Analyzing-the-Governor’s-Budget-for-FY-2018


Overview


The Governor’s Fiscal Year (FY) 2018 budget includes
proposals that strengthen the capacity of the MassHealth program to
meet the healthcare needs of people in Massachusetts and address
fiscal challenges caused by a decline in employer-provided health
insurance coverage for private sector employees. This decline has led
to increasing enrollment in MassHealth and thus growing state costs.
Enrollment growth was projected to account for $600 million in new
costs for the MassHealth program in FY 2018.


To encourage employers to provide health insurance coverage,
and to
counterbalance some of the cost shifting, the Governor proposes a
$2,000 per employee assessment on employers who don’t meet
certain benchmarks for providing health coverage (see full description
in “MassHealth (Medicaid) and Health Reform”
section in this Budget
Monitor
). This assessment is projected to
generate $300 million in revenue and the Governor’s package
of health reforms is projected to hold down health care spending by
approximately $230 million While the budget contains several other
revenue and savings proposals, the health care strategies are the major
reasons the Governor is able to propose a budget that significantly
reduces reliance on temporary revenue and savings to achieve balance.


As with past budget proposals, the Governor’s FY
2018 budget
does not propose significant new funding to make progress on some of
the big challenges our Commonwealth faces, such as expanding early
education; making higher education more affordable; improving schools
in all of our communities; or fixing our transportation
infrastructure. 


The Governor’s budget proposal includes expanded
supports for
behavioral health and substance misuse, including allowing treatment of
civilly-committed men at facilities other than MCI-Bridgewater,
increased support for mental health services in the corrections system,
and across-departmental initiatives to combat harms caused by opioid
misuse. The Governor also proposes to increase significantly funding
for services for young people with developmental disabilities in the
year they turn 22 and lose eligibility for school-funded
services.


The proposal again includes an initiative that the Governor
brought forward
last year that would reduce benefits for certain low-income families
receiving Transitional Assistance for Families with Dependent Children
(TAFDC) and Supplemental Security Income (SSI) by changing the way
disability insurance benefits are counted in the formula for
determining TAFDC payments.


In addition, the Governor proposes several modest reforms to
update our
tax system, including the following: taxing some short-term room
rentals; requiring additional online retailers to collect sales taxes;
and having credit card companies remit sales taxes to the Commonwealth
more quickly. These are described in more detail in the
“Revenue” section of this
Monitor.


The rest of this Budget
Monitor
examines the Governor’s
proposals for major state programs in greater detail. Links from the
Table of Contents below allow readers to jump quickly to specific
sections.
Each section also provides links to our on-line budget tools including
our Budget
Browser
(which provides funding information for every
account in the state budget going back to FY 2001) and, where
applicable, to our Children’s
Budget
and
Jobs &
Workforce Budget.



Table of Contents
















































Overview Early
Education
K-12
Education
Higher
Education
Environment
& Recreation
MassHealth
& Health Reform
Mental
Health
Public
Health
State
Employee Health Insurance
Child
Welfare
Disability
Services
Elder
Services
Juvenile
Justice
Transitional
Assistance
Other
Human Services
Transportation
Housing Economic
Development
Law
& Public Safety
Local
Aid
Libraries Pensions Revenue  Summary
Chart






EDUCATION



Early Education


Quality early education and care helps prepare our young
children for
K-12 education and to thrive more generally. Early education and care
is also a critical support for parents with young children, by
supporting safe and reliable child care for parents while they work.



The Governor’s Fiscal Year (FY) 2018 budget allocates $568.0
million for early education and care. This amount represents a
negligible increase of $478,000 (0.1 percent) above current levels, not
enough to keep pace with the expected inflation rate. There have been
significant long-term cuts in early education after state tax cuts in
the late 1990s and early 2000s. Funding for early education in the
Governor’s proposed FY 2018 budget is $174.9 million (23.5
percent) below FY 2001 levels, adjusting for inflation (see chart
below).





bar graph: Early education funding down 24 percent since 2001





The Governor’s FY 2018 budget proposal allocates
$223.2
million for

Supportive and TANF Child Care
, $3.8 million (1.7 percent)
above current FY 2017 levels. Supportive and TANF Child Care provides
subsidies for children in the care of the Department of Children and
Families (DCF) and those receiving Transitional Aid to Families with
Dependent Children (TAFDC).



The Governor’s FY 2018 budget includes $255.4 million for
Income
Eligible Child Care.
This amount is $2.9 million (1.2
percent)
above last year, roughly in line with inflation. Income Eligible Child
Care provides subsidies for low- and moderate-income working families
who do not qualify for other child care assistance. With insufficient
funding to meet demand, the waitlist for these subsidies contained
23,800 children as of January 2017. In FY 2015 and FY 2016, the state
budget provided dedicated funding to reduce the waitlist. However, the
Governor’s FY 2018 budget proposal, like the current FY 2017
budget, does not contain specific funding to reduce the waitlist.



The Governor’s FY 2018 budget proposal includes $7.0 million
for salary increases and professional development for early educators
through a new line item Center-Based
Child Care Rate Increase.
This
amount is $5.5 million (44.0 percent) below what was available in a
similar account (Early Education and Care Provider Rate Increase) in FY
2017. Salary and benefit increases along with professional development
are key mechanisms to improve the quality of services available for
young children. Recent evidence suggests that recruitment and retention
of an effective early education workforce presents a major challenge
limiting the Commonwealth’s ability to provide high-quality
early education and care for children.



Collectively, in the Governor’s FY 2018 budget, funding for
Income Eligible Child Care, and salary increases for early educators
are funded at $262.4 million, which is $2.6 million (1.0 percent) below
current FY 2017 levels (see chart below). The overall level of support
makes it likely that significant waitlists for early education and care
services will persist through FY 2018. This will limit the ability of
children and families, including those with acute needs, to access this
support.





Table: funding for income eligible early education





In FY 2017, funding from several early education and care
accounts was
merged into a new Quality
Improvement
line item. In FY 2018, the
Governor’s budget proposes merging another line item,
Commonwealth
Preschool Partnership
into Quality Improvement. To
facilitate clear comparison, MassBudget adjusts the funding proposed by
the Governor for FY 2018 back into the prior FY 2017 program structure.
Together these line items are funded at $32.0 million, which is
$634,000 (2.0 percent) less than current FY 2017 levels (see chart
below).





table: funding for early education quality improvement





The purposes of Quality Improvement funding include: meeting
standards
set in the state’s Quality Rating and Improvement System
(QRIS), developing the early educator workforce, undertaking the
accreditation of programs, and supporting administrative personnel
overseeing quality efforts. Commonwealth Preschool Partnership grants
have focused on helping communities with preschool programs develop
plans to expand these services, particularly for 3-year-olds.


An outside section of the Governor’s FY 2018 budget
proposal
allows the Department of Early Education and Care (EEC) to directly
employ the resources of the Child Care Quality Fund for its own program
improvement efforts. Under current rules, EEC is required to use these
funds exclusively to issue grants to private non-profits towards
improving child care services. The Child Care Quality Fund receives its
funding from the sale of distinctive “Invest in
Children” motor vehicle registration plates. Each license
plate generates $28 in revenue for early education. According to EEC,
this fund currently contains roughly $900,000.






K-12 Education


Providing a high-quality education to all children plays a
central role
in supporting future generations in Massachusetts, while contributing
to a stronger economy over the long term. Chapter 70 Education Aid is
the Commonwealth’s main program for delivering state support
to over 300 local and regional districts, and ensuring that schools have sufficient
resources to meet the educational needs of students. The Chapter 70
formula takes into account the varying ability of local governments to
contribute property taxes and other local resources to support education.  It
adjusts aid each year based on a number of factors including inflation
and enrollment changes. For further background on the state’s
education funding system, see
Demystifying
the Chapter 70 Formula
.




The Governor proposes increasing Chapter
70 Aid
by $91.4 million, a 2.0
percent increase, to $4.72 billion for Fiscal Year (FY) 2018. This
increase is $24.7 million less than last year’s 2.6 percent
increase. The Governor’s FY 2018 budget reflects a low
inflation adjustment, as determined by the formula (1.1 percent) and a
very small increase in statewide enrollment (0.1 percent). The Governor’s FY 2018 Chapter 70 proposal includes a minimum
increase of $20 per-pupil to districts that would not otherwise receive
more aid.



The Governor’s FY 2018 budget proposal does not contain a
provision that was included last year to hold districts harmless from a
change in the student poverty measure (see further discussion
below).  Those districts will, however, continue to receive in
their base aid the amounts they received last year from this provision.
The provision resulted in several dozen districts receiving a total of
over $10 million in additional aid in FY 2017.



The Governor’s Chapter 70 proposal includes a limited step to
implement recommendations
made by the Foundation Budget Review
Commission (FBRC) in 2015. This Commission outlined concrete steps to
address funding challenges facing local school districts. Overall, the
Commission found that, according to the state’s estimate of
what it takes to educate children (called the “foundation
budget”) school districts are significantly under-funded. The
Commission noted that this underfunding reduces the capacity of schools
across our state to provide educational services and supports to help
all children succeed at school.



The Chapter 70 formula sets a foundation budget for each
district.  This foundation budget is based on costs for each
element of a school budget.  The FBRC found that the costs in
the formula fail to reflect actual costs in particular areas, including
employee health care and special education. The Governor’s
proposal includes increases of between roughly 6 and 13 percent,
depending on grade level and student category, to the foundation budget
rates for employee benefits, the school spending category which
includes health care.



The larger increase to the employee benefit rates proposed in the
Governor’s budget (6 to 13 percent as opposed to the standard
1.1 percent inflation factor used in the rest of the Chapter 70
proposal) would generate an increase of $66.0 million to the statewide
foundation budget and roughly $17 million in new aid. This is a small
step relative to fully implementing the FBRC recommendations. For
example, legislation that passed the Senate in 2016, which reflects a
recent approximation of the full cost of implementing the
recommendations, found that over $200 million in additional Chapter 70
aid would be required annually for 7 years.



Under Chapter 70, additional funding is directed to provide expanded
services for kids in poverty. The Governor’s Chapter 70
proposal continues to use the recently-adopted Economically
Disadvantaged
measure for calculating the number of
students in poverty
in districts across the state. The number of kids considered
economically disadvantaged is determined by certifying kids for free
meals through their enrollment in other public services such as
MassHealth, SNAP (food stamps), and if they match other criteria, such
as being in foster care. This process is called direct certification.
The implementation of the new poverty measure by the Department of
Elementary and Secondary Education (DESE) for FY 2017 resulted in a
statewide drop in poverty headcounts compared to prior years. In an
attempt to offset this drop, the FY 2017 budget increased the amount of
funding directed to each economically disadvantaged student in
calculating district foundation budgets to between $3,800 and $4,100
depending on the concentration of kids in poverty across districts.
This compares to $3,100 provided to districts for each low-income
student under the measure last used in FY 2016. The FY 2018 proposal
from the Governor continues to use these higher rates, increased by the
standard 1.1 percent inflation rate.



Over the course of FY 2017, state agencies under the lead of DESE
worked to improve the process of direct certification to make sure that
the state is accurately counting the number of kids in poverty in each
district. However, significant work remains to improve data matching
capacity, technical processes, and the enrollment of poor children in
all programs for which they are eligible. Improving the transition to
the new poverty measure will require ongoing collaboration between
education, health, welfare, and child protection agencies, particularly
DESE, the Executive Office of Health and Human Services, and local
school districts.



An outside section of the FY 2017 budget directed the state, under the
lead of DESE, to develop a report addressing improvements to direct
certification for free meals and counting low-income students. The
legislation directed DESE to complete the report by the end of 2016.
However, it has yet to be filed with the Legislature or made available
to the public. Therefore, the Governor’s Chapter 70 proposal
for FY 2018 does not incorporate the suggested improvements from this
upcoming report.



Notably, the Economically Disadvantaged count of 315,000 kids in the
Governor’s FY 2018 Chapter 70 proposal is only marginally
higher (0.8 percent) than the 312,000 kids that were included in the FY
2017 Chapter 70 calculation. This may suggest that the Commonwealth has
made limited progress in more accurately identifying students in
poverty for FY 2018 school funding calculations.  Demographic
shifts in the state’s population may also be influencing
these figures. All told, the FY 2018 Economically Disadvantaged figure
provides an estimate of the number of kids in poverty that remains 20
percent
lower than under the prior poverty measure last used in FY 2016.



For more detail on the process for counting low-income kids, how it can
be improved, see Counting
Kids at School: 6 Steps to Better Numbers
and
Direct
Certification for School Meals: Feeding Students, Counting Kids,
Funding Schools.



The Governor’s FY 2018 budget proposes the consolidation of
five line items – Targeted
Intervention in Underperforming
Schools,
Literacy
Programs
, English
Language Acquisition,

Extended
Learning Time Grants
, and After-School
and Out-of-School Time Grants,

into the renamed line item Targeted
Assistance and Innovation

(7061-9408). In order to facilitate comparison across years, using
materials provided by the Governor, MassBudget, moves the consolidated
funding back into the structure from FY 2017. In total, these five
line-items are funded at $28.0 million, $789,000 above what they
received in FY 2017 (see chart below).



This consolidation transfers $18.6 million in funding from other line
items into Targeted Assistance and Innovation:



  • $14.2 million from Extended
    Learning Time Grants

  • $2.0 million from After-School
    and Out-of-School Time Grants

  • $1.5 million from Literacy
    Programs

  • $882,000 from English Language
    Acquisition



In addition, Targeted Intervention in Underperforming Schools receives
$9.4 million as part of the larger consolidated account. Though the
overall line item is increased, it appears that support for English
Language Learners, afterschool programs, and literacy could be scaled
back to varying degrees. However, the new structure for these line
items could deliver similar support for each of these types of
initiatives, depending on how DESE allocates Targeted Intervention
resources.





table: Funding for targeted intervention and innovation





An outside section of the Governor’s FY 2018 budget
proposal
holds constant the rates paid by schools to private special education
providers who educate students with severe disabilities. This section
of the budget provides a limited exception to this rate freeze in order
to address health and safety concerns.



The Governor’s budget proposal for FY 2018 includes $80.5
million for Charter
School Reimbursements
in line with current FY 2017
levels. The current system, when fully funded, reimburses 100 percent
of outgoing student funding in the first year and 25 percent of this
amount for each of the subsequent five years.



However, according to recent projections from DESE, the formula is
currently only 60 percent funded, and would require over $54 million in
additional support to be fully resourced in FY 2017. The underfunding
of the reimbursement formula could increase as additional charter
school seats are added in FY 2018. The current FY 2017 funding level
supports 93 percent of first year reimbursements, but does not
reimburse school districts for students who left in the five years
prior to FY 2017. For additional detail on charter school funding,
recent proposals to alter the reimbursement system, and the impact of
recent underfunding, see Charter
School Funding, Explained.



Kindergarten Expansion Grants,
which were eliminated in the
FY 2017
budget are not funded in the Governor’s FY 2018 proposal.

Under the Governor’s FY 2018 budget proposal, the Special Education Circuit Breaker
is funded at $277.3 million, in line with current FY 2017 levels. The
circuit breaker reimburses school districts for a portion of their
costs for educating students with severe disabilities. According to
DESE, the proposed funding level will reimburse 70 percent of allowable
claims, as opposed to 75 percent when the circuit breaker is fully
funded.



The Governor’s FY 2018 budget proposal moves the
administration of Inclusive
Concurrent Enrollment
from DESE to the
Department of Higher Education, and moves it into a new line item
(7066-9600). This program assists youth with severe disabilities to
succeed in college courses, gain employment, and develop life skills to
thrive as adults.






Higher Education


Higher education helps residents of Massachusetts become
active members
of their communities and gain the skills needed to succeed in our
knowledge-driven economy. Public institutions of higher education,
including the University of Massachusetts, the state universities, and
community colleges, educate a majority of our state’s high
school graduates. Public graduates are also more likely to stay in
Massachusetts after graduation, contributing to our economy over the
long term.



The Governor’s proposed budget for Fiscal Year (FY) 2018
contains $1.17 billion in support for public higher education, which is
$10.1 million (0.9 percent) above current FY 2017 levels, but is less
than the expected rate of inflation. 



Despite the evidence that a highly-educated workforce helps strengthen
our economy, Massachusetts has cut state support for higher education
by $198.7 million (14.5 percent) since FY 2001, adjusting for
inflation. This has contributed to tuition and fees within public
higher education doubling over the past 15 years.  For
additional detail on these long-term trends, see
In
16 Charts: Higher
Education Funding in Massachusetts





bar graph: Higher education funding down 15 percent since 2001





The following table details appropriations to each of the
three campus
types. MassBudget totals make the following adjustments in order to
facilitate more accurate year-to-year comparisons:



  • Including
    collective
    bargaining and other campus-specific programs.
    MassBudget
    adds
    collective bargaining accounts and initiatives located at particular
    campuses, funded through separate line-items, to their respective
    campus totals.

  • Subtracting
    tuition remission.

    Since FY 2001, different policies have dictated when public higher
    education campuses must send different categories of tuition revenue
    they receive back to the state’s General Fund. When higher
    education revenue is sent back to support the state budget, it is not
    available for campus operations and has the same effect as reduced
    state funding to the campuses. Conversely, under rules in effect
    starting in FY 2017, the University of Massachusetts (UMass) will keep
    all tuition revenue from both in-state and out-of-state students in FY
    2018. To provide more accurate comparison of state support to campuses
    over time, MassBudget deducts tuition revenue sent back to the state
    from the direct appropriations to each campus type. For details on the
    varying policies at different campuses, see MassBudget’s
    Budget Browser section for Higher Education
    .



An outside section of the Governor’s FY 2018 budget proposal
would create a task force to examine
tuition retention
policies across
public higher education. It would particularly look at whether the full
tuition retention policy currently in place at UMass could be
implemented for state universities and community colleges. The proposed
task force would be composed of representatives from the
Administration, House, and Senate, along with senior leaders in public
higher education.





table: Higher education funding to the three campus types





The Governor’s FY 2018 budget proposal funds UMass line-items
at $516.3 million, which is $995,000 (0.2 percent) above current FY
2017 levels. This FY 2018 budget proposal funds State University
line-items at $248.6 million, which is $2.2 million (0.9 percent) above
current FY 2017 levels. In the proposal, Community College
line-items
receive $280.1 million, which is $5.3 million (1.9 percent) above
current FY 2017 levels.



These modest increases to public higher education funding appear
unlikely to prevent further increases to tuition and fees across UMass,
State Universities, and Community Colleges. Last year, tuition and fees
at UMass rose by 5.8 percent, while tuition and fees at State
Universities and Community Colleges rose by 5.0 percent.



The main State
Scholarship Program
is funded at $95.6 million in the
Governor’s FY 2018 budget proposal, in line with amounts in
the past two years. Flat funding for scholarships risks these grants
not keeping up with inflation and the steadily increasing tuition and
fees across public higher education.



The Governor’s FY 2018 budget proposal consolidates five
higher education line items: STEM
Starter Academy
,
Dual Enrollment
Grants
, Nursing
and Allied Health Workforce Development,
Adult
College
Transition Services (Bridges to Colleges)
, and Community
College
Workforce Grants
. These programs are transferred into the
renamed line
item STEM Starter
Academy & College & Career Pathways

(7066-0036). In order to facilitate comparison across years, using
materials provided by the Governor, MassBudget, shows the consolidated
funding in the structure from FY 2017. Collectively these programs are
funded at $8.1 million, which is $1.1 million (15.7 percent) more than
last year (see chart below).





table: Funding for stem starter academy and college and career pathways




The Governor’s legislative language suggests this
redesigned
college and career program would focus on establishing common college
and career standards and goals between the Department of Higher
Education and the Department of Elementary and Secondary Education.
Most of the initiatives of the five predecessor items are included in
the proposed budget language, but the revised structure could lead to
different components of the larger program being emphasized.
Conversely,
it appears that the Adult College Transition Services program, which is
more focused on providing the basic skills students need to prepare for
college courses, could be deemphasized in the Governor’s
proposed reorganization.



The Governor’s FY 2018 budget proposal moves the
administration of Inclusive
Concurrent Enrollment
from the Department
of Elementary and Secondary Education to the Department of Higher
Education, and moves it into a new line item (7066-9600). Funding for
this program is decreased to $1.1 million, 1.9 percent below current FY
2017 levels.






ENVIRONMENT & RECREATION


The state budget funds programs that keep our air, water, and
land
clean, maintain fish and wildlife habitats, and staff and maintain our
parks, beaches, pools and other recreational facilities. The
Governor’s Fiscal Year (FY) 2018 budget proposes spending
$200.0 million on environment and recreation programs, an increase of
$7.8 million above the FY 2017 current budget. Despite this 4.1 percent
increase above the current fiscal year budget, funding for environment
and recreation programs is 35.2 percent less than it was in FY 2001
after adjusting for inflation.





bar graph: Environment & recreation programs cut 35% since 2001





The Governor’s proposed environment and recreation
budget for
FY 2018 provides few increases in funding for environmental protection,
fish and game, or parks and recreation activities with a few
exceptions. The Governor’s budget proposes:






  • $2.5 million more, for a total
    of $9.7 million, for the Executive Office of Energy and Environmental
    Affairs which oversees the departments that manage the
    state’s environment and recreation programs. 

  • $1.4 million for a new account
    to protect water quality by controlling pollution discharge into state
    water sources. 

  • $1.5 million more, to $2.7
    million, to make sure that drinking water is safe. This increase will
    allow the Department of Environmental Protection to hire 10 additional
    employees to oversee Massachusetts’ compliance with the
    federal Safe Drinking Water Act and to provide technical assistance to
    help mitigate threats to the water supplies in the state. 

  • $247,000 more for the Office
    of Dam Safety to $620,000. Documents accompanying the
    Governor’s proposal note that this increase will allow the
    Department of Conservation and Recreation (DCR) to hire 3 additional
    inspectors to make sure dams are safe.

  • $1.2 million more in total
    funding for state parks (see chart below). While the
    Governor’s FY 2018 budget recommends a slight ($1.1 million)
    decrease in the primary account that funds state parks, it recommends
    that DCR be allowed to retain $20.0 million of the revenue it collects
    from parking and entry fees, an increase of $2.3 million above the FY
    2017 current budget. This increase will provide DCR with additional
    funding to staff and maintain park facilities. Despite this increase,
    total funding for state parks is 8 percent, or almost $5 million, less
    after adjusting for inflation than it was when DCR was created in FY
    2004 





table: Funding for state parks





HEALTH CARE



MassHealth (Medicaid) and Health
Reform


The Commonwealth provides health insurance to over 1.9 million
people,
including more than 650,000—close to half—of the
state’s children. In addition, the state budget funds
payments to health providers, such as  hospitals that serve
large numbers of low-income patients and nursing homes, to help pay for
care for patients on publicly-subsidized health insurance. It is, of
course, important to keep in mind that there is uncertainty about
policy changes at the federal level (particularly changes to the
Affordable Care Act and to Medicaid) that would have an impact on state
budgeting for health care. Massachusetts could lose billions of dollars
in federal revenue that support the state’s health care
systems. These changes, however, may not have a big impact on the
Fiscal Year (FY) 2018 budget, and the Governor’s budget
proposal presumably reflects the assumption that current federal
funding levels will continue for this coming fiscal year.



The costs of the state’s health care programs keep growing,
and the Administration projects that MassHealth program enrollment
could top two million people before the end of the fiscal year. The
Administration is concerned about the growing numbers of employed
people who nevertheless get their health insurance from MassHealth. The
Administration noted that in 2011 there were approximately 162,000
employed MassHealth members, compared to close to 379,000 employed
MassHealth members in 2015. The Governor’s documents state
that enrollment growth is projected to account for $600 million in new
costs in FY 2018.



To stem this growth and offset the costs, the Administration is
proposing a multi-pronged approach. The Governor is proposing a few
modifications to the MassHealth program itself (described under
“MassHealth Program and Administration” below). The
Governor is proposing assessing a new fee on employers who do not offer
health insurance or whose employees do not take up insurance that the
employer offers. The Governor is also proposing several other changes
in the commercial health insurance market. The hope is that with these
changes, more employees would have access to and choose to enroll in
affordable employer-sponsored health rather than in MassHealth, and the
state would also have a new source of revenue.



Most notably, the budget proposal includes language that would impose
an assessment on employers that do not offer health insurance or who
offer it but have a significant number of employees who are not
accepting insurance from that employer. This assessment would
presumably encourage more employers to provide health insurance for
their employees, and would also provide the state with new revenue to
help offset MassHealth costs. Employers would be exempt from the
assessment if they have fewer than 11 full-time equivalent employees.
They would also be exempt if they offer employees at least $4,950 per
year for a group health insurance plan (or similar), and if at least 80
percent of their employees are enrolled in that health insurance. (The
language in the Governor’s proposal does not exempt employers
whose employees receive employer-sponsored health insurance coverage
through a spouse or other family member.) For those employers who offer
health insurance but don’t meet the threshold of 80 percent
of employees using their health insurance, the assessment is only for
the number of employees by which they are short of the 80 percent
threshold.


An assessment on employers that do not offer health insurance
is not a
new idea. In fact, Massachusetts’ own health reform law
(“RomneyCare”) in 2006 included a similar provision
known as the “fair share contribution.” That
assessment had required employers with 11 or more employees to either
contribute to employees’ health insurance costs or pay a
“fair share contribution” of up to $295 annually
for every full-time equivalent worker. The fair share contribution
brought in approximately $16 million in revenue in FY 2013, the last
year before it was repealed because there was an employer contribution
provision in the Affordable Care Act. The Affordable Care Act provision
would fine employers with more than 50 employees that do not provide
health insurance. That provision of the federal law, however, has not
yet gone into effect.



The Governor’s budget also proposes additional commercial
insurance market reforms that aim to reduce the costs of health care,
and thereby also make commercial insurance more affordable for
employees. The budget proposes establishing caps on growth rates for
certain health care providers, introducing a moratorium on new
insurance mandates, eliminating facility fees (such as on satellite
care centers) through the Dept. of Insurance, and implementing changes
to make the Health Connector more user-friendly, particularly for small
businesses.



MassHealth Program and Administration



Funding for MassHealth in the Governor’s budget proposal is
$16.59 billion, with $16.43 billion for the MassHealth program, and
$162.6 million for program administration (see table). In order to help
address the continuing cost growth at MassHealth, the Administration
has taken several measures to address the program’s costs.
The Administration states that a variety of (unspecified) reforms in
the Governor’s budget proposal hold MassHealth spending
growth down by approximately $230 million gross, for an FY 2018
increase of $140 million net of federal revenue reductions.





table: MassHealth (Medicaid) and health reform






Built in to the Governor’s budget proposal is a shift in how
eligibility would be determined for applicants for MassHealth.
Currently, an applicant receives “provisional (or automatic)
eligibility” pending receipt of income verification. The FY
2018 Governor’s budget proposal—pending regulatory
approvals—would limit this provisional eligibility to
children, persons with HIV, and pregnant women. The Administration
states that this change would both better align the application
processes for MassHealth and insurance purchased through the Connector.
They estimate this change would generate $31 million for the FY 2018
MassHealth budget.



The Governor’s budget proposal would also authorize reducing
two benefits in MassHealth’s CarePlus Program. This
program—established under the Affordable Care
Act—covers more than 300,000 adults with incomes up to 133
percent of the federal poverty level. The budget would limit coverage
for vision services, by eliminating coverage for eyeglasses and contact
lenses. This would affect approximately 41,000 members. The budget also
would eliminate the use of non-emergency medical transportation for
approximately 13,000 CarePlus members. Non-emergency medical
transportation would still be available for travel to substance abuse
and prevention treatment. The intent of these changes is also to better
align CarePlus with commercial insurance so as to reduce incentives for
people to select MassHealth coverage in lieu of employer-sponsored
coverage.



It is also worth noting the funding for the Children’s
Medical Security Plan
(CMSP) in the Governor’s
budget is
$12.5 million, $5.0 million less than in FY 2017. The Administration is
planning on shifting the administration of this program from UniCare, a
health insurance company that has been under contract with the
Commonwealth to administer the program. CMSP will be brought in-house,
to be administered by the Exec. Office of Health and Human Services,
alongside MassHealth.



Other Health Subsidies and Related Spending



The budget also includes funding for other supplemental payments to
health safety net providers, funding for other subsidized health
programs, and other administrative and operational supports (see
table.) The totals for the Medical Assistance Trust show budgeted
appropriations current as of this moment. The timing of operating
transfers into this trust (shown below) which are made up of provider
assessments and federal revenues, do not align with the state fiscal
year. The apparent large difference between FY 2017 and FY 2018 is
simply due to the timing of the transfers. There will likely not be a
significant difference in spending from this trust for FY 2018 compared
to FY 2017.





table: Other health subsidies and related spending






Funding for health subsidies and other related health spending in the
Governor’s FY 2018 budget proposal reflects the
Commonwealth’s continued progress towards the implementation
of reforming health care delivery, and shifting MassHealth to a system
of accountable care organizations (ACOs).  As in FY 2017, the
FY 2018 budget includes an
assessment on acute hospitals
which would
also receive federal matching reimbursements, and the revenues would be
deposited in the MassHealth Delivery System Reform Trust, with
hospitals as a group receiving this assessment back in the form of
enhanced Medicaid rate payments.



Also included in the Governor’s budget is language extending
the assessment on acute hospitals to
non-acute hospitals.
This
assessment (along with federal reimbursement) would help support $16
million (net) in Medicaid rate increases for psychiatric, chronic, and
rehabilitation hospitals.



The Governor’s budget proposal includes payments to health
safety net providers through a variety of trusts, funded by a
combination of operating transfer appropriations, re-distributed
assessments on providers, and federal reimbursements. The funding
differences from year to year in part reflect timing discrepancies in
the payments from these trusts.



In an Outside Section, the Governor proposes up to a $15.0 million
transfer into the Health
Safety Net
(via funds from the Commonwealth
Care Trust Fund) to support the costs associated with providing care to
uninsured or underinsured individuals. Prior to FY 2017 that transfer
had been $30.0 million.



ConnectorCare
(the “State Wrap”) is
the subsidized
program for people previously covered by the Commonwealth Care Program
who are not eligible for MassHealth coverage and have incomes at or
below 300 percent of the federal poverty level. ConnectorCare plans
have relatively low monthly premiums and out-of-pocket costs. This
program is administered by the Health Connector, and is funded through
the Commonwealth Care Trust Fund rather than by line-item
appropriations in the budget. A portion of the state’s
tobacco tax revenue is directed into the fund to help pay for this
program. There is also funding from tax assessments on individuals who
do not choose to purchase health insurance. Because of the availability
of federal revenue to pay for some of the health care costs previously
borne by the state, as in FY 2017, the FY 2018 budget allows for
transferring up to $110.0 million from this trust into the General Fund
to help balance the budget. In FY 2017, the actual expected transfer is
$91.6 million. The Governor’s budget estimates that transfer
from the Commonwealth Care Trust Fund to the General Fund would likely
be $27.6 million.






Mental Health


The Governor’s Fiscal Year (FY) 2018 budget includes
$773.2
million for the services of the Department of Mental Health (DMH), in
order to help ensure that people in the Commonwealth struggling with
and recovering from mental illness are able to become healthy, and live
and work successfully in the community. DMH provides supports to
approximately 21,000 people—children as well as
adults—through a network of inpatient facilities, residential
treatment programs, and community support services. The
Governor’s DMH funding is $12.1 million above current FY 2017
budgeted amounts, but only $5.4 million above FY 2017 estimated
spending totals. (See table below for breakdown.) Because FY 2017
projected spending is above current FY 2017 budgeted totals, it is
likely the Administration will be seeking supplemental budget funding
at some point in FY 2017.



The Governor’s budget proposal includes a continued effort to
move supports for behavioral
health and substance misuse
out of the
corrections systems and into the behavioral health systems. For
instance, there is full funding ($13 million) for 45 beds at Taunton
State Hospital to provide support for women who have been civilly
committed for substance use disorders as well as other co-occurring
behavioral health disorders. There is also language in Outside Sections
of the budget allowing men civilly committed with alcohol or other
substance use disorders to be treated at facilities other than MCI
Bridgewater, which would allow them to be treated by the Massachusetts
Alcohol and Substance Abuse Center in Plymouth. This facility is
essentially a “re-purposing” of MCI Plymouth and
this shift would increase the number of available beds for these
individuals in need of treatment. (Please also see “Public
Health” section of this Budget Monitor for additional
discussion of funding for substance abuse services.)



Funding for child and
adolescent health services
(see table) includes
$3.6 million for the Massachusetts Child Psychiatry Access Project
(MCPAP), an innovative program that improves access to treatment for
children with behavioral health needs by making psychiatrists available
to provide consultation for primary care providers across
Massachusetts. This is the same amount received by this program in FY
2017. Although the Administration notes the funding is included in the
total appropriation, there is no explicit mention of the program in the
line item language.


table: Funding for mental health









Public Health


The Governor’s budget proposal includes $612.1
million for
the state’s public health infrastructure. The Department of
Public Health (DPH) oversees a wide variety of prevention and treatment
services, improves access to health care, and ensures the safety of our
food, water, and land. The Governor’s proposal is $13.5
million more than current FY 2017 budgeted totals, but $7.0 million
above anticipated FY 2017 final spending.



This budget proposal reflects the Administration’s continued
commitment to preventing and treating substance misuse and abuse, and
initiatives at DPH are central to that effort. Combined, the funding
for substance abuse and misuse services in DPH is $140.2 million,
essentially level with the expanded funding provided in FY 2017 and
with expected spending (see table).





table: Funding for substance abuse services





There is little new investment in other areas crucial to
protecting the public health. Maternal and child health programs
receive $70.2 million in the Governor’s budget proposal.
Although this is $3.5 million more than current FY 2017 budget totals,
it is essentially level with anticipated FY 2017 spending. The
Governor’s proposal includes:



  • $12.2 million for the state
    supplement for the WIC
    (Women, Infants, and Children) Program,
    just
    below anticipated spending in FY 2017. WIC provides access to healthy
    food and nutrition counseling during pregnancy and in the early years
    of life.

  • $26.8 million in funding from manufacturer’s
    rebate
    s for the WIC Program, which is also
    essentially level with anticipated FY 2017 totals.

  • $31.1 million for the Early
    Intervention Program,
    essentially level-funded with
    anticipated FY 2017
    levels.

  • Funding for the Postpartum
    Depression Pilot Program
    , which funds community health
    workers at a
    handful of health centers who work with women who have been identified
    with postpartum depression, was eliminated by mid-year cuts in FY 2017.
    The Governor does not restore funding for that program.



The Governor’s budget proposes funding the state’s
anti-smoking efforts in DPH through Smoking
Prevention and Cessation
at
$3.8 million. This is just under the FY 2017 funding level. At one
time, Massachusetts led the nation with its successful public health
campaign to reduce smoking. In FY 2001, for example, the state budgeted
close to the equivalent of $90 million (as adjusted for inflation) to
support anti-smoking efforts. This funding was cut dramatically in the
next year, and has dwindled away over the subsequent decade and a half.



The department’s oral
health programs
receive a tiny increase
compared to FY 2017 totals for a total of $2.6 million. A slight
increase to Dental
Health Services
brings funding for those services to
$1.7 million, and the SEAL
sealant and fluoridation program receives
level funding of $891,000.



The Governor’s FY 2018 budget completes the transition of
domestic violence and prevention services from the Dept. of Children
and Families into DPH in order to move towards better coordination and
consolidation of those services. Domestic
Violence and Sexual Assault
Prevention
are essentially level-funded with anticipated
FY 2017
spending at $31.3 million. Funding for the Sexual Assault Nurse
Examiner
program is $4.7 million, 3.1 percent more than
anticipated FY
2017 spending. The
Healthy Relationships
grant program was cut by
mid-year spending reductions, and does not receive new funding in the
Governor’s budget.



Funding to address
gambling and other compulsive behavior
receives a
notable increase in the Governor’s budget, from $1.0 million
in FY 2017 to $1.5 million in FY 2018, whereas funding for HIV
Prevention and Treatment
is cut by 12.1 percent, from
$32.2 million in
FY 2017 to $28.3 million in the Governor’s budget proposal.



There are several programs in the budget that together are designed to
provide community-based activities and supports for young people to
keep them engaged and ultimately reduce violence (see table). Together,
these programs are funded at $23,000 less than in FY 2017. For example,
the Safe and Successful
Youth Initiative
targets high risk young men in
communities across the Commonwealth and provides a public health
approach to reducing gun-related violence. This program receives $6.5
million in the Governor’s budget, level with the FY 2017
amount after mid-year budget reductions. 





table: Funding for youth violence prevention and youth engagement programs






The Governor’s budget also includes three new line items. His
proposal would fund each of these three programs with new dedicated
fees:



  • $1.0 million
    for Mobile
    Integrated Health.
    This funding would expand what are
    known as
    “mobile integrated health services.” These mobile
    health care services are intended to help reduce demand on hospital
    emergency rooms by providing and coordinating such care as community
    paramedic services, chronic diseases management, preventive care, and
    transportation to services other than emergency rooms. This funding is
    a $900,000 increase from FY 2017.

  • $2.3 million
    for Home Health
    Agency Licensure
    . The Governor’s budget includes
    an Outside
    Section to improve the rigor of home health agency licensure, and this
    line item allows the Department to retain fees, fines, or other
    penalties to support this licensing function.

  • $400,000 for
    Health Care
    Industry Plan Review.
    This funding supports the
    Department’s
    determination of need program.






State Employee Health Insurance


The Governor’s Fiscal Year (FY) 2018 budget proposal
includes
$1.58 billion to cover the costs of health
insurance for state
employees
. This total includes coverage for current
employees as well
as retirees (discussed more below). The Governor would keep costs down
in part by capping provider rates paid by the state’s Group
Insurance Commission (GIC), holding them to 160 percent of Medicare
rates.



In order to more accurately reflect health insurance costs,
MassBudget’s totals for state employee health insurance
include adjustments that allow for better across-year comparisons (see
table). MassBudget removes from budget totals the amounts each year
that are simply pass-throughs of funding for municipal health
insurance. Municipalities have the option of taking advantage of the
state’s purchasing power by using the GIC to purchase their
employees’ health insurance. Municipalities reimburse the
state for the costs of this insurance, so there is no cost to the state
for adding these municipal employees to the GIC membership rolls.





table: State employee health insurance funding with municipal pass-through adjustment





State Retiree Benefits



The state has adopted a schedule to move towards full funding of health
and other non-pension post-employment benefits
(“OPEB”) for retirees. The Commonwealth funds the
current and future costs of OPEB through a variety of transfers to the
State Retiree Benefits
Trust.
The Governor’s budget proposal
includes $440.6 million in an operating transfer directed to the State
Retiree Benefits Trust. In order to fully fund the cost of future
retirees’ benefits, in FY 2012 the state decided to dedicate
an increasing share of its annual Master Tobacco Settlement award to
the State Retiree Benefits Trust. The intent was to use 60 percent of
the award in FY 2018, which would be $154.5 million.



However, instead of transferring $154.5 million, the
Governor’s budget proposes transferring an amount equivalent
to just 10 percent of the Tobacco Settlement award—$25.8
million—into the State Retiree Benefits Trust to fund OPEB.
Language in the budget states that this transfer would come from
unexpended debt payments reverted to the General Fund or, if those
reversions are insufficient, the Governor proposes making the transfer
from the Master Tobacco Settlement money deposited into the General
Fund. This total is $128.8 million less than the amount indicated for
FY 2018 in the statute.



In FY 2017, the General Appropriation Act included similar language
that would have funded the State Retiree Benefits Trust with either
debt reversions or funds from the Tobacco Settlement, and also at 10
percent of the Tobacco Settlement—an amount lower than
specified in the statute. However, the Governor vetoed this language in
the budget, and proposed alternate language. The Governor expressed
concern that funding the Trust at a level of only 10 percent of the
Tobacco Settlement was risky for the state’s bond rating. The
Legislature has not yet moved forward on the Governor’s
alternate language which would have increased the transfer to 30
percent. Since there has been no passage of alternate language to the
statute for FY 2017, the transfer into the fund for FY 2017 reverts to
the amount currently in statute—50 percent—until
otherwise amended. Although it is certainly likely that the Legislature
will act on this transfer before the end of FY 2017, the numbers in
this Budget Monitor
reflect the current status of FY 2017 funding, an
amount that is $103.0 million more than the amount proposed by the
Legislature for FY 2017, and $51.5 million more than had been proposed
by the Governor.





HUMAN SERVICES



Child Welfare


The Governor’s Fiscal Year (FY) 2018 budget proposes
$985.6
million to support the child welfare system, which are the
state’s services designed to protect children at risk of
neglect or abuse. The Department of Children and Families (DCF), the
agency responsible for the protection and custody of at-risk children,
receives $985.5 million, $43.2 million more than currently budgeted for
FY 2017, but only $26.9 million more (2.8 percent) than projected FY
2017 spending. The Administration anticipates spending $16.2 million
more in FY 2017 than has been appropriated so far, and will likely
require supplemental budget funding in FY 2017 to cover program costs.



DCF has a dual mission: to protect children and to strengthen families;
and funding is split between these two functions. Funding for the case
workers
who work directly with vulnerable families and
children totals
$236.8 million, a $13.3 million increase over FY 2017 funding, or 6.0
percent. In part due to highly-publicized cases involving children and
families involved with DCF, the Administration has made a concerted
effort to increase staffing at DCF and address some of the challenges
faced by the staff who work directly with at-risk families. Although
the case workers’ union contract aims to limit caseloads to
15 cases each, the FY 2018 Governor’s budget is not yet
sufficient to reach that goal. However, the Administration estimates
that increased staffing funded through this proposed budget will bring
the caseload ratios closer to 18:1. The Governor’s budget
proposal increases funding to train these new workers by $205,000, an
8.3 percent increase to $2.7 million.



The vast majority of children connected to DCF are not in foster care,
but rather live with their families with supports and services provided
by, or coordinated with, DCF. Estimates from March 2015 suggest that
close to 9 of every 10 children involved with DCF either live at home
with their families or are in foster care but awaiting return to their
homes. The FY 2018 Governor’s budget proposal includes $47.4
million for family
support services
, a $500,000 increase over FY 2017.
This increase will help provide the services families might need to
help them stay together safely and prevent child neglect.



The Governor’s budget proposal for FY 2018 includes $279.5
million for congregate
residential care
. The Administration expects
approximately 1,600 children to be in congregate care settings, and
this funding also supports certain short-term intensive placements,
such as Stabilization, Assessment, and Rapid Reintegration (STARR).
Funding for congregate care is comparatively more expensive than
family-based care. Furthermore, the state has had to use congregate
care in some instances simply because of the scarcity of foster
families. The Governor’s budget proposal is $14.3 million
over current FY 2017 budget totals, but only $986,000 above what the
Administration anticipates DCF will spend in FY 2017. This suggests
that the current budget total is likely insufficient, and the
Administration is anticipating requiring supplemental budget funding in
FY 2017 to cover costs.



As in FY 2017, the Governor proposes $250,000 to support Foster Care
Parent Outreach,
an initiative to encourage more families
to open their
homes to foster children.



The largest increase in the Governor’s budget proposal is an
additional $7.6 million budgeted for the administrative and operations
costs at DCF, bringing the FY 2018 budget total to $115.3
million. This
total includes $100.1 million for the central office, and $9.0 million
for the regional nonprofits that contract for services. The $4.5
million increase in the central office is expected to cover the costs
of newly-hired staff, and collective bargaining increases.



In FY 2017, DCF’s domestic
violence
services moved from DCF,
in order to be consolidated with the domestic violence prevention
programs at the Department of Public Health. See the “Public
Health” section of this Budget
Monitor
for a discussion.


In addition to the funding for DCF, the Governor’s budget
proposal provides $112,000 for what is known as the Grandparents
Commission,
which focuses on concerns of grandparents with
primary
responsibility for raising grandchildren. This total is $12,000 more
than funding in the FY 2017 current budget.






Disability Services


The state budget supports a range of programs for individuals
with
disabilities. These include targeted job training programs that help
people participate in the workforce as well as community-based supports
to assist people and their families more broadly. In total, the
Governor’s Fiscal Year (FY) 2018 budget provides $1.98
billion for disability services, a 4.7 percent increase from current FY
2017 levels.



The bulk of this increase is $59.9 million in additional funds for
Community Residential
Supports for the Developmentally Disabled,
a 5.4
percent increase from current FY 2017 levels. This program supports
adults in various residential settings to live as comfortably and
independently as possible.



The Governor also proposes to significantly increase funding by $16.7
million (222.6 percent) from current FY 2017 levels for the
Turning
22

program under the Department of Developmental Services.


This program pays for a share of services for young adults with
disabilities for a portion of the year that they turn 22 years old.
During this year, these young adults leave special education services
and transition into the adult service system.



Proposed funding for Autism
Omnibus Services
, which provides services
to individuals with autism spectrum disorders, is increased by $970,000
(7.8 percent) from current FY 2017 levels.



Finally, for workforce programs for individuals with disabilities, the
Governor proposes to fund
Community Based Employment
at $3.0 million -
the same as current FY 2017 levels, to increase Community
Day and Work
Programs
by $10.6 million (5.6 percent), and to increase transportation
assistance from home to community-based day or work programs

by $2.2
million (10.1 percent) from current FY 2017 levels.



For discussion on Chapter 257 rate increases for human and social
services providers, see “Other Human Services” in
the Budget Monitor.



For information on funding for disability services programs going back
to FY 2001, please see MassBudget’s Budget Browser here.






Elder Services


The state budget supports the Commonwealth’s older
adults
through a range of services that promote independence, safety, and
well-being. The Governor’s FY 2018 budget proposes funding
Elder Services at $287.0 million, a $16.8 million increase (6.2
percent) over current FY 2017 levels.



The bulk of this increase supports a variety of elder home care
services
, which allow elders to age in place instead of
living in a
nursing home. Proposed funding for these accounts is $226.5 million, a
7.5 percent increase over current FY 2017 levels.



The Governor also proposes to increase funding for Elder Protective
Services
by $1.2 million, a 4.1 percent increase over
current FY 2017
levels. These services allow for the investigation of elder abuse and
neglect.



Finally, Grants to
Councils on Aging
would receive a $130,000 decrease
in funding, 0.9 percent below current FY 2017 levels. Councils on Aging
centers offer a variety of social and support services to elders around
the Commonwealth, such as transportation, health screening, health
insurance information benefits counseling, and lifelong learning.



For information on funding for elder services going back to FY 2001,
please see MassBudget’s Budget Browser here.






Juvenile Justice


The Governor’s FY 2018 budget proposes $182.2
million for
juvenile justice programs, which are run by the Department of Youth
Services. This is a 3.4 percent increase above current FY 2017 funding
levels. Most accounts for juvenile justice are either funded at the
same level as the current fiscal year or slightly increased.



The program that would see the largest increase from the
Governor’s proposal is the
Alternative
Lock Up Program,
which
would receive $2.4 million, an 8.4 percent increase over the current FY
2017 budget. This program provides secure placements for youth arrested
when courts are not in session and is designed to provide a safe
(non-police) environment for youth who are awaiting a court appearance.



For information on funding for housing programs going back to FY 2001,
please see MassBudget’s Budget Browser
here
.






Transitional Assistance


Transitional assistance programs help low-income individuals
and
families meet their basic needs and improve their quality of life when
faced with an emergency. In total, the Governor’s FY 2018
budget proposes funding transitional assistance programs at $616.8
million, a $40.7 million decrease (6.2 percent) from current FY 2017
levels.



For entitlement programs like transitional assistance, funding is
significantly affected by anticipated caseload levels. As an
“entitlement,” the law requires that any qualified
person who applies must receive the service. Funding is directly tied
to how many qualified people are expected to apply. Transitional
Assistance caseload levels have dropped significantly in recent years.
For instance, caseloads for Transitional Assistance for Families with
Dependent Children (TAFDC) dropped from 47,137 in November 2013 to
31,503 in November 2016—a 33.2 percent decrease. This decline
may be partially due to both the overall improved economy and
administrative changes that make it harder for clients to maintain
their benefits. (For more detailed information on caseload levels for
transitional assistance accounts, please see the Department of
Transitional Assistance’s TAFDC page
here.)



TAFDC
receives a significant decrease in funding in the FY
2018
proposal, a decline of $42.9 million (22.4 percent) from current FY
2017 levels. This reduction assumes a continuation of declining
caseloads. Also, part of this reduction stems from a proposed change by
the Governor in how the Department of Transitional Assistance (DTA)
determines TAFDC eligibility and benefits for some families receiving
Supplemental Security Income (SSI). The Governor proposes that DTA
count SSI benefits in determining eligibility and benefits, a measure
that would reduce or eliminate TAFDC benefits to some families
receiving SSI due to a severe disability.



For Supplemental
Nutrition Assistance Program (SNAP)
, the Governor
proposes to reduce funding for the account that supplements the federal
SNAP program by $400,000 (57.1 percent) below current FY 2017 levels.



DTA also funds some important workforce development programs. For
instance, the Governor proposes funding the Employment
Services Program
(ESP), the primary education and job training program for
TAFDC
clients, at $13.6 million, a 7.8 percent increase from current FY 2017
levels. Also, Pathways
to Self-Sufficiency
, is proposed to receive $1.0
million (from the ESP account), the same as current FY 2017 levels.
This funding supports employment services for TAFDC clients who will no
longer be exempt from the work requirement resulting from the 2014
welfare reform’s mandated alignment of state disability
standards with federal SSI disability standards.



Under the Governor’s proposal, the Caseworkers
Reserve

account, which funds salaries for caseworkers in DTA, receives a
$612,000 increase (0.9 percent) from current FY 2017 levels. The
Governor also proposes to remove the 60-client caseload limit for
“self-sufficiency” specialists, who are caseworkers
working with clients who have greater barriers to becoming
self-supporting, such as teen parents.



For information on funding for transitional assistance programs going
back to FY 2001, please see MassBudget’s Budget Browser here.






Other Human Services


The Governor’s Fiscal Year (FY) 2018 budget proposal
includes
$206.5 million for other human services. This funding includes
allocations for veterans’ services, food banks, and some
cross-agency initiatives. This amount is $3.1 million more than current
budgeted totals for FY 2017. Much of the increase is associated with
the scheduling of rate increases held in a reserve account for a
variety of health and human services providers that we include in this
subcategory of this Budget Monitor (see discussion below).



The Governor proposes $17.0 million for the Emergency Food Assistance
Program
which is level with FY 2017 current funding. This
funding
supplements federal funding to support the statewide network of food
banks that provide food to families struggling to make ends meet.



The Governor proposes $147.7 million for veterans’ services,
just under FY 2017 budget totals, but $1.6 million above anticipated
spending in FY 2017. The Governor’s proposal includes a $1.2
million budget increase directed to veterans outreach centers.



The Governor’s budget includes $400,000 for the Low-Income
Citizenship Program
in the Office for Refugees and
Immigrants,
level-funded with current FY 2017 budget totals. This program assists
legal permanent residents who will be citizens within a few years gain
access to benefits for which they are eligible.



Included in the total for “Other Human Services” is
$39.7 million for legally required Chapter
257 rate increases
. Chapter
257 standardizes rates paid to various types of human service providers
in order to make the system more efficient and fair. The amount
included in the Chapter 257 reserve account funds the planned rate
increases for providers across many human and social service programs.
There are increases planned beginning FY 2018 that affect several
agencies, including services provided by the Department of
Developmental Services, the Department of Public Health, and the
Department of Mental Health. For more information on the rate
standardization and the timing of the implementation across state
agencies, see the state’s
Chapter
257 update.
This reserve
contains the amounts for the initial increases, and over the course of
the year those funds are then distributed to the individual agencies to
fund their providers’ rate adjustments. In subsequent years,
that increased funding would from then on be included in the totals of
the agencies that received the funds, and included in other sections of
this Budget Monitor.





INFRASTRUCTURE, HOUSING
& ECONOMIC DEVELOPMENT



Transportation


The state supports an array of transportation systems,
including roads,
bridges, rail, buses, airports, and ferries that enable people and
goods to travel where they need to go. Much state funding for
transportation takes place through dedicated revenue sources and a
separate capital budget process. For a chart and description of funding
for transportation operations and debt service, see
MassBudget’s fact sheet,

“What Does Massachusetts
Transportation Funding Support and What Are the Revenue
Sources.”



In the Governor’s Fiscal Year (FY) 2018 budget, the two most
significant proposals for transportation are a $60.0 million reduction
of operating assistance for the Massachusetts
Bay Transit Authority

(MBTA) compared to the FY 2017 budget, with an expectation to provide
an equivalent amount of funding from the state’s capital account; and
two changes to the
tax treatment of credit card payments that would increase sales tax
receipts, especially this year, resulting in additional dedicated sales
tax revenues for the MBTA.



The proposed $60.0 million to be made available to the MBTA for capital
spending would not entail an increase in the Commonwealth’s
capital budget. Making additional capital spending available to the
MBTA would therefore require reductions elsewhere in the $2.19 billion
FY 2018
capital budget,
which currently plans an allocation of $822.7
million for transportation and public works.



Essentially moving $60.0 million in state support from MBTA operations
to a capital spending account is consistent with MBTA Fiscal Management
and Control Board (FMCB) goals to reduce operating expenses and invest
more in capital improvements. Last spring the MBTA rejected and
returned its respective monthly state operating assistance payments for
May 2016 and June 2016, a sum of $31.2 million. The Commonwealth then
used these funds toward the purchase of additional Red Line cars. The
MBTA would undoubtedly benefit from a $60.0 million increase in capital
investment in FY 2018, for instance, to replace obsolete machinery and
purchase new buses. The agency could alternately use the funding on the
operational side, such as to increase bus service, but the FMCB reports
that MBTA management believes $127 million will be sufficient to
balance the agency’s anticipated operating budget.



The proposed $60 million reduction comes at a time when the operating
budget has taken on new responsibilities and has reduced costs in
several areas. The MBTA has been shifting the costs for
532 employees

from the capital budget onto the operating budget, and 220 employees
with $25.9 million in salaries and benefits are still in the process of
shifting by FY 2019. Moving these employees to the operating account
creates further pressure to reduce spending on operations. To bridge
operating budget shortfalls last year, the agency introduced various
efficiencies, increased its advertising, sold off land and other
assets, privatized some functions, increased fares, and cancelled
late-night bus service, among other actions.



The Governor’s budget proposal would also increase
transportation funding as the result of two outside sections of the
budget that would increase sales tax revenues, and thereby increase the
dedicated portion of sales taxes to the MBTA. As described in the
“Revenue and Budget Balance” section of this Budget
Monitor, a one-time change in the timing of when certain companies must
deliver to the Commonwealth the sales taxes they have collected from
their customers would move forward an estimated $125 million in sales
taxes from FY 2019 into FY 2018. Additionally, an anticipated
regulatory change that will require many large out-of-state retailers
to collect and remit applicable Massachusetts sales and use taxes from
their customers is estimated to yield an additional $30 million in
ongoing revenue in FY 2018. With these changes and a growing economy,
the Governor’s budget anticipates that sales taxes would
increase enough to yield a $23.7 million increase (2.4 percent) in
dedicated sales tax revenue for the MBTA over the FY 2017 amount.



The Governor’s proposal would reduce funding for the
Commonwealth’s 15 Regional
Transit Authorities
(RTAs) from
$82.0 million in FY 2017 to $80.0 million. The budget also anticipates
transferring $329.1 million from the Commonwealth Transportation Fund
to the Massachusetts
Transportation Trust Fund
in FY 2018, a $15.2
million increase (4.6 percent) over the FY 2017 amount. This fund
contributes to highways, transit, intercity rail, small airports, the
Massachusetts Turnpike, and Motor Vehicle Registry, while also
receiving funds from tolls and federal transportation sources, in
addition to the Commonwealth Transportation Trust Fund.





table: Funding for transportation





Other outside sections of the Governor’s FY 2018
budget
proposal would also have impacts for transportation. One section would
allow MassDOT to sell its real estate without a competitive bidding
process so long as the value of the property is less than $100,000, as
opposed to less than $5,000, as currently stated in law. Another
section enables, but does not require, the Pension Reserves Investment
Management Board to manage the investment of the MBTA Retirement Fund,
if the MBTA agrees.






Housing


Our state budget supports affordable housing programs and
provides
shelter and services to homeless families and individuals. The
Governor’s Fiscal Year (FY) 2018 budget recommends spending
$453.7 million on affordable housing and homelessness assistance
programs. This budget recommendation is $3.3 million more than the
$457.0 million the state projects it will spend in FY 2017. While the
Governor’s budget is $20.3 million more than the FY 2017
current budget, it is likely the state will have to provide an
additional $14.2 million in FY 2017 to fully-fund the Emergency
Assistance family shelter program, discussed below.



Homelessness Assistance



About a third of the state’s housing budget assists
low-income families who are homeless and are eligible to stay in
state-supported
Emergency
Assistance
(EA) shelters. (For a full
discussion of eligibility, please see the EA description in
MassBudget’s Children’s
Budget)
. The
Governor’s budget recommends providing $164.7 million for EA
in FY 2018. This recommendation is $14.2 million below the $178.9
million the state projects it will spend in FY 2017 (see table below).
The initial FY 2017 General Appropriations Act (GAA) did not fully fund
EA. Because EA serves all low-income, homeless families who are
eligible, the Legislature will likely have to approve additional funds
in FY 2017 so the program can meet expected need.





table: Funding for homelessness assistance programs





In addition to providing shelter to low-income, homeless
families, the
budget also funds short-term assistance to help homeless families move
out of shelter and into housing. The state also provides short-term
funds to help low-income families who are at risk of becoming homeless
to stay in housing. HomeBASE
helps families eligible for EA to either
stay in housing or to move from shelter into housing. Residential
Assistance for Families in Transition (RAFT)
provides one-time
assistance to help low-income families stay in housing. Families who
receive RAFT have to show that they have the resources to remain in
housing over the long term. As noted in the table above, the
Governor’s budget recommends a slight reduction in HomeBASE
funding compared with FY 2017 and level funds RAFT.



The state also provides shelter for homeless adults through Homeless
Individuals Assistance
and houses chronically homeless
individuals
through the Home and
Healthy for Good
program. More recently the state
created a program to provide shelter and assistance to unaccompanied
homeless youth.
As shown in the table above, the
Governor’s
budget essentially level funds these programs which, because of
increased costs associated with inflation, means that the state will
likely have to cut services in FY 2018. 



Affordable Housing



The state’s housing budget provides subsidies to help
low-income tenants pay their rent. Of these programs, the Massachusetts
Rental Voucher Program (MRVP) and Public Housing Subsidies are the two
largest. Smaller programs, such as the Alternative Housing Voucher
Program (AHVP) and rental subsidies for clients at the Department of
Mental Health (DMH), also provide rental assistance.





table: Funding for state rental subsidy programs





The
MRVP program
provides housing vouchers to help low-income
people
afford rent. Beginning in the late 1980s, the state steadily cut
funding vouchers so that by FY 2013 it only issued a quarter of the
vouchers that it had provided in earlier decades. (Please see Shelter
and Housing for Homeless Families
for a discussion of this
issue.) In
recent years, as it recognized the importance of providing long-term
housing supports for low-income tenants, including for low-income
homeless families who are moving from shelter into housing, the state
has increased funding so that DHCD can create more vouchers. The
Governor’s FY 2018 budget recommends $97.5 million for MRVP,
an increase of $11.0 million dollars above the FY 2017 budget.
According to documents accompanying the Governor’s budget,
this increase will allow the state to create about 200 more supportive
housing units to help families stay housed. Some of the increase will
fund about 1,000 more vouchers in FY 2018 for a total of approximately
9,000 vouchers.   



In addition, the Governor’s budget recommends increasing the
income eligibility for MRVP voucher holders from 50 percent of area
median income (AMI) to 80 percent. This increase allows very low-income
renters (HUD defines people living at 50 percent of AMI as
‘very low-income’) to increase their income without
fear of losing their housing vouchers. This recommendation would also
bring the MRVP program in line with the regulations governing
eligibility for renters in state public housing. Renters can remain in
state public housing until their income exceeds 80 percent of AMI,
which HUD defines as ‘low-income.’ The
Governor’s budget also proposes that at least three quarters
of the vouchers issued by DHCD be targeted to extremely low-income
renters earning 30 percent of the AMI.



The Governor’s budget proposes providing $64.5 million in
subsidies to public housing authorities
(or Local Housing
Authorities
(LHAs)), which is the same amount provided in the FY 2017 budget and
roughly the same amount provided in recent fiscal years. The
Governor’s FY 2018 budget proposal is essentially a cut in
funding since it does not keep pace with inflation. LHAs provide
subsidies so that tenants, on average, pay no more than 30 percent of
their income in rent.



The Governor’s budget also recommends providing $1.0 million
to expand housing courts
in the state. Both the Governor’s
and the Senate’s FY 2017 budgets proposed expanding housing
courts but the Legislature did not include this expansion in its final
budget. 



For information on funding for housing programs going back to FY 2001,
please see MassBudget’s Budget Browser here.






Economic Development


Economic development programs aim to strengthen our
state’s
workforce, support community investments, and stimulate economic
activity. In total, the Governor’s FY 2018 budget proposes to
fund economic development programs at $133.1 million, a $6.2 million
increase (4.9 percent) from current FY 2017 levels.



Under the proposal, the Governor seeks to establish a new $4.0 million
account, Learn to Earn,
which aims to train and place unemployed and
underemployed individuals in jobs in high-demand fields through
partnerships between public agencies, businesses, community-based
organizations, and career centers. From this account $1 million would
be used to fund new programs that address barriers to sustained
employment, such as child care and transportation costs. The remaining
$3.0 million would be transferred from this account and into the
Workforce
Competitiveness Trust Fund
(WCTF) (see table below), which
has similar workforce development goals as Learn to Earn.





table: Funding for WCTF and learn to earn





In the Governor’s budget proposal many workforce
development
programs receive slight decreases or are funded at level as current FY
2017. For instance, YouthWorks
would receive a $150,000 reduction (1.5
percent).
One-Stop Career Centers
, which helps job seekers improve
their skills and navigate the job search process, would receive a 0.1
percent reduction from current FY 2017 levels. Advanced
Manufacturing
Workforce Development Grants
would be funded at the same
$1.5 million
level as FY 2017. Also, the Workforce
Training Fund,
which provides
grants to businesses to train current and newly hired employees, would
receive a $200,000 reduction (0.9 percent) from current FY 2017 levels.
This trust is financed by an additional unemployment insurance
assessment paid by Massachusetts employers. For more information about
various types of support for workforce training through the
Massachusetts state budget, see MassBudget’s Jobs and
Workforce Budget tool.



Finally, funding for the Tourism
Trust Fund
would receive $10.0 million
via a transfer from room occupancy tax revenue (from hotel room taxes).
The Governor’s budget proposal amends the current statue by
adjusting the distribution of the funding by directing $3.0 million for
grants to regional
tourist councils
, $4.0 million for the operation of
the Massachusetts Office
of Travel and Tourism
, and the remaining $3.0
million as earmarks for specific tourism projects around the state.






LAW & PUBLIC SAFETY


Overall, funding recommended by the Governor for Fiscal Year
(FY) 2018
Law & Public Safety programs totals $2.83 billion. This total
is $190.6 million (7.2 percent) above current FY 2017 funding levels,
but is only $29.0 million (or 1.0%) above the
Administration’s estimate for final FY 2017 spending on Law
& Public Safety accounts (see table below). This variation is
the result of many small and a few large differences between current FY
2017 funding levels and the projected final FY 2017 funding levels.
Among the accounts with a large variation is Private Counsel
Compensation
(PCC).  Typically, the PCC account
is replenished
mid-year through supplemental appropriations, and the Administration is
estimating that the PCC account will require $51.3 million in
additional funding in FY 2017 beyond current levels. The seemingly
large increase proposed by the Governor in FY 2018 for the PCC account
therefore in fact would be a small decrease if all the anticipated FY
2017 funding ultimately is required. (Notably, the Governor’s
budget also includes a proposal requiring the Secretary of
Administration and Finance to conduct a study on and make
recommendations regarding how PCC costs can be reduced.)



A similar story holds for the
sheriffs’ department
accounts
and for the Department of
Probation
account. The Governor is proposing
FY 2018 funding increases for most of these accounts relative to
current FY 2017 funding levels. At the same time, the Administration is
anticipating that significant additional mid-year funding will be
required in FY 2017 to support these departments, thus narrowing the
otherwise sizeable gap between current FY 2017 funding levels and the
amounts proposed by the Governor.


Unlike items noted in the foregoing discussion, the Governor
is
recommending a sizeable and real increase in FY 2018 funding above
anticipated FY 2017 levels for the Department
of Correction
(DOC). The
Administration currently is anticipating the DOC will require $598.9
million in FY 2017 and is proposing increasing that amount to $624.9
million in FY 2018, an increase of 4.4 percent. This increase is tied
to a reform initiative proposed by the Governor focused on improving
the quality of conditions and care at Bridgewater State Hospital,
a
medium-security prison that performs psychiatric evaluations on
pre-trial detainees and also houses a significant number of prisoners
with serious mental illnesses. The Governor also recommends increasing
funding for the Massachusetts
Alcohol and Substance Abuse Center
from
$5.0 million in FY 2017 to $9.8 million in FY 2018.





table: Funding for law and public safety program areas






LOCAL AID


Unrestricted Local Aid



The Governor’s FY 2017 budget proposes to increase
Unrestricted General Government Aid (UGGA) by $39.9 million over
current FY 2017 levels to $1.06 billion, an increase of 3.9 percent.



General local aid helps cities and towns fund vital local services such
as police and fire protection, parks, and public works. For more
information on general local aid, please see
Demystifying
General Local
Aid in Massachusetts
.



The Commonwealth’s capacity to fund general local aid has
been hindered by a series of significant state-level tax cuts during
the 1990’s and 2000’s combined with the Great Recession. While over the
past several years, general local aid funding has increased in step
with or slightly above inflation, it still remains 40.5 percent below
FY 2001 levels, when adjusted for inflation.





bar graph: General local aid





Other Local Aid



The Commonwealth provides other sources of local aid to cities and
towns for more specific purposes. The largest form of local aid is for
K-12 education, which is discussed separately in the K-12 Education
section. Aid for libraries is also discussed in its own section in this
Budget Monitor.



The Governor’s budget proposal would provide $10.2 million
for the Municipal
Regionalization and Efficiencies Incentive Reserve

– $1.2 million below the amount initially enacted in the FY
2017 budget, but $3.9 million above the current FY 2017 funding levels
after the Governor’s $5.2 million 9C budget cuts to this
program in December (to learn more about such cuts, read
MassBudget’s brief, What
Are 9C Cuts?
). As part of this
proposal, the Governor’s budget would provide $3.4 million
for a competitive public
safety grants
program for populous communities
with low per-capita police funding. It would allocate $2.8 million for
continuing a District
Local Technical Assistance Fund
administered by
the Division of Local Services within the Department of Revenue. The
proposal would provide $2.0 million to fund a competitive grants
program for regionalizing
services or planning
, and would double
funding (to $2.0 million) for the Community
Compact
incentive program
to support best local practices.



Some cities and towns receive other forms of non-education local aid
from smaller programs that provide aid only to a subset of qualifying
cities and towns. For example, the Governor’s budget would
provide the same amount as in FY 2017 ($26.8 million) for local
payments in lieu of taxes to communities with state-owned land that is
not subject to local property taxes. The Governor’s budget
reflects reducing horse racing revenue in a reduction of racing revenue
shared with cities and towns from $1.2 million to $721,000.





OTHER



Libraries


Overall, the Governor’s Fiscal Year (FY) 2018 budget
recommends $25.4 million to fund libraries, an increase of $252,000
(1.0 percent) from current FY 2017 levels. When the effects of
inflation are taken into account, this relatively small percentage
increase in nominal funding levels translates into a small cut for
libraries.



More notable than the difference between the Governor’s
proposed FY 2018 funding levels and current FY 2017 funding levels,
however, is the very steep drop in annual state support for libraries
since FY 2001. Where libraries received $49.1 million in FY 2001
(adjusted for inflation), under the Governor’s FY 2018
proposal they would receive $23.7 million less than in FY 2001, a
decline in annual funding of 48.2 percent.


bar graph: Library funding cut dramatically since fy 2001









Pensions


In his Fiscal Year (FY) 2018 budget proposal, the Governor
recommends
increasing the state’s contribution to the Pensions Reserves
Investment Trust (PRIT) Fund by $196 million over FY 2017, to a total
of $2.40 billion. This represents an increase of 8.9 percent over the
$2.20 billion contributed to the PRIT in FY 2017. This annual
appropriation is in accordance with the 1988 state law that requires
the Commonwealth to set aside money in the present in order to fund the
future pension costs of public employees. The specific amounts to be
contributed annually to the PRIT are stipulated in Massachusetts
General Law, with a five-year schedule included therein, currently
running from FY 2012 through FY 2017. The five-year schedule of annual
pension contributions is updated every three years by the Secretary of
Administration and Finance and is due to be updated in the first
quarter of 2017. This update will outline specific annual contribution
amounts for fiscal years 2018 through 2020. In the meantime, the
Governor’s proposed FY 2018 contribution appears to keep the
Commonwealth on track to fully pay down its unfunded pension
liabilities by 2036, as currently planned.



Assets held and managed within the PRIT are used to fund future state
employee retirement costs. The funds in the PRIT come from three
sources: employee pension contributions, the state’s
contributions toward employee pensions, and the investment returns
generated from the PRIT (to learn more about the Massachusetts state
pension system, see MassBudget’s report

“Demystifying the State Pension System”
).






REVENUE 



The Governor’s Fiscal Year (FY) 2018 budget introduces several tax
policy changes that would deliver an estimated $187 million in new
revenue to the Commonwealth in FY 2018 ($30 million of this total would
go automatically to the MBTA and the Massachusetts School Building
Authority rather than remain available for appropriation in the General
Fund). These proposals would deliver a mix of both one-time and ongoing
revenue. Overall, the Governor’s budget relies on roughly
$100 million in one-time revenue and temporary savings to achieve
balance (see Revenue Table 3, below). Such one-time revenue and
temporary savings are useful for balancing the budget only in the
current fiscal year and their use most often adds to the challenge of
balancing the budget in future years. (To read more about the state’s
projected FY 2018 budget gap, see MassBudget’s
FY
2018 Budget Preview.)



Additionally, the Governor proposes two new mechanisms for directing
tax revenue to the state’s Stabilization (“Rainy
Day”) Fund. One proposal would alter the formula that
determines  the amount of anticipated excess capital gains tax
revenue that is required to be deposited into the fund, while the other
proposal would require a portion of any general tax revenue collected
in excess of the budgetary benchmark amount be deposited to the fund.
Overall, these changes might reduce the amount of revenue technically
required
to be deposited to the fund relative to current
law, but might
increase the likelihood that such deposits actually would be made. (In
recent years, required deposits to the fund often have been
suspended.)  



Looking at non-tax revenue proposals, the Governor proposes a new
assessment on employers that would raise an estimated $300.0 million
annually to help cover the costs of health care. These changes are
aimed at encouraging employers to provide coverage, and
counterbalancing some of the cost shifting to the state’s
MassHealth program (see “MassHealth and Health
Reform” section of this Budget
Monitor
).



These and other revenue and budget balancing proposals are covered in
greater detail in the Tax Revenue and Non-Tax Revenue sections, below.



Tax Revenue



The starting point for every state budget is the Consensus Revenue
Estimate (CRE). The FY 2018 CRE figure agreed to by the Administration,
the House and the Senate is $27.072 billion, an amount $1.016 billion
or 3.9 percent above the current FY 2017 benchmark estimate of $26.056
billion. The Department of Revenue has estimated benchmark adjustments
of $100 million in FY 2018, meaning that in order to achieve this level
of actual
tax revenue growth ($1.016 billion), the baseline revenue
growth in FY 2018 would have to total $1.116 billion or 4.3 percent.
Baseline growth estimates are based on projected economic growth, while
actual growth estimates take into account already-enacted tax policy
changes that will affect the amount of tax revenue available during the
period in question—in this case, FY 2018 (for more detail on
the FY 2018 revenue forecast, see MassBudget’s FY
2018 Budget
Preview
).



Included in the CRE is the assumption that revenue growth in FY 2018
will be strong enough to trigger another automatic reduction in the
personal income tax rate, dropping the rate from the current 5.10
percent to 5.05 percent on January 1, 2018, halfway through FY 2018.
The Department of Revenue estimates that this rate drop will cost the
Commonwealth about $83 million in forgone revenue in FY 2018 (or some
$165 million over the course of a full calendar year). (Read more about
the automatic rate reduction mechanism in this MassBudget
FAQ.
)



The Governor’s proposed tax policy changes would deliver
$62.0 million in ongoing tax revenue in FY 2018 and another $125.0
million in one-time tax revenue. These proposals are shown in the
following table and are discussed in greater detail, below.






table: Revenue table 1





Tax Modernization



The Governor proposes a number of tax policy changes, which together
would generate an estimated $187 million in new revenue in FY 2018. The
Governor’s budget documents describe these not as tax
increases, but rather as modernization of the tax system that will
improve efficiency and effectiveness of collection as well as
“level the playing field.” Of these new revenues,
$62 million would be ongoing, while $125 million would be one-time
revenue available only in FY 2018. The new revenue proposals are as
follows:



  • Collecting
    Sales Tax from
    Out-of-State Online Retailers
    – The Governor
    proposes making
    regulatory changes through the Department of Revenue (rather than
    statutory changes requiring legislative action) that would require
    online retailers that make more than $500,000 of sales annually in
    Massachusetts to collect and remit Massachusetts sales and use taxes on
    purchases made by customers inside Massachusetts. The Administration
    estimates this change would generate an additional $30 million of
    ongoing revenue in FY 2018. Current law requires online consumers in
    Massachusetts to pay directly to the Department of Revenue (DOR) any
    applicable sales or use taxes due on their purchases. In practice,
    however, few people do so and much of this potential revenue goes
    uncollected. Requiring online sellers to collect and remit these
    taxes—just as we require bricks-and-mortar shops in cities
    and towns throughout the Commonwealth to do–is the simplest and likely
    the only realistic means of collecting these tax dollars.





    Nevertheless,
    the Commerce Clause of the U.S. Constitution,
    as
    currently interpreted by the U.S. Supreme Court, does not allow states
    to require collection of state sales taxes by all companies that do
    business in a state (unless authorized by Congress). Instead, states
    are permitted to require such tax collection only from businesses that
    have sufficient “nexus” in the state, meaning
    physical presence in the form of property or personnel located within
    the state. This interpretation of the Commerce Clause presents real
    challenges in the age of online sales, where companies may have many
    customers in a state, but no offices, warehouses, or employees located
    in the state. (Read more HERE from
    the Congressional Research Service
    about nexus requirements and other legal issues related to the taxation
    of online sales.)





    In response, in recent years some states have begun to
    assert the right
    to require sales tax collections from such companies based on the
    notion of “economic nexus” rather than
    “physical nexus.” In such cases, a threshold of
    economic activity—such as $500,000 of annual sales with the
    state—has been used to define “economic
    nexus.” Typically, states have introduced these tax policy
    changes through statute rather than through regulatory action. In
    several states that have made such statutory changes to their tax laws
    (including, recently, South Dakota and Alabama), many companies have
    begun collecting and remitting state sales taxes (though some companies
    are challenging the laws in court). There are similar bills pending in
    17 other states. The experience from other states suggests that both of
    these outcomes would be likely, namely that some companies would begin
    collecting and remitting applicable Massachusetts sales taxes, while
    others would challenge the requirement in court.  

  • Taxing
    Short-Term Rentals
    -
    The Governor proposes making some short-term rentals—like
    those available through websites such as Airbnb and
    VRBO—subject to a 5 percent room occupancy tax, similar to
    that applied to regular hotel and motel rooms. The Administration
    estimates this proposal would generate some $12 million in ongoing
    revenue in FY 2018. The Governor has described his proposal as a way to
    “level the playing field in the accommodations
    industry.”





    The proposal, which is similar to but narrower than one put
    forward
    last year by the Senate (see MassBudget’s factsheet on this
    earlier proposal)
    , would apply only to accommodations rented
    150 days
    or more in the prior calendar year. The exemption for properties rented
    less than 150 days was not included in the Senate’s earlier
    proposal. Also exempted are bed-and-breakfast operations with three
    rooms or less (small B&Bs already are exempt from the room
    occupancy tax). As with the Senate’s earlier proposal and the
    current
    room occupancy tax
    , cities and towns may apply their own,
    local
    short-term rental tax of up to 6 percent (and up to 6.5 percent in
    Boston). Provisions within the Governor’s proposal authorize
    the Commissioner of Revenue to enter into agreements with third party
    intermediaries (such as Airbnb and VRBO) to collect and remit these
    taxes on behalf of property owners who use their services. In the past,
    Airbnb has expressed interest in helping its clients collect and remit
    such taxes. Under the Governor’s proposal, the tax on
    short-term rentals would take effect on January 1, 2018, halfway
    through FY 2018.

  • Requiring
    Credit Card
    Companies to Provide 1099-Ks to Addt’l Small Business Owners

    The Governor anticipates the Department of
    Revenue (DOR)
    will make regulatory changes (which avoids the need for legislative
    action were such changes to be made in statute instead) that would
    require third-party payment intermediaries (like credit card companies)
    to provide 1099-K forms to individuals and small businesses to whom the
    companies transfer more than $600 in payments in a given calendar year.
    The current rules require such companies to provide 1099s only to
    individuals deriving more than $20,000 of income from more than 200
    transactions with the credit card company. In many cases, individuals
    deriving payments from the credit card companies are small business
    owners accepting payment from customers via credit card. With 1099
    information reported both to individuals, small businesses, and to DOR,
    the Administration anticipates greater compliance with existing income
    tax laws. The Administration estimates that such 1099 reporting changes
    will generate $20 million of ongoing revenue in FY 2018.

  • Require
    Credit Card Processors
    to Remit Sales and Room Occupancy Tax on Daily Basis

    The
    Governor proposes requiring third party payment processors (like credit
    card companies) to collect and remit to the Commonwealth, on a daily
    basis, all applicable sales and use and room occupancy taxes generated
    through sales made by Massachusetts vendors with 50 or more employees.
    Currently, third party payment processors are permitted a 50 day grace
    period for remittance of such taxes. By requiring daily remittance,
    this tax policy change would shift, on a one-time basis, an estimated
    $125 million of tax payments from FY 2019 into FY 2018. Some $95
    million of this total, one-time revenue would remain in the General
    Fund available for appropriation to help balance the FY 2018 budget.
    (The remaining $30 million of the $125 million total would be shared
    between the MBTA and the Massachusetts School Building Authority.)





Stabilization Fund Revenue
Sources



The Governor proposes significant changes to the current rules
governing how much capital gains tax and other revenue is to be
deposited each year into the state’s Stabilization Fund (or
“Rainy Day Fund”). The Rainy Day Fund provides
reserves on which the state can draw to maintain funding for programs
and services during economic downturns, when tax collections typically
undergo a substantial decline.



The Governor’s proposal includes two main elements. The first
would change the amount of capital gains tax revenue to be deposited
into the Rainy Day Fund. Under current law, any capital gains tax
revenue collected in excess of a threshold calculated annually (per
statutory formula) by the Department of Revenue ($1.169 billion in FY
2018) is to be deposited, quarterly throughout the fiscal year, into
the Rainy Day Fund for later, emergency use. (To read more about
capital gains taxes and the Rainy Day Fund, see the Revenue Section of
MassBudget’s’
FY 2017 Budget Monitor
). The Governor
proposes instead making an automatic, upfront deposit
(“pre-budget transfer”) into the Rainy Day Fund at
the start of each fiscal year, equal to one-half of the estimated
excess capital gains revenue anticipated during the coming fiscal year.
(This estimated excess is calculated as the difference between
DOR’s annual capital gains threshold amount and the amount of
capital gains anticipated in the Consensus Revenue Estimate.) The new
approach proposed by the Governor would deliver $51.5 million to the
Rainy Day Fund in FY 2018. (The administration anticipates a total
deposit to the Rainy Day Fund of $98 million, including $46.5 million
in earned interest and sales of abandoned property.) This amount ($51.5
million) is less than likely would be made under current
law—if current estimates for FY 2018 capital gains tax
collections are met,  a deposit of $102 million would be made.
Notably, however, the currently required deposit has not been made in
recent years.



The second change would direct to the Rainy Day Fund, at the end of
each fiscal year, half of any tax revenue collected during that fiscal
year that exceeds the benchmark amount upon which that fiscal
year’s budget had been built. So, for example, for the FY
2018 budget the Governor, Senate and House have agreed to a benchmark
tax revenue amount of $27.027 billion. If the final collection total
for FY 2018 turns out to be $27.272 billion, exceeding the benchmark
consensus estimate by $200 million, then, under the
Governor’s proposal, a $100 million deposit would be made to
the Rainy Day Fund shortly after the end of the fiscal year. Under
existing law, which directs all year-end General Fund surpluses to the
Rainy Day Fund, the remaining half also would be deposited to the fund
– as long as the additional revenue goes unspent at
year’s end. Lawmakers, however, may instead choose to spend
the excess revenue, for example, on year-end deficiencies in budgetary
accounts. In such case, the excess revenue would no longer create a
year-end surplus and thus no such required deposit to the Rainy Day
Fund need be made. In short, the Governor’s proposal creates
a kind of “lock box” for half of any excess
year-end tax revenue, making it more likely that this portion of any
such additional revenue in fact would wind up in the Rainy Day
Fund. 



Notably, the Governor’s proposals occur within a policy and
fiscal context that has delivered significantly less revenue to the
Rainy Day Fund than might be expected during a period of state and
national economic growth. Some of the important factors at play during
this period include the following:



  • The FY 2014 budget repealed an
    earlier law that mandated a deposit to the Rainy Day Fund of one-half
    of one percent of the prior fiscal year’s tax revenue
    collections.

  • In the FY 2015 budget,
    lawmakers revised a law that had mandated deposits to the Rainy Day
    Fund of all “large tax settlements and judgments exceeding
    $10 million each.” The revised approach directs to the Rainy
    Day Fund only the amount in excess of a rolling five-year average for
    such revenues. (The Administration is projecting a five-year average
    for FY 2017 of $271 million and $215 million for FY 2018. In no recent
    year have collections from this source been below $130 million. The
    Governor’s FY 2018 budget relies, conservatively, on $100
    million from this source. To learn more about this source of Rainy Day
    Fund revenue, see the more detailed discussion in the FY
    2017 Budget
    Monitor.
    )

  • Finally, as noted, over the
    past several years, the currently-mandated deposit of excess capital
    gains tax revenue to the fund has been suspended repeatedly in order to
    balance that year’s budget.



Together, these changes and budgetary practices have reduced
significantly the amount of revenue that otherwise would have been
deposited into the Rainy Day Fund over the last several years. Whether
the Governor’s proposals would make things better in the
future is not clear, and the answer depends partly on what one assumes
about future compliance with existing and newly proposed rules. The new
capital gains tax formula would deliver only half of any projected
excess capital gains surplus, rather than the full amount of any actual
excess above DOR’s calculated threshold. The new
rule
normally would mean a reduction in the amount contributed to the Rainy
Day Fund relative to the amount that would be contributed under the
current rule. But in recent years the “required”
contribution—as defined under current
rules—hasn’t actually been made. So, if the new
rule were actually followed (in contrast to the current rule, which
frequently has not been), it could result in progress in building up
the Rainy Day Fund.



The other element of the Governor’s
proposal—affecting year-end total tax revenue
surpluses—should lead to more predictable and stable deposits
from year-end surpluses, and also could produce larger contributions to
the Rainy Day fund from this source. While there may be times when the
final surplus (all of which goes to the Rainy Day Fund under current
law) would be more than the amount dedicated for deposit under the
newly proposed rule (equal to half of the amount by which actual tax
revenues exceed the Consensus Revenue Estimate), in those cases the
contribution to the Rainy Day Fund actually would be the same under
both the current and proposed systems. This is because the proposed
rule does not replace the current rule; it merely operates in addition
to the current rule. As such, the
proposed
rule would direct to the
Rainy Day Fund the portion of the year-end surplus equal to the amount
calculated under the new formula, and then the current rule would
kick
in, directing the remaining surplus to the fund. By contrast, in years
where the majority of a surplus resulting from excess tax revenue would
have been spent before the end of the fiscal year, the new rule would
result in a larger deposit into the stabilization fund than under
current law (because the new rule effectively “lock
boxes” half of the revenue surplus before any of it can be
used for anything other than a deposit to the Rainy Day Fund. 



The other effect these proposals have is to reduce the amount of total
budgetary funding that is counted as temporary revenue when determining
if and how the state budget is in balance. Under current law, if only
half of the required Rainy Day Fund deposit from excess capital gains
tax revenue is made, the other half of such revenue—used
instead to fund the budget—would count as a temporary revenue
source. Under the newly proposed rule, the required contribution to the
Rainy Day Fund becomes typically half as large, leaving the other for
use in balancing the budget, but without defining it as temporary
revenue. By changing the law to reduce the size of the required
contributions to the Rainy Day Fund, these budget proposals have the
effect of reducing what gets counted as reliance on temporary revenue.
This is potentially problematic because the capital gains tax is highly
volatile and relying on even half of the annual excess from this
unstable revenue source to fund ongoing budget costs could leave the
Commonwealth with a sizeable budget gap when the next economic downturn
arrives.



Non-Tax Revenue



The Governor’s Fiscal Year (FY) 2018 budget proposal relies
on a variety of non-tax revenues—federal revenues, which are
mostly reimbursements from the federal government for state spending on
Medicaid (MassHealth and related costs); departmental revenues, which
are fees, assessments, fines, tuition, and similar receipts; and what
are known as “transfer” revenues, which include
lottery receipts, revenues from the newly-licensed gambling facilities,
and funds that the state draws from an assortment of non-budgeted
trusts.



The Governor’s budget proposal includes several new sources
of non-tax revenue, including:



  • $10.3 million in transfers to
    the General Fund from the sale of abandoned property. In December, the
    Administration announced it would be liquidating a large amount of
    stock and mutual funds. Mass. General Law requires that 75 percent of
    abandoned property growth be directed to the Stabilization Fund ($33.8
    million in FY 2018), but the remainder would be for the General Fund,
    and used in balancing the budget.

  • $3.3 million in new fees
    assessed at the Department of Public Health (see “Public
    Health” section of this Budget
    Monitor.
    )

  • $42.5 million in additional
    federal reimbursement for health safety net payments to community
    health centers, now approved under the state’s new Medicaid
    waiver. Previously, payments for uncompensated care to community health
    centers had been capped, but Massachusetts recently received approval
    for this cap to be lifted. The state anticipates $85 million in
    payments, which would bring in $42.5 million in reimbursement.

  • $300.0 million in a new
    assessment on employers to help cover the costs of health care (see
    “MassHealth and Health Reform” section of this
    Budget Monitor.
    )


table: Revenue table 2









TOTAL BUDGET BY CATEGORY AND
SUBCATEGORY


In order to allow for more accurate comparisons from year to
year and
to better include all appropriated spending, MassBudget makes certain
adjustments to the way budget data are presented by the Administration
and Legislature.



The totals in the FY
2018 Governor
column show the Governor’s
recommendations in the structure the FY 2017 budget in order to allow
for more accurate across-year comparisons. FY 2017 Current column
shows
the budgeted General Appropriation Act as enacted in July 2016, and as
amended by mid-year 9c cuts and by supplemental budget legislation. For
other explanatory information, see details below the chart.



The FY 2017 total for State Employee Health Insurance reflects current
budgeted totals that are artificially high because of a budgeting
glitch that is likely to be fixed. See “State Employee Health
Insurance” section of this Budget Monitor.



table: Budget by category and subcategory

summary chart part 2



  • MassBudget presents the totals
    for the FY 2018 Governor’s proposal in the FY 2017 line item
    structure, in order to allow for more accurate year-to-year
    comparisons. For example, if the Governor recommended consolidating
    several line items, using information provided by the Administration,
    MassBudget “un-consolidates” the total and
    re-distributes the amounts back into their original line items in order
    to allow for more accurate across-year comparisons of totals.

  • MassBudget’s totals
    include the “pre-budget transfers” of funds.
    Statutes require that the Legislature transfer portions of revenue
    prior to the appropriation process to support certain functions.
    Although these transfers function no differently from appropriations,
    the Governor and Legislature do not reflect these expenditures in their
    budget totals; instead, they are shown as amounts deducted or
    transferred from revenue prior to the budgeting process. To better
    reflect total state funding, MassBudget includes these pre-budget
    transfers in appropriation totals. In FY 2018, these add $4.43 billion
    to the total: tax revenues dedicated to the MBTA and school building
    assistance, cigarette excises dedicated to the Commonwealth Care Trust
    Fund, the state contribution to the pension system, a transfer to the
    State Retiree Benefits Trust, and transfers to the Workforce Training
    Trust.

  • MassBudget’s totals
    include annual appropriations into non-budgeted
    (“off-budget”) trusts. The transfer of funds from
    the General Fund or another budgeted fund into a non-budgeted trust is
    a form of appropriation, and should be treated as any other
    appropriation. Prior to FY 2011, the budget authorized these transfers
    in Outside Section budget language. Starting in FY 2011, a new section
    of the budget, Section 2E, systematically accounted for the transfer of
    funds into off-budgeted trusts. MassBudget’s totals include
    these operating transfers in all budget years.

  • When spending that is now
    included in the budget was previously “off-budget,”
    MassBudget’s totals include the prior years’
    “off-budget” spending totals in order to reflect
    more accurate year-to-year comparisons. For example, funding directed
    to health care providers as partial reimbursement for uncompensated
    care was previously funded by a transfer of federal revenue directly
    into the off-budget Uncompensated Care Trust Fund. This spending was
    brought on-budget in FY 2009, and incorporated into the
    state’s budgeted health care appropriations. MassBudget
    health care budget totals include the off-budget spending for these
    services in order to reflect a more accurate across-year comparison.

  • MassBudget reduces State
    Employee Health Insurance totals to exclude spending on health
    insurance for municipal employees and retired teachers for which the
    state is fully-reimbursed by municipal government.

  • MassBudget reduces funding for
    the community colleges, state universities, and University of
    Massachusetts campuses by the amount of tuition that these campuses
    remit to the state treasury each year. These adjusted totals more
    accurately reflect the “net” appropriations
    available to the campuses to support operations, and allow for more
    consistent comparisons across the years, since the policies about
    tuition remission have varied from year to year and from campus to
    campus. For example, until FY 2003, all the University of Massachusetts
    (UMass) campuses were required to remit to the state treasury all
    tuition from all students. From FY 2004 – FY 2011, UMass
    Amherst (only) remitted only in-state tuition, and retained tuition
    from out-of-state students. Starting in FY 2012, the remaining UMass
    campuses were also allowed to retain tuition from out-of-state
    students. Starting in FY 2017, UMass retained all tuition revenue,
    remitting none. The MassBudget adjustments make it possible to make
    meaningful comparisons of appropriations to these campuses even with
    these policy changes.

  • MassBudget’s totals
    include funding paid for out of anticipated reversions. For example, a
    portion of funding for health care for retired state employees has in
    some years come from anticipated reversions of funds.

  • MassBudget’s totals
    reflect legislatively-approved “prior appropriation
    continued” (PAC) amounts. In most instances, MassBudget
    shifts the PAC amount from the year in which the funding was first
    appropriated into the year in which the Administration expects to spend
    the totals.

  • Because MassBudget totals
    reflect budgeted appropriations and not actual spending, there can be
    apparent fluctuations in the MassHealth and Health Reform totals that
    are simply due to the timing of payments to certain off-budget trusts.
    These budget variations may not reflect real differences in spending.


















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