#2023-12, May 12, 2023

Senate Seeks Spending Increase, Includes Tax Relief Reserve In $55.8 Billion Budget Proposal

On Tuesday, Senate Democrats rolled out a $55.8 billion state budget bill, leaving room for about $575 million in future investments in tax relief, which is expected to be hit the chamber floor for debate soon.

The Senate Ways and Means Committee’s fiscal 2024 spending plan weighs in at about $3.4 billion, or 6.5 percent, larger than the fiscal 2023 state budget signed by Governor Charlie Baker (R- Swampscott) last summer. The plan is also $300 million over what Governor Maura Healey (D- Cambridge) proposed, and $400 million under the House’s budget.

Both the House and Governor Healey’s budgets had factored in a companion tax relief bill, which the governor estimated could have a $1 billion impact to state revenue next fiscal year. The House factored in $587 million next fiscal year for tax relief and up to $1.1 billion after a two-year phase-in period. Senate leaders have been quiet on whether they would pursue tax relief at all, after state revenue numbers for April released last week showed the amount the state is bringing in plummeted by $2.163 billion from the same month last year.

As previously reported, the House tax relief plan, approved on April 13, landed in Rodrigues’ committee three weeks ago, and tax relief has been a subject of continuing debate since last summer, when the House and Senate scrapped their approved targeted tax relief plans due to affordability concerns.

Despite April revenue numbers dipping, state tax collection has surged over the last two fiscal years by nearly 40 percent, accommodating a nearly 11 percent increase in spending in the current budget, although April’s collections appear to have pushed this year’s budget into a revenue deficit.

Always a potential vehicle for broader policy changes, the Senate budget proposal includes several such as in-state tuition for undocumented residents, exempting new surtax revenues from counting toward an annual limit on the state’s tax collection, making permanent the COVID-19 eviction diversion program, and offering no-cost communications to incarcerated people and their families -- all of which the House has also supported, giving them full legislative support. The eviction diversion program is a COVID era renter-protection effort that slows down the court process in eviction proceedings when the tenant has a pending rental assistance application.

Senate leaders would also omit all surtax revenue -- projected to be $1 billion next year -- from pushing the state’s tax haul closer to the threshold that automatically triggered about $3 billion in mandatory taxpayer rebates last year under a law known as Chapter 62F.  The same proposal in the House was met with Republican resistance, but a House GOP amendment to leave the voter-approved tax cap untouched was rejected. With aligned legislative support for several policy priorities in both chambers, attention will soon turn to where Governor Healey lands on the policies.

Among the differences between the House and Senate’s budgets is the exclusion of online Lottery in the Senate Ways and Means budget released on Tuesday.

The House’s budget would authorize the online sale of Massachusetts Lottery products, expanding gambling onto another front in the era of mobile and in-person sports betting, to generate $200 million in revenue for Commonwealth Cares for Children (C3) grants to stabilize the early education and care sector.

Senate leaders, who have been willing but more wary of creating new gaming and betting markets, would not grant the Lottery this authorization and instead fund increased investments in C3 grants through $245 million available in an Early Education and Care Trust Fund that the Legislature previously put aside.

The committee’s spending plan would direct $475 million for C3 grants, $15 million less than the House’s allocation for the program, which would take $250 million from the General Fund, $40 million from surtax revenues and $200 million from iLottery.

The largest chunk of the budget, MassHealth, would be funded at $19.93 billion, a decrease of about $1.77 billion or about 8.2 percent from this fiscal year. This represents a slightly higher investment than the House and Governor Healey made into the health insurance program, who both earmarked $19.8 billion, due to updated information on the process of redetermining MassHealth eligibility for the first time since COVID-19 began to significantly reduce enrollment in the state’s Medicaid and Children’s Health Insurance Program. Both the governor and Legislature are expecting a big drop in the number of residents – up to 400,000 -  who will qualify, saving the state billions of dollars.

The Senate leaders’ budget would put $470.5 million toward state agencies and programs dealing with climate change and the environment -- about .85 percent of their total spending plan. House officials say 1.25 percent of their budget would go toward state environmental agencies, and Governor Healey’s plan dedicated 1 percent of the state budget to the Executive Office of Energy and Environmental Affairs.

The release of the Senate’s FY’24 budget proposal officially opens the floodgates for the expected hundreds of proposed amendments ahead of debate during the week of May 22.

To fully review, or otherwise follow along with, the Senate’s FY’24 budget proceedings, click here.

Governor Healey Budget Chief Sees Tax Base Holding Up

While April’s below-expectation tax collection report “can be jarring,” the Healey administration’s budget chief reiterated earlier this week that the “phenomenon” would not result in any cuts to the current state spending, and the numbers budget-writers are using to draft the fiscal 2024 spending plan are still holding solid.

Massachusetts revenues last month came in at $4.782 billion -- $1.435 billion below state officials’ projected estimate. The news plunged the state budget into a revenue deficit, and raised the stakes for May’s revenue report, which is due out in early June. The May benchmark is $2.537 billion.

Speaking to municipal officials at the State House, Secretary Gorzkowicz reported that Department of Revenue analysis had pinpointed the “great majority” of the overall April drop was due to slips in capital gains revenue and use of pass-through-entity credits. However, the full effect of the revenue landscape in April may not come to light for many more months as of all those tax returns where the state observed a revenue decline, the secretary said around 75 percent were also cases where the taxpayer filed for an extension -- this year’s extended filing date is Oct. 16.

While budget officials had expected $2.9 billion in capital gains revenue for fiscal 2023, they were only able to budget up to $1.4 billion for spending. The excess above that $1.4 billion cap goes into the state’s “rainy day” fund by statute. This practice cushions the state against an “immediate” impact on its budget, Sec. Gorzkowicz said, when something like April’s “sizeable drop” in capital gains revenue occurs.

Sec. Gorzkowicz said he would be following May and June revenues “very closely” and that “various tools,” including prior year surpluses, would “ensure the budget can remain in balance” when the fiscal year ends on June 30.

The secretary also relayed that revenues, overall, are still trending quite high compared to multi-year averages, and highlighted indicators of economic strength like strong income tax withholding and sales tax revenue figures. He added that there are no plans to revisit the consensus revenue estimate for fiscal 2024 because “we believe [the current estimate], at this time, properly accounts for the phenomenon we observed in April.”

Budget officials have pegged their May revenue estimate at $2.537 billion.