A transportation option: Local option taxes

With new state funds unlikely, cities need to act

The recent history of transportation funding in the Commonwealth of Massachusetts suggests that new approaches to the funding of our transportation infrastructure must be considered. The chronic underfunding of our transportation systems, including construction and operations, has placed Greater Boston at a competitive disadvantage in the global marketplace. Without a greater commitment to funding our transportation systems on the part of the state Legislature, which is unlikely, it is time for municipal and regional governments to consider a different approach to closing the funding gap. One such approach is a local option transportation tax, known as a LOTT.

In terms of underfunding our transportation systems, the Massachusetts Department of Transportation (MassDOT) has estimated its 10-year funding gap as being $1.6 billion (see Figure 1). In 2007, the Transportation Finance Commission estimated MassDOT’s 20-year funding gap for roads to be $4.67 billion and its funding gap for bridges to be $2.37 billion. The Transportation Finance Commission estimated the MBTA’s capital backlog to be $2.7 billion. While the accelerated bridge program and the recently passed transportation funding legislation will address some of this backlog, these funding programs will not come close to addressing the fundamental shortfalls in the way the Commonwealth funds its transportation systems.

Traditionally in Massachusetts, funding for transportation projects by local cities and towns have been through various state funding programs including the Transportation Improvement Program (TIP), Chapter 90, and other economic development programs (formerly PWED/STRAP; currently MassWorks). Figure 1 clearly illustrates the state’s constraints on funding transportation projects. According to the Massachusetts Municipal Association, Chapter 90 has been underfunded by about $100 million even though in the last two years Chapter 90 has been funded by the governor at historic highs. Not only does the revenue gap impact MassDOT’s projects, it also impacts the ability of local cities and towns to implement their own transportation projects.

Multiple recent studies have emphasized the importance of economic investment in the transportation system. These studies have been conducted by groups from a wide variety of constituencies, indicating the broad base of support transportation funding enjoys across several market sectors. These studies indicate just how important a role our transportation system plays in the vitality of our local and regional economies.

For instance, the Urban Land Institute (ULI) recently published Hub and Spoke: Core Transit Congestion and the Future of Transit and Development in Greater Boston. The research contained in that report indicates the potential for up to 75,000 new housing units and 130,000 new jobs to be located next to transit stops by 2035. Transit ridership is increasing at a rate of 2.9 percent per year. Without new transportation investment, this growth cannot be sustained. As a result, economic growth will be choked off before it can occur because passengers will not be able to access an already constrained transit system incapable of accommodating all of these new passenger trips. According to ULI, the Green, Red, and Orange Lines are each at or approaching capacity in peak periods.

Another recent study, commissioned by The Boston Foundation and the Massachusetts Competitive Partnership, has also looked at the issue of transportation funding. The report, entitled The Cost of Doing Nothing: The Economic Case for Transportation Investment in Massachusetts, details the real costs associated with under-investing in our infrastructure. According to the study, deferred maintenance of our system is estimated to cost $6.6 billion to $11.1 billion by 2030, mostly as a result of operating and safety costs directly attributable to a poorly maintained transportation system. Increased travel times will result in an additional societal cost ranging from $11.1 to $14.9 billion (roughly the cost of the Central Artery Project) due to congestion. The cost of inefficient highway systems alone is projected to result in the loss of 12,300 to 15,600 jobs by 2030.

The Massachusetts Institute for a New Commonwealth (MassINC), a nonpartisan think tank and civic organization, conducted another assessment of the link between economic competitiveness and transportation infrastructure. MassINC’s study, entitled Moving Forward with Funding: New Strategies to Support Transportation and Balanced Regional Economic Growth, points to $7 billion in investments planned for transit-connected land development in Greater Boston’s urban core. These investments are reliant on a robust and efficient transit system to support their success.

Traditionally, the legislature has been reluctant to provide additional funding for transportation investment. The reasons for this reluctance are varied. One reason is the public perception about how transportation dollars are spent. Images from the 1970s and 1980s of highway workers leaning on shovels have fueled a belief that transportation infrastructure projects are a form of social welfare, producing no-show jobs. The image of the Central Artery Project, with bloated budgets and cost overruns, certainly does not help the cause of appropriating more funds to transportation systems, even though the project itself has transformed the city in so many remarkable ways. In the battle for limited tax revenues, it is hard to convince legislators that their constituents will support increasing taxes for transportation projects.

Another, more subtle reason is the perception that transportation investments funded by the state unfairly benefit the City of Boston at the expense of other regions in the state. For instance, there is widespread resentment from regions outside the MBTA service area when the Legislature is asked to help fix the funding of the MBTA. Despite many studies suggesting that the City of Boston is the New England regional economic engine, and that when Boston does well, so do the other cities, it is challenging for a legislator from Springfield to support legislation increasing the funding for Greater Boston’s transit system. This regional parochialism unnecessarily pits Greater Boston’s needs against the needs of the other cities in the state.

How then do we overcome this regional parochialism while maintaining the solvency of the MBTA and improving the transportation system of Greater Boston? If the Legislature is not going to fund the necessary investments, then the region and its cities will have to fend for themselves. It is time to consider allowing cities and regions to levy local option transportation taxes (LOTTs) to close the funding gap. According to the Eno Foundation, a national transportation think tank, voters in some of the fastest growing and largest cities in America have adopted LOTTs, including Atlanta, Dallas, Houston, Los Angeles, Charlotte, Phoenix, and St. Louis.

In its study, MassINC evaluated two forms of LOTTs that could be implemented on a regional basis to fund the operations of regional Transit Agencies (RTAs): a regional income tax and a regional vehicle miles travelled (VMT) tax. Both of these options have the potential for meeting the transportation needs of individual regions. However, both proposals face stiff resistance from voters. Income taxes are extremely unpopular and VMT taxes face significant technological challenges and privacy concerns. However, there are other ways to generate local taxes to fund transportation.

One simple example of a LOTT program would be allowing cities to levy a sales tax. For example, the City of Somerville could be allowed to tax hotel rooms, rental cars, and taxi rides. By law, the taxes collected would be placed in a transportation fund, to be used exclusively for transportation improvements. In order for the city to adopt such a tax, or to increase or decrease such a tax, a supermajority of the city’s voters would need to approve the tax.

Hotel room, rental car, and taxi ride taxes are all much more readily accepted by the public. Hotel and rental car taxes are already being collected to fund various government requirements at the local level. Taxes on cab fares would be universal and affect everyone the same. Most importantly, these taxes are seen as affecting non-residents the most, thereby lowering the impact of the tax on voters in the jurisdiction of the desired tax. Each of these taxes bears some relationship to the use of transportation, and thus are in some way “user fees” to be collected for the construction, maintenance, and operation of the system.

On a larger scale, such a tax could be authorized on a regional basis when a transportation project is expected to provide benefits to a broader region. Several municipalities, or many municipalities, could group together to leverage a wider tax base to increase the pool of available funding. For instance, the cities and towns that constitute the MBTA’s service area could band together to levy a tax to supplement the MBTA’s operating revenues. Perhaps the Metropolitan Area Planning Council (MAPC), an already constituted government body, could serve as the manager of the effort and the recipient of the funds, with a vote of the Metropolitan Planning Organization (MPO) required to appropriate the funds. This arrangement would avoid the pitfalls of pitting one region against another, with Greater Springfield authorized to pursue its own LOTT funding program.

To be sure, there are serious implications for regionalism and state governance associated with this taxing scheme. Currently, state and federal funding in the Greater Boston area is subject to the planning and programming process of the Boston Metropolitan Planning Organization. The organization’s role is to ensure that projects are consistent with regional planning efforts and to coordinate various funding programs for maximum effect in the region.

However, because LOTT funding is inherently local, there is significant potential that a LOTT program could be uncoordinated with MPO activities, and in a worst case conflict with MPO activities. This would represent a significant setback for the progress that has been made in recent decades towards regional planning and coordination of transportation infrastructure investments. Indeed, the very existence of the LOTT program could undermine the MPO and its purposes, diluting its authority and directing resources away from this important agency. Research on the subject of MPO participating in LOTT administration is ongoing by such organizations as the Eno Foundation. Ultimately, how Massachusetts handles this issue will be a product of political compromise and expediency.

At the same time, a LOTT program could add new vitality and purpose to the MPO and its constituent bodies politic. If the MAPC and MPO were to play a leadership role in the LOTT program, it might provide new sources of revenue and authority to regional planning and programming efforts. Such a funding scheme would provide much needed revenue for Greater Boston regional transportation initiatives while not taxing other regions against their collective will.

Ultimately, any decision regarding the implementation of a LOTT program rests with the state legislature. The authority for a municipal or regional government to levy taxes rests with the General Court and must be provided for in enabling legislation. Once the authority has been provided, then individual municipalities and/or regional governments could move forward with a LOTT program. However, the legislature has been historically reluctant to bestow such taxing powers on local governments.

However, since the legislature has indicated that it does not have the appetite for further transportation funding (even while acknowledging the necessity), it is high time for the legislature to allow other governmental entities to move the transportation funding agenda forward. Even if the legislature were to authorize municipal and/or state governments to create a LOTT program, it is not a certainty that every entity will actually exercise the authority. And if any municipal or regional government did exercise the authority, it would be done within the limitations and constraints of the enabling legislation the state adopts.

Meet the Author
Meet the Author
Local option transportation taxes have the potential to provide the most democratic of means to achieve a transportation system for the 21st century. By being adopted through local petitions during municipal elections, it will be up to municipal and/or regional officials to make their case directly to the taxpayer. This is the most democratic of processes for funding transportation projects. This approach is consistent with statements made by the chairs of the Joint Committee on Transportations to allow local regions to solve their local problems. The legislature should support this approach for this reason alone.

William F. Lyons Jr. is an attorney and a licensed professional engineer. Sudhir Murthy is also a licensed professional engineer. They both served as Legislative Fellows in the Massachusetts House of Representatives Committee on Transportation on behalf of the Boston Society of Civil Engineers.