Despite the pandemic-related recession and high unemployment rates, and an expected drop in state tax revenues, Gov. Charlie Baker on Wednesday released a budget proposal for the current fiscal year that is actually higher than the budget he proposed in January.
Baker, a Republican, is recommending a fiscal 2021 budget of $45.5 billion, or 3.8 percent more than was spent in fiscal 2020. The budget he released in January would have spent $44.6 billion, or 2.3 percent more than in the prior fiscal year.
The high budget is largely driven by excessive spending in MassHealth, the state’s Medicaid program. It would be paid for with an influx of federal money as well as a $1.3 billion draw from the state’s $3.5 billion rainy day fund.
“The rainy day fund is there to support services when it’s raining, and I think most people would agree it’s raining,” Baker said at a State House press conference.
Although legislative leaders had at one point floated the idea of having a joint budget between the governor, House and Senate, Baker’s decision to release his own budget proposal indicates that this will not happen. His proposal now goes to the House.
Catherine Williams, a spokeswoman for House Speaker Robert DeLeo said only that the House Committee on Ways and Means has been in discussions with the administration and the Senate regarding the fiscal 2021 budget “and will review the budget filed by the Administration today.”
A spokesman for the Senate Ways and Means Committees did not immediately respond to requests for comment.
Baker said he expects to submit another temporary budget to keep government running through November, and he hopes lawmakers can return a budget bill to his desk by Thanksgiving. With the process likely to go past the election, that means state lawmakers will be voting on the budget in an unusual lame duck session.
Baker does not plan to raise taxes and would allow the income tax rate to drop to 5 percent, the final drop approved two decades ago in a 2000 ballot question.
“The idea of going back to taxpayers given their own situation just didn’t seem like the right thing to do,” Baker said.
Baker does want to delay implementing a state charitable deduction, which was scheduled to go into effect this year and would have cost the state $64 million in tax revenue. Baker is also proposing “modernizing” the collection of sales taxes by requiring large businesses to remit sales taxes to the state more quickly. This is estimated to bring in $267 million in one-time revenue, primarily by collecting in this fiscal year money that would otherwise have come in next year. It is a proposal he has made before, which has never been approved by the Legislature.
Baker also wants to push off implementation of the Student Opportunity Act, a major revamping of the state’s education funding formula, that was initially scheduled to go into effect this year. While the budget proposal includes a $108 million increase in Chapter 70 funding, that is mainly to keep pace with inflation and enrollment changes. In comparison, Baker’s January budget would have included $355 million in new education spending to conform with a new education funding formula – and some advocates had said even that was not enough.
Schools, however, are benefitting from an extra $442 million from various federally funded coronavirus-related grants. The governor called it “quite an achievement” that schools overall will get more money than anticipated – counting federal dollars – despite the pandemic.
Baker’s release of a budget proposal in October – for the fiscal year that began July 1, 2020 – is in itself unprecedented.
Adhering to the traditional budget schedule laid out in state law, Baker released a budget proposal in January. But by March, Baker’s budget had become hopelessly outdated as the coronavirus pandemic forced the state to shut down virtually its entire economy. Since July, the Legislature has funded state government with a series of temporary budgets, the latest of which expires at the end of October.
At a recent hearing, the Department of Revenue estimated that the tax revenue assumption Baker used to build his budget in January – that the state would take in $31.15 billion in tax revenue – was now too high, by between $2.7 and $5.2 billion. Baker’s latest budget proposal counts on getting $3.2 billion less in tax revenue than his January proposal, or $27.59 billion. That is a 6.8 percent drop compared to tax revenues in fiscal 2020.
The proposal does not count on getting any additional federal stimulus money, since it remains unclear whether Congress will pass another stimulus bill. It does include $550 million in coronavirus relief money the state already received.
Overall, health care spending is the clear budget driver. MassHealth gross spending will be $1.49 billion higher than Baker had anticipated in January, or an 8.9 percent spending increase, due to COVID-19-related spending. Overall, the Baker administration projects MassHealth spending of $18.2 billion, of which the state’s share is $6.6 billion – a 10 percent increase from fiscal 2020.
Most commercial insurers actually profited this past year, since medical procedures were pushed off when doctors’ offices shuttered to non-emergency care. But MassHealth had a major increase in enrollment as people who lost jobs have migrated from commercial plans, and new federal rules mean the state cannot deem someone ineligible for MassHealth during the state of emergency, even if their financial situation changes.
Enhanced federal reimbursements for Medicaid during the pandemic means Massachusetts will get $824 million in extra federal money to pay for the increased health care spending.
Non-health care spending will be just 0.9 percent higher than last year. Secretary of Administration and Finance Michael Heffernan said agency heads were asked to craft a budget based on the lower number of either the prior year’s spending or the spending included in Baker’s January budget.
One major area with increased discretionary spending is in a $101 million small business recovery plan that Baker is proposing. Most of this money would go towards grants and technical assistance to small businesses, with a focus on minority, veteran and women-owned companies.
Money is included for housing support, in line with a program Baker announced Monday to prevent evictions. As he previously announced, Baker would level-fund local aid.
The Department of Children and Families budget is lower than Baker anticipated in January, primarily due to caseload declines. There are slightly lower budget recommendations than in January for a range of departments and programs, including substance abuse programs, the Executive Office of Energy and Environmental Affairs, the Department of Conservation and Recreation and others. The State Police would get $411.4 million, compared to $413.1 billion envisioned in January.
The MBTA would get a $64 billion budget increase over fiscal 2020, for a total of $1.269 billion. That includes $1.142 billion in a routine transfer based on sales tax revenue and another $40 million from the sales tax acceleration proposal.
Similar to Baker’s January budget proposal, the budget would fund several recommendations of Baker’s Black and Latino advisory commission, primarily related to workforce development and training. It would allocate $8.4 million for a new job training program in skilled trades like plumbing and manufacturing, using vocational high schools to offer afternoon and evening classes.
Baker is proposing the same fee hike for ride-hailing services that he proposed in January, from 20 cents to $1 per ride, but delaying implementation so that no new revenue is gained this year.
“This revised proposal enables the commonwealth to make significant investments in our recovery while continuing to fund key services that support our continued fight against the virus,” Baker said.
Eileen McAnneny, president of the business-backed Massachusetts Taxpayers Foundation, said the governor’s approach makes sense, in funding social safety net programs while not raising taxes. “You have to recognize the fragility of the economy and not add taxes or do anything that could further jeopardize our recovery,” she said. “At the same time, you have to recognize there are people who are hurting.”
Paul Craney, a spokesman for the Massachusetts Fiscal Alliance, a conservative fiscal policy group that does not disclose its backers, criticized Baker’s plan to accelerate the sales tax collection and raise fees on Uber and Lyft, saying it will hurt businesses already hit by the pandemic and demonstrates “a tone deafness that only could live in the narrow confines of our statehouse.”
Marie-Frances Rivera, president of the left-leaning Massachusetts Budget and Policy Center, said while the budget does protect core state services, it “fails to make the swift and at-scale policy solutions needed to support the hundreds of thousands of families in our state that can’t afford to put food on their table or keep their families safe and housed.”
MassBudget has been pushing for tax increases on wealthy individuals and profitable corporations. Baker on Wednesday said he would veto any new taxes that the Legislature passes right now. Rivera said the governor’s promise to veto new taxes “will not help us fully address the urgent needs of communities, much less invest in an equitable and strong recovery.”