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New Report: Massachusetts’ Tech Tax an Unnecessary Detour

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Report Finds Revenue Not Only Option for Plugging Transportation Funding Hole Caused by Tech Tax Repeal

Savings from MBTA, privatization, taxi and prevailing wage reforms could eliminate need for new revenue

BOSTON – The $160 million hole in state transportation funding that will be created by repeal of a sales tax on computer and data processing services need not be filled by new revenue alone, according to a new Policy Brief published by Pioneer Institute.

Massachusetts’ Technology Tax an Unnecessary Detour

“By exempting the MBTA from the commonwealth’s anti-privatization law, using proof-of-payment smart cards on the commuter rail, deregulating taxi and livery services, and using Bureau of Labor Statistics data to help set prevailing wages, we could at the very least go a long way toward plugging the hole created by repeal of the tech tax,” said Pioneer Institute Research Director Greg Sullivan, who wrote “Massachusetts’ Technology Tax an Unnecessary Detour” with Pioneer Senior Fellow Charles Chieppo.

In a June Policy Brief, Sullivan found that the MBTA could save more than $250 million over six years by bringing bus maintenance costs into line with comparable bus transit agencies. To do so would require the T to be allowed to outsource bus overhaul work. In 2012, the MBTA’s procurement director told the T’s board of directors that it would cost 50% more to perform a major bus overhaul at its own facilities.

The so-called Pacheco Law is the nation’s most restrictive anti-privatization law. It requires state managers to overcome virtually insurmountable obstacles before they can contract out any service delivered by employees of the commonwealth or certain public authorities including the MBTA.

Instituting electronic transit fare proof-of payment cards on commuter rail trains would save money by reducing salary and benefit costs for conductors. Such a system is currently being used in San Francisco.

Mayor Michael Bloomberg’s plan to deregulate New York taxi and livery services is expected to generate more than $1 billion for the city over five years. The state assembly will allow New York City’s taxi regulating body to sell 18,000 new non-transferable permits to for-hire livery vehicles authorized to pick up passengers by street hail and another 2,000 transferrable taxi medallions for handicap-accessible vehicles.

The Massachusetts Legislature should empower MassDOT and the Department of Public Utilities to issue a new class of regional for-hire livery vehicles in the Boston area, the amount of which should be determined by market study.

Finally, Massachusetts is one of just five states that set prevailing wages for public construction projects at a level at least equal to those established by area collective bargaining agreements with organized labor. Studies show that pegging prevailing wages to collective bargaining agreements results in rates that dramatically exceed actual market rates. A 2008 study from the New York State Economic Development Council found that prevailing wages exceeded market wages by 48% in upstate New York and 119% downstate and in New York City.

Massachusetts would be better served to link prevailing wage rates to actual area wages as determined by the federal Bureau of Labor Statistics, which conducts extensive, detailed and statistically verified surveys of area wage rates by occupation.

Before becoming Pioneer Institute’s research director, Greg Sullivan spent 10 years as Massachusetts’ inspector general. Charles Chieppo is a senior media fellow at Pioneer.

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Pioneer Institute is an independent, non-partisan, privately funded research organization that seeks to improve the quality of life in Massachusetts through civic discourse and intellectually rigorous, data-driven public policy solutions based on free market principles, individual liberty and responsibility, and the ideal of effective, limited and accountable government.