Governor’s plan boosts spending, vows to veto new tax increases
Threatening to veto tax hikes if pursued by the Legislature, Gov. Charlie Baker on Wednesday took the exceedingly rare step of refiling his annual budget, proposing a $45.5 billion plan that increased spending beyond what he proposed in January despite the projected loss of $3.6 billion in state tax revenues from an economy ravaged by the COVID-19 pandemic.
The increased spending, Baker and budget officials said, was driven in large part by growth in the state’s Masshealth, or Medicaid, program. To close the gap between falling tax revenues and rising spending levels, Baker’s budget leans heavily on onetime revenues, including more than $1.8 billion in federal funding and a $1.35 billion withdrawal from the state’s $3.5 billion “rainy day” fund.
“Pretty neat trick, huh?” Baker said, when asked about his development of a budget that proposes to increase spending by 3.8%, while also solving for the loss of billions in tax revenue.
Baker said he hopes the Legislature can turn the budget around before Thanksgiving so that the administration can turn its attention to preparing for fiscal 2022, but whether that will be possible remains to be seen. He said he will “soon” file another one-month interim budget to ensure government remains funded through November.
Once averse to using one-time money to balance the state’s budget, Baker said that reticence in recent years is what will enable the state to get through this financial crisis without dramatic reductions in services.
But his plan is not without its question marks, including the proposal’s reliance a $267 million plan to accelerate the collection of sale taxes from large business that would generate a one-time boost for the fiscal 2021 budget, but has been rejected in the past by the Legislature.
The MBTA is also facing a $600 million budget gap due to decreases in ridership and other financial pressures, and while Baker’s new budget proposes to increase the transit agency’s funding by $64 million, it would still received $107 million less in direct transfers than it would have under Baker’s January proposal.
The loss in revenue due to the pandemic is made up for in Baker’s new budget with federal relief funding, including $834 million in enhanced Medicaid reimbursements and $550 million from the federal Coronavirus Relief Fund. It also uses $422 million in Federal Emergency Management Agency funding carried over from last year, and $515 million in cost savings across state government.
Administration and Finance Secretary Michael Heffernan said the governor’s plan avoids any broadbased tax increases, layoffs, or cuts to social and health safety net programs, and level funds local aid, consistent with an agreement announced with the Legislature in July.
It also would commit $100.7 million in new funding to a small business recovery programs that would invest $35 million in small business grants targeted at minority-, women-, and veteran-owned businesses, $35 million for community financial institutions and $15 million for small business capital improvements.
Baker said he opted against proposing any new tax or fee hikes because it “just didn’t seem like the right thing to do” to look to taxpayers to contribute more right now. Asked he would veto tax hikes should be they be embraced by the Legislature, Baker said, “I would, yeah.”
The budget proposal does, however, contain new sources of revenue.
To help offset the slowdown in tax growth, Baker is reviving his plan to increase fees on Uber, Lyft and other transportation network companies from 20 cents to $1 per ride, and refiled his proposal from January to add an excise tax on opioids. The budget also counts on revenue from sports betting that has yet to be legalized.
Heffernan said the new spending plan was both “conservative” and “realistic.”
“Our revised budget optimizes the use of federal and state revenues and minimizes the risk to core government services during the COVID 19 pandemic,” Heffernan said.
Massachusetts is one of just four states in the country to not have an annual or biennial budget in place to cover fiscal year 2021 spending, though many states have said they will need to revisit those budgets.
Baker in January filed a $44.6 billion budget for fiscal 2021 based on the projection agreed to with legislators that tax revenues would grow by 2.8% and amount to a little more than $31.15 billion for the year.
The administration is now forecasting that tax revenues will tumble this fiscal year to $27.6 billion, or $3.6 billion below those initial projections. Baker and Heffernan said that if Congress does come through with additional stimulus funding for states, the administration could look to adjust its draw on reserves.