Pay Sales Tax on Amazon, Fund Your Train Rides

The link between online sales tax and the MBTA

There’s bad news brewing for all you cyber shoppers out there: Governor Deval Patrick is pushing to begin collecting sales tax in Massachusetts. But there’s good news for all you T riders out there: that could actually help your trains and buses get where they’re going more reliably.

It’s not the most intuitive connection, but thanks to the funding system the state set up for the MBTA back in 2000, the transit authority gets a 16 percent cut of all sales tax receipts in Massachusetts. (Originally, it was a 20 percent.) As Michael Farrell reports in the Globe today, the state government missed out on an estimated $387 million last year in tax receipts from people shopping online tax free, according to a group called the Massachusetts Main Street Fairness Coalition. Obviously, that’s not all from Amazon, but for the sake of argument, let’s use that number. If the state were to collect an extra $387 million in sales tax, then $62 million of that would be ticketed for the MBTA. That’s a healthy chunk of the $130 million deficit the authority’s projected for next year.

It’d be something of an ironic twist if the MBTA were able to help itself to some online sales tax money. I’ve gotten into this before, but there’s no real reason for the authority’s revenue to be linked to state sales tax receipts—the connection between trains and buses and the expenditures of Massachusetts consumers is exactly nil—except that when legislators were conceiving the authority’s current funding plan over a decade ago, the sales tax seemed like a steady source of dedicated revenue. Receipts on the tax were growing at a pretty steady rate, and they seemed likely to keep up with whatever expense increases the MBTA might have to deal with. Of course, just the opposite happened. State sales tax revenue plummeted as consumers moved online and healthcare and fuel costs exploded. With revenues coming up short and expenses skyrocketing, the MBTA has had to deal with huge deficits pretty much since the funding system went in place.

The authority has mostly papered over their deficits by borrowing, landing it in the very sticky spot it’s in now, with over $5 billion in debt and a roughly $3 billion backlog of maintenance projects (to say nothing of the performance record of the Red Line). Pretty much everyone agrees, the system is fast approaching a tipping point. And here’s the big irony: the reason the T has been able to borrow so much over the years is precisely because its revenue is linked to the Massachusetts sales tax. Because it’s written into law that the MBTA will get that sales tax money, it can reliably use it to back its loans. Every train and bus in the whole state could stop running, moss could grow over the tracks, and the poor Charlie mascot could be permanently out of work, but unless the state stops collecting sales tax, by law, the MBTA will have revenue. And that means that lenders know they’ll be paid back, no matter what. That’s why, even as the MBTA’s financials have become an absolute horror show, it’s still been able to borrow.

All that borrowing just leads to bigger deficits, though, as debt service payments come due. And you can only dig a hole so deep, as evidenced by Moody’s recent downgrading of the MBTA’s credit (though its rating is still very good). That’s why new MBTA General Manager Beverly Scott has such a tall task before her and also why Patrick is getting ready to tackle transportation reform (really, it’s a bit mind boggling that nobody has tried in the last 12 years to fix such a flawed system). It looks like the governor’s poised to call for a tax hike, but, at this point, anything short of a fundamental rethinking of how we fund the MBTA—and likely a severing of the cockamamie link between sales tax and the T—won’t be enough to save the nation’s oldest transportation system. In the meantime, the MBTA could very badly use that money from Amazon.