Pump it up
For a picture-perfect view of the Boston skyline on a bright, cloudless day, looking from the Longfellow Bridge to the other side of the Charles River is as good as it gets. For scenery of a different sort, amble down the stairway near Storrow Drive and walk underneath the span that links Beacon Hill to Kendall Square. Take a look at the severely corroded steel supports and the black netting affixed to catch pieces of crumbling sidewalk. Not exactly Kodak moments.
The century-old Longfellow is one of 585 structurally deficient bridges in Massachusetts. According to a Boston Globe report, private engineers recently found the bridge support structure to be in serious condition, worse than anyone thought, though their findings were later disputed by state officials. If that wasn’t enough, follow-up investigations of the structural integrity of the sidewalks forced the Department of Recreation and Conservation, which oversees the bridge, to close the west side to pedestrians and to prohibit Fourth of July fireworks spectators from both sides. You don’t need a Ph.D in engineering from MIT to know that there is a problem.
Along with the usual parade of cars, trucks, and trolley tour buses, the MBTA’s Red Line trains rumble across the Longfellow hundreds of times every day. Racked by massive debt, the authority has its own headaches. At the height of the evening rush hour the day after a fatal Green Line trolley crash, a Red Line operator announced delays in service due to westbound speed restrictions. The reason? Deteriorating railroad ties on the Longfellow requiring immediate repairs.
State officials are rushing to fill the cracks in the Longfellow and other pieces of the state’s transportation infrastructure, but they’re doing it by going into hock, coming up with a $3 billion financing plan to speed up repairs on 250 to 300 defective bridges. It’s a familiar pattern in Massachusetts: Deal with the crisis now and pay for it in the future. But like a shopaholic maxed out on credit cards, the state is finding it harder and harder to keep up. It’s also running out of quick-fix options; an increase in the state gasoline seems unavoidable.
century-old Longfellow Bridge
threaten both auto traffic and
the MBTA’s Red Line.
Just how far the state’s financial credibility has sunk came into stark relief late last year. In a little noticed move, the Federal Highway Administration and the Federal Transit Administration took the rare step of not approving the Massachusetts statewide transportation improvement program for fiscal 2008-2011. Millions of dollars in federal matching funds are at risk if the state cannot devise, and follow through on, solutions to satisfy Washington.
One of the problems, as federal officials saw it, was that Massachusetts failed to demonstrate that there were “available or committed” monies for certain highway and transit projects described in the first two years of the plan. Moreover, Bay State officials had not proposed enough funding to reduce the number of structurally deficient bridges in its bridge program. “We expect this effort to be given the highest priority,” federal officials said in a letter to the state.
In essence, the feds wanted Massachusetts to come up with more money for badly needed projects, either by selling bonds or by using some “other funding mechanism.” Bonding is commonly used to fund large infrastructure projects. Few bridges, roads, or transit lines would get built otherwise. But a bond-dependent pattern of decision making has contributed to the Bay State’s current shortage of funds for transportation projects. A large chunk of the state’s $18 billion in outstanding debt, an estimated 40 percent, is transportation-related. It’s a big reason why the state’s per-capita debt burden is $4,500, the highest in the nation and more than five times greater than the median of all 50 states, according to one credit rating agency’s estimate.
“Massachusetts has run up all its credit cards in the transportation area,” says Stephanie Pollack, a partner with the environmental consulting firm BlueWave Strategies, who researches transportation issues at Northeastern University’s Center for Urban and Regional Policy.
On Beacon Hill, there’s talk about “reform before revenue,” a euphemism for putting in place cost-saving measures before talking about tax hikes. But none of the reform initiatives proposed thus far significantly staunches the flow of red ink or steers new money into roads, bridges, and mass transit.
So there’s a growing chorus of support for an increase in the gas tax. Last year, the state’s Transportation Finance Commission recommended an 11.5-cent hike in the gas tax, which would then be indexed to inflation. In May, MetroFuture, a new Metropolitan Area Planning Council initiative, recommended a 15-cent spike. Marc Draisen, the organization’s executive director and a former Boston state representative, believes the state is out of options. “The gas tax needs to go up or our elected officials need to suggest an alternative,” he says.
This dire situation isn’t lost on Washington. Going forward, federal authorities have advised lining up short-term priorities with limited highway and transit money. But they want bridge repairs fast-tracked. The administration of Gov. Deval Patrick has responded on two fronts. First, Patrick signed a $3.5 billion transportation bond bill in April that includes money for shoring up roads and bridges, as well as for expansion projects like the Green Line extension to Somerville and Medford. Second, officials came up with an accelerated bridge-repair program to cover those MassHighway and DCR bridges in particularly rough shape.
That emergency plan relies on $1.1 billion in grant anticipation notes (known as GANS), which allow states to borrow against future federal aid, and another $1.9 billion in gas tax bonds, to be paid from a portion of existing gas tax revenues over eight years. These transportation-specific financing mechanisms have an advantage over general obligation bonds, since the repayments don’t come out of the state’s general fund. Consequently, other areas of the state budget, such as education, aren’t directly compromised. Tackling bridges now, rather than later, also allows the repairs to be done more cheaply by avoiding construction inflation.
least resistance,” says
Stephanie Pollack, of
Northeastern’s Center for
Urban and Regional Policy.
But the plan has a major drawback. The bridge repair program will sap money from future road projects needed between 2013 and 2030, according to a Massachusetts Taxpayers Foundation analysis. For some, that’s déjà vu. Beginning in the late 1990s, GANS were used to pay for Big Dig cost overruns, but that left less money available for today’s bridge repair projects. Up to a third of the state’s federal highway funds are still going to repay the Big Dig notes, a situation that won’t end until 2015. The administration’s plan is like “pouring salt in that wound,” said state Sen. Mark Montigny, co-chair of the Joint Bonding, Capital Expenditures, and State Assets Committee.
“Debt is the path of political least resistance in Massachusetts,” Pollack says. “If we were a state like Rhode Island, where you had to go to the voters for every debt, we probably wouldn’t be doing it, right?”
But what to do? State Treasurer Timothy Cahill, who worked with the administration to reduce the cost of the bridge program by $800 million, told Montigny’s committee that decrepit bridges can’t wait. “If a bridge goes down while we wait for the money, there will be no place to hide for any of us,” he says.
A mess of our own
Bridges aren’t the only problem. Several major transportation agencies are mired in debt. The Massachusetts Highway Department, which is trying to cope with $8 billion in red ink, is notorious for using bonds to pay for operating expenses like grass cutting.
The Massachusetts Turnpike Authority and the MBTA certainly aren’t any better off. The Turnpike Authority’s debt is about $2.4 billion, in large part because of the decision to shift Big Dig borrowing to that agency. The failure to refinance nearly $130 million in bond agreements earlier this year will accentuate the problem, triggering interest payments of nearly $1.2 million a month beginning in January 2009.
Tolls have nowhere to go but up in the near future in order for the agency to meet its financial obligations. A more pressing question is what happens to the Turnpike Authority when toll increases no longer do the job. Toll transactions already dipped this past Memorial Day weekend, as drivers facing gasoline prices topping $4 a gallon cut back their trips.
At the MBTA, revenues don’t line up with operating or debt service expenses. The agency’s triple-A credit rating is among the best in the state, thanks to “forward funding,” or the allocation of one penny of the state’s five-cent sales tax as a dedicated revenue stream for the agency. But sluggish performance of the sales tax has bruised the authority’s finances. The T carries $8 billion in debt, a large portion of which it inherited when forward funding was instituted in 2000; the agency incurred the remainder for recent capital projects, such as the Greenbush Line, the Silver Line, and the automated fare card collection program. Regular fare increases barely keep pace with debt service payments.
To help erase a $75 million deficit on the fiscal 2009 books, the MBTA restructured its debt to capture savings, but that move only pushes debt service payments into future years, adding to the agency’s long-term costs. Rising fuel prices have only made matters worse, creating another $21 million deficit even before the ink on the new budget dried.
Of course, the rising gasoline prices have also spurred a jump in ridership, but MBTA General Manager Dan Grabauskas says that he hasn’t seen any analysis that indicates that the increase will offset the rise in fuel prices. The preview of coming attractions for fiscal 2010? There is open talk of fare increases and service cuts to stave off “probably the most difficult financial year in the T’s history,” according to Grabauskas.
Cutting the fat
State officials are trying to squeeze costs out of the overall transportation system, but it’s not easy. MassTrans is the moniker for the Massachusetts Transportation Authority, the Patrick administration’s ambitious idea to consolidate all the Executive Office of Transportation agencies, as well as the MBTA and the Turnpike Authority, into a single overarching transportation entity. The goal is to create more efficiencies—and savings—by bringing down the fiefdoms that muck up statewide transportation planning and policy. But progress has been slow.
At a May legislative hearing, Transportation Secretary Bernard Cohen was asked about MassTrans by Rep. David Flynn. “We haven’t heard much about that of late,” the Bridgewater Democrat said. Cohen admitted that the reorganization plan is still under development. There is still no schedule for a completion of the plan, and Patrick says only that it will be “ready when it’s ready.”
One goal of MassTrans is to tackle debt. According to a presentation given by Transportation Undersecretary Wendy Stern to a Boston Metropolitan Area Planning Organization committee last year, the new super entity could be “authorized to assume the current debt and liabilities of the transportation authorities, subject to all of the obligations related to the debt, and issuing replacement debt as soon as possible. This debt would be backed by a more efficient credit structure.”
In theory, Massachusetts could see more favorable payment terms for existing transportation debt similar to the way a homeowner would seek out a mortgage with a lower interest rate. Consolidating debt raises some serious questions, however. It could hurt the credit ratings of component agencies like the T, which, despite shaky operations, has good credit (unlike the Turnpike Authority).
Paul Regan, executive director of the MBTA Advisory Board and a Transportation Finance Commission member, says debt restructuring and moving debt from one set of balance sheets to another can provide short-term relief but often does nothing to address the underlying problem that there’s too much debt in the first place. “In the absence of a really great revenue stream, restructuring all this debt will give you some savings this year or in the next couple of years,” he says. “But none of that debt goes away. You still owe it.”
If debt restructuring is so much rearranging of the deck chairs on the Titanic, cutting costs is another option. The Transportation Finance Commission identified more than $2.4 billion in savings from specific reforms, about half coming from trimming MBTA fringe benefits. As part of a larger package of reforms, Senate President Therese Murray wants to restructure health insurance options for MBTA and Turnpike Authority retirees. But even if all these initiatives were approved — a big if, considering the resistance of unions at the MBTA — they wouldn’t put a major dent in outstanding debt or come up with the nearly $20 billion many believe is needed over the next two decades to get the state’s transportation system up to a higher caliber.
MassTrans could yield some savings, but pulling off a massive transportation merger is a major challenge. In 2004, Gov. Mitt Romney failed to merge the Turnpike Authority and MassHighway, and there are early warning signs that don’t bode well for Patrick’s much more ambitious initiative. The MBTA and the Turnpike, the two authorities that don’t have the best debt track records, were finally excluded from the bridge repair bond bill to bring down its total cost. A management structure for the MassHighway and DCR bridge repair program is still being negotiated.
Joseph Giglio, a professor of strategic management at Northeastern University’s College of Business Administration, says agency consolidations and other reforms just won’t do the job. “Tell me where your cost-efficiencies are going to be achieved. By attacking the twin gods of economy and efficiency? By saying, ‘I’m eliminating 10 jobs at the Turnpike?’” he argues, his voice ringing with disbelief. “How credible are any of these proposals when you are not focusing on revenue sources?”
The “G” word
“Most people would applaud the idea of a [higher] gas tax,” state Rep. Denise Provost tells an audience at a recent MetroFuture conference session on transportation finance. Yet when the Somerville Democrat broached the issue with the governor, she says, Patrick cryptically replied that he didn’t want to raise the gas tax right now. Then Provost asks for a show of support from the nearly 70 people in the room. Only six people raise their hands.
The 23.5-cent Massachusetts gasoline tax, the 26th highest in the country, is one of the state’s primary sources of transportation funds. But it’s a source that has been slowly shriveling. The tax hasn’t gone up in nearly 20 years. In fiscal 2008, about $100 million of the nearly $700 million in overall motor fuel revenues went into the general fund to support other non-transportation areas of the budget, such as a fund to clean up underground fuel storage tanks and an Inland Fisheries and Game Fund.
“It’s messy,” says Administration and Finance Undersecretary Jay Gonzalez. The Patrick administration’s attempt to clean up the gas tax statute in its fiscal 2009 budget by directing all transportation-related revenues to a new transportation fund did not make it into the House or Senate versions of the spending plan.
Its unpopularity aside, the gas tax gets high marks as a revenue generator. It’s a broad-based user tax, meaning those who use the state’s roads pay the tax. The collection mechanism for the gas tax is also simple and already in place.
An 11.5-cent increase in the tax to 35 cents a gallon works out to $1.25 per week for an average vehicle in Massachusetts that consumed 576 gallons of gasoline in 2005, according to the Transportation Finance Commission. An 11.5-cent increase would bring in an additional $345 million a year, which would help repair bridges and highways and possibly provide some MBTA debt relief.
But there isn’t much appetite for a gas tax increase on Beacon Hill, particularly with residents telling their legislators they are choosing between food and fuel. A gas tax increase is a case of diminishing returns, says Sen. Steven Baddour, co-chair of the Joint Committee on Transportation. “To say, let’s just increase it to maximize what we can in the short term ignores the fact that people are struggling today,” says the Methuen Democrat, who recently traded in his SUV for a Honda Accord.
Senate President Murray, House Speaker Sal DiMasi, and Gov. Patrick haven’t shown any interest in going down the gas tax road. Nevertheless, the penalty for procrastination is clear. No other viable, short-term alternatives are on the horizon. Higher MBTA fares and Turnpike toll increases provide limited relief to those agencies, while disproportionately burdening T and Turnpike users. Other options are years away. An expanded system of user fees targeting travel on major interstates would require sophisticated technology and buy-in from lawmakers and the public. Congestion pricing designed to reduce peak-period traffic into major cities like Boston draws kudos for its financial and environmental benefits, but raises concerns about effects on downtown businesses.
That leaves the gas tax. “You are going to have to raise taxes and fees somewhere,” says Treasurer Cahill. “Maybe gas is going to have to come down before we get to that point.”A few states have already passed their tipping points. Since March 2007, the states of Connecticut, Florida, Maine, North Carolina, Virginia, and Washington have increased their gas tax rates, according to data supplied by the American Petroleum Institute. (Also, Minnesota lawmakers recently ended their 2008 session by passing an 8.5-cent gas tax hike.)
As the Red Line chugs across the Longfellow Bridge, the sight of pedestrians, joggers, and cyclists forced off the sidewalk into a narrow bicycle lane on the span is quite the spectacle. With no end in sight to decay and red ink, what happens if the state continues to resist a gas tax hike? “You are going to have a transportation system — not the one you need but the one you deserve,” Northeastern’s Giglio says. “The one that you deserve is the best transportation system that the Commonwealth has to offer you from the 1960s.”