Rick Dimino
Massachusetts legislators are looking at a new ways to bring additional funding to the MBTA and transportation infrastructure projects. The lack of traditional budgetary support is motivation for the current focus on “value-capture” financing for some mass transit projects. This is a good thing, but complicated.
Recently, the MBTA Fiscal Management & Control Board estimated it will take $25 billion over the next 25 years to eliminate the MBTA’s State of Good Repair backlog. A $187 million operating budget deficit is forcing the MBTA to consider 10 percent fare increases. And the Green Line Extension is estimated to be $1 billion over budget today, but the project holds consensus support for its economic and mobility benefits for long-term growth in the region. Value capture proposals cannot solve all these problems.
The theory of value capture – where the revenue generated as a result of a new infrastructure development is dedicated to repaying the cost of the initial borrowing – is understandable, especially during this time of limited public-sector funding. However, this concept has never been tested in Massachusetts on a large scale. In the commonwealth, our biggest hurdle to value capture is that some taxes are used only to finance state government, while others are used to fund municipalities. Multiple levels of government need to contribute and sacrifice if we want this to work effectively.
A Better City worries that value capture plans could bring negative implications for the private sector. If commercial development and property owners are asked to spend new taxes that go beyond the current tax rate, this burden may be challenging and could put certain properties and municipalities at a competitive disadvantage.
Also, we are concerned the focus is currently directed only at real estate taxes. This revenue is the primary source to municipal budgets in Massachusetts. It could be difficult for cities and towns to properly forecast increases in property taxes resulting from a new transit development. If they are obligated through bond covenants to meet significant revenue targets, this could become an undue burden on the municipal budget and competition against funding of teachers, fire and police services.
The commonwealth of Massachusetts should look at value capture opportunities that benefit more than just real estate – meaning net new sales and income taxes. These taxes are the biggest revenue streams for the state budget. We believe any value capture plan should consider these taxes, and possible others as well.
One option is to follow I-Cubed as a district-wide resource and allow the state and municipalities to jointly create dedicated revenue fund to support transportation improvements.
We need to be careful of unintended consequences as we try to solve the entirely different issue of financial support for mass transit. A Better City is eager to study value capture financing and produce effective legislation. Together with the Metropolitan Area Planning Council, we will examine many different value capture financing mechanisms that could be used in Massachusetts.
While some form of value capture may have merit, it is a small and piecemeal approach to the challenge associated with the goal of seeing a world-class, 21st century transit system that will serve both today’s and the future economic needs of the commonwealth. We stand ready to continue the process of improving the operation and management of our transportation system and await the opportunity to work on a comprehensive transportation finance solution that can truly address the stark challenge associated with the state of good repair, increasing capacity and meeting the future mobility needs of our economy. Value capture may be part of the future, but it is not the only answer to our current problems.
Rick Dimino is president and CEO of A Better City.
