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EWSEWS INKINK THE BEACON HILL INSTITUTE NN LL AT SUFFOLK UNIVERSITY Vol. 3, No. 3 IDEAS AND UPDATES ON PUBLIC POLICY Spring 1999 BHI's MBTA study: Derail budget buster fter decades of signing a mal. Fares were last raised in 1991. Years later usage, the legislature is simply substituting blank check for the Massa- when the Weld Administration’s blueprint for one flawed budget practice for another. A chusetts Bay Transportation privatization proved to be politically unpopu- Authority, the Common- lar, the MBTA’s financing problems left the An efficient and fare solution wealth is planning to change the way tax- collective radar screen. Consider the following: payers are charged for public transporta- And so the T chugs along on a bud- tion. But will these changes be enough? A get that now approaches $1 billion per year, • The MBTA could save $58.87 million in new BHI study, Financing the MBTA: An of which only about 17% is derived from fares. FY 2000 operating costs by increasing effi- Efficient and Fare Solution, raises doubts that Now, however, even supporters of ciency to levels achieved by comparable they will. public transportation have, in effect, declared, transit authorities and without sacrificing For years, the “This is no way to run service. MBTA has simply billed the a railroad.” That’s be- state for rapid transit, bus cause the state faces a • Massachusetts taxpayers pay on aver- and commuter line services debt ceiling imposed age $203 per year each to subsidize the it has provided to commut- by expenditures and MBTA, whether they use the system or not. ers in 78 communities. And, commitments to the The total state subsidy is $608 million. each year the legislature has Central Artery/Tunnel That comes to about 8% of the average paid the bill, asking few project and other brick taxpayer’s tax bill. questions about cost con- and mortar efforts. continued on page 5 tainment, efficiencies and While bridge and toll user fees. road drivers and taxpayers are called upon The method, called “backward to sacrifice to alleviate this crisis, the MBTA funding,” is one reason why the MBTA is and its users continue to enjoy an almost free Single-trip base-fare (1999) known as a perennial “budget buster.” With ride. Metropolitan Motor Subway Commuter backward funding, MBTA management has Shouldering the MBTA’s burden Area Bus Rail* little incentive to bring costs into line. isn’t good for the state’s bond rating. By Wall National Average $1.00 $1.36 $2.34 Attempts to bridge the gap between Street’s account, the more the T borrows, the revenues and expenditures have been mini- less the state can borrow for other projects Boston $0.60 $0.85 $0.85 without impairing its bond rating. Peer Average $1.33 $1.38 $2.60 N HIS SSUE I T I Is forward funding the answer? New York $1.50 $1.56 $3.25 From the Executive Director The new phrase on Beacon Hill is New Jersey $1.00 $1.00 $1.20 The right kind of tax cuts................. 2 “forward funding,” which means that the T will no longer have the luxury of billing the Chicago $1.60 $1.60 $3.15 Analysis Commonwealth for services provided for the Detroit $1.25 NA NA Suffolk economists find no link prior 18 months. In addition, the legislature between school spending and wants to raise fares, dedicate 20% of the state’s Philadelphia $1.60 $1.60 $2.50 performance....................................... 4 sales tax to the MBTA and assess charges upon Baltimore $1.35 $1.35 $3.25 another 97 communities that indirectly ben- News efit from the transit agency. Washington, D.C. $1.10 $1.10 $3.60 Gallant joins BHI staff....................... 5 Forward funding is a move in the Pittsburgh $1.25 $1.50 $1.25 right direction. However, forward funding Bookmark doesn’t address the real issue: the MBTA needs *Source: American Public Transit Association Lawrence Lindsey's new book to be put on a budget. By guaranteeing a rev- reviewed............................................. 7 enue stream that bears no relation to costs or BEACON HILL INSTITUTE From the Executive Director hat makes for good tax politics Targeted cuts in Texas doesn’t necessarily make for On behalf of the Texas Public Policy good tax policy. Foundation, we recently built a Texas STAMP Good tax policy W In early May, the Massa- model to analyze several tax-cut proposals in chusetts House of Representa- the Lone Star state. Among the most conten- improves a state’s tives voted to drop the personal income tax tious was a plan to establish a research-and-de- comparative advan- rate from 5.95% to 5.75%. Though modest, velopment credit in the state. Texas STAMP the proposed new rate is at least headed in showed that the credit would do little to create tage and benefits the right direction. Then by a vote of 153-0, jobs for Texans. The Federal Reserve Bank of the lives of everyone the House passed a series of targeted tax cuts Texas agreed, issuing its own report that effec- geared toward “working families.” The mea- tively concurred with Texas STAMP. living there. sure is headed to the Senate. The House package includes an ex- Ending the “T”Party panded child-care deduction. It also includes When Aniko Laszlo, a senior lecturer dependent deductions, to be phased in over in economics, presented her analysis of the Mas- three years, which would be expanded to in- sachusetts Bay Transportation Authority, we clude elderly and disabled dependents. were as stunned as anyone by what she found: The cost to the state for both the a budget-busting agency that pays “Delivery 5.75% income tax cut and the sundry targeted Persons” $40,000 a year before benefits; that fails tax cuts is $430 million. to meet efficiency standards achieved by com- In order to pay for the targeted tax parable authorities in and out of the state; that NewsLink is published quarterly cuts, the House would effectively raise taxes costs the average state taxpayer $200 a year; and by the Beacon Hill Institute for Pub- by scaling back a capi- that has become a lic Policy Research at Suffolk Uni- tal gains tax cut estab- virtual free ride for versity. The Beacon Hill Institute fo- lished in 1994. (The leg- its users. We’ve of- cuses on federal, state and local eco- islature revised the tax fered our solution nomic policies as they affect citizens liability for holding an to the situation; and businesses, particularly in Mas- asset for six years. Un- there are others. sachusetts. The institute uses state- der current law the tax The legislature is of-the-art statistical, mathematical rate for such an asset is now deciding how and econometric methods to pro- zero.) the MBTA will be vide timely and readable analyses There is a reformed. What’s that help voters, policy makers and problem here. Tax clear to us is that opinion leaders understand today’s policy should be evalu- the good time leading public policy issues. ated in terms of job cre- should end. The ation, expanded pay- only ones currently PUBLISHER rolls and shored up not invited to this DAVID G. TUERCK capital stock. In short, party are the tax- EXECUTIVE DIRECTOR good tax policy im- payers. proves a state’s com- PRODUCTION parative advantage and benefits the lives of ELLEN F. F OLEY everyone living there. Former Mass. HHS Chief joins BHI DIRECTOR OF COMMUNICATIONS Tax policy that is engineered to In March, Joseph Gallant, former some desired social end, without regard to Massachusetts Secretary of the Executive Of- EDITOR the economic consequences to the state or fice of Health and Human Services, joined BHI FRANK CONTE all its residents, is quite simply bad tax as Director of Social Policy Studies. Gallant’s PUBLICATIONS EDITOR policy. Designing tax policy according to lifelong experience in the human service de- (ISSN 1094-0707) what feels good may be political expedient, livery system is playing a key role in what we but it is at best economically naive and at call “the next step of welfare reform.” We’re ©1999 Beacon Hill Institute for worst reckless. glad to have Secretary Gallant on board! Public Policy Research, Suffolk An across-the-board tax cut to 5%, University, 8 Ashburton Place, such as the one proposed by Governor David G. Tuerck Boston, MA 02108-2770. Voice, Cellucci, is the superior method of stimu- (617) 573-8750; fax, (617) 720-4272; lating and sustaining economic growth. e-mail, [email protected]; web site, http://www.beaconhill.org. PAGE 2 / SPRING 1999 NEWSLINK Media Mentions Our study, Financing the MBTA, received cov- erage throughout Massachusetts. The Boston Herald covered the story twice (May 24 & 25). The Herald’s lead editorial of May 25 featured the study: “Tame the T beast before feeding it.” (See reprint on this page.) The Boston Globe cited the study in a May 26 editorial and covered the Tame the T beast story on May 24, “Scathing report targets MBTA.” before feeding it The Associated Press story appeared in vari- Before lawmakers hand over hikes, will guarantee the system re- ous newspapers including The Patriot Ledger 20 percent of the state’s sales tax rev- mains one of the most high-cost in the (“New study of T rips fiscal practices, urges enues to feed the beast that the MBTA nation. overhaul”) and the Worcester Telegram & Gazette has become, they ought to take a care- There is no reason - save lack (“Study claims MBTA is inefficient”).