Governor releases his budget

On January 26, Governor Deval Patrick released his proposed budget (House 1) of $30.5 billion for the upcoming fiscal year, which begins July 1.

The state faces enormous fiscal challenges as it begins to move out of the worst recession since the Great Depression. The recession, which began in 2008, saw tax revenues decline dramatically and the demand for services increase significantly as a result of unemployment. By all accounts the Commonwealth weathered the crisis better than most states. The state was aided by a sales tax increase of over $1 billion and federal stimulus funds. However, even with these increases in revenues there has been a toll on public education. Other important services fared even worse.

During the current fiscal year, the federal government provided over $1.5 billion in one-time funds that are not available for FY12. The budget gap between maintaining current services and expected revenues is nearly $2 billion. In order to present a balanced budget that is required by law, House 1 makes significant cuts to public safety, public higher education and safety net programs. House 1 calls for ending some programs and closing some facilities. Local aid is cut $65 million. The budget calls for using $200 million from the stabilization account which leaves only about $550 million in the rainy day fund.

Overall funding levels for education are reduced as a result of the depletion of federal stimulus funds – including the loss of $71 million in federal monies that went to higher education last year. This funding is not made up by state dollars for the upcoming fiscal year. As a result of the November election and the change in the control of the U.S. House of Representatives, there is little likelihood that additional federal funds will be available to the states this fiscal year.

Below is a summary of the key elements of the budget that affect public education. For more specific information, see these budget spreadsheets.

PreK-12 Education

Chapter 70 – State Aid to Local School Districts

House 1 increases state funds to Chapter 70 by $140 million to $3.99 billion and keeps districts’ funding levels at foundation. However, because of the loss of federal stimulus monies and Education Jobs funds, resources distributed through the Chapter 70 formula decline by about $81 million. On the other hand, less than one-half of the federal $200 million in Education Jobs money received in late summer 2010 and allocated to school districts has been used. This means that there is currently over $100 million additional funds that can be used in FY12.

Other Local Aid – Unrestricted General Government Aid

In addition to Chapter 70 funds, cities and towns receive state funds through local aid called Unrestricted General Government. In some communities, as much as 50 percent of this other local aid helps pay for public schools.
 
The governor proposes to fund local aid to cities and towns at $834 million, a $65 million decrease, a 7 percent cut across the board for each city and town.
 
The proposal also includes a new $9.7 million Regionalization and Efficiency Incentive Grant Program to help cities and towns design programs to save money.

PreK-12 Education Grant Programs

Special Education Circuit Breaker – the governor proposes funding the Special Education Circuit Breaker program at $213 million, an $80 million increase from the current FY11 budget. 

Other increases over FY11 include:

  • MCAS Low-Scoring Student Support – $9.7 million, an increase of $561,000 from FY11
  • School Breakfast Program – $4.4 million, up by $290,000 from FY11
  • Targeted Intervention in Underperforming Schools – $7.7 million, an increase of $951,000 from FY11
  • MCAS Remediation – increases funding from FY11 from $9.1 to $9.7 million


In addition, a number of important education programs were level funded, including:

  • Regional School Transportation – funding at FY11 appropriation of $40.5 million
  • Full Day Kindergarten – funding at FY11 appropriation of $22.9 million
  • Expanded Learning Time – funding at FY11 appropriation of $13.9 million
  • METCO – continues FY11 funding at $17.6 million
  • Alternative Education Grant Program – continues FY11 funding at $146,000

Early Education and Care

The governor proposes to essentially level fund Early Education and Care from the current FY11 budget at $510.1 million.

Higher Education

  • Campus Line Items – Beginning in FY12, all campuses are allowed to retain tuition from out-of-state students. The governor’s proposed appropriation for each campus is set at a level which, with assumed tuition retention, holds each campus at its FY11 state appropriation (including collective bargaining supplemental appropriations). State Fiscal Stabilization Funds, which totaled $71 million in FY11, have been exhausted and will not be available in FY12. (Campuses do have until September 30 of this year to spend any unexpended funds from prior years.)
  • The State Scholarship Program is proposed to be funded at $88.3 million, a small decrease of $1.2 million from the current FY11 budget.
  • The governor does not propose any change to the health insurance premium shares for state employees, leaving the premium payment split at 80/20 for those hired before June 30, 2003, and at 75/25 for those hired after.

Employee Benefits

  • Cost of Living Adjustment (COLA) – The governor’s budget provides for a 3 percent increase on the first $12,000 in pension benefits for retired state employees.
  • For retirees who receive their health insurance through the GIC, there were no premium cost changes.

Revenues

A significant challenge in the development of the Governor’s budget proposal is the loss of about $1.5 billion in federal stimulus funds, including approximately $200 million in federal reimbursements provided in the “Keep Our Educators Working Act of 2010”, commonly known as the EduJobs bill.

The FY12 consensus tax revenue estimate is $20.525 billion ($741 million above FY11), representing revenue growth of approximately 3.5 percent, and assumes that the national and state economies will continue a moderate recovery throughout the fiscal year.

The governor’s budget does not rely on broad-based tax increases or by raising user fees that the state’s residents pay for specific government services (such as licenses and permits).

The governor’s additional revenue proposals totaling $627.3 million for FY12 include ($s in millions):

  • Use of Stabilization Fund reserves (one-time)  $200
  • Estimated DOR Tax Enforcement    $61.5
  • New Revenue Initiatives:    $88.8

Enforcement of Room Occupancy Tax on Hotel Room Resellers
Enhanced Medical Support Compliance for Child Support Cases
Capping Life Sciences Tax Credit
Delay FAS 109 Deductions for Corporations
Fix Corporate Excise Sale Factor

  • Expanded Bottle Bill     $20
  • Revenue Maximization     $40
  • Sale of Assets      $15 
  • Quasi-Public Contributions    $25
  • Abandoned Property (one-time)    $99
  • Expanded Federal Revenue through Medicaid Waiver $78

In addition, the governor has proposed a Municipal Relief Bill that includes an expansion of the local property tax base by closing the loophole on the telecommunications equipment exemption which is estimated to generate approximately $26 million.

Pension and Municipal Health Insurance bills

In recent weeks, the governor has filed bills on changes to pensions which, if passed, will affect mostly future employees, not people currently employed, as well as proposals dealing with municipal health insurance.

MTA will be updating members on both issues very shortly.

Neither bill has even been sent to committees for hearings in the Legislature. The Senate has just completed its committee assignments. The House Speaker has not yet announced his leadership team or appointed legislators to committees.