After months of girding for economic damage from the pandemic — and fears of a state revenue crash — the Massachusetts House is proposing a $47.7 billion spending plan for next fiscal year free of major cuts to services or tax hikes, and all while the state awaits a windfall of federal aid.
The budget proposal unveiled Wednesday underscores the state’s relatively stable, and unexpectedly rosy, financial position even as Massachusetts remains saddled with a 7 percent unemployment rate and thousands of new COVID-19 cases each week.
In lieu of any broad-based tax increase, House leaders instead propose allowing the state to pluck up to $1.9 billion from the state’s emergency savings to balance the state’s books and, officials hope, begin navigating out of the pandemic.
“We have to see what the next few months bring before declaring any sort of victory on this fiscal year,” state Representative Aaron Michlewitz, the House’s budget chairman, told reporters Wednesday.
Overall, the budget plan would mark a nearly $1.2 billion jump in spending over the current fiscal year, in which the state is slated to spend $46.5 billion.
As lawmakers seek to set a steady course over next year, the proposal avoids enormous cuts, House Speaker Ronald Mariano said. It also avoids, for now, reshaping major parts of the state’s tax code.
“This is quite a status quo budget,” said Marie-Frances Rivera, president of the Massachusetts Budget and Policy Center.
Financially, Massachusetts has been enjoying relatively good news despite the economic upheaval wreaked by the pandemic. It’s expected to receive $4.5 billion in flexible funds through the latest federal coronavirus relief package, and tax revenues — once feared to plummet as COVID-19 disrupted businesses and employment — are running more than $1.4 billion above projections nine months into the fiscal year that ends in June.
Should the strong returns hold, it’s likely the state also would avoid dipping as aggressively into its $3.5 billion savings account, known as the rainy day fund, as originally planned to balance the budget in the coming months.
But Mariano warned revenue projections are still more than $1 billion below what the state had been expecting in January 2020, weeks before Governor Charlie Baker declared a state of emergency.
Health care costs — the biggest driver of state spending — also have proven unpredictable this year. House leaders said federal rules have handicapped the state’s ability to reassess who is receiving insurance through the state’s Medicaid program, known as MassHealth, driving projected spending up by $1.4 billion above the Baker administration’s initial estimates for next fiscal year.
Federal aid will cover the increases, lawmakers said. But the House’s budget proposal, which representatives will add amendments to and pass later this month, does not account for any of the billions in expected federal help from the American Rescue Plan Act, particularly as federal officials continue building the rules for how states can use it.
“Building our base numbers off a one-time revenue source will only create a fiscal cliff,” said Michlewitz, a North End Democrat. He added that while more than $70 billion in federal stimulus and direct aid Massachusetts has received over the last year has helped it weather the COVID-19 crisis, it also has “provided potentially a false sense of security going forward.”
Mariano said the budget includes no tax increases, nor any proposal to hike fees on ride-share trips through Uber or Lyft that lawmakers had pursued at the end of last year but was vetoed by Baker.
Similar to the governor’s proposal released in January, the House is again seeking to delay allowing residents to claim a charitable deduction on their state tax returns, saving the state $64 million.
But Michlewitz said the House plan otherwise avoids “major” changes to tax breaks the state offers, including eliminating or modifying 10 such breaks — collectively costing well over $200 million each year — that analysts say don’t earn enough money to justify their expense or are simply no longer relevant.
The House did not wade into debate over the state’s controversial film tax credit, which is scheduled to “sunset” in 2023 without action on Beacon Hill. Mariano has backed extending it, but some state Senate Democrats hope to target what critics say is an inefficient use of state dollars.
House leaders did propose, however, creating a tax credit to incentivize job creation in rural areas, a proposal that Baker has previously vetoed.
Rivera said she was disappointed but not surprised that costly tax breaks did not get more attention in the budget proposal.
“These are choices that we’re making,” she said. “Allowing a tax break for a corporation . . . means we’re not then investing that $100 million or $200 million into communities directly.”
The House also proposed pouring $5.5 billion into direct local aid for schools — a near $220 million increase over last year and more than $20 million above what Baker proposed — in an effort to meet the state’s commitments under a recent landmark education law.
The Student Opportunity Act, which was signed into law in 2019 and promised to give $1.5 billion in extra money to Massachusetts schools by 2027, did not come with a dedicated funding source, meaning lawmakers had to rely on the state’s economic growth to continue to find the extra money.
That growth was complicated by the pandemic, but House leaders called this year’s proposal a first step toward fulfilling the funding promises within the next six years.
House policymakers also intend to allocate $40 million to ensure schools can maintain funding even if students who unenrolled from public schools during the pandemic opted back in for the fall. The state’s 400 public school districts reported losing more than 37,000 students from their rosters last fall, a 4 percent drop.
“They’ve increased the funding to get them back on track” for 2027, said Eileen McAnneny, president of the Massachusetts Taxpayers Foundation, a business-backed budget watchdog. “But a large part of why the House was able to afford to do it in six years is because of the decline in enrollment. I think what the House realized is, we don’t know if it’s a blip or it’s a permanent change.”
The Massachusetts Senate is expected to release and debate its own spending plan next month, after which leaders from both chambers will have to reconcile the differences before sending a final version to Baker’s desk.