LOOKING AT THE FY 2019 STATE BUDGET

BAKER

^ signing the FY 2019 Budget bill: Governor Baker, 5 days into the new fiscal year.

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Last week the House enacted its $ 41.88 billion budget, after which Governor Baker vetoed some line items, as Governors always do. Soon the final Budget will be law. What does it contain that may be of interest to reform-minded voters ?

Before I get to critiquing the Budget, here is ML Strategies’s analysis of the initial, April budget for you to study in great detail, if you like : https://www.mintz.com/newsletter/2018/Advisories/7158-MLS/FY2019-MA-Budget-Update_House-Ways-and-Means-Budget.pdf

Massachusetts Taxpayers Foundation (MTF) offers these comments about the House and Senate Conference Committee Budget reported on July 18th :

Today, the House and Senate released the fiscal (FY) 2019 budget conference report, which will now go to Governor Baker for his review. The $41.88 billion budget reconciles the House and Senate spending plans eighteen days after the start of the new fiscal year. The conference budget is most notable in its decision to increase assumed tax revenue by $667.3 million over the amount agreed to as part of the consensus revenue process.

There’s been much talk, including some by me, about the State’s unexpectedly large tax collections this year. The extra money has generated some voter interest in boosting state spending on many items currently viewed as underfunded. MTF, however, notes that much of the State’s unexpectedly large revenue boost has come from changes enacted by the Federal government in its Tax Reform Act :

As MTF advised in our conference preview, while it is reasonable to reconsider the original FY 2019 tax revenue figures in light of strong tax collections, lawmakers should proceed with caution.
The recent surge in collections is in part driven by federal tax changes and therefore much of the revenue, especially capital gains and other non-wage income taxes, is likely to be nonrecurring.
Therefore, MTF suggested limiting any adjustment in FY 2019 to tax revenue sources not subject to volatility from year to year.

Further analysis :

The conference committee report boosted assumed tax revenues by a significant amount – $667.3 million – but assumes that $300 million of this comes from above-threshold capital gains revenue which must be deposited into the Stabilization Fund and therefore is unavailable for operating expenses. After accounting for increased revenue transfers to both the MBTA and the School Building Authority (due to increases in expected sales tax revenue), the tax revenue upgrade leaves $341 million available for budgetary spending. Until final tax numbers are released for the last fiscal year, it is difficult to gauge the fiscal risk of increasing spending by that amount,

In other words, the State Budget should be cautious about appropriating money that may be one-time-only. The Budget notes that it has enacted no new taxes or fees : yet it has increased Budget spending by 3.2 percent and $ 4.4 billion of “off budget” spending by 6.4 percent. (What might these “off budget”: items be ? MTF tells us : transfers to the pension fund, MBTA and school building authority.)

The Budget does not delve into the State’s pension liabilities, which past analyses have opined to be significantly underfunded. It would be valuable to know if the Budget cures at least a part of said underfunding. Have the off-budget transfers done so ?

To continue my main line of analysis : the Hopuse and senate combined to increase spending by the two legislatures’ maximum figure, making full use of the year’s tax windfall. Wrote MTF :

The House and Senate budgets differed by just $21.6 million in total spending, but that similarity masked more than $500 million in different spending choices. In fact, unique spending in both budgets combined was approximately $41.8 billion – an amount significantly higher than the revenues used by either the House or Senate. The decision to increase tax revenue available for the budget by $341 million allowed the conferees to opt for the higher spending figure in almost all instances where there was a discrepancy and add $153.1 million in new spending to offset otherwise underfunded accounts

Not surprisingly, the Budget includes this :

The conference report contains more than 800 earmarks that generally provide funding for local projects.

I do not oppose these local earmarks. The State Budget is not only a general account. It must take notice of unique local needs. I have myself advocated for Magazine Beach (in Cambridgeport) upgrades and reforms. These appear to be included in the Conference Budget.

Why the Budget includes under-funded accounts is beyond me. The following is an MTF list, in which Governor baker’s recommendation is on the left and the various legislature adjustments to the right of his request:

                             GOVERNOR          HOUSE         SENATE         CONFERENCE   DIF’RENCE

Indigent defense   $236,938,646   $189,739,504   $193,250,115   $244,031,412    $7,092,766
Family homelessness  $190,763,011  $181,107,614  $186,091,253  $193,745,706  $2,982,695
Sheriffs                         $626,715,238   $573,039,125   $579,845,616 $623,752,476 -$2,962,762
MassDot (snow and ice removal)

                                      $367,679,448     $323,109,448 $323,246,448 $358,546,448 -$9,133,000
Collective bargaining $107,246,977     $47,216,876   $47,216,876    $47,216,876 -$60,030,101
Settlements and judgments $10,000,000 $1,000,000 $1,000,000     $1,000,000    -$9,000,000
Total                  $1,529,343,320  $1,314,212,567 $1,329,650,308 $1,467,292,918 -$71,050,402

Policy items abounded, according to MTF — as they usually do. Very few made it past the conference:

Issue                                                   Proposed by              Conference

EITC increase                                      Both                              Included
TAFDC cap on kids                             Both                              Included
State Police audit                               House                           Included
Dairy farmer tax credit                    House                            Included
Conservation tax credit                   House                            Not included
Charter school growth cap             Senate                           Not included
CPA dedicated funding increase    Senate                            Not included
EMAC double jeopardy                   Senate                            Not included
EMAC hardship exemption            Senate                            Included
Higher education notification
requirements                                    Senate                          Not included
Municipal police training surcharge Senate                     Not included
County deeds fee increase             Senate                           Not included
Sports betting commission            Senate                          Not included
GIC membership change               Senate                          Not included
Immigration cooperation
restrictions                                      Senate                          Not included
Tax expenditure review                Senate                           Included
Pharmacy rebates                         Senate                          Not included

Governor Baker then vetoed $ 48,700,000 (about one tenth of one percent of  the total) so as t.o bring the Budget more in line with revenue expectations. said MTF :

The Governor’s vetoes are intended to produce a starting budget (often called the general
appropriations act or GAA) that pares down spending to fit within expected revenues and future obligations as well as to eliminate unnecessary spending. These vetoes – along with other revenue adjustments and assumptions related to unexpended appropriations – are sufficient to address several spending and revenue exposures in the Conference budget so that the budget is balanced.

Every Governor vetoes certain items in the annual State Budget proposal. Few of these vet.oes are popular with the legislators, and most get overridden. Why this budget charade even takes place, I have no idea, but it does take place. As MTF notes:

The $48.9 million in spending vetoes eliminate one line-item and reduce 45 others, by far the smallest number of spending vetoes during the Governor’s term.

Will any of Governor baker’s vetoes not be overridden ? Today we will know, because the close of business today is the end of this legislative session.

An under-funded Budget, one that assumes fairly optimistic, one time revenue receipts, but a fairly conservative, strong allocation to the State’s $ 1.89 billion Reserve Account : here’s  a Budget that doesn’t miss the mark by much, as we can see by Governor Baker’s downsized veto numbers. Hopefully the actual fiscal year up-coming will see the State’s employee pension liability further cured, our voluminous and diverse health care responsibilities better targeted and carried out, and more bond bills as needed because let’s not overlook the part that two major bond bills totaling $ 3.9 billion have played in bringing us a budget better adjusted than not.

—- Mike Freedberg / Here and Sphere

 

 

 

 

 

 

 

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