Creative accounting on Beacon Hill

Lawmakers warm to the idea of private funding for police, fire training

BRIAN KEYES, the police chief in Chelsea, sounds like a mountain climber with the summit finally in sight. He and his fellow chiefs have been scaling Beacon Hill for almost a decade looking for a way to fund police training programs that wouldn’t require them to go hat in hand to the Legislature each and every session. What they are looking for is every public agency’s dream—a dedicated, non-tax source of funding immune from the ups and downs of state government finances.

The chiefs investigated a lot of different options over the years. They looked at a special assessment on homeowners insurance policies and a surcharge on auto insurance premiums, but neither one passed muster with lawmakers. Now Kyes thinks he’s found the ideal solution—a $2 fee that would be added to the cost of each rental car transaction in Massachusetts, raising an estimated $7 million to $8 million a year for police training. Both branches overwhelmingly approved the new fee in different pieces of legislation, though it’s unclear whether the assessment will make it into law during the final days of the legislative session.

It’s hard to understand why someone from Chicago who is renting a car in Boston should be paying for police training in Massachusetts, but in a way that’s the genius of the proposal. A good share of rental car customers are from out of town, so hitting them with an extra fee doesn’t create a lot of pushback locally. On top of that, the rental car money will replace police training funds currently provided by cities and towns and the state, allowing the municipalities and the state to direct those taxpayer funds for other purposes.

“That money could certainly be put to good use,” Kyes says. “It’s a win-win for everybody.”

No one disputes the need for police training; the question is how best to fund it. These off-the-books funding mechanisms raise alarm bells among government watchdogs because they hide the true cost of government initiatives in a series of fees and assessments on private industry. No need to raise taxes when the state can just tap the private sector for more money. And it’s not as if the private sector just eats the cost. The assessments eventually are passed along to customers in the form of higher bills—a tax by another name.

The rental car fee to support police training is patterned after a long-established assessment on insurance companies to support fire training. The Department of Fire Services each year seeks funding on Beacon Hill, but its job is made easier by the fact that the tab for its services is paid for not by taxpayers but by an assessment on property and casualty insurance companies. The assessment, initiated in the early 1970s in response to two horrific fires, has grown steadily over the years, tripling in size to $28 million over the last 14 years.

Even more alarming is the way lawmakers have come to view the budget line item for the Department of Fire Services as a cash spigot for the municipalities they represent. More and more earmarks are popping up in the line item for just about anything that has a connection to fire. In recent years, Millis pocketed $100,000 for police and fire communications equipment, Needham secured $104,000 for fire safety equipment, and Weymouth received $100,000 for the purchase and upgrade of fire equipment. The list goes on and on.

Gov. Charlie Baker, like his predecessors, has often vetoed a lot of the pork-barrel spending, only to see his vetoes overridden. But now Baker appears to be awakening to the line item’s possibilities. He wants to shift the cost of the State Police arson and bomb squad into the Department of Fire Services line item, sticking the insurance industry with the $3 million price tag.

What’s most surprising about the entire process is how everyone has come to accept it. Even the Massachusetts Insurance Federation, which represents property and casualty insurance companies, the firms on the hook for the Department of Fire Services line item, mounts only token opposition. Every year, the federation writes a letter to the governor urging him to veto millions of dollars from the line item. The letter’s wording hasn’t changed the last few years, except the dollar amounts keep going up.  The letter’s bottom line hasn’t changed: “While denominated an assessment, in reality this is a tax imposed on insurance companies to defray the cost of basic governmental services,” the letter says.

DON’T CONFUSE BUDGET AND REVENUE

In putting together the budget for the Department of Fire Services, state Fire Marshal Peter Ostroskey calculates what it will cost to run the firefighting academies in Stow and Springfield, which are used to train municipal firefighters at no cost to cities and towns. He also totals the expenses for his department’s hazardous materials, or HazMat, response program, its fire safety division, and its special operations unit. Then he presents that information to the Executive Office for Administration and Finance, which comes up with a number for the governor’s budget proposal.

“We go through the same process that any other state agency goes through,” says Ostroskey, who has been fire marshal since 2016 and prior to that deputy fire marshal for four years. “Don’t confuse the budget process with the revenue stream.”

The revenue stream for the fire services agency is what sets it apart from most other agencies in state government. Most of the agency’s revenue comes from an assessment on property and casualty insurance companies doing business in Massachusetts. The agency’s HazMat work is funded through a separate assessment on commercial automobile insurance policies.

The assessment on property and casualty insurance companies based on their market share was first put in place by the Legislature in 1973, in the wake of the Hotel Vendome fire of 1972 (generally considered the worst firefighting tragedy in Boston’s history, with nine firefighters killed) and the massive fire that swept Chelsea in 1973 (which destroyed 300 homes and displaced 1,000 people). The initial $100,000 funding cap was raised to $750,000 in the 1980s and then to as high as $5 million in the 1990s. By 2003, the line item was nearly $9 million. In 2008, the law was amended to allow assessments on the insurers for capital expenditures, paving the way for a $40 million expansion of the Department of Fire Services headquarters  and the construction of a $13 million training facility. By 2011, funding hit nearly $21 million and by 2018 it exceeded $28 million.

Firefighters-in-training battle a blaze. (Photo courtesy of Department of Fire Services)

Insurance industry officials say the assessment on their industry increased 117 percent between fiscal 2004 and 2016, a period when the state budget grew by 68 percent.

According to records from the Division of Insurance, three property and casualty insurers—Commerce, Citation, and Arbella—are paying annual assessments greater than $1 million. Citation and Commerce are affiliates of the same company, MAPFRE.

The industry says assessments on companies domiciled in Massachusetts carry a heavier burden because those companies are subject to retaliatory assessments in other states where they operate. “Each increase in the fire services assessment punishes our own Massachusetts-based companies by subjecting them to higher taxes in other states,” says John Murphy, executive director of the Mass Insurance Federation, in his annual letter to the governor requesting spending vetoes.

The industry’s dire warnings haven’t deterred Massachusetts lawmakers, who regularly file budget amendments seeking funding for projects in their districts. These earmarks are probably outside the scope of the Department of Fire Services, but no one balks because taxpayers aren’t being hit with the bill.

The funding dance on Beacon Hill is almost always the same. In both fiscal 2017 and 2018, the governor’s budget sought one level of funding and the Legislature increased that amount by about $3 million, with all of the extra money added on the floors of the House and Senate through amendments. The governor vetoed most of the added money—$2.8 million in fiscal 2018 and $2.4 million in fiscal 2017—and then the Legislature overrode his vetoes.

Most of the budget amendments have some connection to firefighting. Over the last two years, the town of Millis received $100,000 to improve communications at the police and fire departments and $35,000 for a self-contained breathing apparatus. Many towns received money for safety equipment, including Needham ($104,000), Franklin ($65,000), Plainville ($25,000), and Chelsea ($4,600). Stoneham ($15,000) and Lynn ($40,000) received money for uniform sanitizing equipment. And the Holyoke Fire Department received $10,000 for the purchase of naloxone.

The Tewksbury Fire Department received $90,000 both years to cover the cost of municipal improvements needed to respond to calls at Tewksbury Hospital. The Fire Chiefs’ Association of Plymouth County received $100,000 both years to upgrade the county’s emergency radio communication systems. And House Majority Leader Ron Mariano both years secured $50,000 for the HazMat unit in his hometown of Quincy.

For fiscal 2019, the House and Senate have both approved budgets and are now trying to resolve differences between them. The line item for the Department of Fire Services included many of the same appropriations from past years, but the two branches also have added a number of unique requests. The House budget includes $100,000 for Worcester fire safety equipment, $22,000 for fire department upgrades in Medway, $50,000 for a Jaws of Life for Saugus, and $500,000 for the HazMat teams in Everett, Cambridge, and Boston. The Senate budget includes $100,000 for fire station improvements in Maynard, $65,000 for the Winthrop Fire Department, $75,000 for fire equipment in Stoneham, and $100,000 to help Scituate fix up a fire station.

Ostroskey says his office makes sure that the earmarked money goes for the intended purposes, but otherwise he takes a hands-off attitude toward the practice. “We don’t weigh in, frankly, on the merits of these proposals. We don’t know where they come from,” he says.

In fiscal 2018 and again in the budget for fiscal 2019, Gov. Charlie Baker sought to move an estimated $3 million in funding for the State Police arson investigation unit out of the State Police line item and into the line item for the Department of Fire Services. The move would shift the funding from taxpayers to insurers. The measure failed to pass in 2018, but it has a chance in the fiscal 2019 budget. The Senate included the measure in its fiscal 2019 spending plan while the House did not; the two branches are currently attempting to resolve their differences while the state operates on an emergency one-month budget.

Ostroskey says the idea of funding the State Police unit out of his agency’s line item originated with the governor’s office and not with him. Baker administration officials say the funding shift makes sense. Unlike the legislative earmarks, which are not in keeping with the mission of the Department of Fire Services, the officials say the State Police unit operates out of the Department of Fire Services facility in Stow, and there is a nexus between the unit’s arson investigation work and benefits to the insurance industry.

“The residents of the Commonwealth and assessed insurance companies receive great benefit in having a highly trained, specialized State Police unit in residence at the Department of Fire Services to investigate arson incidents across the state, which can reduce the financial impact if an investigation reveals fraud or other culpability,” says Felix Browne, a spokesman for the Executive Office of Public Safety and Security.

A BIT OF A HIDDEN TAX

The esoteric question of whether it’s appropriate to fund government services through an assessment on private industry generally gets little attention on Beacon Hill. When the House approved the $2 rental car fee to fund police training in May, the measure passed quickly by a margin of 145-4, with four Republicans voting no.

One of the four, Rep. James Lyons of Andover, called the fee an “absolute joke” at a time when the state budget is topping $40 billion. “If we cannot make police training one of our priorities without raising a fee, where are we spending this $40 billion?” he asked.

Sen. Julian Cyr of Truro, who sponsored the $2 rental car fee in the Senate, says the funding approach makes perfect sense. As a society, he says, we are asking police officers to wear more and more hats—social workers, first responders, and law enforcers—and they need high-quality training to perform all of these functions.

He says the state has provided funding for police training, but over the years it has been erratic and subject to the whims of the moment. The rental car fee will provide a steady flow of money to provide the necessary training. “We do a lot of this in state government,” he says. “This is a mechanism to have a steady appropriation that’s tied to the activity. For consumers, it’s about a small, unnoticeable cost.”

Baker administration officials say it’s not unusual in state government to use industry assessments to fund operations. They note industry assessments provide the bulk of funding for the Division of Insurance, the Department of Public Utilities, and the Division of Banks.

Eileen McAnneny, president of the Massachusetts Taxpayers Foundation, says industry assessments are not an ideal way of funding government services because the approach reduces spending accountability and hides the true cost of government. Doug Howgate, director of policy and research at the foundation, says user fees make sense but only if there is a direct link between the entity providing the funds and what is being funded. “To me there’s no connection between rental car contracts and police training,” he says.

Frank O’Brien, vice president of the Property Casualty Insurers Association of America, views the issue more broadly. He says assessments on insurers to fund the state Division of Insurance make sense because the cost of regulation could be perceived as part of the cost of the insurance product being sold. He says there is a less direct link between insuring homes and businesses and funding the training of firefighters whose work could prevent or limit the losses arising from fires.

“Don’t get me wrong. There’s is a demonstrated need for this, for training,” he says. “Everybody loves firefighters. I come from a firefighter family. The policy issue is whether it’s appropriate to put the entire cost on one industry. We’re calling on certain industries to pay for a public safety function that benefits the community as a whole.”

O’Brien suggests the real reason state government is looking to businesses to supply the funding for services is because—even with a $40 billion budget—officials are struggling to find the money to do everything they want to do. “Government is going in this direction because of a shortage of money,” he says. “This is almost like free money.”

The trend line also worries him. “What began as a mechanism to fund the state fire academy has morphed over two decades to not only include training but to also include specific earmarks for specific cities and towns,” he says. “At the end of the day, it’s not a bad thing. That’s what a local rep or senator is supposed to do. But over time we’ve had mission creep. This has morphed into something much bigger. It has grown exponentially.”

Meet the Author

Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

What few people realize, he says, is that the insurers end up passing the cost along to their customers. “This is a pass-through business and, like any business, when setting your prices you look at your costs. This is a cost,” he says. He doesn’t know how much of a premium is due to the cost, and acknowledges it’s $28 million spread out over hundreds of thousands of policyholders, so it’s not a big price tag on an individual basis.

“It gets hidden, if you will,” he says. “What’s new every year is the amount. It’s a bit of a hidden tax.”