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Matthew Todaro
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Alexander von Hoffman
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Brett Walker
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Margarita Warren
Student at Suffolk University Law School

Revenue Crossroads for Transportation

Friday, January 14th, 2011
By Benjamin Forman

A response to Secretary Mullan

BY: BEN FORMAN AND JOHN SCHNEIDER AND GORDON CARR

In his recent response to the MassINC report “Next Stop, Massachusetts,” Transportation Secretary Jeffrey Mullan says: “Departure from the cost-cutting, efficiency-finding, and culture-changing approach we have taken would be a large setback for anyone who cares about the [transportation] system.” We agree and see transportation reform as a positive step forward, particularly in providing a structure that enables the development of multi-modal transportation systems. However, the question going forward is how will the state generate new revenue to complement all the hard work and effort expended to accomplish these reforms? As both the D’Alessandro report and the Transportation Finance Commission noted, reform alone will not provide the revenue needed to secure our transportation future.

Massachusetts is approaching the crossroads in terms of how it plans and pays for transportation infrastructure critical to the Commonwealth’s future prosperity. State and federal transportation dollars will be severely limited in the coming years. This resource scarcity will make maintaining and operating current transportation infrastructure extremely difficult; funding for transportation investments to support future economic growth will be almost nonexistent.

Generating public will to address this dire challenge begins with fully recognizing transportation’s critical economic contribution. Transportation networks move products produced by businesses and they carry customers to companies. Equally important, these systems make the state’s employers more productive by providing access to larger labor pools. Without reliable transportation, businesses can’t compete for the many skilled workers who travel increasingly longer distances to get to work each day.

Getting the public more focused on transportation investment also depends upon empowering communities to shape this vital infrastructure. In contrast to many other states, transportation in Massachusetts is largely financed by the state. The gas tax, sales tax, and tolls are all collected statewide and redistributed around the Commonwealth. In a number of ways, this centralized approach has undeniably contributed to the difficult challenges Massachusetts now faces.

First off, it’s added directly to funding shortfalls. Keenly aware of disproportionate spending in Greater Boston, legislators representing other parts of the Commonwealth have steadfastly opposed increasing taxes. The state’s gas tax, for example, hasn’t adjusted to account for inflation or rising fuel economy since 1991. As a result, neither Boston nor other regions of the state have generated sufficient revenue to meet their needs.

Many communities also lack incentive to leverage public spending on transportation. Real estate investors know that good transportation infrastructure increases land value, enabling more efficient mixed-use development and stimulating regional economic growth. But in Massachusetts, transportation assets are built without accompanying local land use planning or regulation. The underwhelming performance of the Greenbush line serving the South Shore is an excellent case study of the waste that results when no effort is made to think strategically about maximizing the economic impact of state transportation investments.

One potential solution, as outlined in our recent MassINC report, is giving regions a larger role in financing the transportation investments that serve their communities. The Secretary sees this approach as directly opposed to the state’s recent transportation overhaul, which further centralized the state role by consolidating transportation agencies. But a regional option to produce additional revenue is one that shouldn’t be overlooked. In states like California, where transportation is financed regionally through referenda, the evidence shows that voters invest for the long term in infrastructure serving their communities. According to the Center for Transportation Excellence, voters around the country have passed more than 70 percent of transportation ballot measure since 2000, double the success rate for referenda generally.

Beyond generating more revenue, adopting this model would give voters incentive to maximize the value of their transportation investment. This would make communities more proactive in aligning their land use accordingly, through zoning and other regulatory changes. This point is critical. Secretary Mullan suggests that transportation reform responds to perceived biases by spreading out the state’s investment. But from an efficiency and economic impact perspective “spreading out” is the opposite of what’s required now. Given the scarcity of public funds and the fierce economic competition we face, Massachusetts must make strategic investments that leverage public spending. Regions are best positioned to craft a vision for future growth and development. With regional financing tools, they can then decide whether they’ll act on them strategically or not. The best way to eliminate preconceptions of bias is giving communities in different parts of the state the revenue tools that enable them to shape their future.

Along these lines, one of the revenue tools we advance is land value capture. This technique, which has been used successfully in San Francisco, Seattle, and Washington, DC, generates revenue from the increase in property value associated with transportation improvements.

Secretary Mullan suggests financing through land value capture is not revenue. In contrast to the “creative financing” of the past, which added additional interest expense just to access future funds or delay payment, we believe it is appropriate to look at land value capture as new revenue. After all, land value recapture simply takes some of the appreciation in private property values created by public investment and “recaptures” it to pay for projects.

The regional approach we offer is admittedly a difficult concept to advance in Massachusetts given the Commonwealth’s longstanding aversion to all things regional. But time to develop effective structures for regional collaboration is running out. As federal resources becomes more limited, in scoring applications for competitive grants, Washington wants to see a deeper local commitment and integrated land use plans that leverage federal investment. Moreover, our competitors across the country and around the globe understand how important state-of-the-art transportation infrastructure is to their regional economic performance. We can’t simply surrender. In our paper, we outline areas where the state must play a leadership role, such as evaluating the full cost and benefits of potential transportation projects – including ongoing maintenance – and the stability of proposed financing strategies, but ultimately Beacon Hill needs to take a hard look at giving regions the tools to invest in transportation infrastructure to realize their goals and aspirations for economic growth. 

For the full text of this article click here.



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