new development projects that include new housing units, office and retail and space and creating new jobs.

Recognizing the link between investments like those and a strong economy and job growth, the plan also allows for targeted expansion projects across the state. These expansions focus on areas of the state where opportunity is constrained by substandard service or by lack of access. Projects include:

South Coast Rail ($1.8 billion) – Completion of the South Coast Rail Line with diesel-fueled commuter trains to connect Boston to Fall River and New Bedford. This results in greater mobility for South Coast residents and less congestion on Route 24. The project is expected to create 3,800 jobs and generate $500 million in new economic activity statewide annually.

Green Line Extension ($674 million) – Extension of the current Green Line from relocated Lechmere station in Cambridge to College Avenue in Medford, fulfilling a commitment made during the construction of the Central Artery Project and unlocking new economic opportunity in the region.

South Station Expansion ($850 million) – Design and construction, within 10 years, of an expanded South Station that will accommodate future passenger rail growth for the existing commuter rail system, South Coast rail, Amtrack, Worcester to Springfield rail and future high-speed service to Montreal. The expansion will also allow for additional rush hour service.

Rail between Springfield and Boston ($362.4 million) –Passenger rail service directly connecting Boston with Springfield via what is known commonly as the Inland Route. Funding will cover rehabilitation along the route, creating a second track, widening bridges, upgrading signals purchasing train equipment, and constructing or rehabilitating stations. This will also support future high-speed rail connection to New York City via Springfield.

Berkshires to NYC Rail ($113.8 million) – Rehabilitation of track, signals and structures between Pittsfield and the Massachusetts-Connecticut state line to support future rail service between Pittsfield and New York City. The current line is served by freight carriers and is not up to standards necessary for commuter service.

Rail to Cape Cod ($20.8 million) – Seasonal service on weekends between Boston and Hyannis. Upgrades rail, grade crossings, bridges and station accessibility. Service during the summer season will connect a key tourist destination with Boston.

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The Governor's New Budget- More Choices

Posted on January 25, 2013 by billmanzi

The Governor filed his FY 2014 Budget this week, and I would venture a guess that the Legislature’s collective head is about to explode. His budget builds the tax increases he unveiled earlier in to pay for transportation and education initiatives, and also asks for sales tax increases for soda, candy and a large excise increase for cigarettes.

A few of the additional spending areas that the Governor highlighted.

$269 million extra for the MBTA.
$226 million extra for Chapter 70 (local education aid)
$31 million additional for unrestricted local aid.*

The Governor utilizes one time revenue of $555 million, including a withdrawal of $400 million from the “rainy day fund”. As mentioned in an earlier post the Governor relies on a revenue estimate that is up by over $800 million from last year. There is a lot of new money floating around in the Governor’s budget, including the first allocation of gaming money ($83 million) and the inclusion of $26 million from the extension of the sales tax to internet sales from Amazon.

My posts tend to focus on the issues of local importance, and this one is no different. I have given the small increase in unrestricted local aid an asterisk, as the line item that feeds that appropriation has been level funded, with a new line created that adds that $31 million. The purpose of the new line is to address inequities in the formula governing local aid. From the Governor’s description:

An additional $31 M in local aid will be distributed to all municipalities through the new “Annual Formula Local Aid” program. The existing allocation of local aid among the Commonwealth’s cities and towns (UGGA) is meant to maintain year-to-year consistency regardless of changes in a municipality’s circumstances and is no longer based on a rational funding formula. Annual Formula Local Aid addresses these critical aspects of a rational local aid program:

Provides a simple and transparent formula using a combined measure of property values and income to calculate each municipality’s relative ability to provide essential local services; and
Will consistently provide equitable distributions into the future, as each year the formula components will be updated and the total distribution of aid will be calculated using the updated components.

As best I can read the numbers it appears that all communities will receive the same amounts for unrestricted local aid as they did last year, with all of that extra $31 million placed in that Formula Aid line. Locally I see that Haverhill will receive an additional $343,219, Methuen an additional $245,745, North Andover an additional $86,557, Amesbury $70,443, Lawrence $922,783, and Newburyport an additional $48,524. That is not counting the additional Chapter 70 funding. Before we start counting that money locally let us realize that we are a long way from realizing anything just yet. But you can see that the Legislature will have some difficult choices to make, as the Governor has moved some of that new revenue to accounts that will have vocal constituencies. The Governor’s press availability on the budget is below.

http://www.statehousenews.com/content/shnsmmedia/video/13-01-23gov_QA/player-viral.swf

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OPEB Report and More Reform

Posted on January 24, 2013 by billmanzi

The Governor certainly appears to mean what he said about sprinting to the finish line. The latest reform that the Legislature will be grappling with is how to deal with the costs of retiree health care at the state and municipal level. This issue is a gigantic sword pointed at the fiscal heart of municipalities throughout the Commonwealth, with unfunded liabilities amounting to billions of dollars. With that in mind the Governor, Legislature, and stakeholders put together the OPEB Commission to deal with the issue, and make recommendations.

A good place to start might be with the obvious question: What the hell is OPEB? It is “other (than pension) post-employment benefits”. For our purposes it is the obligation of both the State of Massachusetts and its localities to provide health care to its retirees. That obligation, coupled with our “pay as you go” method for dealing with it, has left municipalities with a huge future obligation and no methodology for paying it. Some years ago the same issue existed for our pension system, which was also on a pay as you go system. That has been modified so that both the Commonwealth and localities are on a mandatory schedule set by actuarial calculation to become fully funded on pension obligations. (Yes that schedule has been fiddled with, but lets not get diverted.) Newer accounting requirements (GASB 45)now force communities to list the present value of OPEB obligations, with a calculation included called ARC (Annual Required Contribution) that is the number required to pay current obligation as well as amortizing a portion of the unfunded liability. But that is just a number to look at, since most municipalities are still on the “pay as you go”system, and no municipality (that I am aware of) is on a fully funded ARC. Is there anything to worry about here? The numbers please! From the OPEB Commission report:

In Massachusetts, the OPEB liability for state and local government amounts to approximately $46 billion- a liability larger than the unfunded pension liabilities in the Commonwealth- and budgetary spending for retiree health benefits exceeds $1 billion.

That is a substantial amount of future liability, with very little pre-funded, leaving a huge burden for future taxpayers. A study by the Massachusetts Taxpayers Foundation estimated that the top 50 cities in the Commonwealth currently pay about $500 million in retiree health care costs, and would be required, if put on a full funding schedule, to come up an additional $700 million annually. (The so called ARC payment would be $1.2 billion.) Yes you read that number right. Another number to dwell on is the Massachusetts Municipal Association estimate that between 2001 and 2010 retiree health care spending rose from 13.5% to 20% as a share of municipal budgets. (And folks wonder where, at the local level, tax dollars are going!)How about more numbers on where our money is going? From 2002 to 2009 health care costs for the 50 largest municipalities in Massachusetts grew by 85%, while property tax revenues grew by 42%. (So the next time you hear someone railing about bad budgeting and fiscal issues just lean over and say READ THE NUMBERS. It is HEALTH CARE bankrupting us, and nothing else.) And again that spending does not include ANY pre-payments to deal with the enormous unfunded liability. How did we get here, and how do we get out from under? The Commission talks about the drivers of OPEB liability, which are the loose standards for benefit eligibility, the richness of the benefit once qualified, and the spiraling cost of health care. The standards for eligibility mirror those that qualify folks for pension eligibility. So as an example a municipal employee in Group 1 may retire at age 55 after ten years of service, and would be eligible for retirement health benefits. From the Massachusetts Taxpayers Foundation Report titled “Retiree Health Care: The Brick That Broke Municipalities’ Back”:

After only 10 years of service, employees are entitled to lifetime health care benefits upon retirement.
By contrast, the pension system tailors benefits to years of service so an individual who works for 30 years receives a much greater benefit than one with 10 years of service. Retirees are eligible for health care benefits as early as age 55, 10 years before they qualify for Medicare.The state mandates that municipal employees must work only 20 hours per week to be eligible for the same benefits as full-time employees. Such part-time employees also need to have only 10 years of service to receive retiree benefits, so a part-time employee must work the equivalent of only five years of full-time service to obtain lifetime retiree health care benefits. State law requires that retiree health benefits include spouse and dependent coverage which costs more than twice as much as individual coverage. At local option, spouses retain lifetime coverage upon the death of a retiree.

So the Commission, armed with data on eligibility, costs, and huge future liabilities that will eventually crush municipalities has come forward with a set of recommendations in an attempt to at least partially right the system. Eligibility standards would be raised, with benefits varying depending on total years of service. The Massachusetts Municipal Association summarized some of those recommendations:

The governor is endorsing the commission’s recommendation that the minimum age for benefits be increased by five years (to age 60 for Group 1 retirees) and that the years-of-service requirement to receive the minimum benefit be increased by 10 years, to 20 years.

In order to recognize the accomplishment of career employees, the commission recommends pro-rating benefits based on years of service. An employee retiring after 20 years of service would receive 50 percent of the “maximum available benefit” – in other words, the health insurance premium contribution offered by the municipality would be no less than 50 percent. An employee retiring at 30 years would receive 100 percent of the “maximum available benefit.”

The commission made recommendations for two additional benchmarks, at 23 and 27 years of service.

Current retirees would be exempt from all proposed changes. The changes would apply to current and future employees unless there is a specific “grandfather” clause.

In an effort to be fair to employees who are close to retirement, the commission recommended a number of grandfathering and phase-in provisions.

Employees who are at least 50 years old with at least 20 years of service and employees who are 60 years old with nine years of service would be exempted from the reforms. Teachers enrolled in Retirement Plus, a provision implemented in 2001 that requires teachers to contribute an extra 2 percent to their pensions, would be able to retire at age 57, three years before their Group 1 colleagues, if they have hit the statutory maximum of 80 percent of their pension.

In order to recognize the impact these changes would have on future retirees, the commission recommended a three-year moratorium, beginning on Jan. 1, on changes to the premium contribution split. On average, municipalities pay 75 percent of the premium for retiree health insurance, with a minimum of 50 percent.

The commission also recommended that communities be required to cover health insurance for surviving spouses at a minimum level of 50 percent. Approximately 40 municipalities in Massachusetts don’t contribute to the premium for surviving spouses. If the additional cost of covering these surviving spouses exceeds 50 percent of the savings from the OPEB reforms, the state would cover the difference.

Lastly, the commission recommended a series of best practices and possible future reforms, including amending Chapter 32B, Section 9A1/2, which allows communities to charge back other communities for a portion of a retiree’s health insurance, to make the process easier to use; and changing procedures of the State Retirement Benefits Trust Fund to make it more accessible to municipalities.

As a best practice, the commission report recommended that municipalities periodically put retiree health insurance out to bid.

The commission, interested in the fiscal sustainability of its proposed reforms, included provisions for periodic review, using a benchmark of “sustainable spending growth.” If growth exceeds a benchmark of 4 percent for the state and 3.25 percent for municipalities, measures would kick in to help further control costs.

Back in February of 2011 the Tribune wrote an editorial talking about the dangers to municipalities of the OPEB liabilities. OPEB liabilities locally are enormous, and would require major increases in spending to satisfy a full funding schedule. From that Tribune editorial:

A more realistic, and much more painful, scenario came from Methuen Mayor William Manzi, where the city’s liability is about $210 million. He said a study showed that the city could fund its obligations in 30 years if it started by setting aside $4.3 million in 2009 and added more than $4 million every year until 2038.

Some of the OPEB liabilities of local cities:

Lowell: $432,752,000
Methuen: $209,816,000
Haverhill: $299,042
Lawrence: $323,977,000

It is a major problem, with staggering implications for local and state government. The recommendations of the Commission for these changes were endorsed by the organized labor representatives to the Board, but rejected by the Massachusetts Municipal Association. The MMA issued a statement on the recommendations:

Cities and towns are committed to providing quality health care benefits for their retired employees, and it is important to recognize that the current system must be reformed to make it sustainable and affordable for taxpayers, municipal workers, and present and future retirees. Without effective reform that provides meaningful savings now, the cost of the system will soon spiral out of control and consume a larger and larger share of local budgets, forcing cutbacks in essential services and increasing a property tax burden that is already too high.

The Massachusetts Municipal Association appreciates the initial steps toward reform that have been offered by the OPEB Commission and endorsed by Gov. Deval Patrick and others. There are many elements of the proposal that we strongly support, and we look forward to working with the administration, Legislature and all stakeholders to achieve reform this year.

We cannot endorse the full package offered by the commission for two reasons.

First, although the proponents are predicting that cities and towns could save between $9 billion and $12 billion over the next 30 years, almost all of this savings would be delayed by more than a decade. Only 5 percent of the savings would be achieved in the next 10 years, and 95 percent of the savings would not be realized until 2024 and beyond. Cities and towns cannot wait 10 years for meaningful savings – especially since municipal retiree health costs are expected to grow by at least 50 percent over the next decade. Retiree health reform must offer immediate relief, otherwise OPEB costs will expand and squeeze out education, public safety and other vital services from local budgets.

Second, the legislation would impose a three-year moratorium on any changes to the percentage contribution paid by retirees, and after that, it would permanently strip cities and towns of their existing ability to adjust the premium percentage for anyone who has already retired, even for those who receive generous pensions. This proposal would effectively eliminate the most important tool that cities and towns can use to carefully manage the cost of retiree health benefits.

Again, we applaud Gov. Patrick and the members of the commission for recognizing that Massachusetts must take steps to reform the retiree health insurance system. We look forward to working with all parties to build on the commission’s recommendations so that the final product provides communities and taxpayers with immediate and meaningful savings and provides employees and retirees with an affordable and sustainable system that provides excellent benefits.

It is likely that we will see some legislative action on the Commission recommendations this year. I anticipate more weight will be given to the Committee recommendations than to the MMA position, but it will be very interesting, especially in light of all the other heavy lifting that the Legislature is facing this session. As far as municipal finance goes there is not a more important issue.

Link to the OPEB Commission report here.

Link to the Massachusetts Taxpayers Foundation Report here.

Link to the MMA Presentation to the OPEB Commission here.

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President Obama's Inaugural Address

Posted on January 22, 2013 by billmanzi

President Barack Hussein Obama, the 44th President of the United States, delivered his inaugural address today. The President, in my biased view, gave a wonderful speech that laid down some markers, mentioning Social Security and Medicare, equal rights for gays, and equal pay for women, as well as global warming. He laid out a vision of an active government working for the common good, and to the chagrin of Republicans had the nerve to lay out a value system based on what he stood for in the campaign. Republicans actually had the nerve to say that the President did not come forward in a spirit of compromise. From Politico:

“The words were code for a progressive agenda. I’m hoping that the president will recognize that compromise should have been the words for today, and they clearly weren’t,” said Rep. Darrell Issa (R-Calif.), a frequent Obama critic who has zealously pursued a contempt case against Attorney General Eric Holder.

Imagine Darrell Issa of all people saying that compromise is the word of the day. The President has taken plenty of criticism during his first term from his own party for his willingness to attempt bipartisan compromise. But as he has repeatedly found out he has no partner that can actually deliver substantive compromise. You do not have to be a partisan Democrat to understand that for better or worse the Republican Congressional Leadership, in 2011, made the calculated gamble that compromise would not be a part of their program. They felt that they could hold out for the whole enchilada by beating the President in 2012. It was a calculated risk, and they lost. Since then the Republican House majority, by any standard that I understand, has made asses of themselves. Speaker Boehner could not deliver a cup of coffee, much less a “grand bargain”. His marginalization comes not from Barack Obama but rather from his own caucus. They lost the gamble in 2011, and are in shambles today. The President will plunge forward and work towards realizing the values that he ran on, and won on. That may seem like partisanship to Republicans, but maybe they should have thought about that in 2011.

http://c.brightcove.com/services/viewer/federated_f9?isVid=1

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More on the Governor's Revenue Proposals

Posted on January 21, 2013 by billmanzi

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.

http://www.necn.com/common/thePlatform/web_45/swf/flvPlayer.swf

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Governor Patrick Goes Long, and Local Reaction

Posted on January 19, 2013 by billmanzi

Governor Patrick unveiled his finance plans for transportation and education during his state of the state address Wednesday night, putting together a package that includes a cut to the sales tax, and an increase in the income tax. I have done a post on this before the speech which which looked at the menu of options that Governor Patrick had laid out. Now we have the plan, which not only seeks to stabilize our rickety transportation system but to increase investment in that sector by financing projects that the Governor feels the Commonwealth needs. I hope to have a separate post that will look at some of the key data involved in this plan in the next few days, but for now let us focus on the politics, and initial local reaction.

The Eagle Tribune ran a story asking local legislators for their initial reaction to the Governor’s proposals, and locally there was not a bunch of enthusiasm shown. Democratic Senator Barry Finegold expressed reservations about increasing the income tax, and has in the past been a vocal critic of the MBTA. Republican Rep. Jim Lyons was not supportive, and looks to take additional investment out of the existing budget. A very key player is House Ways and Means Chair Brian Dempsey (D-Haverhill), who was non-committal. Democratic Rep. Linda Dean Campbell spoke out forcefully against the Governor’s plan. From the Tribune.

State Rep. Linda Dean Campbell, D-Methuen, said Patrick’s plan is “too expensive and risky.”

“We need to remember unemployment is still high and we have some big health care expenses coming up,” Dean Campbell said. “The Legislature and the governor have done some good work recently cutting spending and building our reserves, that’s what needs to continue. … Our transportation problems have built up over a decade. We’re not going to solve them overnight.”

In the past, Dean Campbell said she opposed attempts to increase gas and sales taxes, but that she would potentially consider a modest increase to the income tax or increasing tolls on state roadways to pay for important initiatives.

“It’s the fairest tax if we have to raise taxes,” she said of the income tax. “But we have to be careful not to derail our slow recovery and go backwards. The governor’s timing is off for these ambitious educational and transportation plans. He needs to go slower.”

State Senator Kathleen Ives was non-committal, and Methuen Rep. Diana DiZoglio was not a part of this Tribune story.

At least in the Merrimack Valley the Governor starts out from behind. But let us not count the Governor out up here just yet. He visited Haverhill this week and toured some key economic development sites, with Mayor Fiorentini hosting, along with Ways and Means Chair Dempsey. and the rest of the legislative delegation. And the Governor, to his credit, has placed some pretty large enticements into the package, including a substantial lowering of the sales tax, which will only help border communities. His inclusion of extra monies for the Merrimack Valley Regional Transit Authority, and additional Chapter 90 money for localities, means that there will need to be some big decisions made as the Legislative process begins to work. And that process will bring some counter pressure on legislators to consider including, and paying for, some of the items that clearly benefit the region. The Governor was also scheduled to visit the home town of Senate Ways and Means Chair Senator Stephen Brewer today, as well as other stops, and he brings with him projects that legislators have been clamoring for. The Governor, in his own way, is showing that there is no free lunch. And that, from a fiscal responsibility standpoint, is critical to understand. A major part of our fiscal problem, as a Commonwealth and as a nation, comes from thinking that you can have major projects that do not have to be paid for. It is not, and has never been, true. The State House News Service captured the conundrum for legislators this relatively simple concept has created.

“To say, “Hell no, we won’t go,’ isn’t necessarily a good vetting process,” said Sen. Brewer, the recipient of a Patrick visit on Friday to tout investments in infrastructure.

Rep. Patricia Haddad, a Somerset Democrat and top deputy to House Speaker Robert DeLeo, summed up perfectly the corner Patrick has backed legislators into.

“It’s hard not to think they’re great ideas, but I do have to worry what it means for the people in my district. We have a (higher) unemployment rate than anywhere in the state, but we’re the ones who want the South Coast rail so badly, so I’m on kind of a swing,” Haddad said.

The question is how many will jump.

The Governor is very good at his job.

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RIP Ronnie Ford

Posted on January 18, 2013 by billmanzi

This week saw the passing of long time Methuen resident, City Councilor, and sometimes gadfly Ronnie Ford at age 75. Ronnie was a tremendous personality, beloved in Methuen for his gregarious nature and his willingness to always lend a helping hand to his neighbors, constituents, and even people with whom he disagreed politically. Ronnie was on the City Council when I arrived on the scene, and although we disagreed frequently he never held that against me (for more than a day). He was committed, like his friend Franny Roberge, to public housing, not always popular in a suburban community. But his commitment to help people never wavered, and his easygoing personality made him friends that lasted a lifetime. Methuen has suffered a big loss with his passing. Rest in Peace Ronnie Ford.

The Tribune story on Ronnie can be found here.

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Transportation Finance: The Gorilla in the Room

Posted on January 15, 2013 by billmanzi

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.

http://www.statehousenews.com/video/13-01-14gov/player-viral.swf

http://www.statehousenews.com/video/13-01-14reax/player-viral.swf

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Consensus Revenue: By the Numbers

Posted on January 15, 2013 by billmanzi

I did a post yesterday on the upcoming Massachusetts State budget, and a major portion of that post dealt with the “estimated revenue” that plays a central role in the formation of the spending blueprint for the Commonwealth. My post had estimates from the Massachusetts Taxpayers Foundation and the Massachusetts Budget and Policy Center. The Legislature and the Administration each year take input in open session from some of these budget experts (including the Massachusetts Taxpayers Foundation)and devise what is known as the “consensus revenue number”, an estimate of revenue that will be used by all three branches in the formulation of the state budget. The legislative chairs of Ways and Means, as well as the Secretary of Administration and Finance, work together to develop that number.

With all of the news activity yesterday’s announcement of that number was somewhat lost in the shuffle. But it is one of the critical legs holding up the budget, and everyone, including the locals, needs to pay attention.

It looks like Mike Widmer was just about right on the nose, as yesterday’s announcement showed an increase of 3.9% over the revised FY 2013 revenue estimate. From the Secretary of A&F.

The consensus tax revenue estimate for Fiscal Year 2014 is in the middle of the range of tax revenue growth estimates projected by economists and others at the December hearing. The $22.334 billion estimate reflects actual growth of 3.9 percent above the revised tax revenue estimate of $21.496 billion for Fiscal Year 2013.

“The projected growth in tax revenues for Fiscal Year 2014 reflects an improving economy,” said Secretary Shor. “While this is good news and our estimate of modest growth in tax revenues will help, we will continue to have to make tough and thoughtful decisions necessary to balance our budget in Fiscal Year 2014 and set Massachusetts on a path towards long-term, sustainable growth.”

Widmer had pegged revenue growth at $835 million, while consensus came in at $838 million. For our purposes it is identical. As I said in my post yesterday this is a number that bears close scrutiny, as the Administration had to lower its revenue estimates this year (FY13) by $500 million.

The revenue number also has what we know as “carve-outs”, which are portions of the revenue stream not subject to appropriation, but simply sent to the respective recipients as a matter of law. An example would be the Massachusetts School Building Authority, which receives a piece of the state sales tax. Those carve outs were listed in the A&F Press Release.

The three branches also reached agreement on statutorily required off-budget transfers that are mandated by current law:

$799.6 million for the Massachusetts Bay Transportation Authority (MBTA)

$703.6 million for the School Building Authority (SBA)

$1.630 billion for the pension fund transfer, which represents full funding of the scheduled pension contribution for Fiscal Year 2014

$21.6 million for the Workforce Training Fund, which was changed to a non-budgetary trust fund in the Fiscal Year 2012 General Appropriations Act (GAA)

The total amount of off-budget transfers is $3.155 billion. Therefore, after taking into account the $37 million of capital gains tax revenue that must be deposited in the Stabilization Fund, the Secretary and committees agree that $19.142 billion will be the maximum amount of tax revenue available for the GAA in Fiscal Year 2014, and they will base their respective budget recommendations on that number.

So after all is said and done the budget writers may include $19.142 billion for all other state expenses beyond the listed carve outs. The Governor will be first out of the box, and will talk about the budget, and his transportation package, this week in his State of the State address.

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Massachusetts Budget and Finance Front and Center

Posted on January 14, 2013 by billmanzi

Later this morning Governor Deval Patrick will unveil his proposal(s) for financing the Massachusetts Transportation system. The Governor has done quite a good job of keeping the key provisions under wraps, but it is safe to say that the Governor will recommend some level of new revenues. This week the Governor will give his state of the state address, and we can expect his annual budget as well. Say what you want about the Governor but he is certainly not coasting in the last two years of his term. From pensions, municipal workers compensation, to housing authorities, and now to transportation, the Governor has (will) unveiled major proposals that will certainly keep the Legislature busy, and are substantive in nature.

The Governor’s budget will once again be a challenge, as there remains the after effects of the fiscal storm that has done so much damage to our national economy. What can be expected?

Revenue estimates for the new fiscal year (FY14) show growth of about $835 million, an increase of 3.9% over the FY13 number, according to the Massachusetts Taxpayers Foundation. The FY 13 number was revised downward mid-year by the Administration as revenues lagged. That reduction was over $500 million, and if the target is hit then FY 13 would show an increase in revenues over FY12 of $420 million, or 2%. I give some of those numbers because the initial estimate for FY13 was about the same as the new estimate for FY14, and we were forced to change that estimate mid-year. (by that $500 million). The Taxpayers Foundation, in the press release, acknowledges the doubling of the FY14 number, but looks to increased growth in U.S. GDP to provide that state revenue growth. From the Foundation Press Release:

The Foundation’s fiscal 2014 forecast anticipates a slightly better revenue picture due to an improving national economy as real U.S. GDP growth is projected to double from 1.8 percent in 2013 to 3.9 percent in 2014. However, while national employment is expected to grow by nearly 2 percent in fiscal 2014, the Foundation projects that state employment will increase by less than 1 percent, adding roughly 20,000 jobs.While 3.9 percent revenue growth in 2014 is nearly double the rate in fiscal 2013, it is well below the 5.8 percent average annual growth in total tax collections – excluding capital gains taxes – from fiscal 2003 to 2008 following the last recession and half the 8 percent average annual growth rate from 1990 to 2008.

I have great confidence in the work of Michael Widmer and the Taxpayers Foundation, but I am not sure we are going to see that level of revenue growth. I certainly hope that we do, and again accept the wisdom of folks that are much smarter than me.

As the Governor prepares to file his FY14 budget the Massachusetts Budget and Policy Center has put out a budget primer, and some of the numbers listed are not pretty. Lets take a look at some of the key numbers, as I see them. The Budget Center looks at how the FY13 budget was balanced, and points out that the original budget came in balanced with $743 million in one time revenues and savings. After the revenue downgrade the Governor has recommended additional utilization of one time revenues and savings of about $270 million, driving the FY13 budget utilization of one time savings, revenues (including utilization of rainy day funds) to over $1 billion. Ouch. From the Budget Center:

USE OF TEMPORARY REVENUES AND SAVINGS IN THE INITIAL FY 2013 BUDGET

The enacted FY 2013 budget relied on $743 million in temporary revenues and savings. This included a withdrawal of $350 million (plus $9 million in interest) from the Rainy Day Fund, and about $90 million from other reserves. The budget also postponed a special corporate tax break saving close to $46 million, and counted on $10 million in one-time revenue from the disposition of abandoned property.

In addition, the FY 2013 budget relied on some savings strategies in the state Medicaid program. These strategies included cash management policies that shifted $256 million of costs into future years. Since half of Medicaid costs are reimbursed by the federal government, the net savings to the state in FY 2013 of this shift would be approximately $128 million.

The Commonwealth also relied on $110 million in temporary savings realized by cancelling a requirement to reserve a portion of the state’s revenues in order to carry forward that amount into the next fiscal year.3

SUBSEQUENT USE OF TEMPORARY REVENUES AND SAVINGS IN THE FY 2013 BUDGET

In early December, the Secretary of Administration and Finance announced a downward adjustment of $515 million in the revenue estimate for FY 2013. To keep the budget balanced, the Governor announced a series of emergency budget cuts, called for the Legislature to enact additional cuts, and proposed balancing the budget with the use of additional temporary revenues. These measures withdrew an additional $200 million from the Rainy Day Fund, counted on $60 million from other state reserves and temporary federal revenue sources, and $10 million in other one-time savings.4

Despite the fact that the state budget can seem to be very complicated, the Budget Center uses some pretty straight forward methodology to estimate what it believes the FY14 budget deficit is as we prepare that budget.

FY 13 Utilization of one time revenues, rainy day fund, one time expense reduction: $1.1 billion
FY 14 growth in state expenses: $1.1 billion
Total: $2.2 billion
Less FY 14 growth in state revenues: $900 million.

Starting Deficit: $1.2 billion

A couple of quick notes. That starting deficit includes a revenue number with growth of $903 million. The Mass Taxpayers Foundation, listed above, has estimated an increase of $835 million. Both numbers are certainly ambitious, and bear close scrutiny. The starting deficit also does not take into account additional utilization of one time resources. The Budget Center estimates that the Rainy Day Fund will end FY13 with $1.2 billion in available cash. Another budget number that is interesting is health care spending. What are the numbers, and what does the next fiscal cycle look like?

Massachusetts will spend approximately $7.6 billion on publicly-funded health insurance in FY 2013. This consists of roughly $12.7 billion on MassHealth and other health reform programs, for which the federal government reimburses the state for approximately half of these costs, leaving the state with a net state cost of approximately $6.4 billion. The Commonwealth will also spend approximately $1.3 billion on health care for public employees.

Although it is difficult to project health care costs, we estimate that these costs will grow in line with the 3.6 percent growth rate identified in last year’s health care cost containment law. At this growth rate, MassHealth and health reform programs would increase by $229 million, and state employee health insurance would increase by $46 million. We also assume a 3 percent growth in enrollment in MassHealth, which adds another $191 million.

With these estimates, we project health care spending growth would add approximately $466 million in new costs in FY 2014. This is in addition to the $128 million in FY 2013 costs shifted into FY 2014 (discussed above).

The Governor will face great challenges, as he has every year during his tenure. The numbers listed obviously do not include the major deficiencies the Governor will try to address through his transportation package, unveiled later today. Looking forward to the Governor’s new budget format, which will be “program based”, which I really believe will be (potentially) a huge improvement over the traditional “line item” format. This budget cycle will present the Legislature with some difficult choices, with the Governor loading up the plate with plenty of policy options and changes.

We will try to cover this process as much as we can, and if possible will do an interview or two with some of the major stakeholders. Stay tuned.

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