Baker talks up his transportation-funding approach

GOV. CHARLIE BAKER on Wednesday outlined for the business community a proposal to address climate change and raise money for transportation in a way that he believes is far superior to other tax and fee measures circulating on Beacon Hill.

His plan is called TCI, which is short for transportation climate initiative. It’s a plan to have 12 northeast and mid-Atlantic states plus the District of Columbia set a cap on transportation emissions within the region – a cap that would decline over time. To sell gas and diesel fuel in the region, wholesale distributors would have to purchase special allowances auctioned off in amounts equal to the size of the cap. The proceeds from the auction sales would be funneled back to the participating states for use in combatting climate change.

At an event with members of the business community hosted by Bank of America, Baker and two of his top aides made the case that TCI is much better than a gas tax. The presentation came just days before the release of a memorandum of understanding outlining how the 12 states and the District of Columbia propose to implement TCI. Actual implementation is not expected until 2022 at the earliest.

In Baker’s view, the key benefit of TCI is that it helps tackle climate change (by capping emissions) while simultaneously reinforcing that effort by boosting spending on initiatives to get people out of gas-guzzling personal vehicles. Baker said the two-pronged approach is key. “That all by itself is a lot different than simply raising revenue,” he said.

Baker and his aides downplay the fact that wholesale fuel distributors are likely to pass the cost of allowances on to retailers who in turn are likely to pass the cost along to customers. Stephanie Pollack, the governor’s secretary of transportation, said the goal of TCI is not to hike the price of gasoline dramatically in a bid to change driving behavior. She said the focus will be on ratcheting up the cost of allowances gradually, and using the money that is generated to invest in policies and programs that will change driving behavior.

Baker wants half the money to go for transit, specifically electric buses and trains. He also wants to build capacity on the transit system and convince more drivers to use it.

Katie Theoharides, the secretary of energy and environmental affairs, said the other half of the money would go for electric vehicle incentives, electric vehicle infrastructure, and even internet access for people without it in western Massachusetts, which would allow them to work from home.

Unlike a gas tax, Theoharides said the allowance fees are assessed at the wholesale, not the retail, level. The prices of the allowances are also set by the market, not by government action, which Theoharides said is likely to keep a lid on price increases at gas pumps.

Baker said TCI is patterned after a similar cap-and-invest program that has been operating in the power-generating sector in the northeast for a decade. So there is already familiarity with the approach among the states, he said. He and his aides say the cap-and-invest program in the power-generating sector has been a success, but the data on success are far from clear. The program helped reduce power plant emissions without disrupting the economy, but Massachusetts and other states in the region have some of the highest electric rates in the country.

Baker and his aides also like the fact that TCI has scale potential, meaning success could have a real impact on emissions. The 12 states and the District of Columbia are home to 72 million people who own 52 million vehicles.

“This is probably one of the best ways to get an extraordinarily large number of people rowing in the same direction on a familiar program model that’s been proven to be effective in a very big sector of our economy, which is the energy space,” Baker said.

Baker also likes that TCI is a multi-state effort. “It doesn’t create a financial disadvantage for anybody,” he said. “Everybody’s going to be playing on the same terms.”

But not every state is starting from the same position. Pennsylvania, for example, has a state gas tax of 58.7 cents a gallon, which is more than double the 26.5-cent gas tax in Massachusetts. Only three states and the District of Columbia have lower gas tax rates than Massachusetts. It’s likely to be harder for states with high gas taxes to sign on to TCI. Several governors have already raised concerns.

Baker downplayed the gas tax differential on Wednesday, suggesting that the underlying price of gas varies from state to state separate and distinct from the gas tax. A check of AAA gas prices on Wednesday suggested there is a correlation between the size of the gas tax and the price of gasoline. Among the TCI-participating states, Pennsylvania had the highest price for gas, at $2.76 a gallon. Massachusetts ranked fifth, at $2.56 a gallon. Virginia, which has the lowest gas tax in the region, had the lowest gas price on Wednesday at $2.29 a gallon.

Baker and most lawmakers believe he has the power to enroll Massachusetts in TCI under authority granted under legislation passed in 2007. Some of the governors in other states have made similar arguments, but lawmakers in a number of those states are insisting on legislative action.

Perhaps sensing the challenge ahead, Baker and his aides appealed to the Massachusetts business community on Wednesday to begin lobbying for TCI here and to use contacts and business operations in the other states to lobby there. “We need more and louder voices if we’re going to get this over the finish line,” Pollack said.

Many of Baker’s biggest backers in Massachusetts are business groups who oppose efforts in the Legislature to raise taxes and fees to support transportation initiatives. “We all agree this is a good idea,” said J.D. Chesloff, executive director of the Massachusetts Business Roundtable, who supported Wednesday’s event along with Associated Industries of Massachusetts and the Massachusetts Taxpayers Foundation.

Jim Rooney, the president of the Greater Boston Chamber of Commerce, supports TCI, but he thinks it has a lot of unknowns and won’t be ready to go until well after 2022. He says fixing the state’s transportation system can’t wait, and is calling for increasing the gas tax 5 cents a year for three years along with a series of other revenue-raising initiatives.