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$39.1b state budget plan avoids dramatic cuts

Massachusetts State House.
Massachusetts State House. (DAVID L. RYAN/GLOBE STAFF)

The Legislature is poised Thursday to enact a $39.1 billion state budget that avoids dramatic cuts by relying on a series of financial maneuvers to close a big gap in expected tax revenue for the fiscal year that begins Friday.

The budget, which lawmakers say includes no new taxes or fees, will be austere in some respects — by recent Massachusetts standards, anyway. For example, the University of Massachusetts system will see just a 1 percent increase in funding, likely to mean significant hikes in student costs for the 2016-17 academic year.

But there will be modest increases in spending on the troubled Department of Children and Families and state-funded programs to address the scourge of opioid overdoses, lawmakers said. Local aid, which cities and towns use to help pay for municipal programs like police and trash pickup, will see a modest uptick. So will funding for K-12 education.

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“I’m proud that, in the midst of a tough fiscal climate, we came to agreement on a fiscally responsible budget that minimizes cuts and protects our most vulnerable residents,” said House Speaker Robert A. DeLeo.

Earlier this week, officials projected revenue for the coming fiscal year would be hundreds of millions of dollars below previous expectations, based partially on worries that taxes on stock market profits would crater.

Lawmakers, who announced the budget agreement Wednesday, say they’ll close the $750 million revenue hole by:

■  Projecting that $200 million in tax revenue, meant for the state’s rainy day emergency fund, won’t show up and thus won’t be counted as spending.

■  Changing fiscal assumptions. They expect more revenue from fees, and fewer poor and disabled people to use the state’s massive Medicaid health care program.

■  Paying some Medicaid bills in the subsequent fiscal year.

■  Assuming the state’s automatic income tax rollback, which is premised on strong economic activity, doesn’t take place — saving the state $80 million.

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■  Counting on $100 million in efficiencies in government procurement — that is, more frugally buying goods and service for the state.

■  Expecting that a combined $60 million that would have automatically gone to the state’s school building authority and the MBTA will not, because of lower growth in sales tax revenue.

■  Making some other specific cuts throughout the budget, characterized by lawmakers as modest. They include nips and tucks across government, including to information technology. Sheriffs will see what is effectively a cut in their budget, likely to draw their ire.

“The agreement reflects our belief that we must be responsible stewards of taxpayer dollars while keeping the Commonwealth moving forward,” said Senator Karen E. Spilka, the chamber’s budget chief and a Democrat of Ashland.

Bond rating agencies, which effectively determine how much Massachusetts pays to borrow money, frown upon languid responses by states to worsening fiscal situations. So lawmakers emphasized their quick reaction to the more constrained tax revenue projections.

“The most important thing is that today we take action,” said the House’s budget chief, Representative Brian S. Dempsey of Haverhill.

So where does most of the $39.1 billion budget go? Forty-one percent of the budget is poised to go to Medicaid, 14 percent to health and human services, 14 percent to local aid, 6 percent to education, and 6 percent to debt service.

Massachusetts policy makers often plug budget holes with what some outside observers describe as “gimmicks.” But the budget-writers argue that such fiscal sleights of hand are preferable to cuts that would disproportionately hurt the most vulnerable residents of the state.

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The budget unveiled Wednesday also includes some policy changes. For example, it will limit T fare increases to 7 percent every two years, a tighter cap than the 5-percent-a-year limit that currently exists.

“I think it’s a significant step forward toward having reliable, predictable fare increases that people can prepare for,” said Rafael Mares, a vice president with the Conservation Law Foundation and a transportation expert.

T fares will still go up, as expected, on Friday.

State finance law mandates a balanced budget be approved by the Legislature and the governor each year. That means projected revenues will be enough to cover authorized spending.

After hearing from economic experts, House, Senate, and gubernatorial budget leaders in January projected revenue would grow 4.3 percent in the fiscal year that begins Friday.

So using that estimate, the governor proposed a $39.6 billion spending plan, and the House and Senate each passed a $39.5 billion plan, though with slightly different spending priorities.

But this month officials said the January revenue estimates were far too rosy — to the tune of nearly $1 billion. The Massachusetts economy appears strong, they said. But tax revenues over the past three months have been weaker than expected.

And stock market volatility, which has increased substantially since the United Kingdom voted to leave the European Union, means revenue from capital gains taxes — levies on investment profits — will likely be lower.

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The budget poised to be enacted Thursday will increase spending by roughly 2 percent over the current year.

When Governor Charlie Baker, a Republican, gets the bill, he’ll have choices. Among them: signing it into law or vetoing certain spending.

But whatever happens, it won’t be the final word on how taxpayer dollars are allotted for the fiscal year, which runs through June 2017. Lawmakers are certain to adjust the budget with other spending bills — either adding spending if the money is available or making more cuts if the economy sputters.

But Senate President Stanley C. Rosenberg, who supports higher taxes, warned Wednesday evening, “We cannot cut our way to prosperity.”

Although Massachusetts has careened from one budget mini-crisis to another in recent years, bond rating agencies see its fiscal house as among the better-run in the country.

One agency, Moody’s Investors Service, said this month that the state’s “strong financial management practices and demonstrated willingness to balance its budget through spending cuts, revenue increases and use of reserves” was commendable and why Massachusetts has the second-from-highest rating.


Joshua Miller can be reached at joshua.miller@globe.com.