A new fee on businesses is more likely to become law after Senate leaders Tuesday broadly concurred with Governor Charlie Baker and the House of Representatives that such an effort is needed to help fund the state’s sharply rising health care costs.
Senate leaders unveiled a $40.3 billion budget Tuesday that includes $180 million in new revenue collected from employers. They said the Baker administration should pick from one of two options: a new fee on employers with 25 or more workers that don’t offer adequate health coverage or an increase to an existing fee that nearly all businesses already pay.
The Senate proposal, similar to the one approved by the House, scales down Baker’s initial plan to raise $300 million from a fee on employers. It would phase out the new or increased fee after two years. Nonprofit employers “that serve the public interest” could be exempt from the Senate plan, though it’s unclear exactly which nonprofits that would include.
The budget would also boost spending on the University of Massachusetts system, impose a tax on everyone who rents from sites like Airbnb in the state, and funnel more money to services for terminally ill children and their families.
But, after months of less-than-expected tax revenue, the Senate spending plan is based on the state bringing in more cash than is now considered realistic by some Beacon Hill budget experts. Its total spending level is likely to be reduced when the House, which already passed a budget, and the Senate hash out a final plan next month.
“We face an unsteady fiscal environment,” said Senator Karen E. Spilka, the chamber’s budget chief.
The state Medicaid program, which provides health coverage to poor and disabled people, accounts for the single largest chunk of state spending — and its rolls have been growing. An increasing number of Massachusetts residents who are employed have been joining the program, according to administration data.
In response, Baker proposed a $2,000-per-employee fee on businesses, which business groups decried as an unfair new tax. The administration later floated an alternative plan that would spread the cost over more businesses by increasing an existing assessment called the Employer Medical Assistance Contribution. Senate leaders said they were open to that option.
Business leaders said they were encouraged by the Senate’s proposal.
“I think Beacon Hill is hearing the concern,” said Jon B. Hurst, president of the Retailers Association of Massachusetts.
Richard C. Lord, president of Associated Industries of Massachusetts, said in statement that the Senate plan is “a step in the right direction,” and James E. Rooney president of the Greater Boston Chamber of Commerce, said he was glad Senate leaders agreed to phase out the fee after two years.
Following the lead of the House, Senate leaders nixed a plan from the governor to cap the rates at which hospitals are paid, something the hospital industry lobbied against.
“The Senate, like the House, listened to the concerns of hospitals and approached this budget proposal with caution regarding its impact on the Massachusetts health care community,” said Massachusetts Health and Hospital Association president Lynn Nicholas in a statement.
But senators are planning to draft new legislation to tackle health care costs later in the legislative session, and Spilka said, “Everything will be on the table.”
One notable spending increase in the Senate budget proposal is for the University of Massachusetts system, which would see about a 5 percent increase, according to a university spokesman.
The Senate budget would also pour $800,000 more into a program to assist dying children and their families with services designed to improve their quality of life and meet their physical, emotional, and spiritual needs.
Baker sliced some funding for that program when he made emergency cuts during the current fiscal year.
Like the budgets proposed by the governor and the House, the Senate plan includes hundreds of millions of dollars in new revenue.
For example, the budget would impose a tax on everyone who rents an Airbnb in Massachusetts.
The governor proposed a similar Airbnb tax, but the Senate’s version is expected to bring in more money, a total of $18 million in the first six months of 2018. That’s because the Senate’s language would mandate all providers of transient accommodations, such as people who rent out rooms on Airbnb, collect the state’s 5.7 percent occupancy tax from customers, just like hotels.
The Baker administration plan was narrower. It imposed that tax only on people who rent from high-volume providers who rent space 150 days or more a year.
The thinking behind the tax, officials say, is to level the playing field with hotels.
Akin to the budgets proposed by the governor and the House, there are several accounting gimmicks in the Senate plan.
For example, the state is poised to spend $240 million on lawyers for certain poor defendants this fiscal year. But the Senate budget funds that account with only $180 million. Lawmakers often supplement that pot of money midway through the year because it fluctuates with demand.
A spokeswoman for Baker, Lizzy Guyton, knocked that decision, saying, “It is concerning that numerous accounts to pay for core services, like indigent legal services, are underfunded in this budget.”
In January, the Senate, House, and the governor’s budget office all agreed to project that state tax revenue would grow by 3.9 percent in the fiscal year that begins in July.
But since then, tax revenue has fallen far below expectations. Through April, the state brought in $462 million, or 2.2 percent, less tax money than expected.
Through April, year-to-date tax revenue is up just 1.1 percent.
Experts say those numbers mean the 3.9 percent growth estimate for the next fiscal year is unlikely to be borne out by reality.
“Given the track record of revenue growth over the last 18 months, it’s important to begin fiscal year 2018 with a lower and more realistic tax estimate so as not to compound the problem,” said Eileen McAnneny, who leads the business-backed Massachusetts Taxpayers Foundation.
Spilka underscored that, at this point, there is no consensus on what a different revenue figure ought to be, so the Senate is basing its budget on the number agreed to in January.
But she acknowledged that, once the Senate passes a budget, House and Senate negotiators may have to tinker with the state spending plan’s total cost.