HOUSE AND SENATE NEGOTIATORS broke their deadlock on the fiscal 2016 budget Tuesday night by finding a novel way to fund an expansion of a tax credit that benefits low-income workers and by suspending so-called Pacheco law regulations at the MBTA for three years.
The agreement was unveiled at 8 pm Tuesday night, a week into fiscal 2016, and is expected to be voted on by the House and Senate on Wednesday. Senate President Stanley Rosenberg and Sen. Karen Spilka, the head of the Senate Ways and Means Committee, briefed a handful of reporters in Spilka’s office while House officials went home. Rosenberg predicted the $38.145 billion spending plan will be on Gov. Charlie Baker’s desk very soon.
The six lawmakers trying to hammer out a budget compromise between the two branches had been working for more than a month when the major pieces finally began falling into place. The lawmakers – three from the House and three from the Senate – agreed to a popular Senate proposal increasing the state’s Earned Income Tax Credit from 15 percent to 23 percent of what a filer receives under the federal credit, while rejecting a Senate proposal dramatically increasing state personal tax exemptions. The tax credit change takes effect in calendar year 2016 and will increase the maximum benefit for some 400,000 working families from $951 to $1,459, Senate officials said.
The big stumbling block during the negotiations was how to pay for the EITC increase. Baker had suggested abolishing the state’s film tax credit,a move opposed by House leaders. The Senate in its budget had proposed freezing the state income tax rate, which is expected to decline from 5.15 percent to 5.1 percent in January and eventually to 5 percent, but that move was opposed by both Baker and House leaders.
The budget conferees instead took a third path, agreeing to permanently eliminate a corporate tax deduction known as FAS-109, which is available to a handful of multinational companies that operate in Massachusetts. Three companies would reportedly receive more than half of the $76 million in deductions. The deduction has been suspended each year for the last five years, but now it will be permanently eliminated and the money saved will go to pay for the EITC increase in tax year 2016.
The move to permanently abolish the corporate tax deduction raised eyebrows because the deduction had figured prominently in an earlier dispute between the two branches over whether the Senate could propose tax measures in its budget. Under the state constitution, the House must initiate so-called money bills. The Senate argued the House’s budget was a money bill because it contained two tax measures, one of which was the one-year suspension of the corporate tax deduction. The House insisted the suspension of the deduction did not qualify as a tax measure, but the Supreme Judicial Court sided with the Senate and said it did. The House now apparently agrees as well, since its representatives agreed to use the money saved by permanently eliminating the tax deduction to fund the EITC boost.
Regarding the MBTA, the conferees expanded the size of the Massachusetts Department of Transportation board from 7 to 11 members and also created a special MBTA fiscal control board made up of three members from the MassDOT board and two outside members. The legislation also names the secretary of transportation as the head of the MassDOT board and gives the secretary the authority to appoint the T’s general manager. The budget agreement preserves the existing cap on T fare increases at 5 percent every two years and also preserves funding for the T that Baker wanted to cut.
The big stumbling block on the T between the two branches was the Pacheco law, which regulates how government agencies can privatize state services. Baker wanted to exempt the T from the law and the House in its budget plan proposed a five-year suspension of the law, which is named for its chief sponsor, Sen. Marc Pacheco of Taunton. The Senate reluctantly agreed to a three-year suspension of the law, which requires public agencies to prove cost-savings before hiring private contractors to perform government services. One provision was added to the conference budget bill requiring the state Inspector General to analyze whether privatization projects pursued by the T over the next three years actually save the state money.
The Legislature’s T fixes give Baker much of what he wanted but not in exactly the ways he had proposed. Aside from more flexibility to impose fare increases, he had also sought authority to limit binding arbitration awards at the transit agency.
At $38.145 billion, the budget is up 3.5 percent over fiscal 2015’s spending levels but slightly below the 4.8 percent projected increase in tax revenues for this fiscal year, which began July 1. The budget contains a provision requiring that any expenditure of tax dollars for hosting the Olympics in 2024 must first be approved by the Legislature after public hearings. The budget, of course, remains in effect for one year, through the end of June 2016.
The six lawmakers who served on the conference committee were Spilka of Ashland and fellow senators Sal DiDomenico of Everett and Vinny deMacedo of Plymouth, plus House Ways and Means Chair Brian Dempsey of Haverhill and fellow House members Stephen Kulik of Worthington and Todd Smola of Warren.