Gov Baker FY18 Budget Analysis
Governor Charlie Baker released his annual budget recommendation, known as House 1, on Jan. 25, 2017. His plan, if enacted, would include $40.508 billion in spending for fiscal year 2018, which begins July 1. This represents a 4.3 percent increase in total spending over the current fiscal year.
Throughout the budget, there are a number of proposals of concern to the MTA, including paltry funding increases across all levels of education, funding reductions for the special education circuit breaker, severe underfunding of charter school tuition reimbursement, potential elimination of key services to urban districts, restrictions on the accrual of sick time, and structural changes to employee health benefit plans.
House 1 relies on $27.072 billion in state tax revenue, $11.437 billion in federal reimbursements and an assortment of other departmental revenues, transfers and settlements to balance the budget.
The governor’s budget narrative notes that “the administration does not propose raising any taxes.” The budget does indeed include a number of new tax measures, however. The governor applies the room occupancy tax to residents using home-sharing services such as Airbnb and VRBO for more than 150 days per year, for example, labeling them “transient accommodation operators.” In addition, a new rule that does not require legislative approval would allow the governor to more broadly apply the sales tax to online retailers, specifically those with no physical presence in the state. The budget also depends on $300 million from a new employer health care assessment. The governor proposes that companies that do not offer health insurance and have more than 11 employees pay a penalty of $2,000 per worker.
The governor’s budget includes the full-year cost of previously approved tax cuts, including a drop in the income tax rate from 5.15 percent to 5.10 percent that began in January 2016 and the potential drop to 5.05 percent in January 2018. These reductions, and others passed between 1998 and 2002, cost the Commonwealth more than $3 billion annually.
House 1 increases Chapter 70 funding for municipalities and regional school districts by 2 percent, keeping all districts at foundation budget levels and providing an increase over FY17 of at least $20 per student for all districts. (Three-quarters of districts receive an increase of only the $20-per-student minimum.) While this was described by the governor as a “historic level,” the claim is actually not accurate when accounting for inflation and changes in student enrollment. Taking these into account, the amount of Chapter 70 aid proposed in House 1 is $283 million, or 5.7 percent lower than the high point for Chapter 70 funding in FY02.
The governor’s budget does increase unrestricted local aid by 3.9 percent for each city and town.
Draconian cuts to non-formula education spending are most concerning. Excluding Chapter 70 and funding to administer standardized tests, the governor cuts $23.5 million in programmatic funding. Many of these programs provide critical services to local communities, such as child sex abuse prevention and school lunch programs.
Funding for the Commonwealth’s network of public higher education institutions is increased by only 1 percent, far short of the stated needs of campuses. This continues a trend of underfunding that leads to higher costs and increased student debt. According to a new report by the Massachusetts Budget and Policy Center, Massachusetts has cut higher education spending 14 percent since FY01, accounting for inflation. Using a different measure of inflation, the reduction is roughly 50 percent.
Chapter 70 State Aid to Municipalities and Regional School Districts
The governor proposes to increase Chapter 70 funding by $91.4 million over FY17, an increase of approximately 2 percent. In order to keep Chapter 70 aid on pace with projected FY17-18 inflation and enrollment changes, the increase should have been almost $100 million over FY17. This increase does fully fund the current foundation budget requirement for each school district, but it provides an increase of only $20 per pupil for three-quarters of the state’s 321 operating districts.
Viewing inflationary and enrollment factors over a longer period reveals that Chapter 70 funding is still $283 million, or 5.7 percent, below its FY02 peak. This is a primary driver in the MTA’s desire to support both full implementation of the Foundation Budget Review Commission’s findings and the Fair Share Amendment, which would generate additional funding for education and transportation. Read more about An Act strengthening and investing in our educators, students and communities here.
The governor’s budget does begin to implement one of the FBRC’s recommendations in a modest way by making a small adjustment to the component of the foundation budget that funds health insurance and other employee benefits.
K-12 Education Grant and Reimbursement Programs
Overall, Governor Baker proposes to dramatically reduce resources available to communities through non-Chapter 70 grants programs in FY18. In addition to eliminating $23.5 million in funding across the Department of Elementary and Secondary Education (excluding Chapter 70 and funds to develop and score standardized tests), the governor consolidates several key line items.
Programs eliminated in the governor’s FY18 budget:
- MCAS Low-Scoring Support — $1,238,828 in funding eliminated
- Intensive Support for Low-Scoring Districts — $1,100,000 in funding eliminated
- Bay State Reading Institute — $1,200,000 in funding eliminated
- Center for Collaborative Education — $1,050,000 in funding eliminated
- Innovation Schools — $1,050,000 in funding eliminated
The elimination of these programs continues a trend by the Baker administration of reducing programs that local districts depend on to meet the needs of their students. Education programs previously eliminated during the governor’s tenure include:
- Creative Challenge Index — $200,000 in funding eliminated in FY17
- Teacher Content Training — $200,00 in funding eliminated in FY17
- Education Evaluation Grants — $300,000 in funding eliminated in FY17
- Kindergarten Development Grants — $18,589,713 in funding eliminated in FY17
- Alternative Education Programs — $250,000 in funding eliminated since FY16
Programs receiving funding cuts in FY18 include:
- Projected charter school tuition reimbursement for local districts — underfunded by an estimated $73 million (approximately 50 percent underfunded)
- Special Ed Circuit Breaker — cut by $7,466,360
- Institutional Schools — cut by $267,810
- Advanced Placement Math and Science — cut by $27,000
- Regionalization Bonus — cut by $45,000
- Student Assessment — cut by $3,120,305
- Adult Basic Education — cut by $1,736,140
- School Breakfast Program — cut by $355,587
The governor does provide $8.75 million more in funding over what was initially appropriated in FY17 for student assessments.
The governor also consolidates a number of student support programs into an expanded “Targeted Assistance and Innovation” line item. These programs comprise nearly $28M in funding to local districts and include expanded learning time grants, literacy programs, after-school programs and English language acquisition. The line item language for this new program is particularly troubling and could lead to substantive programming cuts in urban districts. In place of direct support, the governor contemplates a more competitive grant program. The impact on districts is unclear at this point. Moreover, it appears that the governor intends to open programs to private entities as well. Most troubling is the requirement for matching grants in urban districts that are the most in need of more resources.
Taking estimated tuition remission into account, the governor's budget includes a 1.2 percent average increase for higher education operating budgets over FY17, including a 1 percent increase to UMass, 0.9 percent to state universities and 1.9 percent to community colleges. Adjusted for inflation, higher education funding is almost 25 percent below the FY01 level.
The main scholarship program is decreased slightly, from $95.6 million to $95.5 million, while the High Demand Scholarship Program line item ($500,000 in FY17) is proposed to be eliminated. Accounting for inflation, Massachusetts has cut scholarships by 31 percent since FY01; over the same time, student debt has increased 55 percent.
Underfunding of public higher education is a perennial issue in the Commonwealth. To try to alleviate both the issue of campus funding (including benefits available to employees) and high student debt, MTA supports An Act investing in public higher education. More information about the bill may be found here.
Employee Health Insurance
The governor does not seek to change premium splits for active or retired state employees, as he has done unsuccessfully in past years. This may be the result of the Group Insurance Commission’s intention to shift additional costs to GIC members through plan design changes, such as increased out-of-pocket costs (co-pays and deductibles), effective July 1, 2017.
The governor also includes language that would limit the amount that a health care provider could bill the GIC to 160 percent of Medicare rates. It is unclear at this time how this would affect health care accessibility or the strength of the Commonwealth’s robust health care sector.
Funding for teacher and state employee pension systems is increased in House 1. Proposed annual funding for FY18 is $2.4 billion.
Cost-of-Living Adjustment (COLA)
The governor’s budget provides a 3 percent COLA on the first $13,000 in pension benefits for retired members of the state and teacher retirement systems.
Despite these increases, retiree pensions do not keep pace with inflation or the rising costs of health care. To help address this, the MTA supports An Act to provide fair and affordable public retiree benefits. More information on the bill may be found here.
The governor’s budget includes language similar to a bill he filed last session that would cap the accrual of sick leave for employees. Under the plan, accrued sick time would be capped at 1,000 hours, or six months of work, for employees in the Executive Branch. Current employees who have already accrued more than 1,000 hours of sick leave would be able to retain their accrued hours, but would be prohibited from accruing additional time until they dropped below 1,000 hours.
Early education funding remains essentially flat for FY18, with total funding of $568 million. While this may provide a level of services similar to FY17, it does nothing to address the waiting list of 23,000 Massachusetts families in need of subsidized early education programming.