Portside

• New revenue from a 4 percent surtax on high-income earners is helping to fund education and transportation projects in Massachusetts.
• Legislators allocated $1 billion in related spending for FY 2024, but the Department of Revenue expects the tax will bring in substantially more than that.
• Every municipality in Massachusetts is getting additional funding for road maintenance. All the state’s transit systems have received additional funds as well.

Becket, Mass., is a small community in the Berkshires with a population of about 1,700 people. Kathe Warden, the town administrator, knows off the top of her head that it contains about 56 miles of roadway. About half the roads are paved and half are gravel. Becket doesn’t have public water or sewer — “a blessing and a hindrance,” Warden says — so maintaining roadways and culverts is one of the biggest tasks of the town government.

In a typical year, Becket receives around $235,000 from the state government for infrastructure maintenance. But this year, Becket, along with every other municipality in Massachusetts, is getting a boost — an additional $152,417, which represents a 65 percent increase in the town's annual road maintenance budget.

The largesse comes thanks to a new tax on high-income earners, which Massachusetts voters approved in 2022. “It helps tremendously,” Warden says.

Barely a full year of taxes have been collected since voters approved a 4 percent surtax on incomes over $1 million, known as the Fair Share Amendment. The measure specified that additional revenue must be spent on education and transportation initiatives.

The Massachusetts Legislature agreed to allocate $1 billion in Fair Share money as part of its budget last year, based on a conservative estimate of expected revenues. The Fair Share Amendment, which won with 52 percent of the vote, is part of a growing interest in some blue states to pass new taxes on the wealthy — a counter to the much bigger trend of states cutting income and corporate taxes since the pandemic.

"Wealthy folks need to pay their fair share for their communities — things like education and health care and good roads, and not their yacht clubs or golf clubs," says Jessie Ulibarri, co-executive director of State Innovation Exchange (SiX), which advises legislators on progressive legislation.

As a result of the measure, the Tax Foundation dropped Massachusetts a total 12 places in its annual State Business Tax Climate Index for 2024. Partly because of the millionaire’s tax, the state now ranks as the fifth worst for business-tax competitiveness, according to the foundation.

Some have attributed Massachusetts’ population loss to its tax structure, others to the high cost of living. At least one notable resident, former Boston Celtics player Grant Williams, cited the amendment as part of the reason he chose to relocate to Texas.

He now plays for the Dallas Mavericks. "$54 million in Dallas is really like $58 million in Boston," Williams said.
 

Allocating New Revenue

The Fair Share Amendment was planned for years before it was brought to a vote in 2022. Debates over the proposal fell into a fairly predictable mold: Proponents argued that new revenue would help Massachusetts and its communities make needed public investments, while detractors said it would make the state less competitive overall and prompt wealthy people to move out.

The proposal that went before voters was a constitutional amendment, specifying that the money could be spent only on education and transportation. But the Legislature and Gov. Maura Healey had substantial leeway over how to implement the law.

“It was one paragraph so that voters could understand it, and then it is left to the Legislature to appropriate those dollars,” says Phineas Baxandall, interim president at the left-leaning Massachusetts Budget and Policy Center, which supported the amendment. “Some people feared that the Legislature was going to pull a fast one and not spend it on education and transportation, and to their credit they created really transparent, accountable mechanisms so that you can really see where the money is going.”

The state Department of Revenue now estimates the new surtax on top incomes will bring in between $1.6 billion and $2.1 billion for fiscal year 2024, and between $1.8 billion and $2.1 billion in fiscal 2025. The state’s overall budget for the current year is about $56 billion.

Of the $1 billion in Fair Share spending included in the current budget, adopted last summer, $523.5 million will be spent on education and $476.5 million on transportation. That money is being distributed across a broad range of initiatives.

On the education side, that includes free school meals across the state, free community college tuition for students over the age of 25 and facility improvements at K-12 schools. The transportation portion allocates $300 million for public transit — including $200 million for the Massachusetts Bay Transportation Authority (MBTA) in Boston. Like other big-city transit systems, MBTA has been plagued by maintenance and staffing issues, as well as ridership losses. Across the state, $100 million is set aside for maintenance of local roads and bridges.

There is likely to be substantial variability in Fair Share collections from year to year. “High incomes are volatile,” Baxandall says. Surplus collections will be directed into one of two funds: a reserve fund to help cover ongoing investments in lean years and a capital and innovation fund that will pay for one-time projects.

Asked whether the Healey administration had tracked any instance of people leaving the state to avoid paying the higher tax, a spokesperson responded, “No.”

Avoiding Austerity

Even while providing substantial new revenue, the Fair Share Amendment will fall far short of answering all the state’s education and transportation needs. In Becket, for example, Warden says she recently got an estimate that doing a full rebuild of a single, 1.5-mile road would cost about $1.4 million, an amount that it would take years for the town to accumulate even with the additional funding. But the extra money is clearly going to fill some gaps.

For some regional transit agencies — the much smaller bus operations that operate outside cities like Boston — new funding is enabling long-sought improvements. Merrimack Valley Regional Transit Authority saw ridership “fall off the map” during the early days of the pandemic, says Noah Berger, the authority’s CEO. But it has more than bounced back since then, up about 50 percent over pre-pandemic ridership figures.

That’s in part because the system has eliminated fares permanently. That move was made easier with funding from the Fair Share Amendment, Berger says. The system also expanded hours on some of its highest-ridership routes, and will soon add Sunday service for some routes.

The authority has also invested in some seemingly little things, such as improvements to the employee breakroom, which can go a long way for a service fighting to attract and retain workers.

For some transit authorities, Fair Share revenue makes the difference between investment and cuts, Baxandall says. Without the Fair Share Amendment, he says, "We would be having an austerity conversation in these areas and kind of panicking about how to make up for federal funds. Instead, it’s a forward-looking conversation.”

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