BOSTON — The transportation financing plan Gov. Deval Patrick sent back for more work last month did not include an income tax increase — a controversial proposal added to the final draft and a key underpinning of the proposal he is now trying to push through the Legislature.
Called “The Way Forward,” the document itemizes the expansion projects, reforms and overall funding that would be enabled by a roughly $1 billion annual revenue infusion to transportation. Patrick has made transportation system investments and education funding the basis for his tax proposal, which would raise $1.9 billion in new revenue by coupling plans to end an array of tax incentives with a reduction in the sales tax to 4.5 percent and an increase in the income tax to 6.25 percent.
On Friday, Jan. 4, Patrick said he had sent back the transportation plan “to make sure that we are making sure that we are focusing on the economic growth opportunities in every corner of the Commonwealth, and that the plan reflects that.”
The Jan. 3 draft, obtained by the News Service through a public records request, included many revenue ideas that were featured in the final version, but were not included in Patrick’s revenue-raising budget proposal, such as a payroll tax, which is similar to an income tax, a tax on the number of miles a vehicle has traveled and a sales tax increase.
Patrick and Transportation Secretary Richard Davey unveiled the plan on Jan. 14. The board of the Massachusetts Department of Transportation was required to vote on and submit a long-term transportation financing plan, along with proposed legislation and recommendations by Jan. 7, according to a June 2012 law that gave the MBTA a $49 million bailout.
Board member Alan MacDonald said that he provided informal suggestions to the MassDOT staff drafting the report, and said they were reflected in the finished product.
MassDOT spokeswoman Sara Lavoie told the News Service that the board delegated completion of the report to staff, and were briefed individually on the plan throughout the process. Lavoie said there was no specific vote taken, and noted MassDOT held 17 public hearings, which is more than the six meetings required by the law.
MacDonald said he highlighted the need to move highway employees off the debt-financed capital budget, recommended using at least two thirds of the funding for repairs, and suggested asset management improvements. MacDonald said he hadn’t made any recommendations relative to the revenue side, and said he would have used a different method than the one Patrick chose.
“I believe that having user fee revenues directed to transportation … is where as an individual I’d go myself,” MacDonald told the News Service. User fees are part of Patrick’s proposal, though the majority of revenue comes from raising the income tax and eliminating specific tax breaks.
Davey said the inclusion of an income tax option in the final version of the transportation plan was not “specifically” the suggestion of the governor.
“No, it wasn’t specifically his,” Davey said. “We were looking to make sure that we were putting everything possible on the table, and obviously the income tax is one of those items that is part of any sort of revenue discussion, and obviously became a significant part of the revenue discussion with the budget.”
Massachusetts voters in 2000 approved a ballot law calling for a lowering of the income tax rate to 5 percent. While reductions were made initially, the rate was frozen at 5.3 percent for many years before it was reduced to 5.25 percent in 2012. Opponents of the proposed income tax increase have cited the voter law as a reason for resisting the major increase in the income tax rate, while Patrick says his plan will keep Massachusetts competitive with other states while making necessary public investments.
Massachusetts Taxpayers Foundation Executive Director Michael Widmer said that rather than focusing on transportation, Patrick had broadened the scope of his budget and such a substantial revenue increase required a broad tax increase.
“It’s a curious omission but I don’t read anything in particular into it,” Widmer told the News Service. Widmer said the income tax proposal was “clearly under active consideration” when the draft was completed.
The document was treated less as a recipe for funding, and more as an outline of the state’s transportation needs.
“‘The Way Forward’ helped to inform the governor as to the scope of the need for economic growth related to transportation, which was useful in determining how much revenue would need to be raised,” Patrick’s communications director Jesse Mermell said in a statement when asked how the document was used in the preparation of Patrick’s tax plan. “MassDOT — and many other entities — presented the governor with revenue generating alternatives, which he took into consideration when finalizing his proposal.”
Patrick told the News Service last summer that officials at the MBTA, Massachusetts Port Authority, and in his own transportation and economic development agencies all had different ideas about how to address the transportation funding dilemma, along with ideas from people outside the building. The MBTA at the time explored making significant service cuts in addition to levying fare increases. But the agency backed off the service cuts after that proposal drew widespread fire — including from Cape Ann, where Gloucester, Rockport and Cape Ann Chamber of Commece officials all decried the impact that weekend and other commuter rail cuts would have had on the local economy.
Davey has described the new plan as a “menu” of revenue options designed to secure the necessary funding for transportation.
Patrick went off-menu with a tax overhaul aimed at funding not just transportation but education as well. Patrick used revenues not included in the transportation plan, such as new corporate taxes as well as the elimination of 44 personal tax deductions, and scaled down some revenues by doubling the personal exemption and lowering the sales tax. The actual budget proposal includes indexing the gas tax to inflation, another idea that was not included in the draft and was included in the final report. The draft did mention, “inflation has eaten away at the value of the state’s gas tax.”
While Patrick had long promised a plan for transportation, the education proposal was more of a surprise.
On Jan. 15, a day after “The Way Forward” was unveiled and the same day that a group called Campaign for Our Communities called for an income tax increase to fund education and transportation, Patrick announced a planned $550 million investment in education.
While his proposed tax overhaul is complex and varied, when he first presented it, Patrick highlighted the simplicity of reducing the sales tax, and devoting some of that revenue to transportation, while increasing the income tax.
“To support our education initiatives, my budget will propose that we increase the income tax by 1 percentage point to 6.25 percent,” Patrick said in his State of the Commonwealth. “To make that increase fair to all according to their ability to pay, I will propose that we double the personal exemptions for every taxpayer and eliminate a number of itemized deductions. Making those changes gives us a tax code that is simpler and fairer.”
“He took a broader approach, and I certainly understand that,” Widmer said. He said, “I think the overarching question in these difficult and uncertain economic times is how much can we ask of the citizens in terms of additional taxes and in what form.”