On January 23, Gov. Deval Patrick released House 2, his second state budget.
Budget writers face major challenges this year because of a projected $1.3 billion deficit. Patrick closes this deficit in his $28.2 billion proposal in a variety of ways including relying on funds from the rainy day fund, closing corporate tax loopholes and some cuts, including cutting state employees pay by proposing an up to 67 percent increase in their health insurance premiums. [Related story about the proposed increases.
Despite the deficit the governor proposes increasing spending in a number of areas including public education, public safety and the environment. In addition to increasing Chapter 70 funds, which go to local school districts, the proposal also calls for increases in early childhood education, full-day kindergarten and extended learning time. In FY09, when inflation is taken into account Chapter 70 is $421 million below FY02.
Public higher education receives only small increases in the governor’s bill. In FY09, when inflation is taken into account funding for higher education is still $391 million below FY01.
The governor's budget is now sent to the House Ways and Means Committee. In mid-April that Committee will release its version of the FY09 budget which will be considered by the House at the end of April.
Below is a summary of the major highlights of the proposed budget.
In companion legislation to the budget, the governor has proposed reforms to reduce corporate tax avoidance and also reduce the corporate tax rate.
- The "combined reporting" reform would make it harder for businesses to shift income among subsidiaries to reduce their taxes in Massachusetts.
- The "check-the-box conformity" reform would require business to claim the same tax status in Massachusetts as on federal and other state returns.
- The governor estimates these reforms would bring in $297 million in FY09 and approximately $500 million in subsequent years.
- This increase in revenue would be partially offset in future years by the corporate tax rate reduction. The governor's budget proposal would also reduce the corporate tax rate from the current 9.5 percent to 8.3 percent over three years, beginning in 2010. The rate reduction, when fully phased in, would reduce corporate tax revenue by thirteen percent, about $200 million at current collection levels.
The governor proposes using $124 million in casino licensing revenues to make up for the gap between the level of lottery payments made to cities and towns this year and the lottery revenue expected to be available in FY09.
The governor also proposes enhanced revenue enforcement that he estimates will net the Commonwealth $166 million in FY09. These enforcement efforts would include ensuring the correct classification of workers (When employees are improperly classified as independent contractors, their employers do not withhold taxes and sometimes those taxes are not paid.), better cigarette tax stamps, other improvements in tobacco tax collection, increased penalties on delinquent taxpayers and the efforts of 87 additional Department of Revenue staff members added in FY08.
In addition, the governor proposes the repeal of two sales tax exemptions: the exemption for aircraft and aircraft parts, which is projected to bring in $9 million, and the exemption for pesticides (except for farmers and licensed applicators), worth $3 million.
The governor's budget transfers $369 million from the Commonwealth's Stabilization Fund to the General Fund to pay for FY09 expenses. The governor also proposes a new way of calculating how much should be used in Stabilization Fund money each year. This strategy looks at recent rates of revenue growth and would seek to tie the use of Stabilization Fund money to the amount by which projected revenue growth for the coming year is below the trend for the previous five years.
Chapter 70 -- State Aid to Local School Districts
Chapter 70 is funded for FY09 at $3.9 billion. This is $223 million increase (6 percent) over FY08. This is the third year of a five year phase in of changes made to the formula.
Other Local Aid -- Lottery and Additional Assistance
Lottery aid to cities and towns is funded at FY08 levels or $935 million provided $124 million of the appropriation is forthcoming from casino licensing fees. Collection of the $124 million in initial licensing fees is dependent on passage of the governor's proposed casino legislation. Additional Assistance was level-funded.
Education Grant Programs
The governor proposes to increase funding for several important education programs. Most other programs have been level-funded, and a number of programs that were eliminated in previous years have not yet been restored:
- Full-Day Kindergarten -- increases funding from FY08 to expand program (kindergarten expansion grants) by $8 million (to $42.1 million).
- Extended Learning Time -- increases funding for expansion of this pilot grant program by $13 million (to $26 million).
- Special Education "Circuit-Breaker" -- increases funding over FY08 by $14.3 million to fully fund this reimbursement program (to $234 million).
- MCAS Remediation -- increases funding over FY08 by $2 million (to $15.4 million).
- Targeted Intervention in Underperforming Schools -- increases funding over FY08 by $4.5 million to expand program to assist more schools (to $13.7 million).
- METCO -- increases funding by $1.5 million (to $22.1 million).
- Alternative Education Grant Program -- funded at FY08 level ($1.25 million).
- Regional School Transportation -- proposes funding at a small decrease from FY08 level (from $58.7 to $58.3 million).
- Education Reform Reserve -- the so-called “pot-hole fund,” for supplemental funding for school districts, funded at FY08 level ($5.5 million).
- Charter School Reimbursements -- proposes increases over FY08 by $7.9 million to fully fund this program that reimburses school districts for funding losses due to charter schools (to $81.7 million).
- Class Size Reduction for Low Income Districts -- not funded in House 2.
- Comprehensive Health Education Programs -- not funded in House 2.
- Transportation of Pupils -- not funded in House 2, except for regional school districts' reimbursements, which were level funded.
- Racial Imbalance Grants (Chapter 636) – not funded in House 2.
Office of Educational Quality and Accountability
House 2 proposes to locate this office within the new Executive Office of Education and proposes funding at $2.9 million (a $700,000 increase over FY08).
Higher education saw only small increases in the funding it receives in the governor’s budget. (For details, see MTA's budget spreadsheets.)
- UMass increased 4.2% or $21 million
- State Colleges increased 1.3% or $2.8 million
- Community Colleges increased 1.7% or $4 million