Tax bill delivered back to Gov. Patrick with veto-proof support

By 
Michael Norton, Matt Murphy and Andy Metzger, State House News Service
Jul. 18, 2013

Beacon Hill's march towards a $500 million tax hike to make transportation investments continued Thursday, with Gov. Deval Patrick offering faint praise for the plan while holding to his pledge to veto a bill he says won't adequately address the system's many needs.

Senate Democrats easily fought off a series of Republican-sponsored amendments aimed at gutting tax hikes included in the bill, which would raise the cigarette tax by a dollar per pack, add 3 cents per gallon to the gas tax and index that levy to inflation, and impose a new sales tax on software services.

The Senate, like the House, opted not to include in the bill a mechanism sought by Patrick to ensure that if turnpike tolls come down as scheduled, the gas tax will increase further to cover the lost funding, so that the bill will deliver $800 million in revenue to transportation by 2018.

Patrick has said he will veto the legislation unless lawmakers adopted some form of his amendment to shore up its financial underpinnings. On Wednesday night, he said it was "not a bad bill" but would leave problems for taxpayers and his successors to address. Lawmakers expect to override his veto.

Senate President Therese Murray said the Legislature understands Patrick's concerns about the tolls, but said lawmakers will be around to address tolls or other revenue decisions in the future.

"We share the governor's concerns in all of these things, and we put forth what I believe is a very good bill that addresses the future needs of the Commonwealth far into the future, in fact into 2019 and 2020. We have provision in there. We also have toll equity and studies to come back to us, so if in 2017 there's a need, there's a Legislature that will still be here," Murray said.

The amended bill cleared the Senate on a vote of 29-9, with Murray opting to cast a rare vote and voting for the legislation. The vote for the bill in the House Wednesday was 123-31.

Based on those tallies, Patrick's hopes rest in the Senate for having his veto sustained and getting back to the drawing board on a revised transportation financing plan. To override a veto, the House and Senate must round up two thirds of members to support their plan.

Asked if the vote was indicative of support for a potential veto override, Murray said she believed so and suggested she might be able to pick up more support for the bill.

Voting against the measure were Sens. Michael Barrett, a Lexington Democrat; Sonia Chang-Diaz, a Jamaica Plain Democrat; Jamie Eldridge, an Acton Democrat; Robert Hedlund, a Weymouth Republican; Mark Montigny, a New Bedford Democrat; Marc Pacheco, a Taunton Democrat; Richard Ross, a Wrentham Republican; Minority Leader Bruce Tarr, a Gloucester Republican; and Dan Wolf, a Harwich Democrat.

The bill, which supporters say will boost the economy by improving transportation systems statewide, was sent back to the governor's desk as state officials reported that the Massachusetts unemployment rate in June rose to 7 percent, up from 6.6 percent in May. Senate Minority Leader Bruce Tarr said Massachusetts was in the midst of a "tempest of taxation" that would worsen the state's business climate.

Tarr pushed back particularly hard on provisions of the bill that allow for automatic gas tax increases in the future based on inflation, and the extension of the sales tax to computer software services that the Republican said would make Massachusetts one of four states to tax software services and undercut the state's competitive edge.

Senate Ways and Means Chairman Stephen Brewer also said legislative leaders intend to make their intent clear to the Department of Revenue to make sure the software sales tax provisions aren't too broadly interpreted, and stand ready to clarify the law if necessary in the future.

The House and Senate are counting on $160 million in new revenue from the software service tax, but some in the industry have suggested it could climb as high as $500 million. Brewer said the topic had been in the public sphere since January when Patrick first proposed the idea, but suggested tech leaders didn't come to the table to express their concern until the "fifth or sixth inning."

Sen. Jennifer Flanagan also said the 3-cent gas tax increase was a "small" and "necessary" component of the financing plan that would only push Massachusetts to the 24th highest gas tax in the nation, up from 29th. She said indexing to inflation would protect against the value of the tax eroding over time and creating future budget problems.

Sen. Benjamin Downing withdrew an amendment aimed at ensuring that if turnpike tolls come down, the "backfilling" of revenues would be done through the state's General Fund. Downing said his amendment lacked support but predicted the Senate will in the future need to address the issue if the tolls come down.

Of Downing's proposal, Murray said it was discussed, but the financing plan already takes money out of the General Fund in later years. She suggested Congressional action on a uniform sales tax bill would net $335 million for the state, and eliminate any need for further tax increases or General Fund withdrawals.

"This is a very good bill, and I hope that in the end (the governor will) take credit for that," Murray said.

The governor met with senators before Thursday's vote and told reporters he was "still in the game" but Senate leaders never appeared to favor his amendment and it was not included in their bills as it was rolled out at roughly the same time that Patrick was talking to the press about his lobbying efforts.

During a New England Cable News segment Wednesday night, Patrick said of the bill, "It just doesn't deal with all of our issues. It doesn't even deal with enough of our issues, which is my issue with it."

The bill's final passage is necessary to plug a major hole in the MBTA budget and make investments in regional transportation systems statewide. Proponents say it will also enable the state to gradually stop the expensive practice of paying state employee salaries with borrowed funds.

What's less clear is which major transportation projects and transit system expansions will be funded under the bill and whether its passage will prompt Patrick to release $150 million in local road funds that he's frozen while awaiting the final outcome of the tax bill drama.

By voice vote, the Senate turned down a Tarr proposal to advance online gaming in Massachusetts. Claiming potential revenues of $850 million, Tarr said other states like New Jersey were already staking ground in the developing and potentially lucrative industry. Flanagan, citing unknown impacts on the Lottery, said online gaming needs to be studied further.

Passage of the tax hikes also appears a necessary prelude to the Legislature's plans to restore local aid and transportation funds vetoed by Patrick from the state budget when he signed the $33.6 billion bill Friday.

In Somerville Thursday, Patrick said he wanted to thank the House for passing a portion of the amendment he submitted, averting retroactive taxation, but said it was not "satisfactory." Patrick also indicated that the tax-raising legislation the House and Senate sent him is better than nothing.

"We're talking about a difference between $630 million and $800 million in new transportation investment. That's not zero, so it's not like we have nothing to show for a year's work," Patrick said.

He declined to say whether he would consider veto overrides forcing the tax legislation into law a success, saying, "This isn't about me. It's not about the Senate president. It's not about the House. It's not about the members. It's about the people we serve."

Patrick declined to say how quickly he would veto the tax bill if it returns to him unchanged, saying, "I have ten days."

Eldridge told the News Service Thursday he would "expect to" vote to sustain a Patrick veto, said the next governor would likely allow the tolls on the turnpike to come down.

"Whoever's the next governor, I think it would be awfully difficult for he or she to make a move to keep the tolls up when there will be a growing expectation that they'll be taken down," said Eldridge.

Eldridge said he wasn't sure what would happen if a Patrick veto was sustained but suggested possibilities to guarantee the funding, such as an increase in the capital gains tax, the gas tax or language around keeping the tolls up.

Wolf said he had met Thursday with the governor and about seven or eight other senators, and decided to vote against the measure scrapping Patrick's amendment out of fiscal prudence.

"As a business person, when you're talking about capital expenditures, there has to be a guaranteed cash flow to finance the debt," Wolf told the News Service. He said he had co-sponsored Downing's amendment, which was withdrawn.