Governor Deval L. Patrick
Testimony to Ways and Means Committee
Friday, March 8, 2013
Thank you very much, Mr. Chair. Mr. Chair, members of the Committee, good afternoon, and thank you for the opportunity to appear before you today. I know you’ve had a long and exhaustive series of hearings, and that this is the last one. I also know how challenging this budget will be and how important it is for us to listen to -- and actually to hear -- the testimony at hearings like this one. So I wanted very much to testify personally, before you, about my budget proposal, and I thank you for allowing me the unusual opportunity to do so, and I commend you for holding hearings like this one across the state.
I am happy to take questions when I am done and I have got my team here with me to help answer those questions.
Like the Speaker, the Senate President and many of you and your colleagues, I believe our top priority must be to grow jobs and opportunity. Jobs are created by the private sector, of course, not government. But government has a critical role to play in providing the platform and the tools to help people help themselves.
In Massachusetts, our strategy is to invest in education, in innovation and in infrastructure. That strategy works. Because we have invested time, ideas and money in the schools, in the innovation sectors of our economy, and in needed infrastructure projects, Massachusetts has recovered from the global economic collapse faster and stronger than most other states. Our unemployment rate is well below the national average, and just yesterday the federal Bureau of Labor Statistics reported that we have added back nearly all of the jobs we lost during the recession. Massachusetts has emerged as the top international supercluster in the life sciences and biotech, and as a national leader in clean and alternative energy. Our digital technology industry is resurgent as well, especially in the areas of robotics, game technology, cyber security, Big Data and financial services. Precision or so-called “advanced” manufacturing is making a comeback as well.
Because of all of this, because of what we have done in partnership with the private sector, our economy is growing faster than the Nation’s as a whole. Our state’s bond rating is the highest in history and we have one of the largest rainy day funds in America.
But with almost 233,000 people still looking for work, we have more to do. The questions are: Are we satisfied with the pace of recovery today, and if not, are we willing to do what it takes to grow faster? Almost all of us agree that we can accelerate our growth, create many more jobs and significantly strengthen our economic outlook by deepening our investment in transportation and education. That is what my budget proposal is all about.
By our best estimates, it will take about a billion dollars in new annual spending to continue to pay the bills we inherited; restore our roads, rails and bridges to a state of good repair; and expand the system modestly but strategically so that we stimulate economic growth in underserved parts of the Commonwealth. We propose to invest 80 percent of new project dollars to maintain our existing roads, rails and bridges, and only 20 percent of our plan is for expansion projects. Remember that 50 percent of our current transportation budget is consumed by Big Dig and other debt that was here when we got here.
In other words, $1 billion gets us a modern, equitable, properly funded transportation system, not a luxurious one. The number is big not because it's the proverbial "wish list," but because of what this Commonwealth has failed to do for 20 years.
I have also proposed to invest an additional $900 million in new revenue in education. We have made great progress in strengthening education in Massachusetts over the past 20 years. Our students perform at the top in national and international assessments of academic achievement, as you know. But underneath our nation-leading results, many students are stuck in deep and persistent achievement gaps. And these gaps threaten our ability to remain competitive with other states and nations in the global marketplace.
There are strategies to remedy this that we know work, and some will require money. By our estimates, $900 million gets the over 30,000 kids off the waiting list for early education, extends the school day for middle schoolers in places where poverty is concentrated so they get what they need, makes college more affordable for young people by restoring the buying power of the MassGrant program and the public’s share of support for our public colleges and universities, and enables our community colleges to serve as the platform for skills training.
Business leaders, teachers and academic leaders, parents and many of you have called for just such investments for many decades. The Speaker himself, in his speech yesterday to the Greater Boston Chamber of Commerce, made an impassioned argument for the critical importance to job creation of “a workforce that is well educated and prepared.” Eighty-five members of the House followed his lead by signing a letter supporting more funding for early education. Business leaders from across industries have written to make the economic and moral case for new funding for early education. Both of these letters I will submit as part of the record, if you please. Yet I still hear some say that we should concentrate only on transportation and save education for another day, that this education spending is a “want,” not a “need”. Let me give you just three reasons why that is a mistake.
Three-quarters of children who struggle with reading in 3rd grade are likely to continue struggling academically throughout their educational careers, greatly diminishing their chances of graduating from high school, going to college or successfully participating in our high skills economy. Currently, only 61 percent of all 3rd graders in Massachusetts, 38 percent of African-American 3rd graders and 36 percent of Hispanic 3rd graders are proficient today in English Language Arts. That is not enough. What makes a difference? Access to quality early education. Meanwhile, 30,000 children, as I said, are on the wait list for early education programs across the Commonwealth. Do we want those third graders to read or do we need those third graders to read?
Success in today’s economy means some level of education beyond high school for all of our students, whether a 2- or 4-year degree or a certificate of readiness for specific industries. Over the past five years, tuition and fees have increased nearly 30 percent at our public 4-year universities, 32 percent at our community colleges. Meanwhile, the buying power of our most significant scholarship program – MassGrant – has lost three-quarters of its buying power. What all this means is that fewer of our students and their families are able to afford college -- just at the moment when the global marketplace demands better prepared and educated talent. In 2013 and beyond, do we want our young people to go to college or do we need our young people to go to college?
Right now, we have 233,000 people looking for work in our Commonwealth and 150,000 job openings. Why? Because too few workers have the skills for the jobs we have. We need our community colleges to be a more robust platform for workforce development and our middle schools to be more effective in readying young people for staying in school and achieving at higher levels. Do we want those 233,000 workers to qualify for jobs or do we need those 233,000 people to qualify for those jobs?
Brainpower is our signature economic edge, and failing to invest in that in Massachusetts would be like Texas failing to invest in the oil industry or Iowa failing to invest in corn farms. Indeed, failing to invest in education would practically mean choosing which 4-year old, which high school student applying to college and which of the almost 233,000 people looking for work should wait until the time is just right for us to act.
I have proposed to address these realities now because doing so secures our economic future, and because failing to do so puts our economic future at risk.
There is broad consensus in the general public, among business and academic leaders, and among the members of the Legislature that investing in both transportation and education is the right thing to do.
My Cabinet and I have been all over the Commonwealth since I proposed my plan, as has this committee. We have engaged people in scores of adult, fact-based conversations about their wants, and the taxes required to pay for them. I have been listening hard. What they tell us is no surprise.
People want modern, convenient, safe, accessible and affordable subways, buses, commuter trains, roads, ferries, bridges and airports. Workers, mothers, students, businesses, tourists, tradesmen, elders, people with disabilities need access to work, housing, customers, recreation, the doctor, their relatives, the grocery store and the gym. And they want it equitably in all corners of the Commonwealth.
Of course, every mom and dad wants the best education for his or her child. It's true no matter what neighborhood they come from. Strivers from every neighborhood want an affordable path to college. Businesses want better-prepared workers. Kids understand this too, by the way, even the little ones. I have countless opportunities to listen to their stories about what they want to be when they grow up. As a parent, I hear optimism and eagerness. As a governor, I hear a call to action.
What our constituents want is not frivolous or unreasonable. In fact, it is precisely what this Commonwealth needs to be economically strong today and in the future. Because all the evidence points to the fact that making these investments means more jobs and opportunity. If we want growth, we need investment.
That new investment will require new revenue. And though the conversation about taxes is never easy, the time is at hand to have it if we want faster and broader growth. Nearly everyone I meet, from Legislative leadership to shop owners I meet in the many conversations I mentioned, acknowledges that fact.
To be clear, new revenue does not let any of us off the hook from the business of reforming state government. That work is and must remain perpetual. I am proud of the fact that working together, we have achieved a raft of reforms that have eluded us for decades: closing loopholes and extending the retirement age in the public pension system; asking public employees to shoulder a larger share of their health care costs; replacing police details with civilian flaggers; simplifying the transportation bureaucracy and shutting down the Turnpike Authority; systematically combing through and discarding or updating old regulations; reducing full time employees by 6,000 positions; and much more. These reforms will save the Commonwealth billions of dollars.
In that spirit, I urge your prompt and favorable action on a number of additional reforms I proposed in January. I have proposed to reform the retiree health benefits plans, which would save up to $20 billion over thirty years. I have proposed to consolidate 240 local housing authorities into just six. I proposed to eliminate unnecessary and duplicative fees on business, to close loopholes in our unemployment insurance system, and to strengthen oversight of the compounding pharmacy industry. No other administration has done more than we have to combat waste and fraud in the EBT program, but we have a plan to further tighten eligibility and eliminate misuse, and we look forward to working with you on that as well.
But reform alone is not enough to pay for 21st century transportation and education systems. If we want more, we need to pay more.
To bring our transportation network and our public education systems to those 21st Century levels will cost $1.9 billion a year. As you know, I propose we raise it mainly by increasing the income tax rate by 1 percentage point and cutting the sales tax rate by almost 2 percentage points. But I have acknowledged from the outset that there is room to debate the means, more than one way to, as they say, “skin the cat.” I do think it’s important to start by agreeing on the ends, instead of starting with the means and backing ourselves into half a cat. The Speaker yesterday again expressed his commitment to investing in education and transportation, albeit with a program of narrower scope and smaller size. While I would be wary of a program not of narrower scope and smaller size, but of narrower impact and smaller growth, I have been assured that everything remains on the table and I look forward to seeing what the House proposes.
As I consider alternative proposals, I will be guided by the same three principles that informed my own:
First, is the amount of revenue comprehensive? By that I mean is it sufficient to meet our obligations and seize our opportunities in transportation and education. Understand that the bill for transportation is large because of how much this body and previous administrations have pushed off until another day. The bill for delaying these investments in education will be larger with the passage of time as well, in the form of remedial, safety net, criminal justice and similar public spending.
Second, in the case of transportation, is it dedicated? I have proposed to restrict all proceeds from the reduced sales tax to public infrastructure, meaning transportation, the school building assistance fund, and similar public capital projects. The public, I think, finds this discipline lacking in transportation (to say nothing of other infrastructure spending) and it something we should resume.
Third, are the proposed taxes competitive and fair? It is important that we not raise new revenue by imposing burdens outside the range of the states with which we compete for business, jobs and talent. It is also critical that we not ask an unreasonable amount from anyone, particularly those least able to pay.
My proposal meets each of these criteria. I have already addressed how $1.9 billion is sufficient to meet our needs in transportation and education and how I propose to dedicate the new funds for transportation. Let me speak to the competitiveness and fairness of what I have proposed.
Under my proposal, most families with an income of up to $62,000 would see their total taxes either stay about the same or go down. Families making over $62,000 would see an increase in total state taxes, according to their ability to pay. To give you a sense of the order of magnitude, a typical individual making $100,000 could see an increase in total taxes of between $300 and $400 per year.
Let’s be clear on the impact: half the wage earners in this state earn $62,000 or less. What I have proposed means that total state taxes for half the state’s wage earners either most likely stay the same or go down. Costs to small businesses also go down when we cut the sales tax. Those who are best able to pay more, do so, according to their ability to pay. So when you consider what I am proposing, I ask you to reflect on what all of this means – as a matter of fact, not of rhetoric – for the people we represent.
Under my proposal, all families would see a benefit. There would be no increase in tuition and fees next year at UMass campuses. Three- and four-year-olds would come off the wait lists for early education and qualifying students would have access to four times the amount of grant money to pay for college. T and RTA service would improve, and fares and tolls would rise more modestly, more gradually and more predictably than the pattern of fits and starts we’ve experienced in the past. Long-delayed projects to rebuild our roads and bridges would get underway throughout the Commonwealth. And there will be jobs for Massachusetts people doing work to benefit Massachusetts communities.
I encourage you to review the maps of your districts to see the specific transportation projects and education benefits that would come to your cities and towns. They are available on mass.gov/governor. And as you consider scaling back my budget request, reflect also on which of these projects and investments that your community can and should do without.
First, my proposal also assures that Massachusetts remains competitive. Let me assure you that Massachusetts does not have, and will not have, a total tax rate out of line with the rest of the country. As you can see from this first chart, we are currently just below the national average today in total taxes. Please observe that, even with the proposed changes, we would remain lower in total taxes than many of the states with which we compete today for jobs and talent, and comparable to all of them. The states with which we compete are in green.
Second, spending on transportation and education is what supports job growth, not lower taxes for the sake of lower taxes. Last month, the non-partisan Institute on Taxation and Economic Policy issued a report evaluating the economic growth per capita of several states. The report compared nine states with relatively high income taxes to nine states with low or no income tax. The analysis made clear that the nine states with “higher” income taxes actually saw considerably more economic growth per capita than the nine states with low or no income tax. The states with no income tax have seen a decline in median income.
You can see from the charts that economic prosperity has much, much more to do with education levels than with the income tax rate. In other words, invest in education to grow opportunity; put it off and slip behind.
So that is my plan. It is affordable, it is achievable and it is appropriate. It is enough to get the job done, dedicated in the case of transportation, and both competitive and fair.
In that vein, let me address the consideration some of you are giving to increasing the gas tax. Although raising the income tax and lowering the sales tax enjoys far more support among the public than increasing the gas tax, according to a number of opinion polls, I am aware that some are advocating a gas tax increase to address transportation alone. I have, as you know, proposed such an increase myself in the past. Let me tell you why I did not this time.
While the gas tax satisfies my second criteria – meaning that it be dedicated – it fails on both the adequacy and the competitiveness criteria.
Our gas tax today, as you know, is currently 21 cents per gallon. In order to raise enough revenue to meet our transportation needs by using the gas tax alone, we would have to triple the gas tax. That would place us so out of range of other states that neither the public nor I would accept it.
Some have suggested increasing the gas tax by 15 cents. But 15 cents does not buy us a modern transportation system. At best, it enables us to bring staff off the capital budget and onto the operating budget, as the Speaker also favors and mentioned in his speech yesterday, and to stabilize the T. But it does not assure that we can invest in needed projects outside the Greater Boston area. Without regional equity, the plan is unacceptable to me and probably to many of your colleagues as well.
A 15 cents hike in the gas tax also puts us at the high end of all states. It adds to the cost of doing business for small businesses as shipping costs go up. It adds to the cost of living for families as the cost of food and other consumer goods goes up. It asks the people in the Central, the Western, the Southeastern, the Cape and Islands, and the Merrimack Valley regions of our state, who have no or limited access to mass transit, to bear the lion’s share of what amounts to a Boston-centric set of improvements.
I am not rejecting the gas tax as a part of the ultimate solution. But I want to be clear about why I do not believe a gas tax alone will meet our fundamental transportation needs, to say nothing of our needs in education.
A couple of weekends ago, I was in Washington, DC for the annual governors meeting and I went on one of those Sunday morning shows with my colleague, Bobby Jindal, the Republican Governor of Louisiana. While we in Massachusetts are proposing to increase the income tax and cut the sales tax, he is proposing exactly the opposite: to lower the income tax and raise the sales tax.
During the segment, the host pulled up a chart that I couldn’t see, at the time, but it outlined just how different life is in Massachusetts than in Louisiana, as if we needed a chart for that. As you can see, more of our high school students graduate, more of our residents have a college degree and health care, and median income here is higher. Fewer of our residents are poor. The point is, that in the abstract, tax rates don’t forecast much; the notion that lower taxes lead inevitably to faster economic growth is a myth. As long as our rates are comparable, and competitive, the question is what we use those taxes to accomplish, what kind of community do we choose to build. That is the choice before us all today. And I choose growth.
Finally, I want to thank the Committee, and the House and Senate, as a whole, and the Massachusetts public for taking this proposal seriously. I have made it in that spirit, believing, as I have from the first, that we must govern for the next generation, not just the next news cycle or election cycle. One of your colleagues dismissed this proposal outright, even before reading it, as being about my legacy. I submit that the legacy this speaks to is not mine, but ours, our generation’s, and whether we in our time are prepared to step up to make a better, stronger community for our kids and grandkids, the way our grandparents did for us.
I look forward to your questions and I look forward to working with you. Thank you.
3 ITEP, “States with "High Rate" Income Taxes are Still Outperforming No-Tax States.” February 2013. http://itep.org/itep_reports/2013/02/states-with-high-rate-income-taxes-are-still-outperforming-no-tax-states.php