Spending Would Rise by Nearly $1.2 Billion
STATE HOUSE, BOSTON, APRIL 14, 2021…..House Democrats on Wednesday put forward a state budget proposal that would spend $47.65 billion while avoiding service cuts or tax hikes on individuals, an approach made possible by higher-than-expected tax receipts, a change in a key federal reimbursement and a sizeable withdrawal from the state’s rainy day fund.
Speaker Ronald Mariano said his first budget as the new leader of the House makes investments “where we think they will have the greatest impact in benefitting our residents.”
“In this budget, we try to balance two priorities: we’re trying to take care of the residents’ immediate needs that are created by dealing with the pandemic and trying to chart the course of the commonwealth’s future by looking at some ways we can change job training and create some jobs here in Massachusetts,” the speaker said.
The House Ways and Means Committee’s budget recommendation, which is expected to be debated the week of April 26, includes none of the roughly $4.5 billion in federal aid coming to Massachusetts, would increase spending by $1.189 billion or 2.6 percent over the current year’s budget, and proposes to spend $1.792 billion or 3.9 percent more than Gov. Charlie Baker recommended in his January budget filing.
About $1.4 billion of the nearly $1.8 billion increase in spending over the governor’s proposal is the result of a federal-level change that drove up costs for MassHealth, the single largest budget item.
Baker’s budget called for a 3.4 percent reduction in gross MassHealth spending predicated on the thought that the state would be able to trim the MassHealth rolls, which have grown by more than 230,000 individuals over the last year, through redeterminations as soon as May. But just before Baker unveiled his budget publicly, the Biden-Harris administration announced that the public health emergency would remain in place through this year, meaning that MassHealth enrollment (and costs) are likely to continue to remain elevated.
The House budget includes $18.97 billion gross spending for MassHealth, $1.4 billion more than what Baker included in his budget. But because the increased Medicaid reimbursements the federal government has provided through the pandemic will also continue, the MassHealth appropriation in the House budget on a net basis — meaning only the state’s portion of the cost and not including the sizeable portion of MassHealth spending that is reimbursed by the federal government — would be $6.884 billion, a decrease of $26.2 million from the net spend included in Baker’s budget.
The House’s larger proposed withdrawal from the state’s Stabilization Fund — the House proposes pulling $1.875 billion from the fund that currently has a balance of $3.52 billion compared to Baker’s proposal for a $1.6 billion drawdown — accounts for another $275 million of the spending increase. The $3.52 billion balance does not account for planned spending from that fund this year of between $1.35 billion and $1.7 billion.
The Baker administration says its fiscal 2022 budget would leave the rainy day fund with a roughly $1.1 billion balance at the end of fiscal 2022, with planned withdrawals offset in part by fund replenishment associated with excess capital gains tax collections and over-benchmark general tax collections.
The House budget plan is built on a base of $30.12 billion in state revenue (roughly 3.5 percent growth over fiscal 2021), which has been supplemented by billions in unrestricted federal revenue unrelated to the American Rescue Plan Act, revenue generated by state departments and agencies, fees and other sources.
The revenue base, which was agreed to months ago by the House, Senate and governor’s office, is less than the $30.539 billion that the state is on pace to collect by the end of the current budget year and assumes a decline in revenue during a time that many economists are forecasting to be a high-growth period.
Mariano and Ways and Means Chairman Rep. Aaron Michlewitz cautioned that the currently rosy revenue picture — through nine months of fiscal 2021, the state is $1.524 billion or 7.2 percent ahead of collections during the same nine mostly pre-pandemic months of fiscal year 2020 — may not last and said they wanted to take a “cautiously optimistic” approach to the budget.
“No matter how good the numbers seem to be month to month, we’re still probably close to $1 billion … short of where we were prior to the pandemic,” the speaker said, referring to the pre-pandemic revenue estimate of $31.15 billion in fiscal 2021.
With questions swirling about an overly conservative revenue estimate, Michlewitz said any change in the fiscal 2022 revenue assumption would come about after discussions between the House, Senate and administration.
“I don’t think we’re ready to do that yet. As we know, the income tax filing deadline was pushed back to May [17] so there’s still a lot of things that have to play out here over the rest of the fiscal year before we can feel any certainty about moving that number,” he said.
The state is expecting to get the rules next month for spending the approximately $4.5 billion in federal aid coming to Massachusetts and Mariano said Wednesday that the House would rather dole that money out in a separate spending bill and not in the fiscal 2022 budget.
“We will move on, deal with our budget now and sometime probably around June deal with the financial impact of the federal monies, how best to spend that,” he said.
In keeping with an agreement Michlewitz and his Senate counterpart announced last week, the House budget includes a $219.6 million increase to Chapter 70 education aid to school districts, up from the $197.7 million hike Baker proposed in January. It would fund unrestricted government aid at $1.16 billion, a 3.5 percent increase that matches the governor’s proposal.
The budget would also put the 2019 school finance reform law known as the Student Opportunity Act “back on track,” according to Mariano, after the pandemic disrupted what was supposed to be the first year of SOA funding in fiscal 2021.
“We came up with a plan, we are going to fund one-sixth of the Student Opportunity Act so now it will be funded over a six-year period instead of a seven-year period,” he said. “And we will be giving back to the students in our commonwealth $5.5 billion in aid and assistance … which we think is extremely important and keeps our commitment to the Student Opportunity Act.”
The bill would also create a $40 million reserve fund “to stabilize school districts adversely impacted by pandemic-related enrollment changes” and provides $15 million to help districts provide summer school options to address pandemic-related learning losses.
“We need to do something this summer, kids have been out of school for a long time,” Mariano, a former teacher, said. “It’s something that I think will be helpful. Certainly not every community is going to need it, but we think $15 million is a start to get some of our stressed communities that have been dealing with the pandemic and get them back on track.”
The House proposal would boost funding for tourism promotion with a $5 million investment for “local tourism recovery marketing.” Last week, a parade of tourism and hospitality industry officials told lawmakers that the sector needed state help to recover jobs and revenue.
“We’re not going to be able to wish, pray and hope our way out of this pandemic,” Martha Sheridan, president of the Greater Boston Convention and Visitors Bureau, said last week. “It’s just not going to happen. The only way we’re going to get out of it is if we remain competitive and invest strategically in tourism promotion.”
Michlewitz said the House’s $5 million marketing investment is intended “to let people know that Massachusetts is going to be open for business, for tourism, for our hospitality industry that has suffered so drastically during these difficult times.”
“We believe that regional tourism is going to be very important over the next year and we want to make sure that we are marketing on a regional basis to help compete with some of the other major hubs on the East Coast or the eastern seaboard,” he said. “We know that maybe overseas travel is not going to be as important as it had been in the past and that we want to make sure that we are bringing people back as we start to reopen.”
The House budget does not include Baker’s plan to penalize pharmaceutical companies for excessive drug price increases, which Baker promoted last week with Connecticut Gov. Ned Lamont. Baker had recommended that the state impose a penalty on drug manufacturers whose prices increase by more than the consumer price index plus two percent.
Mariano, who has been the House’s point person on health care issues for the last several sessions, said he would be interested in having a “policy discussion” about drug prices generally and would be open to “doing it through the legislative process, not through a budget amendment.”
Not included in the House budget is any revenue from sports betting. Baker’s budget counted on about $35 million in revenue from the activity, which is still illegal in Massachusetts, but Michlewitz said Wednesday that the House did not want to assume any sports betting revenue until it first passes legislation to make wagering legal.
Mariano, who said last month that he supports sports betting legislation that “creates in-person and mobile gaming licenses that will bolster existing casinos and racing facilities,” said he expects the issue will come up in the House this year or session, but sounded hesitant when asked if the House has the appetite to legalize sports betting.
“Um, that’s a good question,” the speaker said. “I think there is potential to get it done in the House.”
The House voted to legalize sports betting last session as part of an economic development bill and Mariano has estimated that it could net as much as $50 million a year for state government.
The House budget plan also includes $2.29 billion for developmental services, including $220 million for day and work programs and a $55.4 million increase for the “Turning 22” class of individuals aging out of state supports. It also recommends $277 million for the Transitional Aid to Families with Dependent Children program, $20 million for child care provider rate increases, $291 million for state universities, $315 million for community colleges, $571 million for the University of Massachusetts system, $56.4 million for homeless individual shelters, $160 million for the Bureau of Substance Addiction Services, and $312.6 million for environmental services.
Mariano also included in his first budget $10 million for the Mass. Clean Energy Center to run a “wind jobs initiative.”
“The new fund will help make Massachusetts a leader in offshore wind energy and provide good jobs for displaced workers,” the speaker, who has regularly cited offshore wind as a priority, said. He added, “We think with some encouragement, we can make Massachusetts the focal point for offshore wind development both in training workers and in producing the goods that this industry will need to expand and grow.”
