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Plan Reignites Debate over Balancing Tax Burdens, Transpo Investments

Apr 2, 2013Council in the News, State House News Service

By Matt Murphy and Andy Metzger
State House News Service

STATE HOUSE, BOSTON, APRIL 2, 2013….House and Senate leaders on Tuesday roundly rejected Gov. Deval Patrick’s plan for $1.9 billion in new transportation and education investments, rolling out a proposal that instead asks business, tobacco users and drivers to pay $500 million more a year to stabilize the transportation system.

The plan – which would increase the cigarette tax by $1 per pack and raise the gas tax three cents a gallon – provides enough new revenue to close the MBTA budget gap without fare increases or service cuts this year, but does not rule them out in future years. It also allows the Massachusetts Department of Transportation by 2016 to pay employee salaries without borrowing, and increases local road and bridge repair aid by $100 million to $300 million in fiscal 2014.

House Speaker Robert DeLeo and Senate President Therese Murray, however, said concerns about overburdening the middle class with tax hikes pushed them toward a scaled down proposal that raises no new revenue for Patrick’s education agenda, and does not include specific financing for the proposed expansion of South Station, the extension of rail service to the South Coast or for the Green Line extension to Medford.

The proposal also rejected Patrick’s idea of recalibrating the state’s income and sales taxes to produce a more “progressive” tax code that the governor said would ask wealthier residents to contribute more without increasing the tax burden on lower- to middle-class residents.

“It addresses the most pressing problems by providing adequate funding well into the future without asking our residents and businesses to bear too much of the burden,” DeLeo said at a press conference with Senate leaders to unveil a plan they’ll try to push through the Legislature as an alternative to the governor’s proposal.

Senate President Therese Murray said any additional spending on education programs would be considered during normal budget deliberations and House budget chief Rep. Brian Dempsey said there would be no further revenue increases this year to invest in education programs.

While the plan differs markedly from the one offered by Patrick, he offered a measured response, telling reporters he hadn’t seen it yet and then issuing a statement saying he needed more time to review the details.

“I thank the House and Senate leadership for considering my plan and look forward to thoroughly reviewing theirs. My principles continue to be whether the financing is enough, dedicated and fair, and I will review the Legislature’s proposal in that light,” Patrick said in a statement.

Transportation Committee Co-chairs Rep. William Straus and Sen. Thomas McGee said deliberations over funding long-term expansion projects like South Coast rail would play when the Legislature eventually considers a transportation bonding bill, legislation that authorizes spending but is not usually accompanied by revenue sources.

“These discussions need to continue,” McGee said.

Lawmakers also said a more limited amount of funding – about $300 million by 2018 – would be available for capital expansion under the legislative proposal.

“When we put out our $1 billion proposal number that was not full of wish list items and whatnot. We went through a very serious prioritization process,” Transportation Secretary Richard Davey told reporters at South Station. Davey said he was “unclear” how the $500 million would fund needed upgrades to MBTA subway cars, and said people told him they are “concerned” about the ability of the state to fund expansion projects.

Asked whether the smaller amount would be able to fund a new commuter rail line to Fall River and New Bedford as well as Green Line service through Somerville to Medford, two long-sought projects, Davey said, “The Green Line Extension we have no choice. We are legally obligated to do that.” Asked about the South Coast rail, Davey said the project is Patrick’s “top priority” and the administration is still “poring over” the $500 million proposal.

As House and Senate leaders briefed members on their plan Tuesday morning, Patrick was at an event pressing for funding for longer school days, particularly in underperforming urban districts. Education Secretary Matt Malone said he wasn’t giving up on new education revenue.

“It ain’t over till it’s over. So I’m hopeful that the good people up here will do the right thing, and we’ve had some great conversations,” Malone said. “I think people have heard us loud and clear. I think people agree with us.”

The proposal from Democratic legislative leaders would generate $110 million in new revenue by increasing the state’s 21-cent gas tax by three cents in 2015, and indexing the tax rate to inflation. Smokers would pay an estimated $165 million a year in taxes through a $1-per-pack increase in the excise tax and other tobacco taxes.

“We believe that using this small increase in the gas tax makes sense, asking drivers to pay a little more while putting additional money into Chapter 90 and regional transit authorities,” Senate Ways and Means Chairman Stephen Brewer said, explaining that a driver who travels 20,000 miles a year in a vehicle that averages 20 miles per gallon would pay $30 a year more.

Brewer said fuel efficiency standards have led to an 18 percent decrease in gas consumption over the last decade. “Placing too much emphasis on the gas tax would simply set the stage for another transportation funding crisis in the years to come,” Brewer said.

New taxes on businesses would account for about half of the new revenue generated in the tax plan, including $161 million from the application of the sales tax to computer system design services.

“This is not taxing the cloud or remote data storage. It’s not taxing online downloads such as computer games, music or books. Nor is it taxing innovation. This is Massachusetts becoming one of the 35 states that now applies some form of sales tax to computer services,” House Ways and Means Chairman Brian Dempsey said.

The proposal would also eliminate the state’s “utility” tax classification, which Democratic legislative leaders described as an “outdated” tax code provision, and would raise $35 million by changing the sourcing of sales for multistate corporations and requiring out-of-state companies selling products in Massachusetts to pay more.

“I like to think of this as agreeing with the governor, working with the governor,” DeLeo said. “This is just a different method, if you will, but I think we both achieve the same goal and that’s to raise additional money for our transportation system.”

Murray said the Democratic leaders did not believe they should “further squeeze” the middle-class with the level of tax increases called for by the governor.

“We consider the governor a partner in this. He put out a 10-year vision. We’re just saying maybe 10 years is too ambitious right away,” Murray said, later adding in an interview with the News Service, “It was hard to do the three cents, believe me, but we need to invest in our infrastructure and transportation. I think that’s doable. I think you can handle that.”

The plan unveiled Tuesday would dedicate revenue collected from the increased gas tax and the motor vehicle sales tax to transportation, netting roughly $500 million in additional transportation revenue at the same time it eliminates the current system of funneling aid to transportation. The new taxes on tobacco and businesses would be used to replace lost revenue in other areas of the budget.

While the MBTA and MassDOT would be able to avoid fare or toll increases in fiscal 2014, the proposal also asks that both agencies contribute more to their own budgets over the next five years through savings and efficiencies or new revenue. For instance, in fiscal 2016 both agencies would be required to find an additional $259 million to support their budgets, raising the possibility, like Patrick’s plan, of periodic fare, toll and fee hikes.

Smaller amounts of money from casinos and contributions from Massport or the Massachusetts Convention Center Authority are also part of the Democratic leadership’s plan to address transportation funding.

In addition to investing in Greater Boston transit, the proposal calls for a boost in funding for regional transit authorities operating outside Greater Boston in places like Springfield, Worcester and Pittsfield. The proposal increases forward funding for RTAs from $67.6 million this fiscal year to $80 million starting in fiscal 2015, and indexes future increases to inflation.

House Minority Leader Brad Jones and Senate Minority Leader Bruce Tarr said they do not think the Democrats fully explored areas in the transportation budget for additional savings and reform.

“While the Speaker and Senate President’s proposal is dramatically smaller than the plan advanced by Governor Patrick, we join our House Republican colleagues in taking issue with the fact that broad-based tax increases are still being proposed as a means to solving the Commonwealth’s transportation financing needs,” Jones said in a statement, reissuing his call for public hearings on the specifics of the House and Senate plan.

In developing the plan, DeLeo has openly discussed his conflicted feelings on tax increases. While many Democrats bristled at the thought of voting for a major tax increase, others in both branches from more liberal districts embraced Patrick’s full proposal.

“I think the proposal that we’ve seen from the House and the Senate, while it does bridge some gaps, my initial read is that it falls short relative to our long-term ambitions and a long-term investment,” Sen. Dan Wolf (D-Harwich) said, indicating he did not know if he could support the plan.

“I think it’s great that they’ve put out a proposal, but they definitely seem open to dialogue and discussion and discourse. So I don’t think by any means this is the final word,” Wolf said.

Andy Bagley, research director for the Massachusetts Taxpayers Foundation, called it “eminent reasonably” for the Legislature to delay decisions on major expansion projects while focusing on what needs to be fixed now.

Chris Anderson, president of the Massachusetts High Technology Council, said his organization is working on a study ranking the competitiveness of Massachusetts against other states with similar economies. He said the business community recognizes the advantages of investing in transportation, and called the scaled-down House and Senate leadership proposal a “positive thing” when compared to the governor’s request.

While the change to the sales-sourcing section of the tax code will benefit Massachusetts headquarters companies, Anderson said the new sales tax on computer services could eliminate the state’s competitive edge, even if it brings the state in line with state tax systems.

“It certainly doesn’t align with the competitive objective if we’re taking an area of the economy that we think can provide economic growth and coming to the middle, giving up what could be an advantage over other states,” Anderson said.

Kristina Egan, of Transportation for Massachusetts, said an insufficient injection of revenues into transportation would mean fewer new jobs, continued pressure on MBTA fares, and “stranded” senior citizens.

“It’s woefully inadequate for the needs of the future,” Egan said.

Somerville Mayor Joseph Curtatone, a proponent of the governor’s plan, said there were pieces of the proposal to be excited about, such as funding for the RTAs, but was not yet “sold on it.”

“I’m concerned that it may be too low, however I do appreciate the work that the Senate President and the Speaker have done. I think it’s a positive step forward, and we can have a debate about that number but need to make sure if we’re going to raise taxes we’re going to solve the problem,” Curtatone said.

Though Patrick has pushed back against the suggestion that he’s attempting to burnish his legacy with his tax reform proposal, the governor has made clear that he thinks policy leaders will get one shot at new revenue, unlikely to ask taxpayers for another increase in the near future.

Lizzi Weyant, of Transportation for Massachusetts, captured that sentiment when she said she was concerned about the state “starting to lock ourselves into underfunding.”

“We don’t get that many opportunities to invest in a transformative future for Massachusetts and this is it,” Weyant said.

Despite being smaller than Patrick’s overall proposal, Rep. Ryan Fattman, a Sutton Republican, said he’d be happy if the new plan fails, suggesting that residents and government alike must learn to “live between their means.”

“Right now with the way the economy is, especially the people I represent, they can’t pay another cent. They’re taxed beyond belief. They’re stretched very thin, and dealing with a very difficult economy that is not on the mend and not on the move,” Fattman told the News Service.

According to the Massachusetts Fiscal Alliance, the cigarette tax increase would move Massachusetts from ninth highest in the nation to the second highest, behind New York, and the gas tax hike would move Massachusetts from having the 29th highest gas tax in the country, to the 24th highest.

“Massachusetts is the 2nd most expensive state, only behind Hawaii, for the cost of doing business in the country. We rank as the 9th most expensive state for the cost of living. Legislative leaders need to rethink their plan and realize that increasing the gasoline tax will only further hurt our economic standing,” Paul Craney, executive director of Massachusetts Fiscal Alliance, said in a statement.

And there were signs Tuesday of competition for the new tax revenue. Tobacco Free Mass applauded the call for higher tobacco taxes, predicting lower smoking rates and lower health care costs as a result, but said they’ll push to ensure some of the new revenue is dedicated to tobacco control and wellness and prevention programs.

Citizens for Limited Taxation chief Barbara Anderson said Massachusetts taxpayers will hit “tax freedom day” on April 25, when taxpayers will have worked enough to meet federal, state and local tax requirements.

If Massachusetts passes three other states, it would have the latest tax freedom day among states. “As least legislators haven’t gone back to that income tax pocket, yet we don’t know what awaits us in next week’s budget,” Anderson said in a press release.

Geoff Beckwith, executive director of the Massachusetts Municipal Association, called the funding increase for Chapter 90 “timely and essential,” and estimated that once MassDOT employees are moved off the capital budget in 2016 there would be more than $500 million available for expansion projects and maintenance.

“We applaud the leaders in the House and the Senate for announcing an impressive plan,” Beckwith said.

U.S. Sen. Elizabeth Warren said she hoped the Legislature and Gov. Deval Patrick would find some middle ground between their two proposals, which she described as a “vision” and a “counter-vision.”

“The governor laid out a plan, an ambitious plan for the entire Commonwealth, and I give them a lot of credit for that. Some of the leaders in the legislature have come back with a more modest plan, but one that’s easier to pay for,” Warren told reporters at South Station. “Somewhere in between, I hope they find the right place for the future of this Commonwealth.”

Increasingly, the Massachusetts High Technology Council is stepping up to create, execute, and lead critical statewide competitiveness strategies. Fostering a vision for our innovation economy under the MassVision2050 banner, the Council solidifies its position as a thought leader providing valuable insights to navigate emerging technologies, facilitates long-term planning, and reinforces the Council's commitment to excellence and action in the evolving Massachusetts tech-driven economy.

To learn more, contact Council President Chris Anderson.