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Lawmakers consider budget fixes

Capital gains funds discussed to fill gap; Baker meets with House, Senate leaders

Lawmakers appear poised to divert as much as $340 million otherwise destined for the state’s rainy day fund to help fill a midyear budget hole of roughly $765 million.

Governor Charlie Baker is scheduled to release his full plan for addressing the shortfall Tuesday. And he declined to discuss specifics in a Monday afternoon appearance with House Speaker Robert A. DeLeo and Senate President Stanley C. Rosenberg.

But the three leaders, speaking to reporters after a private meeting, said they had agreed in principle to tap capital gains tax revenue that would normally land in the rainy day fund. Budget documents suggest $320 million to $340 million is available.

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Rosenberg, without discussing specific figures, said the proposal could soften cuts to government services.

“I’d be inclined to think that it’s not a bad idea,” he said. “Otherwise there are going to be significantly deeper cuts.”

“I would agree with that,” added DeLeo.

The shortfall is the first major test for Baker, a Republican who has promised a lean, compassionate government. And the outcome will say something about his relationship with Rosenberg, the newly installed Senate president, and DeLeo, the veteran speaker.

But if the Legislature has some say in addressing the midyear shortfall — it must sign off on the use of the capital gains tax revenue, for instance — the governor has the power to make sweeping cuts on his own. And with such a sizable shortfall, substantial unilateral cuts seem likely.

State law sets a cap on how much capital gains tax revenue lawmakers can pour into the budget. This year, the cap is just over $1 billion. By law, any extra revenue goes into the rainy day fund.

The governor is asking lawmakers for a reprieve from the law.

“Given the shortness of the time and the size of the deficit, we’re going to be looking to the Legislature to work with us on permitting the overage . . . to be used to support this year’s deficit,” Baker said Monday.

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Baker has repeatedly promised that he would not touch the rainy day fund, a pledge he repeated Monday. Tapping capital gains tax revenue before it lands in the reserve allows him to say he is adhering to the pledge.

Budget watchdogs said Monday that the move is an acceptable response to a fiscal crisis. But the one-time fix, they said, will not solve the state’s structural budget problems.

“I think that using reserve funds, which these would otherwise be, to address a midyear problem is reasonable,” said Noah Berger, the president of the left-leaning Massachusetts Budget and Policy Center. “But it shouldn’t be confused with finding a long-term solution.”

In the long term, Berger said, the state will have to decide between reversing income tax cuts or further chopping services.


David Scharfenberg can be reached at david.scharfenberg @globe.com. Follow him on Twitter @dscharfGlobe