The tax man goeth
As he readies to retire, Michael Widmer dissects the state’s budget challenges
MICHAEL WIDMER IS a harried journalist’s best friend, a man a reporter can count on to return calls with good intel before deadline. The longtime president of the Massachusetts Taxpayers Foundation developed an attachment to journalism early on. Fresh out of graduate school at Harvard, he worked for the pre-Internet United Press International when, according to Widmer, the outlet “was alive and thriving.” But Widmer will no longer be reporters’ go-to guy on budget questions, as he plans to retire at the end of January.
The Connecticut native plunged into state government in the 1970s as a member of the reorganized Executive Office of Health and Human Services under Gov. Frank Sargent and later worked briefly for Gov. Michael Dukakis. Widmer also spent a decade in the private sector, traveling around the country and the globe for the Cabot Corporation, an energy and specialty chemical company.
In 1990, he moved to Mass. Taxpayers, a business-funded budget watchdog group. Two years later he assumed the top job at the organization. A Beacon Hill presence ever since, he’s served on numerous commissions, including the Transportation Finance Commission in 2007 and, most recently, the Special Advisory Commission on Public Compensation, which called for substantial pay raises for legislative leaders and constitutional officers.
Widmer will have one last word on transportation finances before he retires. The foundation expects to release a new report in February on the state’s budget shortfall. After he turns over the MTF baton to Eileen McAnneny next month, the 75-year-old Widmer hopes to branch out into university public policy research.
What’s going to be the biggest shock for Gov. Charlie Baker coming back into state government?
Baker [who oversaw human services and served as budget chief for Republican governors in the 1990s] brings experience that no incoming governor ever has before, or probably ever will, in Massachusetts or in any other state for that matter. When you’ve run health and human services and administration and finance, you have a sense of government that very few new governors have. Generally speaking, he is recruiting talented people. Health and Human Services Secretary Mary Lou Sudders and Housing and Economic Development Secretary Jay Ash are problem solvers. He understands the importance of experience. Other governors appoint lots of outsiders and those [picks] are usually disastrous because they don’t know anything about the State House.
He’s got two major issues. One is fiscal. It’s not just 2015 where there’s a hole in the budget. We’re in a long-term fiscal squeeze, state-budget-wise and local-budget-wise, because revenues are growing more slowly than in previous recoveries. Medicaid and other non-discretionary items are consuming more and more of the budget. That is going to be a cold shower. The second, and he will appreciate this more than most, state government is really antiquated. The irony is, of course, that in the use of technology and innovation [the Massachusetts private sector] leads the country, the world. In the public sector, we are a backwater.
The tech problems pre-date the Patrick administration.
Patrick did not attend to it. In some respects, we’ve seen the failure of it in the long list of things that happened in the last year of his watch.
Is Baker better equipped to deal with the Legislature than Deval Patrick?
Patrick was a creature of the corporate world like Romney.
But Charlie comes out of government. [Senate President] Stan Rosenberg was at Ways and Means when Baker was at Administration and Finance, so they have a relationship. DeLeo and Baker are very different personalities, but I think they’ll get along well. Charlie respects the Legislature and that’s really what they want. That’s something that they didn’t get under the last two governors.
How do you see the Massachusetts transportation sector today given the repeals of the tech tax, which MTF opposed, and gas tax indexing, which MTF supported?
We are nowhere. There is a huge shortfall in funding. What we’re left with is [a recent increase of] three cents on the gas tax, which is around a hundred million a year. So that’s a barely a drop in the bucket against the needs.
Which are in the billons.
Even a lot of that was just for maintenance and not the expansions. You’ve got all of these projects like South Coast Rail and a lot of others [that were] in the [Patrick administration’s] Way Forward plan and there is simply not a revenue stream to pay for them.
What do you make of the continued push for South Coast Rail? During the 2014 campaign, Baker supported the project.
A series of candidates for governor and governors have supported the project for the obvious reasons: It’s the number one priority by far for that region, which is a major voting bloc. I don’t know how it is possible in the existing revenue streams to pay for South Coast Rail. I mean, [maybe] if it was a $500 million price tag, but it’s now at $2.3 billion. We are talking years out, so the $2.3 billion will be $3 or $3.5 billion.
How does the gas tax indexing repeal affect South Coast Rail?
If you think about the long-term projects, it was gas tax indexing that gave you the funding to do South Coast Rail. There is not a general understanding among the electorate and even among some legislators that there’s a connection with how much revenues are raised and the capacity to [build] something. This is pretty basic, but people have been running from that for a generation now and not just in transportation.
But South Coast Rail made quite a bit of progress under Deval Patrick.
Patrick has moved the project forward in a way that other governors haven’t. Others have given lip service to it. Then they’ve looked that the numbers and then said we can’t afford that, so they’ve had to bob and weave. Patrick hasn’t bobbed and weaved, he’s moved it forward, I think, partly [because] he was committed to it. But he also assumed that there would be a fairly robust transportation finance package.
What politically viable options does Massachusetts have to raise money for transportation now?
It would potentially help in the long term for the Baker administration to explore some tolling options. What I mean under tolling is everything: vehicle miles traveled or congestion pricing or any of that. Other states have moved forward on this more. The Transportation Finance Commission said, and nobody has since rebutted the obvious, you’ve got two significant revenue sources: the gas tax or open-road tolling. It is good Republican orthodoxy to have user fees. At least it was 50 years ago.
But there is huge resistance any time you talk about tolling, for example, on Interstate 93.
There is major resistance. Tolling needs to be more equitable. But it is going to take some political leadership to do [tolling]. Baker is not going to do the gas tax. I don’t know if a toll is a fee, but he is boxed in, he or anybody coming in now, given the repeal [of gas tax indexing].
What do you make of the turmoil at MassDOT under Patrick? He went through five secretaries.
It’s unfortunate. Whether it’s transportation or human services, these are complex enterprises to manage. The public may not appreciate that. That’s why I support adequate compensation because we are trying to attract first-class managers. That’s been a problem for transportation and was one of the shortcomings of the Patrick administration.
What type of transportation secretary does Baker need?
There is a debate within the transportation world: Does MassDOT need a visionary or an operations person? For a leader, I feel very strongly that you need the former, the visionary. There aren’t a lot of them hanging around the transportation, or in the world generally. I’ll give you an example: Mary Lou Sudders in human services, I think, is a visionary, but she is also a mechanic. She is both. Rare, rare, rare you get both, and she is politically savvy so it is an amazing combo.
What do you make of the performance of the MassDOT board? There was an expectation that the board would play a more active role in working on the issues that needed attention.
They have done a little of that, but they are largely a rubber stamp. If you are running MassDOT, you would rather have a rubber stamp board. It is a disappointment because the purpose of the board in my view was to have a strong policy board driving issues or at least driving the framework.
What about the MBTA?
The MBTA is falling apart. Even a guy like Charlie Baker who knows state government, even he doesn’t understand. It’s a huge problem.
What do you make of the bid to bring the Olympics to Boston?
I can’t comment on the specifics of the bid. No one has seen it. The piece that the proponents have focused on is transportation. They’ve said correctly that most of the [projects and improvements] are in the bond bill that passed last year. But bond bills are just Monopoly money. Each year, we can do two and a quarter billion—that’s our [bond cap] limit right now—so you can do $11 billion over five years. The needs are much, much greater than that. They are correct in saying that most of the projects have been authorized, but, back to the point I was making, we don’t have the funding available, we can’t pay for them. Olympic officials are going to say, “where is your revenue stream to do all of this” in 2017 when they pick a winner.
The Patrick administration was outraged when MTF said there was a $1 billion state deficit.[Former administration and finance secretary] Glen Shor made some pretty intemporate comments because he was hot. What is interesting is that Shor had not gone through and said where we were overestimating. We said, all right, which ones? Shor said $20 million on the Connector is going to be under the capital rather than the operating [budget]. I said, Well, OK, fine, that’s only $20 million out of billion. [Shor said] this other $26 million, we think we’ve got that covered. Well, c’mon now. We are up to $46 million even if you give him credit, but I don’t know what “we got it covered” means. [Shor also said] MTF didn’t account for the fact that the state is selling 100 Cambridge Street and we’re going to get $95 million, $100 million for that. Well, you don’t use one-time sales of buildings to close an operating budget gap. He knows that. That’s just a real no-no. Then there are other elements like corporate tax settlements that we didn’t count, which were a real vulnerability, and may bring our number higher. We counted a $100 million shortfall for the Group Insurance Commission. [Executive Director] Delores Mitchell said that months ago. Now she is saying that it is $120 million or maybe north of that. Their failure to put forward any specific disagreements with us other than on the margins tells me that they agreed [with us].
Where did Patrick go wrong trying to increase state revenues?
When Rich [Davey] was appointed [transportation] secretary, his number one task was to go around the state and highlight the need for more funding for transportation. He did a heckuva job. We had all these groups formed—ours, A Better City, and Transportation for Massachusetts—saying we need more transportation funding. I was saying it’s got to be the gas tax because in the short term you can’t do tolling. The Senate president and the House speaker, in their opening remarks to the session in 2013, said transportation needs to be a priority, so you’ve got both of the leaders. This was strategically a huge success in terms of setting up transportation. Then what did Patrick do? He pulled the rug right out from it by putting out a huge reform of the tax code which everybody knows makes your life ten times more difficult than just raising taxes. It was dead on arrival and everybody inside the building knew it.
What about new revenues from casinos or possibly from marijuana, if legalized?
If you have three casinos up and running the annual revenue stream, our estimate, is around $300 million. But who knows how long Everett will take? Will it ever get built? I don’t know, at least that’s an open question. The southeast [region casino], who knows? So all we’ve really got is Springfield. There’s not $300 million there. We haven’t looked at marijuana. My suspicion is, having glanced at Colorado, that [revenues] would be on the margins. You know what would really be helpful is federal action on shopping on the Internet—Internet sales tax. We got a change with Amazon. But that is just one company. That’s $30 million and that’s good. But more and more people are shopping there. That would be an impact. You would get $200 to $300 million there.
What’s the likelihood of Congress allowing states to tax Internet sales?
I don’t think we are going to see it.
What about the state’s all-Democratic congressional delegation. Will they rely on Baker more?
It is helpful to have Charlie there because the national Republican Party will say, fine, we don’t care, let him do what he wants on social issues. We want him to succeed. That gives him a little running room.
How is the media doing covering these issues?
The media does better in some areas than in others. The media has done well on elements of transportation. Whether the public listens is a whole other matter. I think where the media fell down is around the fiasco around the health exchange and its consequences of that. It got reported as, “well, they are fixing it.” The consequences of the failure of that have only gotten limited media exposure.What’s next for Michael Widmer?
I’m looking possibly at universities where I can combine some policy issues, maybe a little teaching. I don’t want to teach a full course load and grade 85 papers— I’m trying to cut my amount of time [working], not add to it. Obviously, I have a lot of knowledge and I’d like to share that.