Question 1 passed, so now what?

Given the ongoing issues with Twitter, as detailed in my previous post, I’m trying to move more of my mid-length writing back onto the blog so I’m not generating as much free content for the South African emerald-mine heir. This is an experiment; we’ll see how it goes.

Massachusetts voters have approved the so-called “Fair Share Amendment”, which provides for a 4% surtax on incomes over $1 million. Before this vote, the Massachusetts constitution required a flat income tax, without regard to the marginal utility of money. The legislature had previously put amendments before voters permitting (but not requiring) a progressive income tax, including at least once since I moved here in 1994, but the previous attempts — made at a time when Barbara Anderson and the Reganite “tax revolt” were still alive — went down to defeat. This was actually the second try at the “millionaires’ tax”; the first one was struck from the ballot by the Supreme Judicial Court, who ruled that it was improperly drafted and violated the constitution’s prohibition on combining multiple subjects in a single referendum. The proponents went back and were able to get a revised amendment through the legislature and onto the ballot, and that’s what we approved on November 8.

The constitutional infirmity with the original amendment (that should have been on the ballot in 2018) was that it directed how the new revenue was supposed to be spent. The new text leaves it up to the legislature to spend the money, although it is supposed to be spent exclusively on transportation and education. The state will begin collecting this money starting in January, 2023, so the legislature could appropriate as much as half of the revenue in the current fiscal year.

The Tufts Center for State Policy Analysis estimates that the state will collect between $1.3 and $2 billion in calendar year 2023 (although this will be split across two state fiscal years). As soon as the legislature meets, they will start working on the FY24 state budget, but the new governor, once she’s inaugurated, can submit a supplemental state budget for FY23 that would appropriate the new revenue.

Note that the very open-ended way the amendment was worded does not require that the revenue actually be used for new spending — indeed this was one of the criticisms of the amendment raised by opponents. The legislature is perfectly free to simply alter which revenue accounts existing transportation and education appropriations come from, and then reallocating the original funds to some other purpose (including tax cuts if they so desire, and our state legislature is still full of conservative anti-tax types, and not just those with an (R) after their names).

I don’t really have many strong opinions about how education is funded in Massachusetts, other than that property taxes are obviously inequitable and the state really ought to equalize funding per pupil. (Again, the amendment’s text is quite general, and the legislature could spend all of the new revenue on subsidies for UMass and nothing on transportation or local schools if they wanted to.) I’m instead going to concentrate on transportation.

Currently, the MBTA is funded by several sources: aside from fares and other “own source” revenue, the original funding mechanism was the local assessment paid by all cities and towns in the MBTA district. (Fall River voted this election to join the MBTA district, a prerequisite for the start of rail service next year.) The 80s “tax revolt” put paid to the local assessment as a major source of revenue, although the T does bond against that revenue. (The municipalities don’t directly pay the assessment: it’s subtracted from transfer payments they would otherwise receive as state aid.) As a result, the primary source of the MBTA’s non-operating revenue is direct grants from the state, which comes in two forms: “contract assistance”, which is an annual appropriation by the legislature, and one cent of the state sales tax, which flows automatically to the T and is subject to a guaranteed minimum level, allowing the authority to effectively bond against it. In FY23, the contract assistance was $187 million (of which $60 million is bond authorization dedicated to capital programs), and the state sales tax is projected to be around $1.2 billion. (The sales tax being much better than projections for the last three years has been a significant positive for the MBTA’s budget; many other transit agencies around the country were not so lucky and received substantial subsidy cutbacks because their revenues were not guaranteed.) The state’s numerous Regional Transit Agencies get no sales-tax money and depend entirely on fares and annual state appropriations — over which there is considerable fighting in the legislature every budget cycle — which currently runs around $90 million.

So now that there is this new revenue source, how much of it should go to transportation vis-à-vis education, and how should that be structured? I would argue that the first priority should be to create a structure similar to the MBTA’s sales tax dedication: pick a fraction of the surtax revenue and automatically transfer it without further appropriation to specific transportation agencies, with a guaranteed minimum that allows for multi-year planning across budget cycles and administrations. Specifically, I would propose the following allocations:

  • 25% or $250 million to the MBTA
  • 10% or $100 million to the RTAs, using a formula that rewards ridership
  • 15% or $150 million to a new east-west passenger rail authority

In the longer term, this would substitute for the existing (lower) appropriations; in FY23, a special appropriations bill could provide “top-up” funds from the first half-year of revenues. As a condition, the MBTA and the RTAs should be required to implement means-tested fares, using some program that the state already administers for eligibility, and EOHHS should be required to administer it for all of the agencies on a cost-recovery basis. The MBTA estimates (as of October) that implementing a means-tested fare program would cost between $46 and $58 million annually, which is easily covered by the increased subsidy. (At the low end of the Tufts CSPA projection, the MBTA would get $325 million, or $138 million above its current state assistance.)

What else should the MBTA be expected to do with the money? Obviously, close the structural budget deficit first and foremost, including all the new safety hires and more realistic salaries for rail and bus operators and maintenance personnel than were included in the recent 5-year pro-forma. On the capital side, the legislature should finally require electrification of the regional rail network by a date certain — I propose 2035 as a reasonable compromise between rolling-stock lifetimes and when I’m expecting to retire. I would also like to see the MBTA reduce its pass multiplier, reducing the costs of fare collection and inspection by making monthly or even annual passes the default for more riders. (Note that the MBTA currently projects a $208m budget deficit in FY24, so even the entire $138m wouldn’t be enough to solve this it, but the high end of Tufts CSPA projections would. It’s possible that a fare increase will be necessary, which could be paired with the means-tested fare program to reduce the impact on lower-income riders.)

I know the Healey administration’s transition team has put transportation in some good hands (there are few people I’d trust more than Monica Tibbitts-Nutt after watching her for four years on the MBTA’s former Fiscal and Management Control Board) but the state legislature is chock full of suburbanites with windshield brain and actually getting this program passed will require some lobbying — even if it does free up nearly $300 million for them to spend on their own pet projects.

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