Baker calls for using $1.6 billion in savings to balance state budget, but avoids policy shakeup amid pandemic

Governor Charlie Baker delivered his televised State of the Commonwealth address from his ceremonial Statehouse office on Tuesday evening.Erin Clark/Associated Press

Girding for a potentially lengthy economic recovery, Governor Charlie Baker on Wednesday proposed taking up to $1.6 billion from savings to balance the state budget next fiscal year, while dedicating more cash toward K-12 education to meet the mandates of a landmark school funding law.

The $45.6 billion budget plan does not include any broad-based tax hikes and calls for slightly less spending than the current fiscal year, largely because the state’s Medicaid costs are lower than expected, state officials said.

Baker and his aides said they wanted to avoid painful budget cuts as the state tries to contain the spread of the coronavirus through the rollout of vaccines, which has been slow and unsteady so far.

The budget also included roughly 100 proposed changes to existing laws, ranging from an increase to the salaries for county sheriffs to the reestablishment of the Massachusetts Bay Transportation Authority’s governing board.

But Baker did not offer the type of large-scale policy proposals that have dotted past spending plans, saying it’s still unclear how the pandemic will reshape how people work, travel, and live once the virus is under control.

“The consequences of getting this right are really good and the consequences of getting this wrong are not,” Baker said. “I just want to make sure we get this right.”

In the interim, Baker said the state should continue to tap its rainy day fund, absent an infusion of federal aid or more tax revenue.

State tax revenue has remained otherwise steady this fiscal year, helping officials stave off decisions to slash deep pockets of the budget. But Baker said the state is still expecting to collect roughly $1 billion less than it was projecting before the pandemic hit.

State officials are allowed to use as much as $1.7 billion this fiscal year from the the $3.5 billion fund, though Baker said they’ve budgeted for $1.35 billion and could — thanks to better-than-expected tax receipts — ultimately use less. Should they withdraw $1.6 billion next fiscal year, Baker aides estimate, the state will be left with roughly $1.1 billion in reserves to weather any future downturns.

The state has drawn $1 billion or more from its rainy day fund only once before: in fiscal year 2009, during the depths of the recession, when it drained nearly $1.28 billion from what was then a $2.12 billion account.

The spending proposal does not account for a potential $500 million influx of federal Medicaid reimbursements, or any presumed aid under President Biden’s proposed $1.9 trillion rescue package. Those funds, analysts say, could mean even more remains in the emergency savings account.

“The overarching theme of the budget is, there are a lot of moving parts. So stay tuned,” said Eileen McAnneny, president of the Massachusetts Taxpayers Foundation, a business-backed budget watchdog. “All the revenue is up in the air at this point.”

Baker’s budget proposal also calls for a $198 million increase in direct local aid to schools, pushing the total to $5.5 billion.

His administration said the extra money, combined with tens of millions more in special education and charter school aid, will enable the state to “fully fund” the first of seven years in increased funding to local school districts called for under a landmark 2019 law.

That number, however, could change in the Legislature, where leaders had projected it would take at least $300 million a year in extra aid to meet the requirements under what’s known as the Student Opportunity Act. The House and Senate are expected to file and debate their own budget plans in the coming months.

The first-year costs under the law could ultimately be less, in part because of a dramatic drop in enrollment amid the pandemic, according to the Massachusetts Taxpayers Foundation. Nevertheless, the Massachusetts Education Justice Alliance — a coalition of teacher unions, community groups, parents, and others — quickly said Wednesday that Baker’s proposal was not enough, arguing that it could penalize schools for what could be “temporary dips” in enrollment.

Lawmakers said they needed time to review what is a complicated mix of funding.

“I’m happy the governor shares that goal” of meeting the 2019 law’s guidelines for school funding, said Representative Alice H. Peisch, who helped negotiate the law. “But it’s premature to say whether the exact way he did it is the way to do it.”

Baker is also calling for doubling the budget for the Massachusetts Emergency Management Agency, which handles state’s preparations and responses to disasters. He also proposed modest hikes in spending in other areas, including programs to address substance misuse, family shelters, and the Department of Children and Families.

The Republican governor, however, is proposing additional aid to the MBTA as he had in previous years: $187 million between its operating and capital budgets. And despite twice proposing last year a fee increase on Uber and Lyft trips — including as recently as October — he did not include a fee increase in this budget plan.

Two weeks ago, Baker vetoed a proposal lawmakers included in a $16 billion borrowing bill to hike fees on ride-hail trips, arguing it was a “complicated” fee schedule based on pre-pandemic assumptions and not what ridership could look like afterward.

He echoed that message in his annual State of the Commonwealth address on Tuesday, saying officials need to adapt their policy decisions to “the future of work” — including the possibility that more people could work from home even after the virus abates.

To further balance the budget, Baker is also proposing to again delay allowing residents to claim a charitable deduction on their state tax returns until the state no longer has to tap its savings account. He also included up to $35 million in tax revenue by legalizing betting on professional sports, a proposal he first made two years ago and again filed Wednesday.

The budget plan also included other proposals Baker has made, and lawmakers rejected, in the past, including a 15 percent tax on opioid manufacturers.

The state’s current $45.9 billion spending plan leans heavily on roughly $3 billion in one-time funds, including more than $1 billion in federal aid and the withdrawal from the state’s emergency savings account.