In rush to the finish, Mass. lawmakers face unexpected hurdle in 1986 tax cap law

The Massachusetts State House.Jessica Rinaldi/Globe Staff

The Massachusetts Legislature entered the final days of its legislative session in typical mad-dash fashion, moving long-gestating proposals, negotiating major bills behind closed doors, and preparing for a flood of eleventh-hour votes.

That was before the $3 billion bomb dropped.

Governor Charlie Baker’s announcement Thursday that the state is poised to trigger a 1980s-era tax cap law that, by his estimates, could require sending more than $2.9 billion back to taxpayers has upended Beacon Hill’s already chaotic finish to formal sessions, making things cloudier — not clearer — the closer it moves toward a Sunday night deadline.

Most pointedly, it quickly upended talks over a separate $1 billion tax relief proposal that lawmakers had spent months developing and were aiming to finalize before the end of the weekend.

But it also lobbed a wrench into Democratic leaders’ already growing to-do list, and raised the uncomfortable prospect of lawmakers undoing an older law on tax relief just as they were poised to deliver significant amounts of money to many of their constituents.

With two working days left before formal sessions end, the tax cap bombshell “does call into question all of the decisions we made going up to this point about our tax cuts,” House Speaker Ronald Mariano told reporters Friday, while also keeping open the option of undoing the old tax cap law.

“It does raise a concern as to what is going to happen with future budgets,” the Quincy Democrat said. “It calls into question anything that is on the table.”

That’s a difficult reality with literal hours left in a 19-month legislative session. The estimated $2.9 billion credit taxpayers would be owed dwarfs the one-time rebates and permanent tax cuts the House and Senate separately approved and have to be reconciled by negotiators by the end of the weekend if they are to become law.

The competing pressures have left lawmakers scrambling for a response. The 1986 voter-passed law at issue seeks to limit state tax revenue growth to the growth of total wages and salaries in the state. Should revenue exceed that “allowable” amount, taxpayers are then due a credit equal to the excess amount.

Thanks to record-setting tax revenues from the fiscal year that ended in June, the state appears on track to trigger the law for the first time since 1987, this time with multibillion-dollar ramifications.

Mariano said lawmakers are weighing a range of options, including seeking to “undo the law,” changing it, or postponing it. He also cast doubt on whether the law would even be triggered, even though both chambers’ budget committees said in a letter to Baker’s revenue commissioner on Wednesday that they do, in fact, believe that is the case.

Yet, in that same letter, they were also seeking a range of basic data from Baker’s administration that would help explain its estimate, illustrating how the development had caught lawmakers by surprise.

The Pioneer Institute, a free market think tank, on Friday said it believes the refund will actually be even higher — roughly $3.2 billion — based on estimates of June revenue numbers, which the state is expected to release as early as next week. State Auditor Suzanne M. Bump will verify what the excess amount is in September.

“This formula is very convoluted, and we’re not even sure if the numbers are accurate,” Mariano said Friday.

The possibility of undoing the law drew swift criticism from its supporters, who said it would amount to a “cavalier betrayal” of voters.

“That Speaker Mariano would even consider such an affront to democracy, to election results, and to voters themselves — that he even dares speak it aloud — demonstrates the degree of sheer political arrogance that permeates” the Legislature, said Chip Ford, executive director of Citizens for Limited Taxation, which pushed the ballot question in 1986 along with the Massachusetts High Technology Council.

Nevertheless, legislative leaders still must decide whether, or how, it affects their own tax plans. The House and Senate are in lockstep on many parts of their tax relief proposal, which Mariano says is a “well-thought-out plan that will work.” Part of their proposal includes $250 rebates for potentially millions of taxpayers, as well as permanent relief for seniors, renters, and others whom lawmakers say the changes will help as inflation squeezes residents’ wallets.

But accommodating both the Legislature’s tax relief proposals and the tax cap credit is “a big hurdle,” Mariano said.

“It’s new, and we have a lot of bills out there,” Senator Michael J. Rodrigues, the Senate’s budget chief, said of addressing the tax cap law. “We are burning the midnight oil, and trying to do the best we can.”

It’s also far from the only thing left on lawmakers’ plate. A half-dozen bills remained parked in closed-door negotiations Friday evening, including proposals that would reshape the state’s cannabis laws and borrow billions of dollars for infrastructure projects.

Lawmakers are still trying to reconcile bills that would legalize sports betting, an effort that’s played out amid a public dispute between Mariano and Senate President Karen E. Spilka over whether to include college sports among contests that people can place wagers on.

On Thursday, Baker also sent back to lawmakers several policies they had included in the state’s $52.7 billion budget with requests for changes. For example, Baker asked them to amend a section that would provide prison inmates free phone calls by adding unrelated language that would allow a court to hold people suspected of certain dangerous crimes without bail.

The Legislature had essentially killed a similar proposal the previous week, infuriating Baker and ratcheting up tensions to such a degree that Mariano on Friday opted against attending a bill-signing ceremony with Baker for a high-profile abortion rights law.

On Friday, Baker also sent lawmakers back a sweeping climate and energy bill with several amendments, including changes to efforts to streamline the offshore wind industry’s bidding process. Lawmakers can accept Baker’s recommendations, or they can opt to reject or rework them, after which the bill would head back to Baker.

Then, there are also proposals that still have to pass both chambers. The Senate has yet to take up legislation the House passed last week that would tighten the state’s firearms laws following a Supreme Court decision expanding gun rights across the country.

Spilka has said the chamber is committed to passing legislation reshaping the state’s gun laws, but it could pursue different language, which would require lawmakers to reconcile the differences on a short clock.

It’s also not clear whether the Senate will take up a House bill, and a Baker priority, to criminalize so-called revenge porn, targeting a form of abuse that is already outlawed in 48 other states.

And yet, the tax debate may overshadow it all — and will likely come to define the last-minute crush lawmakers again find themselves in.

“It’s not the way it should be,” Phineas Baxandall, a senior tax analyst at the left-leaning Massachusetts Budget and Policy Center, said of the tax cap law coming into play now. “When people may have voted for this 40 years ago, I don’t think they were imagining dropping a bomb in the waning days of legislative planning for the coming years, [and] taking billions of revenue off the table after months of careful planning.”