Massachusetts Senate leaders on Tuesday unveiled the contours of a $47.6 billion budget proposal that would boost spending by $1.2 billion over the current year and funnel hundreds of millions of more dollars to local schools, without any broad-based tax increases.
The chamber will debate changes to the bill on May 25, after which Senate and House leaders will have to reconcile differences between their proposals before sending a final product to Governor Charlie Baker for the fiscal year starting July 1.
Here are some notable details in the Senate’s package:
Film credit targeted
The proposal avoids any hikes to the broad-based taxes the state’s budget is built upon — including the income tax and sales tax. But it would tweak the edges of the state’s tax code, most notably with a series of proposed changes meant to tighten the controversial film tax credit program, putting the chamber at odds with the House, which voted last month to permanently extend the credit during its own budget debate.
By contrast, the Senate plan would extend the credit only to 2027, four years after it’s slated to expire. It also would cap those salaries eligible to be covered by the credit at $1 million, and, in a major change, end the ability of production companies to transfer the credit — in other words, sell it to other entities, including insurance companies, corporations, or even individuals, said Senator Michael J. Rodrigues, the chamber’s budget chairman.
“We’ve heard loud and clear from the Department of Revenue that transferable tax credits are an administrative nightmare,” said Rodrigues, a Westport Democrat and a longtime critic of the film tax credit. Production companies, however, would still be allowed to refund the credit under the Senate’s proposed changes, he said.
Currently, the film tax program includes a 25 percent payroll credit for any project that spends more than $50,000 in the state. Productions that spend more than half their total budget in Massachusetts — or film at least half the time in the state — are also eligible for a 25 percent production credit and a sales tax exemption.
The Senate plan would also increase that threshold to qualify, by requiring productions to spend 75 percent of their budget, or 75 percent of their filming days, in Massachusetts.
“We recognize that there is a benefit to the Commonwealth of Massachusetts by having a robust film and movie industry,” Rodrigues said, adding the state pays out $60 million to $80 million a year in credits. “We have to make sure . . . that that return on investment is maximized for those paying the bills — the taxpayers of the Commonwealth.”
The proposal could be a sticking point in negotiations in the House, where leaders have embraced the tax credit program and for years have resisted making changes that, they argue, could hurt Massachusetts’ chances to draw productions to the state.
The Massachusetts Production Coalition, which represents workers and businesses in the state’s film industry, pushed back against the Senate’s proposals, arguing Tuesday that they “would effectively kill the program” and deter feature films, TV shows, and streaming series from filming here.
Episodic series, such as “Castle Rock,” a Hulu series based on the stories of Stephen King, have begun to draw millions in tax credits, but they also offer more consistent, long-term jobs locally, which industry officials have sought for years. According to one industry-backed analysis, “Castle Rock” alone created more than 1,000 jobs in Massachusetts during its first season.
The coalition also criticized the Senate plan to extend the program 2027, saying it would do little to give the stability it’s sought from policy makers. “A four-year extension would merely leave the industry in an extended period of limbo,” said Andrew Farnitano, a group spokesman.
Other tax changes
The Senate plan also proposes changes to a tax deduction low-income families can take for child and dependent care by converting it to a refundable tax credit — a move Rodrigues said would allow more families to take advantage of it.
Senate officials estimate that 85,000 families would be eligible for the newly reworked tax credit, at an average of $190 per tax filer. It would cost the state roughly $16.3 million.
The spending plan also adopts a version of a tax change Governor Charlie Baker proposed, by allowing pass-through entities — such as partnerships or certain limited liability companies — to pay the state income tax instead of members of the pass-through paying individually. That would allow the entity to take a tax deduction off its federal income tax, according to Rodrigues, who said the change will net the state $90 million in new tax revenue.
Similar to the House’s, the Senate’s proposal would increase direct local aid to school districts by $220 million next fiscal year, pushing it to $5.5 billion. The boost is part of an effort to begin funding the Student Opportunity Act, the sweeping law signed in 2019 that promised to pour $1.5 billion in extra money into Massachusetts schools by 2027.
The budget plan also includes a $40 million reserve for schools where districts saw their student headcount drop during the pandemic, mirroring a provision also passed by the House.
Federal and savings funds
Both the Senate and the House did not bake in any of the nearly $8 billion in direct federal aid state and local governments are expected to receive through the American Rescue Plan, the massive, $1.9 trillion COVID-19 relief bill that President Biden signed into law three months ago.
But the Senate is calling for a far smaller withdrawal from the state’s own emergency savings account than the House, which had allowed for the state to take up to $1.88 billion from what’s known as the stabilization or rainy day fund. The Senate, instead, allows for $1.55 billion.
To make up the difference, the Senate plan leans on some tax changes, including those outlined above, and more money from expected federal reimbursements. (Both chambers are again seeking to delay allowing residents to claim a charitable deduction on their state tax returns, saving the state $64 million.)
“We dug deeper into nontraditional tax revenue . . . offset some of the use of the stabilization fund,” Rodrigues said.