Baker budget plan would boost health spending and avoid draconian cuts, administration says

Governor Charlie Baker.Chris Van Buskirk/Pool

Facing a multibillion-dollar revenue shortfall, Governor Charlie Baker on Wednesday unveiled a budget plan nearly four months into the fiscal year that could lean on $1.35 billion from the state’s emergency savings and actually increases rather than slices the amount the state would spend amid the pandemic.

The governor’s proposal, which would need legislative approval, sets the stage for what will be compressed and likely painful deliberations with the Legislature over the state’s finances in the coming weeks.

At $45.5 billion, Baker’s proposal does not feature any tax increases, and the Republican governor said Wednesday that he would veto any tax hikes, should the Legislature include them in its own plan, which he hopes lawmakers produce by Thanksgiving. Baker’s budget plan doesn’t include any assumed federal aid from the still-ongoing stimulus talks in Washington.

The governor’s bill includes nearly $1 billion more in spending than what he had proposed in January — well before large parts of the state’s economy all but shut down as COVID-19 spread, sickening more than 137,000 people since then and killing nearly 10,000 in Massachusetts alone.

The increase, his administration said, is tied largely to the state’s Medicaid program, which already eats up nearly 40 percent of state spending and has shouldered 167,000 more people since March, when Baker announced a state of emergency and began tightening restrictions on daily life and businesses. Baker is also proposing nearly $101 million in new funding in grants, loans, and other assistance for small businesses.

But the state is also reckoning with cratering tax revenues. Baker’s budget office projected the state would see $3.6 billion less in state revenue than what he and legislators had initially projected, though it said the hole narrows to roughly $3.2 billion after accounting for other budget maneuvering.

To fill it, Baker’s proposal relies on roughly $3.1 billion in one-time, or nonrecurring, revenue, the type of budget gimmick his administration long preached about avoiding during rosier fiscal times. This year, it includes more than $830 million in federal Medicaid reimbursements, $550 million in federal coronavirus relief funding, and what his budget office described as $422 million in funds it rolled over from last fiscal year, most of which was from capital gains revenues.

Baker is also calling for slicing $515 million in spending across state departments and other agencies. It would help offset a relatively similar increase in Medicaid spending, and was a move Michael Heffernan, the governor’s budget chief, said was based on the agencies' previous spending levels and a desire to avoid what he described as draconian cuts.

“Our proposal protects essential government services, including local aid to cities and towns, and maintains eligibility and benefit levels for both social and health safety net programs,” Heffernan said.

Still, amid a huge shortfall, the fact that Baker proposed increasing spending for the fiscal year that runs through June surprised some budget-watchers, who said the administration’s ability to avoid deep cuts and even bump up funding in some places speaks to the impact federal aid had at both the state level and through enhanced unemployment benefits.

“The long and short of it is, fiscal year 2021 is not going to be the monumental disaster we were first thinking” it would be, said Eileen McAnneny, president of the Massachusetts Taxpayers Foundation, a business-backed budget watchdog. “But it’s still going to be a challenge.”

Baker proposed devoting far less money to the Massachusetts Bay Transportation Authority than he had previously, as it faces an upcoming budget gap that could be as high as $600 million. Under Baker’s proposal, the T would get $1.27 billion in total transfers, which his office said is $64 million above what it received last fiscal year but $107 million below what Baker proposed in January.

“I believe it is safe,” Baker said of the MBTA, saying that he has used the Blue Line since the pandemic hit. “I would really like to see people give the public transportation system a try.”

Similar trims littered his budget plan, reducing what would have been sizable increases to modest or negligible ones. The Massachusetts Department of Transportation, which Baker in January had slated to receive $432.5 million, instead would get $385.8 million, a small increase over last year. The Executive Office of Energy and Environmental Affairs would get $9 million less than in Baker’s January proposal, while the Department of Children and Families would see $22 million less than he originally proposed.

Baker is also proposing delays to several key initiatives to save money, including postponing by one year the implementation of a charitable giving tax deduction that was slated to go into effect in January, saving the state $64 million.

He’s also seeking to postpone the implementation of the state’s long-awaited school funding law, passed last November. In doing so, Heffernan, said towns and cities would still get $108 million more in baseline school funding, pushing state K-12 aid to $5.28 billion — or about $200 million below what Baker had proposed to start the year.

The Swampscott Republican also resubmitted an oft-failed proposal to accelerate how the state collects sales taxes, this time requiring any business that collects more than $150,000 to more quickly remit money to the state. He also proposed requiring same-day remittances of sales tax on credit and debit card purchases by 2024.

The biggest one-time budget infusion, however, comes from the so-called Rainy Day Fund, a $3.5 billion kitty the state had steadily grown in the recent flush fiscal times to record levels.

Under Baker’s proposal, the account — officially known as the stabilization fund — would be left with nearly $2.2 billion to help the state weather a potentially prolonged economy recovery after the $1.35 billion draw-down. That number could be lower should tax revenues exceed expectations or the state receive additional federal help, meaning the state would need less from savings.

Baker expressed confidence that the remaining Rainy Day Fund balance would be enough to see the state through next fiscal year and beyond, when the economy — perhaps aided by the release of a COVID-19 vaccine — could begin a climb back to pre-pandemic levels.

But for now, he said, “I think most people would agree it’s raining."

Heffernan had already said the administration believes the state “won’t need to raise taxes” to cover any losses in state revenue, though legislative leaders made no such commitment. But, similar to his January proposal, Baker’s budget plan does include a proposed hike on Uber and Lyft trips, raising the per-ride fee to $1 from 20 cents.

It’s unclear whether the House and Senate, neither of which has released its own budget proposal, will agree with Baker’s projected $3.2 billion gap or his proposals to close it.

The state is relying on a stopgap spending bill to keep state government funded through October, though Baker said it’s likely the state will need another temporary measure to sustain it through next month, when lawmakers are presumably building their own budget plan.

An aide to House Speaker Robert A. DeLeo said Wednesday that his budget office needs to review Baker’s proposal. A spokesman for Senate President Karen E. Spilka referred questions to the Senate’s budget committee, which didn’t respond to a request for comment.