budget_monitor_gov_fy15.html


Edited January 2015


The Governor’s budget proposal
is a statement of priorities; it describes the things he thinks we
should do together through state government in the coming
year—and how we will pay for those things.


Unlike his proposal last year, the Governor’s FY15 budget does
not include significant new revenue, which means that the investments
he specifies for education, human services, and elsewhere are
relatively modest. These include:



  • Higher
    Education
    , which would see a third straight
    year of increases—albeit to levels still 22% below where they
    were in 2001 (adjusted for inflation)

  • Elder Services,
    where increases would expand access to home care and improve quality

  • Early
    Education & Care
    , where continued
    funding growth would help move more children off the wait list and into
    early education and care programs


In addition to these new investments, the Governor’s proposal
continues support for a number of prior commitments, including a
multi-year plan to fix and improve our transportation system and
another multi-year effort to update and standardize the rates paid to
contracted human and social service providers (“Chapter 257”).


To support these kinds of targeted investments—and
to help fill a preliminary budget shortfall we estimated at roughly
$500 million—the Governor’s budget includes $334 million in temporary
revenue, meaning revenue that will be available for just this year and
will not support ongoing initiatives. It also includes $132 million in
new ongoing revenue, which would be available
both this year and in future years. This ongoing revenue comes from a variety of different sources.



  • Eliminating the tax exemption for candy and
    soda—which raises roughly $68 million while potentially
    helping to curb obesity and improve public health

  • Expanding the 5 cent bottle deposit to include
    non-carbonated beverages (like water)—along with which the
    Governor proposes to restore funding for recycling and redemption
    centers

  • Making changes to corporate taxes, most of which would
    eliminate loopholes and increase tax fairness


Using the money from these and other revenue changes, the
Governor’s budget does include some important initiatives to help our
families and our communities. But without a more ambitious revenue
proposal which could offset the long-term cost of the income tax cuts
of 1998-2002, it is difficult to give our children the opportunities
they deserve and to build a vibrant economy for the future.


The sections that follow describe these initiatives, and
others, in greater detail.



Education



Early Education & Care


The Governor’s FY 2014 budget proposal of $545.8 million is a
6.6 percent increase over projected FY 2014 spending levels. Although
not as ambitious as last year’s budget proposal, the current proposal
includes increases for children and families who need help accessing
affordable child care and early education in the state.






















































Line Item # FY14 GAA FY14 Projected FY15 Gov
Supportive Child
Care
3000-3050 $76,991,445 $77,957,330 $81,241,142
TANF Child Care 3000-4050 $128,063,499 $131,351,486 $136,549,668
Income Eligible
Child Care
3000-4060 $214,340,742 $221,080,459 $241,894,678
I.E. Wait List 3000-4040 $15,000,000
I.E. Wait List 3000-4070 $15,000,000 $15,000,000


The table above outlines increases over last year for each of
the three early education subsidy accounts. The Income Eligible account
receives a $20.8 million increase over FY 2014 Projected spending. This
increase annualizes the $15 million directed towards the Income
Eligible wait list (3000-4070) in FY 2014.


The waiting list for Income Eligible care receives another
$15.0 million in the FY 2015 budget proposal (3000-4040) which will
enable EEC to offer subsidies to approximately 1,700 new children
currently on the wait list. Approximately 3,000 spots for children on
the wait list will be opened by the end of FY 2014 as a result of
increases in funding during the current fiscal year.


Although funding increases help EEC support more kids with
subsidies, wait lists remain high. The number of kids waiting for a
subsidy through the Income Eligible account remains above 40,000 and
does not appear to be shrinking significantly. There is also a waiting
list in the Supportive account of around 600 kids in foster care.
Supportive care provides early education and care opportunities to
children in the care of the Department of Children and Families, the
primary child welfare agency serving kids who have been abused and
neglected. Although only 600 kids in the child welfare system are
officially waiting for a subsidy, the actual need is likely much
greater. More children would utilize a spot if there were enough
resources to support a larger increase in access to care.


The Quality Rating and Improvement System (QRIS), a rating
system used by EEC to assess the quality of early education and
communicate guidance to providers, receives $2.5 million for IT costs
to embed QRIS into EEC’s current computer system. This will combine
QRIS with licensing and waiting list information allowing EEC to
utilize QRIS information more effectively in decisions that impact
providers.


The K1 Classroom Grant Program, a new line item, is funded at
$2.0 million in FY 2015. This grant will fund new pre-k classrooms in
cities and towns around the state with a goal of increasing school
readiness and improving 3rd grade reading. Gateway cities and districts
with struggling schools receive preference. EEC and the Department of
Elementary and Secondary Education will jointly evaluate grants with
preference going to applications filed collaboratively between local
public schools, private providers and other human service agencies or
non-profits. Proposed classrooms will need to meet certain standards
including teacher qualifications, curriculum and class size
requirements.


A STEM focused pre-k grant introduced in FY 2014 and funded at
$250,000 is not continued in the Governor’s FY 2015 proposal.


The Administrative account for EEC receives a small increase
of $736,000 (5.7 percent) over last year.


The special commission studying the cost of administering
early education services submitted a final report earlier this month. A
summary of the report can be accessed
here.
The $150,000 cost of the consultant comes off the books in FY 2015.
Funding of $500,000 for a 2 year assessment of services administered by
EEC also comes off the books in FY 2015. Although funding is available
through the end of FY 2015, the funds were all allocated in the FY 2014
budget. An initial progress report is due by March 3, 2014. Goals of
the assessment include identifying efficiencies in the distribution of
subsidies, analyzing the needs of eligible families by region, and
evaluating the importance of providing quality programming to children
while also providing workforce support to guardians.



K-12 Education


Education plays an important role in cultivating the next
generation of engaged citizens and in helping strengthen state
economies. In Massachusetts, as is the case across the nation, there is
an increasingly strong connection between improving the skills of the
state workforce and creating a high-wage economy—see
A
Well-Educated Workforce is Key to State Prosperity
for more
detail.


The Governor’s FY 2015 budget makes important investments in
education, but it does not propose ambitious new investments of the
magnitude proposed in his FY 2014 budget. Mostly, the Governor’s FY
2015 education proposals provide modest increases, roughly in line with
annual cost growth.


For FY 2015, the Governor proposes increasing Chapter
70 education aid
by $99.5 million, or 2.3 percent, over
FY 2014 and increasing other targeted K-12 programs by a combined $12.9
million. All told, K-12 education funding under the Governor’s proposal
(including $782.4 million in School Modernization and Reconstruction
Trust Fund money) would still be $95 million below pre-recession levels
(FY 2009 GAA, adjusted for inflation).


Specifically, the Governor’s Chapter 70 proposal:



  • Calculates district foundation budgets using updated
    enrollment and inflation data.

  • Includes all pre-kindergarten students currently attending
    public schools in district foundation budgets, meaning they are counted
    when calculating state aid. Currently, districts can only count towards
    their foundation budgets up to two times as many regular education
    pre-kindergarten students as they have special education
    pre-kindergarten students. Further, these regular education students
    must be learning alongside special education students in an inclusive
    setting. The Governor’s proposal would lift the cap for FY 2015 and
    allow districts to count towards foundation pre-kindergarten students
    in non-inclusive settings. As with all grade levels, students can only
    count towards foundation if they are not charged tuition for attending.

    Since enrollment counts are set for calculating FY 2015
    foundation budgets, this policy change would only cost a modest $2.3
    million in its first year. If continued for future years, however, this
    change could significantly increase the provision of public early
    education.



  • Phases-in an additional portion of the formula reforms
    planned in the 2007 budget, but slowed due to the ongoing fiscal
    crisis. Specifically, the budget provides 50 percent effort reduction
    and 35 percent downpayment aid. For more information on the reforms of
    2007, please see MassBudget’s Demystifying
    the Chapter 70 Formula
    .

  • Provides a minimum $25 per pupil increase over FY 2014 aid
    for all districts that wouldn’t otherwise receive an increase of this
    amount.


The Governor’s budget includes an outside section calling for
a foundation budget review commission to
review the state’s approach to determining district foundation budgets.
This provision would require the commission to convene at least 4
public hearings and file recommendations to the legislature every four
years.


Among K-12 grant programs, the Governor’s budget provides:



  • An increase of $4.0 million for Extended
    Learning Time Grants.

  • An increase of $3.6 million for Innovation
    Schools.

  • An increase of $3.1 million for Kindergarten
    Expansion Grants.

  • Level funding for the Special Education
    Circuit Breaker
    , Regional School
    Transportation
    , METCO, and
    Charter School Reimbursements.

  • A modest cut of $150,000 for Adult Basic
    Education.

  • A cut of $476,000 for the School Breakfast
    Program
    .


Additionally, the Governor’s budget projects receipt of $782.4
million from an automatic transfer of sales tax revenue to the School
Modernization and Reconstruction Trust Fund
, which is
used to help school districts pay for school construction and
renovation projects. When someone pays Massachusetts sales tax, one
percent of the retail value of the purchase goes toward this fund. This
represents an increase of $50.4 million over FY 2014, due in part to
higher anticipated sales tax revenue resulting from eliminating the
current sales tax exemption for candy and soda.



Higher Education


The Governor’s FY 2015 budget proposes a third year of
continued reinvestment in public higher education, building on progress
begun in FY 2013 and continued this year. Driven largely by state level
income tax cuts that cost the state roughly $3.2 billion annually and
by the lingering effects of the Great Recession, higher education was
cut dramatically between FY 2001 and FY 2012—roughly 33
percent, adjusted for inflation. Even with the Governor’s proposed
$54.5 million increase over FY 2014, funding for higher education would
still be 22.4 percent below FY 2001 levels.


Appropriations to each of the three campus types are detailed
in the table below. It is important to note that starting in FY 2012,
all campuses began retaining tuition payments from out-of-state
students, rather than remitting that revenue back to the state.
MassBudget adds in an estimate of these payments for FY 2012 to the
present, allowing for more accurate year to year comparisons.
Additionally, MassBudget adds collective bargaining accounts and other
programs located at particular campuses to their respective campus
totals.









































Institution FY14 Current FY15 Gov FY15 – FY14
UMass $497,469,691 $531,501,214 $34,031,523
State Universities $232,907,944 $246,202,891 $13,294,946
Community Colleges $253,338,549 $266,533,781 $13,195,232
Total, all campuses $983,716,184 $1,044,237,886 $60,521,702


The FY 2014 budget made a commitment to freeze student tuition
and fee increases for another year if state support to UMass
were to rise by $40 million in FY 2015. It is unclear whether the
Governor’s proposed $36.9 million increase for the primary UMass line
item is sufficiently close to that target to guarantee a freezing of
tuition and fees for FY 2015 (due to MassBudget adjustments, this total
differs slightly from the UMass increase shown in the table above).


Accompanying release of his FY 2015 budget, the Governor filed
supplemental FY 2014 budget legislation, which includes $7.5 million
for community college engagement in urban
communities, with $3.0 million of this total targeted for Roxbury
Community College.


Offsetting some of the increases in direct campus
appropriations are cuts (sometimes to zero-funding) to a few other
higher education programs including the STEM Starter Academy, the
Performance Management Set Aside account, the Advanced Technology and
Manufacturing Center, and Adult College Transition Services.


The Governor proposes roughly level funding for the State
Scholarship Program
.



Environment & Recreation


The state budget funds environment and recreation programs
that protect our air, water and land, preserve fish and game habitats
and maintain and staff state parks, campgrounds, beaches and pools.


Some highlights of the Governor’s FY 2015 budget proposal for
environment and recreation programs include:




Health



MassHealth & Health
Reform


The Governor’s FY 2015 budget includes funding to annualize
the costs of the expansion of health coverage under the federal
Affordable Care Act (ACA.) As of the beginning of this calendar year,
all adults in Massachusetts (citizens or qualified non-citizens) with
incomes below 133 percent of the Federal Poverty Level are now eligible
for MassHealth, the state’s Medicaid program.


Interestingly, the budgetary impact of this health care
expansion works both ways. In some instances, the state will receive an
increase in federal reimbursement rate for spending that in prior years
was reimbursed at 50 percent or perhaps not reimbursable at all. The
Governor estimates that the health care expansions will shift
approximately 135,000 persons from programs previously funded solely
with state funds to programs that are now eligible for federal
reimbursement. Another 190,000 people will have shifted from other
subsidized programs to the expanded MassHealth program in FY 2014, and
the Governor also anticipates that an additional 20,000 people not
currently in subsidized health insurance programs will become eligible
in FY 2015.


Many of the funding increases for MassHealth included in the
Governor’s budget will allow for the continuation of health care
investments made over the course of FY 2014. In addition to the
implementation of the Affordable Care Act, the Commonwealth has passed
several significant health care initiatives. Some of the increased
funding in the FY 2015 budget proposal will annualize funding increases
associated with these initiatives begun in FY 2014. The Governor’s
budget includes full-year funding for capitation rate increases for the
Mass. Behavioral Health Partnership, continues the increases in base
hospital rates as well as adds a 2 percent increase in FY 2015,
increases fee-for-service provider rates, and continues coverage for
dental fillings for adults. The Governor’s proposal would also restore
funding for adult dentures in the second half of the fiscal year.


Also newly-specified in the Governor’s FY 2015 budget proposal
is $34.3 million for persons with acquired brain injuries to allow for
transition from long-term care facilities to community-based care
associated with the settlement of a lawsuit.


Because of all the major changes to the organization of health
care (such as the FY 2014 phasing out of the Commonwealth Care program
and its replacement by the ConnectorCare program), it is very difficult
to provide detailed across-year comparisons of health care funding.
MassBudget, in conjunction with the Mass. Law Reform Institute and the
Mass. Medicaid Policy Institute, will be publishing a detailed brief
about MassHealth and health reform finance in the Governor’s budget
proposal within the next few weeks.


Mental Health


The Governor’s does not make any significant new investments
in mental health services in his FY 2015 budget proposal. Notably, the
Governor’s budget does not designate funding for the Mass. Child
Psychiatry Access Project (MCPAP), a program designed to provide
information and consultation for pediatricians in their diagnosis and
treatment of children with mental health concerns. This program is
currently expanding to include screening for postpartum depression.



Public Health


One of the Governor’s key public health initiatives is the
elimination of the sales tax exemption for candy and soda, and the
creation of a Commonwealth Health and Prevention Fund to receive that
revenue. The Governor estimates that this tax change would generate
approximately $67.8 million in FY 2015, $57 million of which would
contribute to the funding of a variety of public health programs. The
Governor’s proposal includes an increase of approximately $2.6 million
in support for substance abuse and addiction programs, and an increase
of $4.6 million for programs to address youth violence.



Housing


The state budget provides affordable housing assistance,
including shelter for homeless families, to low and moderate income
people in the state. The Governor’s budget proposes spending $405.6
million in FY 2015 for affordable housing.
1
This is $35.6 million less than the amount the state expects to spend
in FY 2014. In part the FY 2015 proposal is lower than current spending
because it does not include $20.0 million provided in FY 2014 for the
Low Income Housing Energy Assistance Program (LIHEAP) which helps low
income people pay their energy bills. Historically the budget passed at
the start of the fiscal year does not provide funding for LIHEAP.
Instead the Legislature determines whether or not to fund the program
as winter approaches.


About half of the state’s affordable housing budget, overseen
by the Department of Housing and Community Development (DHCD), funds
shelter and short-term housing supports for low-income homeless
families who are eligible for the Emergency Assistance program (EA).
The state budget funds EA shelters, as well as hotels and motels that
have been housing homeless families because the state shelters are
full. The state also provides short-term housing supports through the
HomeBASE program for families who are eligible for EA. HomeBASE,
created in FY 2012, initially included multi-year rental assistance
which was designed to help families to move into and pay for housing.2 Read
more on Homelessness Assistance
.


In his FY 2015 budget the Governor recommends providing a
total of $179.6 million for EA which includes funding for shelters as
well as hotels and motels. This is $24.4 million more than the state
expects to spend in FY 2014. Most of this increase is to expand the
state’s family shelters so that fewer homeless families are housed in
hotels and motels. While hotels and motels shelter homeless families,
they do not provide the services and supports available to families
housed in family shelters.


The Governor’s FY 2015 proposal reduces funding for HomeBASE
to $24.3 million, a cut of more than 50 percent below the $59.0 million
that the state expects to spend in FY 2014. This reduction reflects the
fact that the state ended the HomeBASE rental assistance program and
now only provides one year of support to help homeless families move
into housing. This support includes paying a portion of the rent, first
or last months’ rent or a security deposit in order to help families
secure housing. Thousands of families, who signed up for HomeBASE
rental assistance before it closed, have now run out of these
short-term rental benefits. While some families may have managed to
stay in permanent housing once their HomeBASE support ended, others
could not afford to pay market-rate rents and have turned to DHCD for
shelter or affordable housing supports.


In recognition that many low income families do not have the
income to afford to pay market-rate rents, particularly in high cost
regions like metro Boston, the state has increased funding for
long-term housing supports. Last year’s budget provided a significant
increase ($15.5 million) for the Massachusetts Rental Voucher Program
(MRVP) which provides vouchers to low-income renters. With this
increase the state created an additional 1,400 vouchers of which about
half are going to families served by the HomeBASE and EA programs.
While helping some families pay for permanent housing, the FY 2014
increase for MRVP was not sufficient to meet the needs of thousands of
other families who are either living in shelter or who have lost their
HomeBASE benefits. The Governor’s budget proposes that the state spend
$57.5 million for MRVP in FY 2015. This is the same amount appropriated
in the FY 2014 budget but is $4.6 million below the $62.1 million the
state expects to spend in FY 2014. If spending for MRVP in FY 2014 or
2015 exceeds the funding level, additional money is available in the
Housing and Preservation Stability Trust Fund.3
Read
more on MRVP
.


While most of the other programs in the housing budget are
essentially level-funded the Governor’s FY 2015 proposal does recommend
$9.5 million for Residential Assistance for Families in Transition
(RAFT) which provides short term assistance to prevent low income
families from becoming homeless. This is $500,000 less than the amount
the state expects to spend in FY 2014. The Governor’s FY 2015 proposal
eliminates a provision that provides $500,000 in RAFT funding to
provide temporary accommodations to families who are at imminent risk
of homeless but are not eligible for EA. Read
more on RAFT
.



Human Services


Human services programs form a crucial part of the
Commonwealth’s “safety net, ” with a variety of programs to help
vulnerable children, the elderly, and people living with disabilities.


Several years ago, Massachusetts introduced a new, multi-year
initiative called “Chapter 257,” to make the rates we pay contracted
human and social service providers more consistent, and more fair.
Prior to the passage of Chapter 257, some providers had not received
increases in decades.


In FY 2015, chapter 257 will cost approximately $211 million.
Around $25 million is put into a reserve fund (in case allocated funds
prove insufficient). The rest is distributed through a variety of
different human services accounts. This can have a sizeable effect on
these budget accounts, but it does not mean additional services will be
available or that those accounts will be able to provide services to
more people.


Children, Youth &
Families


The FY 2015 Budget for Children, Youth and Families programs
is $996.4 million, an increase over FY 2014 levels, but still $120.5
million (10.8 percent) lower than pre-recession levels. The Department
of Children and Families (DCF) Administration
receives
$74.6 million, a 7.5 percent increase over FY 2014 GAA. Social
Workers for Case Management
receives an increase of $8.4
million (4.9 percent) compared to FY 2014 GAA. Both of these accounts
also receive increased funding through a FY 2014 supplemental budget
bill filed by the Governor this week. The Administration account would
receive $1.7 million and Case Management would receive $1.1 million if
the bill is passed. The overall increase for these two accounts
together includes $9.2 million to increase staffing. These funds would
allow DCF to hire additional case workers limiting caseloads to 15
families and improving safety for kids.


Services for Children and Families
receives an increase of $14.2 million to $265.4 million. Over $10
million of that is tied to Chapter 257.


Placement Services for Juvenile Offenders
gets cut by over 50 percent ($524,000) to $504,000. This program funds
alternative placements for DCF youth who get arrested and detained by
police.


The Transitional Employment Program (ROCA) receives
$2.0 million in the FY 2015 proposal, the same as last year. ROCA
supports youth aging out of the child welfare system, the juvenile
justice system, parolees and other high risk youth. Programming teaches
youth about work building positive work habits helping youth stay
connected. In 2013 ROCA and the MA Executive Office of Administration
and Finance launched a social innovation financing project to reduce
recidivism among youth aging out of the juvenile justice system and
keep them out of the adult criminal justice system. The program is
initially funded with private investment with the state only
reimbursing if the program meets certain performance goals. In his FY
2015 budget proposal, the Governor allocates $7.0 million for potential
future payments to private investors if certain success benchmarks are
met.


The Department of Youth Services receives significant
increases in a few of their programs. The increases will allow DYS to
accommodate 17 year olds in the juvenile system. Previously, 17 year
olds were treated as adults. “Raise the Age” legislation passed in 2013
places these kids into the juvenile system with appropriate services
tailored for a youth population through the juvenile court. These youth
will also be safer as youth face a much higher risk of being assaulted,
including being the victims of sexual assault when they are held with
adults. Increases over FY 2014 which will help support these new kids
include:



  • $26.1 million for Detained Youth,
    an increase of 20.6 percent (4.5 million).

  • $118.3 million for Residential Services for
    Committed Youth
    , an increase of 11.0 percent (11.7
    million).

  • $4.2 million for The Department of Youth
    Services Administration
    , a modest increase of $147,000
    (3.6 percent).


Non-Residential Services for Committed Youth
actually gets cut slightly to $22.7 million, $253,000 below FY 2014
spending.


Disability Services


Disability services receives an increase of $195.1 million
(12.7 percent) compared to FY 2014. The major increase goes to Community
Residential Supports
which receives $1.01 billion, an
increase of $161.8 million over FY 2014. Most of that increase is
needed to cover Chapter 257 rate increases.


Community Day and Work Programs
receives an increase of $17.3 million (10.7 percent) to $179.2 million.
This increase supports moving more clients into integrated work
environments. Community Transportation Services also
receives an increase of $2.9 million (22.1 percent) to $15.9 million.


Respite Family Supports receives
$54.9 million, an increase of $2.6 million (4.9 percent) compared to
current FY 2014 spending. For many families with disabled children, the
respite program is the only source of support for afterschool
recreational programming or for specialized caregiving.



Elder Services


The FY 2015 Budget funds Elder Services at $253.9 million,
$18.5 million more than FY 2014 spending. Specific increases over FY
2014 include:



  • A $10.1 million increase for Elder Enhanced Home Care
    Services to $63.1 million. This increase will avoid wait lists for home
    care for the elderly allowing over 5,000 elderly to remain at home
    instead of living in a nursing home.

  • A $5.7 million increase for Elder Home Care Purchased
    Services to $104.4 million. This will support an increase in services
    hours available for clients of this program.

  • A $1.3 million increase for Supportive Senior Housing to
    $5.5 million


The Home Care Workforce Training Fund, a new program being
proposed by the Governor, is funded at $1.2 million. This fund will
support training for outreach workers, case managers, home care aides
and protective services investigators.


Transitional Assistance


For entitlement programs like transitional assistance, funding
levels are significantly affected by anticipated caseload levels. These
caseload levels have dropped over the past calendar year. For more
detailed information on caseload levels for transitional assistance
accounts, see “Research and Statistics” on the
DTA
home page
. The caseload for Transitional
Assistance for Families with Dependent Children (TAFDC)

has dropped from 52,659 in December 2012 to 46,546 in December 2013, an
11.6 percent drop. As caseloads drop funding needs drop as well.


The FY 2014 GAA budget funded TAFDC
grants at $302.0 million. Actual FY 2014 spending is now projected at
$287.6 million and the FY 2015 proposal calls for $263.8 million in
spending for this program, a 12.6 percent drop below the FY 2014 GAA
budget. It is important to note that under this program, grants given
to qualified families have lost significant value over time due to
inflation. Instead of decreasing the appropriation, the Governor could
have proposed increasing the value of the grant to help these children
and families fight to stay out of poverty. For a more in depth analysis
of the grants value, see TAFDC:
Declines in Support for Low-Income Children and Families
.


The clothing allowance, a one-time payment made in September
to help pay for back-to-school clothing, remains at $150 and the rent
allowance at $40. These allowances have also lost significant value
over time due to inflation.


Emergency Aid to the Elderly, Disabled and
Children (EAEDC)
receives $88.9 million, a slight
decrease from FY 2014 projected spending of $89.1 million. The FY 2014
GAA budget appropriated $93.2 million initially. EAEDC is a cash
assistance program individuals who are disabled, caring for someone who
is disabled, 65 or older, in a Mass. Rehab program, and children who
are not able to get TAFDC benefits.


The Department of Transitional Assistance
Administration receives $66.1 million. The
proposal moves SNAP Participation Rate Programs into the administration
line item resulting in a slight cut when you add the two together and
compare their FY 2015 appropriation to the $67.5 million they received
in FY 2014.


The Employment Services Program
receives $7.4 million, a decrease of $280,000. This program provides
TAFDC recipients with education, occupational skills and the employment
support services needed to acquire and retain jobs. It has been cut
76.1 percent compared to FY 2009 GAA inflation adjusted levels.



Local Aid


The Governor’s FY 2015 budget proposes level-funding Unrestricted
General Government Aid (UGGA)
at $920.2 million. UGGA
is a form of local aid, money that flows from the state budget to city
and town budgets, helping them fund vital local services such as police
and fire protection, parks, public works, and schools (UGGA comes in
addition to direct school support that districts receive from Chapter
70 aid).


Driven largely by state level income tax cuts that cost the
state roughly $3.2 billion annually and by the lingering effects of the
Great Recession, UGGA has been cut dramatically since FY 2001.
Specifically, the Governor’s proposed FY2015 spending level is $804.9
million, or 47 percent, below FY 2001 levels, adjusted for inflation.


For more information on the history of how general local aid
has been distributed, please see MassBudget‘s
paper
Demystifying
General Local Aid in Massachusetts
.



TRANSPORTATION


The Governor’s FY 2015 budget continues progress implementing
last year’s long-term transportation funding law, which committed
gradual transportation spending increases each year from FY 2014
through FY 2018. Specifically, the Governor proposes a transportation
spending increase of about $141 million over FY 2014, helping MassDOT
modernize its infrastructure, investing in capital improvements at the
MBTA and Regional Transit Authorities, and making progress towards
ending the practice of borrowing money to pay for MBTA operating costs.


Additionally, the Governor’s budget projects receipt of $811.3
million from an automatic transfer of sales tax revenue to the MBTA
State and Local Contribution Trust Fund
, an increase of
$12.0 million over FY 2014.



Revenue


The Governor’s FY 2015 budget is built upon the assumption
that the Commonwealth will be able to rely on $154 million in new tax
revenue in Fiscal Year (FY) 2015 and $312 million in additional non-tax
revenue. Of this total, $132 million can be described as ongoing
revenue (in other words, providing an ongoing revenue stream beyond FY
2013), while the remaining $334 million is “one time” (i.e., available
only in FY 2015). Like permanent changes in spending levels, ongoing
revenue changes affect the state’s long term fiscal condition, whereas
temporary revenue changes are useful for balancing the budget only in
the current fiscal year(to read more about the state’s projected FY
2015 budget gap, see MassBudget’s
FY
2015 Budget Preview
).




Notably, many of the new tax and fee proposals serve clear
policy purposes beyond the simple generation of additional revenue,
including improving public health, protecting the environment, and
increasing tax fairness.


Tax Revenue


The Fiscal Year 2015 consensus tax revenue figure agreed to by
the Administration, the House and the Senate is $24.337 billion, an
amount 4.9 percent above the revised FY 2014 revenue estimate of
$23.200 billion. The Governor, however, has proposed several changes to
the Commonwealth’s tax laws that would raise additional revenue in FY
2015 and beyond.


If enacted—and when fully implemented—the
proposed tax changes would produce a net annual gain of $139 million in
ongoing revenues in future years. However, if enacted as part of the FY
2015 budget process, the changes would take effect only part way
through the coming fiscal year and thus would generate less revenue in
FY 2015 (an estimated $108 million) than in future years. Added to this
$108 million, however, is $46 million in one-time
revenue that would be generated in FY 2015 by delaying, for one more
year, implementation of the FAS 109 deduction, thus bringing the FY
2015 total to $154 million.




The Governor’s FY 2015 Budget includes the following tax
revenue proposals:


Sales and Excise Taxes



  • Eliminating the sales tax exemption for soda and candy. In
    Massachusetts, most food items are exempt from the sales tax. At
    present, soda and candy purchases are included in this exemption. In
    general, soda and candy do not fit many people’s definition of food,
    suggesting that a tax break for these non-essential items may not be
    appropriate.

    The Administration estimates that application of the sales
    tax to candy and soda purchases would raise an estimated $67.8 million
    in FY 2015 and $74.0 million annually thereafter (see Governor’s
    FY 2015 budget documents
    ). Revenue from these sales that
    normally would flow into the state’s General Fund would be directed
    instead to the Commonwealth Health and Prevention Fund (see Governor’s
    FY 2015 budget documents
    ).


    In addition, studies have linked consumption of these
    items to obesity and obesity is a substantial problem for adults and
    children, both nationally and here in Massachusetts. (see Babey, Susan
    H. et al., “Bubbling Over: Soda Consumption and Its Link to Obesity in
    California,” UCLA Health Policy Research Brief)


    While it would likely have positive public health effects,
    this change would increase the regressivity of the overall
    Massachusetts tax system, disproportionately affecting low and moderate
    income households; purchasing an identical quantity of these products,
    and paying the same amount in additional taxes, will consume more of a
    low-income person’s income than it will for a high-income person.



  • The Governor proposes clarifying the tax rules governing
    the collection by and remittance of the Room Occupancy Tax on the part
    of Internet room resellers to ensure that the tax is based on the
    reseller’s full price to the consumer. At present, some Internet room
    sellers collect and remit the tax only on the portion of the total bill
    paid by the consumer that arises directly from the cost of the room
    itself, neglecting to collect tax on the portion of the total bill that
    reflects the Internet seller’s service fee. Massachusetts hotels and
    motels, however, collect and remit tax on the full amount they receive
    from the customer. Clarification of the rules and accompanying
    enforcement efforts by DOR would help to equalize the tax costs
    associated with renting a room online vs. renting directly from a
    bricks and mortar operation here in Massachusetts. The Administration
    estimates that this initiative would raise an additional $8.1 million
    in FY 2015 and $8.8 million annually thereafter (see Governor’s
    FY 2015 budget documents
    ).

    The Governor also proposes raising $2.6 million in FY 2015
    by extending the room rental tax to various short-term accommodation
    rentals that currently are exempted from the tax (see Governor’s
    FY 2015 budget documents
    ). These include short-term rentals
    of corporate executive apartments, B&B rooms, vacation condos
    and time shares. The Administration estimates that this tax law
    clarification would raise $6.8 million annually thereafter.




Corporate Taxes



  • Delaying the FAS 109 corporate tax break for another
    year—primarily affecting about a dozen multi-state
    businesses—would raise an estimated $45.8 million in FY 2015
    (see Governor’s
    FY 2015 budget documents
    ). While the details of this tax law
    change involve technical and complex interactions among a corporation’s
    records for tax purposes and its public financial accounting records,
    the FAS 109 provision in essence is an attempt to offset certain costs
    to publically-traded companies resulting from the 2008 combined
    reporting tax reform package.4

    As part of that package, rule changes were enacted that
    increased the cost of some tax liabilities of some companies operating
    in the Commonwealth. In some cases, these changes would have required
    changes to a company’s existing financial statements. The FAS 109 tax
    break would allow publically-traded companies to claim a new tax break
    that would offset the impact to their financial statements resulting
    from the effects of combined reporting on deferred tax liabilities.


    The Department of Revenue (DOR) estimated that this
    provision would cost the Commonwealth $535 million during the period in
    which it was originally scheduled to be in effect—tax
    benefits were to be distributed equally across seven years, 2012-2018
    (see DOR
    report to Legislature
    ). DOR has estimated further that 88
    percent (or $472 million) of the total tax reductions associated with
    the FAS 109 tax break will accrue to just fourteen corporations. When
    this provision was enacted the cost was unknown and a process was
    established that would allow an evaluation of the likely cost before
    the tax break would be implemented.



  • Elimination of a special tax classification (with a
    special, low tax rate) for certain securities investment businesses
    will generate an estimated $21 million in tax revenue in FY 2015 and
    $35 million annually thereafter (see Governor’s
    FY 2015 budget documents
    ). This special classification is a
    provision that largely responds to circumstances that no longer exist.

    The Security Corporation structure allowed investors to
    hold securities in a legal entity that would not be taxed as an
    ordinary corporation. That function is now generally served by mutual
    funds and investment partnerships, such as hedge funds, venture capital
    funds, and other pooled investments. The special rules for security
    corporations, however, still allow ordinary corporations to reduce
    their taxes by holding their investment assets in these special
    classified entities. The Governor’s proposal would end the special tax
    status of both of these types of corporations and tax them like other
    companies.



  • In Massachusetts, insurance companies (unlike other
    businesses) are not taxed based on their income. Instead, they pay a 2
    percent tax on the premiums they charge customers. Because of this
    unique tax arrangement, insurance companies currently are able to avoid
    paying taxes on the income of non-insurance subsidiary companies they
    may own.

    In recent years, Massachusetts has seen a marked increase
    in businesses operating as Limited Liability Companies (LLCs) and other
    “pass through” entities, a legal structure that allows the profits from
    these businesses to remain untaxed until those profits have been passed
    through to the ultimate owners of the LLC. Once the profits are claimed
    by the ultimate owner those profits are subject to whatever taxes apply
    to that owner’s income. In the case of insurance companies, however,
    their corporate income is not subject to state taxes; as noted above,
    only their premiums from insurance policy sales are taxed. Insurance
    companies have taken advantage of this loophole to increase their
    after-tax profits by creating subsidiary businesses—for
    example a brokerage firm or a hotel—structured as LLCs from
    which the insurance company derives corporate income, but for which it
    pays no state income tax.


    The Governor proposes subjecting “operating income from
    these non-insurance subsidiaries of insurance companies to the
    corporate tax as if these entities were business corporations.” The
    administration estimates that this change would result in an additional
    $8.4 million in tax revenue in FY15 and $14.0 million annually
    thereafter (see Governor’s
    FY 2015 budget documents
    ).





Non-Tax Revenue


There are three types of non-tax revenue reflected in the
state budget: federal revenues which largely come in as reimbursements
for the state’s Medicaid program or as block grants for other human
service programs; departmental revenues which are mostly fees,
assessments or premiums; and transfers from non-budgeted trusts into
the state’s General Fund to support ongoing operations. The Governor
states that the FY 2015 budget relies on just half as much one-time
revenue as did the previous year’s budget.


Revenues from the following non-tax sources are included in
the Governor’s FY 2015 Budget:



  • One of the significant increases in non-tax revenue
    reflected in the Governor’s FY 2015 budget proposal is a significant
    increase in federal revenue. These revenues will come to the
    Commonwealth as a partial reimbursement for increased spending on
    MassHealth and health reform expansions with the implementation of the
    federal Affordable Care Act (ACA).


    With the ACA, MassHealth has increased enrollment in the
    publicly-subsidized health insurance programs which bring in federal
    reimbursement. At the same time, provisions in the ACA allow for
    Massachusetts to receive an enhanced reimbursement rate for many of
    these enrollees. Typically, the federal government reimburses
    Massachusetts for approximately 50 percent of its Medicaid spending.
    Under ACA, however, this reimbursement rate will increase in some
    instances to as much as 75-100 percent of state spending. The Governor
    estimates that these increases will provide an additional $350 million
    in federal revenue for people who shifted from other
    publicly-subsidized programs to MassHealth with the implementation of
    ACA. Budget documents do not specify whether this $350 million increase
    is relative to FY 2013 or FY 2014 revenue totals. This increase in
    federal revenue is not included in the chart above, but will be
    explained in more detail in an upcoming brief from MassBudget and the
    Mass. Law Reform Institute in conjunction with the Mass. Medicaid
    Policy Institute.



  • The Governor’s budget also includes $24.2 million in
    increased departmental revenue associated with a proposed expansion of
    the state’s “bottle bill.” The Governor proposes expanding a 5-cent
    bottle deposit to non-carbonated beverages such as bottled water,
    flavored waters, iced teas, coffee based drinks and sports drinks. As
    with beverages currently covered by the “bottle bill,” consumers are
    refunded this deposit if they return the empty bottles for recycling.

  • The Governor also proposes withdrawing $175 million from
    the state’s Stabilization (“Rainy Day Fund”) in order to balance the
    budget, a $175 million decrease from FY 2014. This is a one-time
    revenue source. Other one-time non-tax revenue sources proposed by the
    Governor to balance the budget include the continued withdrawal of
    interest earned by the Stabilization Fund, the use of one-time funds
    anticipated from the granting of gaming licenses, shifting the timing
    of payments to hospitals, increased federal reimbursements for TANF
    expenditures, and sweeps of trust fund balances



Breakdown By Category


The table below shows how the Governor’s FY 2015 budget
compares to other recent budgets and budget proposals.


Subsequent to publishing this Monitor, we received updated data for the
adjustment to funding for state employee health insurance. With this
new adjustment, the Governor’s budget for this subcategory would be
$1,372,926,844.