A day after state lawmakers failed to pass a sweeping tax relief package, the leader of the House of Representatives accused Governor Charlie Baker’s administration of keeping lawmakers in the dark for months about the potential of the state triggering a 1980s-era tax cap law that could require it to send $3 billion back to taxpayers.
The charge from Speaker Ronald Mariano, which Baker’s office denied Tuesday, offered a view into the frustration and suspicions that bled into the chaotic final days of the Legislature’s formal session, when the windfall was revealed.
The accusation also exposed deep rifts, not only between the House and the Republican governor, but between the legislative chambers as well. Senate leaders did not lay blame at Baker’s feet Tuesday, and said they felt there still was a way forward on an economic development bill that promised $1 billion in rebates and tax breaks to residents but collapsed in talks with the House during the predawn hours Monday.
At the heart of the controversy was the news, revealed last week, that the state will likely have to refund residents billions from a 1986 law that is intended to limit state tax revenue growth to the growth of total wages and salaries and turn the excess back over to taxpayers.
Lawmakers said they only learned of the possibility last week when they were flagged by Baker, who by Thursday publicly estimated the credit could total more than $2.9 billion.
“He could have handled it differently. Absolutely,” Mariano said Tuesday of Baker. “We had a $3 billion assessment dropped on us that we didn’t know was coming, that we hadn’t figured into the mix. And we had to make adjustments. . . . I wasn’t ready to make that commitment” of money.
Mariano, a Quincy Democrat, pointed to a May notice from the Department of Revenue saying it intended to repeal a regulation tied to the 1986 law, which it called “obsolete” because the law had not been triggered since 1987. The regulation implements how a taxpayer obtains a credit when there is an “excess” revenue under the law.
That, Mariano charged, shows Baker administration officials “were already looking at this in early May,” when tax revenues were surging to record levels. The State House News Service first reported the existence of the bulletin on Sunday.
“They were obviously aware in May that this potentially was going to happen. We had leadership meetings [with Baker]. It was never brought to our attention,” Mariano said. “We went through May, all through June, and into July without ever getting a heads-up that this might be a problem.”
The actual existence of the law, known as Section 62F, should not be news on Beacon Hill. The state auditor is required every September to determine using Department of Revenue data whether the state has triggered the law and file a report with the governor and legislative leaders. That included last year, when Mariano and Senate President Karen E. Spilka’s office both received the report.
But Mariano suggested it was incumbent on Baker to flag lawmakers that the law might come into play if his administration was already seeking to change the regulations around it.
“You expect our Ways and Means staff to keep abreast of every change or every potential change they’re going to make?” Mariano said. “They were aware they were getting closer [to triggering the law]. I don’t know if it was intentional. I don’t prescribe motives.”
An official in Baker’s budget office said officials identified the regulation as a “routine review and cleanup of outdated regulations that happens on a regular basis.” The regulation has not been rescinded, officials said, and Baker last week said his administration identified the potential multibillion-dollar credit as “part of the year-end wrap-up” on the state’s finances.
“The 62F statute has been law for over 30 years, so of course the administration was aware of its existence,” said Sarah Finlaw, a Baker spokeswoman, adding that monthly tax revenue figures are both publicly available and sent to the Legislature each month. “As revenue figures change month to month, the final amounts cannot be confirmed until the end of the fiscal year.”
Tensions were already high between Mariano and Baker late last week. Baker had fiercely criticized Mariano’s judiciary chairman by name for comments he made after killing a separate bill Baker had pushed on dangerousness hearings. Mariano then skipped a bill-signing ceremony with the governor for a high-profile abortion rights law Friday.
Mariano said they smoothed it over — “I called him up and had a personal conversation,” Mariano said — but it was unusually public friction between a Democrat and Republican who have enjoyed a good working relationship.
Not everyone on Beacon Hill shares Mariano’s view of how Baker handled the tax law. Spilka said Tuesday that she believes Baker’s contention that this was a “late-breaking issue” and that it only became clear with revenue figures later in the fiscal year, which ended in June.
“There’s no reason not to believe him,” the Ashland Democrat said. Regardless, she said, she believes lawmakers still had time to pass an economic development and tax relief bill. Spilka said the Senate offered proposals in closed-door negotiations to pass at least part of the tax relief package, as well as reshaping how the money goes out through the 1986 tax law, but couldn’t strike a deal with the House.
“There’s certainly enough money to do some significant tax relief and targeted economic development. We did not have to do the entire package,” she said. “But the approach was all or nothing. I have said in the past: We should not be taking an all-or-nothing approach.”
Mariano last week publicly floated the possibility of undoing, changing, or suspending the 1986 law. But with the Legislature entering the final days of its 19-month session last week, and Baker allowed a 10-day window to act on any bill that reaches him, the Legislature would have had little recourse if Baker disagreed with a potential bill.
Lawmakers can only override a veto in formal sessions, which ended for the year on Monday after a 23-hour marathon sitting, and Mariano said he believes Baker would have “probably” vetoed changes to the 1986 law.
“We were kind of boxed into the position that we sort of had to live with it,” he said.
Now, the prospects of the Legislature’s tax relief plans passing are unclear — and perhaps seriously in doubt. Senator Michael J. Rodrigues, the Senate’s budget chairman, said Monday that lawmakers could move parts of the tax package and other spending initiatives through informal sessions between now and January.
And while a single dissenting vote can kill a bill in an informal session, the economic development package had unanimous support in both chambers. The House passed its version, 154-0; the Senate’s was approved, 40-0.
The question dogging Mariano is whether the money is there to pay for it.
“I know the speaker says it isn’t there, the governor says it is. There’s certainly enough money to do some significant tax relief,” Spilka said.
Mariano was more hesitant, saying that should the Legislature revisit a tax relief package later this year or early next, it could come in a “completely different economy.” He did suggest, however, openness to reshaping the 1986 law to change how the credit goes to taxpayers.
“This is a one-time regressive cash windfall for taxpayers. I think we can disperse it a lot fairer and more equitably if we made some changes,” he said without offering a specific proposal.
But it’s unclear if that, too, could face headwinds, either within or outside the State House. Anthony Amore, a Republican candidate for state auditor, said Tuesday that he’s prepared to file a lawsuit should the state not release the money as required.
The law allows for 24 taxpayers to petition the court to “enforce” it.
“The people want and need tax refund checks now,” Amore said in a statement. “My campaign is already lining up the 24 taxpayers needed to go to court to enforce this provision of state law should it be regrettably necessary.”