FY 2020 budget provides education funding increase, includes some revenue

September 19, 2019
Analyzing-the-Final-Budget-FY-2020

TABLE OF CONTENTS

OVERVIEW

EDUCATION

Early Education

K-12 Education

Higher Education

HEALTH 

MassHealth and Health Reform

Public Health

HOUSING

HUMAN SERVICES

LOCAL AID

Unrestricted Local Aid

Other Local Aid

TRANSPORTATION

OTHER NEWS IN THE BUDGET

REVENUE

Taxes

Non-Tax Revenues

Stabilization Fund

TOTAL BUDGET BY CATEGORY AND SUBCATEGORY



OVERVIEW

As lawmakers debated the Fiscal Year (FY) 2020 budget, two questions rose to the top:
  • Will the FY 2020 budget adequately fix the state’s outdated school funding formula?
  • Will the FY 2020 budget include adequate revenue to pay for important investments?

For K-12 school funding, the FY 2020 budget gets closer to what it actually takes to provide a high quality education to all Massachusetts students. However, this amount is still about $78 million short of the most ambitious proposal that would significantly boost funding for students in low-income districts including many of our Gateway Cities. Further, the FY 2020 budget does not include a multi-year plan to update the education funding formula. (For a detailed look at the FY 2020 budget for school funding, see the K-12 Education section of this report.)

The FY 2020 budget does include some anticipated revenue from recently enacted policy changes and from expected growth of existing revenue sources. These tax and non-tax revenue sources are expected to deliver $504.4 million in additional revenue in FY 2020. A number of already-scheduled tax cuts and other revenue losses, however, will eliminate most of this half billion in anticipated and proposed gains (see the Revenue section of this report for details).

The big revenue story in the FY 2020 budget, however, came not from the revenue proposals in the budget itself, but from the surprisingly strong tax collections through FY 2019 and how these affected the FY 2020 budget. Collections in FY 2019 exceeded earlier projections by more than a billion dollars, which allowed lawmakers to boost the funding for many programs and services, while also adding to the state’s Stabilization Fund. Yet there is a real question of whether these strong tax collections will continue into FY 2020 and beyond.

Like MassBudget’s previous analyses, this report highlights key stories in several areas across the budget. Readers can compare funding over the years for specific programs using our Budget Browser. Readers can also explore areas of the budget not discussed in this report, including: Child Welfare, Disability Services, Economic Development, Elder Services, Environment & Recreation, Juvenile Justice, Law & Public Safety, Libraries, Mental Health, and Pensions.

EDUCATION

Early Education

Quality early education and care helps prepare our young children for success in school and allows them to thrive. Early education and care also provides critical support for working parents with young children, by offering safe and reliable care for kids while parents provide for their families.

Today many kids across the Commonwealth, including many low-income kids and young children of color, are not benefiting from publicly-funded early education programs. For those who do get this support, the program quality is not always high, because state reimbursement rates are significantly below the levels of leading private programs. Higher rates would allow more centers to participate in subsidized care and offer competitive salaries that attract and retain well-qualified teachers. These challenges are compounded by the fact that Massachusetts has the some of the highest child care costs in the nation. While these challenges hold all our communities back, they have a particularly harmful effect on families of color who, due to historical barriers and discrimination, are more likely to be low-income and less likely to have high levels of wealth to fall back on to secure child care.

The Fiscal Year (FY) 2020 budget allocates $686.7 million to early education and care, a $37.1 million (6 percent) increase over current FY 2019 levels. The budget makes several investments in additional services for kids and in early childhood quality measures.

Despite those investments, there have been significant, long-term cuts in early education and care since state tax cuts in the late 1990s and early 2000s. Funding for early education and care in the FY 2020 budget is $91.3 million (12 percent) below what was available in FY 2001, adjusting for inflation (see chart below). For information on funding for all early education budget items going back to FY 2001, please see MassBudget’s Budget Browser here.


bar graph: Early education funding down 12 percent since 2001

The FY 2020 budget provides $276.5 million for Income Eligible Child Care, 3 percent below budgeted FY 2019 levels but above projected FY 2019 spending. Income Eligible Child Care provides subsidies for low- and moderate-income families not eligible for other child care assistance. With insufficient funding to meet child care needs across the state, the waitlist for these subsidies contained over 19,700 kids in May 2019. The state is unlikely to significantly reduce waitlists for income-eligible services given this proposed allocation for FY 2020.

The FY 2020 budget provides $276.0 million for Supportive and TANF Child Care, $36.5 million (15 percent) above FY 2019 levels. This increase should support services for more children. Supportive and TANF Child Care provides subsidies to children under the care of the Department of Children and Families and those receiving Transitional Aid to Families with Dependent Children (limited cash assistance along with work training programs for low-income families).

The FY 2020 budget creates a new line item, Neighborhood Villages Pilot Program, funded at $1.0 million, which will support mixed-income infant and toddler classrooms paired with significant wraparound health and wellness programs for kids and families. Additionally, there is a significant increase to $39.4 million for early education Quality Improvement efforts, 28 percent above FY 2019 levels. The FY 2020 budget also funds Center Based Child Care Rate Increases at $20.0 million.

For additional questions, email info@massbudget.org with “Budget question” in the subject line.


K-12 Education

Providing an excellent education to all children in Massachusetts supports future generations while contributing to a strong economy. Chapter 70 education aid is the primary mechanism for the state to support local districts across Massachusetts and ensure that schools have sufficient resources to serve all students.

Chapter 70 aid can play a unique role in expanding opportunities in under-resourced schools across the state. Generally, lower-wealth communities can raise less local revenue for education and have less per-capita resources to invest in education compared to affluent communities. For a variety of reasons, including historic barriers and discrimination, students of color are disproportionately concentrated in low-income school systems and are particularly affected by their communities’ lack of resources and academic support.

For example, in 2018-2019, the top 15 urban districts with the most low-income students (including Boston, Springfield, and Worcester) only account for 24 percent of all enrollment statewide, but educate roughly 45 percent of all students of color and low-income kids, and serve 58 percent of all English Learners (see the Department of Elementary and Secondary Education School and District Profiles). For further background on the state’s education system and the path forward to greater support for our students, see Demystifying the Chapter 70 Formula, State of Black Massachusetts, and Building an Education System That Works for Everyone.

The Fiscal Year (FY) 2020 budget increases Chapter 70 Aid and Reserves by $263.9 million (5.4 percent) over current FY 2019 levels to $5.19 billion. This increase is 1.6 percentage points greater than expected Chapter 70 inflation for FY 2020. However, the FY 2020 budget does not implement a multi-year plan for updating the formula.

The FY 2020 budget takes significant steps to implement the recommendations of the 2015 Foundation Budget Review Commission (FBRC). The FBRC found that the Chapter 70 system and many schools across the state are significantly under-resourced relative to the Commonwealth’s estimate of the costs of educating children, called the “foundation budget.” This underfunding limits the capacity of schools across the state to help all children succeed, particularly schools that educate a high proportion of disadvantaged students.

Over the past two years, the state has begun implementing some of the changes recommended by the FBRC. The FY 2020 budget addresses the four main areas of the foundation budget, highlighted by the FBRC, in a meaningful way. These areas include health care, special education, support for low-income students, and support for English Language Learners (ELL). Across these areas, the FY 2020 Chapter 70 proposal:

  • Provides additional, per-pupil funding between $228 to $461 above the inflation rate (6.0 to 11.6 percent increases from current levels) for the top half of districts with the largest concentration of low-income students. All other districts would receive roughly a standard inflation increase for low-income students. This results in a maximum of $4,600 extra per-pupil in the foundation budget for low-income kids, up from $4,000 in FY 2019. This increase appears to be a significant step towards the maximum of roughly $8,400 per student approach proposed by the FBRC, if it is part of a multi-year phase-in with similar annual increases.
  • Moves the rate for out-of-district special education students towards the goal of three times the statewide per-pupil average, increasing this rate to $29,500 in FY 2020 (up 7.5 percent).
  • Increases the allotments for employee benefits, including health insurance, closer to the goal of matching what the Group Insurance Commission pays for state employees. Overall, this budget increases health benefit rates by roughly 4.9 to 9.2 percent in FY 2020 depending on grade level, with further increases for schools that serve disadvantaged kids.
  • Expands the allotments for ELL students. In line with the Senate’s budget proposal, the FY 2020 budget provides a greater increase of roughly 22 percent for elementary ELL students compared to 6 percent for high school and 1 percent for middle school. This appears to directly address the FBRC proposal to make these rates more consistent across grades, eventually equal to the highest existing rate for middle school students.

Outside of Chapter 70, the FY 2020 budget increases overall K-12 grant programs by $71.4 million (10 percent) above FY 2019 levels.

This FY 2020 budget provides $115.0 million to Charter School Reimbursements, $25.0 million (28 percent) above current FY 2019 levels. $15.0 million of this increase is targeted to districts with high levels of charter growth, and those with high enrollment but below average shares of Chapter 70 aid, such as Boston.

The Charter School Reimbursement program, when fully funded, reimburses 100 percent of tuition increases due to students leaving traditional districts to charter schools in the first year, and 25 percent of this amount for each of the following five years. An Outside Section of the FY 2020 budget shifts reimbursements to a 100 percent, 60 percent, 40 percent schedule over three years.

The Department of Elementary and Secondary Education (DESE) reports that FY 2019 funding levels only supported 57 percent of the amount called for by the existing charter reimbursement formula, leaving a $69.1 million gap. This underfunding meant that no tuition reimbursements were available to school districts after the first year. Even with the additional aid in the FY 2020 budget, the overall formula is only 55 percent funded, with a $92.4 million gap, according to an initial FY 2020 projection from DESE. This is driven by a combination of a 3,000 student increase in charter enrollment and a 6 percent increase in per-pupil cost to districts. These data will likely fluctuate throughout the year, so the ultimate gap will likely differ from the initial projection.

The FY 2020 budget has several notable increases to K-12 education grants, including:

  • The Special Education Circuit Breaker, funded at $345.2 million (8 percent above FY 2019 levels);
  • Regional School Transportation, funded at $75.9 million (10 percent above FY 2019); and
  • After-School and Out of School Grants, funded at $8.3 million (93 percent above FY 2019 levels). Much of this increase is directed to specific after-school programs across the state.

Additionally, the FY 2020 budget creates several new K-12 education grants with a small amount of funding:

  • Student Wellness Supports (7061-9650), funded at $2.0 million;
  • Civics Education Trust (1595-0115), funded at $1.5 million and Civics Program (7010-1193), funded at $1.0 million;
  • Computer Science Education (7010-1202), funded at $1.0 million;
  • Career and Technical Education (7035-0001) funded at $500,000;
  • Regionalization Grants (7061-9809), funded at $500,000; and
  • Financial Literacy Education (7010-1194), funded at $250,000.

For additional questions, email info@massbudget.org with “Budget question” in the subject line.


Higher Education

Higher education is an important factor in the success of our Commonwealth. Adequate state funding for higher education helps ensure that its benefits are broadly available to all who want to pursue a degree or credential beyond high school. Insufficient state funding, on the other hand, leaves students and their families facing higher tuition and debt, and threatens to put higher education—and the opportunities it offers—beyond the reach of those who cannot afford it.

The final Fiscal Year (FY) 2020 budget increases funding for public higher education by 5 percent over FY 2019. Most of this covers increases negotiated with various campus unions via collective bargaining agreements. For information on funding for all Higher Education budget items going back to Fiscal Year (FY) 2001, please see MassBudget’s Budget Browser here.

For a list of funding for higher education by category in the FY 2020 budget, please see the table below.

FUNDING FOR HIGHER EDUCATION
Category FY 2019 Current FY 2020 Final Difference FY20 Final - FY19 Curr. Notes
Community Colleges 286,305,087 299,452,491 13,147,404 *
State Universities 259,120,633 273,945,967 14,825,334 *
University of Massachusetts 523,867,080 562,744,794 38,877,714 *
State Scholarships 103,886,798 106,100,000 2,213,202
Other 52,220,939 44,635,529 (7,585,410)
Higher education, total 1,225,400,537 1,286,878,781 61,478,244
*MassBudget totals subtract tuition remitted by campuses back to the General Fund from their state appropriation. This is undertaken because tuition sent back to the state is not available for campus operations and has the same effect as reduced state funding.

State funding for public higher education dropped 30 percent per student, adjusted for inflation, from FY 2001 through FY 2019 (the most recent fiscal year for which we have data; see chart). These funding cuts followed a series of state tax cuts in the late 1990s and early 2000s, the benefits of which have gone overwhelmingly to the state’s highest-income taxpayers. These tax cuts now cost Massachusetts more than $4 billion dollars a year in lost revenue and hinder our ability to fund higher education and other priorities.

Per Student, MA Has Cut Higher Ed Funding by 30 Percent Since 2001

Cuts to higher education funding have resulted in sharp increases in tuition and fees: UMass increased its tuition 2.5 percent from the 2018-2019 academic year to 2019-2020—the fifth straight year of tuition increases at UMass. These cost increases have in turn led to some of the fastest-rising student debt in the nation, as detailed in MassBudget’s March 2018 report, Educated and Encumbered.

The FY 2020 GAA calls for UMass administrators to report to legislative leadership on the university’s finances and enrollment trends. The Senate’s FY 2020 budget proposal would have mandated a tuition freeze at UMass for 2019-2020; the GAA’s reporting requirement represents a compromise that allowed the university to increase tuition.

HEALTH

MassHealth (Medicaid) and Health Reform

The Commonwealth subsidizes health insurance for about 1.8 million people, including about 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 provided to low-income patients. The MassHealth program is funded by a combination of state and federal revenues. Although there is some variation, overall the federal government reimburses the state for more than 50 percent of spending on MassHealth. For this reason, the gross spending on the program (as presented in the state’s budget) is significantly more than the actual “net” cost to the state, taking into account the federal reimbursement.

The Fiscal Year (FY) 2020 budget includes two major health reform policy initiatives: the budget establishes new systems for negotiating and monitoring the costs of prescription drugs within MassHealth; the budget also expands eligibility for the Medicare Savings Plan for low-income elders.

Prescription Drug Pricing

The FY 2020 budget language includes a specific set of procedures to help curb the high cost of prescription drugs. The nature of these new procedures was the topic of budget negotiations, and the final language is less extensive than initially proposed by either the Governor or the Senate. The Governor’s initial proposal was anticipated to save MassHealth $70 million, or $28 million net of federal reimbursement, but without some of the enforcement mechanisms included in the Governor’s proposal it is unclear how much in savings the current budget language can be expected to generate.

The first step in these procedures is that the Executive Office of Health and Human Services (EOHHS) may negotiate directly with a drug manufacturer the amount of a supplemental rebate for that drug. If the negotiations are unsuccessful, and if the drug might cost at least $25,000 per patient in a year or if the drug would cost MassHealth $10 million annually, EOHHS may then hold a public hearing on the value of the drug. If EOHHS and the drug manufacturer are still unable to come to agreement on a supplemental rebate, EOHHS may then refer the drug manufacturer to the Health Policy Commission for review. The Health Policy Commission may then require a drug manufacturer to submit information underlying the manufacturer’s cost for a drug. The Health Policy Commission would then be able to determine whether the manufacturer’s pricing is reasonable.

The budget also includes language that asks the Executive Office of Health and Human Services to report on ways to increase the transparency of services provided by the pharmacy benefit managers in the MassHealth managed care organizations and accountable care organizations. A recent report from the Health Policy Commission found that a practice called “spread pricing” for generic drugs could be driving up costs for MassHealth. Spread pricing is a way of paying for the services of a pharmacy benefits manager, and is the difference between what the benefits managers charge MassHealth for a drug and what they reimburse the pharmacy that dispenses the drug. The Administration has stated that if transparency for pharmacy benefits managers were to be required, it could save as much as $10.0 million in FY 2020, $4.0 million net of federal reimbursement.

Expansion of the Medicare Savings Plan

The other major initiative in the FY 2020 health care budget is a significant expansion of the Medicare Savings Plan that would benefit about 40,000 low-income elders in Massachusetts. The budget expands eligibility for elders in two ways: increasing the program’s income threshold by 30 percentage points (bringing the eligibility threshold up to as much as 165 percent of the federal poverty level) and doubling the eligibility asset limit.

The Medicare Savings Plan encompasses three separate federal programs (with tiered eligibility and benefits). In Massachusetts, these programs operate through the MassHealth Buy-In program and MassHealth Senior Buy-In program. Massachusetts is reimbursed 50 percent by the federal Medicaid program for the MassHealth portions of these programs. The federal government subsidizes the Medicare Part D prescription drug coverage.

Prior to this change, Medicare beneficiaries with incomes below 100 percent of the federal poverty level were eligible for MassHealth coverage of Medicare Part A and B premiums, deductibles and co-payments. The budget increases the eligibility threshold for this level of coverage to 130 percent of the federal poverty level. Medicare continues to pay for subsidies for Medicare Part D prescription drug coverage.

Medicare beneficiaries with incomes between 100 and 135 percent of the federal poverty level were eligible for MassHealth coverage of Medicare Part B premiums only, while Medicare subsidized Part D prescription drug coverage. The budget increases the eligibility threshold for this level of coverage to 165 percent of the federal poverty level.

Massachusetts also has a separate, state-funded program (Prescription Advantage) that helps low-income elders with prescription drug costs that are not covered by MassHealth or the Medicare subsidies, and eligibility for this program will also be affected by these reforms. (The income eligibility threshold for the state-funded Prescription Advantage program for elders eligible for Medicare is 500 percent of the federal poverty level.)

Raising the income threshold and increasing the asset limit for the Medicare Savings Plan means that approximately 15,000 elders currently enrolled will be eligible to move to one of the programs with more generous benefits, and as many as 25,000 more elders will become newly eligible. Because the federal government pays for Medicare Part D drug subsidies, expanding eligibility for the Medicare Savings Plan will bring in federal dollars to cover costs previously covered by the state, and will also significantly expand the number of elders eligible for prescription drug subsidies.

The Administration has estimated this expansion would cost approximately $30 million total (“gross”), which would amount to about $4 million after accounting for federal reimbursement (“net”). The budget anticipates a 10.9 percent reduction in funding for the Prescription Advantage program as more elders become eligible for the more generous Medicare Savings Plan. There is also language in the budget that would allow the Administration to transfer funding from Prescription Advantage and from the Health Safety Net to cover the expansion of the Medicare Savings Plan if needed. The Governor has also estimated this program change would bring in about $100 million more federal Medicare dollars into the state’s economy.

MassHealth Program and Administration

FY 2020 funding for the MassHealth program is $16.59 billion, $230.0 million more than the current FY 2019 budget total, but only after accounting for some “cash management” strategies that shift some costs off the FY 2020 budget. After accounting for federal reimbursement, the net cost of the MassHealth program total is $8.25 billion. The FY 2020 funding for MassHealth program administration is an additional $166.7 million (“gross”).

The MassHealth budget’s low growth rate compared to FY 2019 is partly due to a quirk associated with an accounting “leap year” in that there will be 53 weeks’ worth of MassHealth claims in FY 2020. The Administration is choosing to pre-pay (move) this extra week of MassHealth expenses from FY 2020 to FY 2019, adding $116 million to the FY 2019 estimated spending total. The Administration is also planning on pre-paying an additional $107 million in other claims in the MassHealth Fee-for-Service program. These cash management strategies increase FY 2019 spending totals by $222 million ($100 million net of federal reimbursement) and decrease the FY 2020 MassHealth budget by the same amount.

MASSHEALTH (MEDICAID) AND HEALTH REFORM

FY 2019
Current
Budget
FY 2020
Final
Notes
MassHealth (Medicaid)
MassHealth Programs
16,358,817,944 16,588,785,380 Does not include Community Choices program
MassHealth Administration
161,535,714 166,706,936
Subtotal 16,520,353,658 16,755,492,316
Spending to Trusts
Medical Assistance Trust
586,600,000 481,260,000 Timing of funding to Medical Assistance Trust does not align with fiscal year
Safety Net Provider Trust
167,640,000 165,100,000
Subtotal 754,240,000 646,360,000
Other Health Subsidies
Commonwealth Care Trust
127,701,982 116,456,444 Expanded Medicare Savings Plan expected to generate savings to Prescription Advantage
Prescription Advantage
16,939,784 15,101,313
Subtotal
144,641,766 131,557,757
Other Administration and Operations
Center for Health Info. & Analysis
28,474,170 27,831,406
Information Technology
129,189,675 119,419,685
Health Connector Operations
16,775,216 15,000,000
Health Policy Commission
9,319,931 9,836,682
Other Health Finance
1,210,793 1,260,793
Subtotal
184,969,785 173,348,566
 
TOTAL
17,604,205,209 17,706,758,639

The Administration states it has been able to hold down MassHealth costs by improving the efficiency of the program’s eligibility and other management systems. The Administration projects minimal enrollment growth in FY 2020 and anticipates that the continuing restructuring of MassHealth into a system of Accountable Care Organizations will also help hold down costs. The Administration projects that these efforts should generate $169 million in savings, $75 million net of federal reimbursement. Finally, the Administration projects savings from prescription drug reforms. (See discussion above.)

The FY 2020 budget increases funding for nursing homes by $50.0 million compared to FY 2019, and this was the only MassHealth funding subject to legislative debate. The final total includes an additional $35.0 million as a cost adjustment to cover the “inflationary increase for resident care and labor costs”; and then $15.0 million targeting increased payments to facilities that meet specific criteria, such as for nursing homes that are geographically remote, provide care to particularly complex patients, or those that have a relatively high share of low-income patients.

One area where MassHealth will continue to expand services during FY 2020 is in combatting substance misuse to address the opioid epidemic. The Administration has noted that the FY 2020 MassHealth budget includes $49.4 million to expand treatment services for people struggling with addiction, particularly individuals with co-occurring mental health disorders. This is more than double the amount spent in FY 2019, and is part of an ongoing effort to expand these services. The Administration has stated that these dollars would help expand residential rehabilitation and better coordinate recovery services.

ConnectorCare and the Health Connector

ConnectorCare, the publicly-subsidized, commercial health insurance available for eligible, lower-income Massachusetts residents through the Mass. Health Connector, is funded through the Commonwealth Care Trust. The budget includes a statutorily required transfer to this trust from tobacco excise revenue, but also anticipates that an overall surplus in that fund will allow for $7.2 million to be transferred back to the general fund to help support budget appropriations (see table). One of the other funding sources for ConnectorCare is what is known as the Employer Medical Assistance Contribution, or EMAC. Most employers that contribute to unemployment insurance must pay this contribution to support health insurance that is provided by the Connector, including health coverage for people receiving unemployment insurance.

Starting in 2017, the Legislature added a temporary (two-year) supplemental assessment to the EMAC on employers with employees covered under either MassHealth or receiving subsidized commercial coverage through ConnectorCare. The temporary EMAC will bring in about $231.4 million in FY 2019, but only $70.0 million in FY 2020, as the assessment sunsets on December 31, 2019.


Public Health

The final Fiscal Year (FY) 2020 budget gives a funding boost to several substance use programs. Overall, it allocates $9.2 million more toward substance use programs than in the previous (FY 2019) budget, bringing the total to $169.3 million for substance use programs in FY 2020 (see table).

SUBSTANCE USE PROGRAMS
Line item Description FY 2019 Current FY 2020 Final Difference FY20 Final - FY19 Curr. Notes
1070-0841 Marijuana Public Awareness Campaign 2,000,000 1,000,000  (1,000,000) This amount does not include funds in the Public Health Trust Fund.
4512-0200 Bur. of Substance Addiction Svcs. 141,863,457 150,185,718 8,322,261
4512-0201 Substance Abuse Step-Down Recovery Svcs. 4,908,180 4,908,180 0
4512-0202 Secure Treatment for Opiate Addiction 5,000,000 2,000,000 (3,000,000)
4512-0203 Substance Abuse Family Intervention Pilot 1,440,450 1,465,450 25,000
4512-0204 Nasal Narcan Pilot Expansion 1,020,000 1,040,000 20,000
4512-0205 Substance Abuse Grants 3,784,000 3,150,000 (634,000)
4512-0206 Harm Reduction through Syringe Access 0 5,000,000 5,000,000
4590-0930 Municipal Naloxone Bulk Purchase Program 0 500,000 500,000
4590-2010 Grandparents Raising Grandchildren 50,000 50,000 0
Substance use programs, total 160,066,087 169,299,348 9,233,261


One exception includes the Secure Treatment for Opiate Addiction program, which diverts from jail non-violent offenders with opioid or opiate addictions. The funding, through the Department of Public Health (DPH), covers three months of hospital treatment and one year of case management. The FY 2020 budget includes $2 million for this project,$3 million less than the previous (2019) fiscal year.

In addition to these programs, the budget includes $10.8 million in the Public Health Trust Fund, which was created for programs dedicated to gambling prevention, substance abuse services, and other related issues. The revenue for this trust fund comes from fees on casinos and other gaming establishments.

Other notable items related to public health in the FY 2020 budget include:

  • $3.1 million for Community Health Centers, which offer primary health care in communities with high needs. While this amount is $1.8 million more than the previous fiscal year, it remains $10.8 million less than in FY 2001 (adjusting for inflation).
  • $15 million for the state laboratory and communicable disease control services. Some of these funds are budgeted to test for eastern equine encephalitis, commonly known as “Triple E.”. Public health officials are taking measures to prevent the transmission of Triple E, which is transmitted to humans through mosquitoes and can be fatal. Several human cases of Triple E have been confirmed in Massachusetts and one person has died from it. Additionally, $2.1 million in this account is allocated to the prevention of and response to tuberculosis.
  • photo: mother and babyA two-year pilot program to reduce pregnancy-related deaths and improve pregnancy outcomes. A DPH report found that pregnancy-related deaths are on the rise in Massachusetts. Many were related to opioids and occurred between six weeks and a year after delivery. The report notes that mothers need support during the stressful postpartum period. The DPH report also recommends better coordination between intervention and mental health services.

For additional questions, email info@massbudget.org with “Budget question” in the subject line.


HOUSING

Making sure that Massachusetts has an adequate supply of affordable housing for low- and moderate-income adults and children can help to improve the health and quality of life in the Commonwealth and promote investment in our state’s long-term economic success. Because of high costs, particularly in Greater Boston, housing claims a large portion of incomes earned by both renters and homeowners. As of 2017 almost half of renters and almost one-third of homeowners are cost-burdened, meaning they pay more than 30 percent of their income in housing costs. 

The state’s operating budget funds housing programs that help low-income people afford permanent housing. It also provides shelter and short-term housing assistance to families, children, and individuals, including youth, who are homeless or at risk of homelessness.

The Fiscal Year (FY) 2020 General Appropriations Act (GAA) provides $518.0 million for affordable housing and homelessness assistance programs across the budget, slightly less ($3.3 million or 0.6 percent) than the FY 2019 budget. For information on funding for all housing budget items going back to FY 2001, please see MassBudget’s Budget Browser here.

While the FY 2020 GAA increases funding for a few affordable housing and homelessness assistance programs, it is slightly below the FY 2019 current budget. This is because the FY 2019 budget included $30.0 million that the Legislature provided in the winter to supplement the federal Low Income Home Energy Assistance Program (LIHEAP).  This program is largely funded through the federal budget and helps low-income people pay utility bills. The Legislature approves supplemental state funds in years when it appears the federal funds are insufficient to provide adequate assistance. This is often done in the winter months when the aid is needed rather than at the start of the fiscal year in July.  

The FY 2020 GAA provides  $222.8 million for affordable housing programs which is $9.0 million less that the FY 2019 budget. As noted above, the FY 2020 GAA is below the FY 2019 budget because it does not include funding for LIHEAP—if the Legislature chooses to fund the program, it will likely do it in the winter of 2020 to supplement federal funds provided to the program. The GAA provides a 10 percent increase in funding for two of the largest affordable housing programs: the Massachusetts Rental Voucher Program (MRVP) and subsidies for public housing authorities. 

The GAA increases funding for MRVP to $110.0 million.  It also increases the rent limits for mobile vouchers leased after August 1, 2019 to the current area fair market rent (FMR) set by the federal Department of Housing and Urban Development.  Prior to FY 2020, the rent limit for mobile vouchers was based on the 2005 FMR. This made it difficult for voucher holders to find apartments unless the Department of Housing and Community Development (DHCD) provided a waiver to increase the rent limit.  In recent years, the state has increased funding for MRVP in part to help provide permanent housing assistance to very low-income homeless families moving out of state-supported shelters. The state has leased about 8,400 MRVP vouchers in 2019 which is still well below the almost 15,000 vouchers leased in 1993.  It is possible that the $10.0 million increase in MRVP will be used to support the higher rent levels approved in the budget as well as to preserve some project-based vouchers located in buildings that were once affordable and are now becoming market rate. 

The GAA increases funding for local housing authorities by $6.4 million for a total of $72.0 million. Between FY 2008, the start of the Great Recession, and FY 2019 state support for public housing through the budget has fallen by 16 percent after adjusting for inflation.   Even though the FY 2020 budget provides the first significant increase in funding for the program in over 10 years, it remains 10 percent below the amount it received in FY 2008 after adjusting for inflation.

More than half of the state’s total housing budget funds shelter and assistance to families, adults and youth with very low incomes and who are homeless or at risk of becoming homeless. The FY 2020 GAA provides $295.2 million for this assistance, including $178.7 million for the Emergency Assistance (EA) program, $6.8 million more than the FY 2019 budget. This amount is about the same as the Governor’s FY 2020 budget proposal. In documents accompanying its budget, the Governor’s office anticipates that its proposal would fully fund the program for FY 2020.  Because EA provides shelter to all families who qualify, if the program runs out of funds before the end of the fiscal year the Legislature will provide supplemental funding to meet homeless families’ needs. The FY 2020 budget also includes new language that allows families, who would otherwise have to sleep in a place not meant for human habitation like a public park, a car, or an emergency room, to enter shelter. In previous years, families had to prove they had slept in such a place for at least one night before they received shelter through the EA program.  The FY 2020 budget asks DHCD to provide the Legislature with a report by March 2020 detailing the costs and number of families served under this new provision.

The GAA recommends $21.0 million in funding for Residential Assistance for Families in Transition (RAFT) which provides one-time funding to low-income people at risk of losing their housing and becoming homeless.  The GAA provides $16.3 million of these funds through the operating budget and the remaining $4.7 million from the Housing Preservation and Stability Trust Fund.

For additional questions, email info@massbudget.org with “Budget question” in the subject line.


HUMAN SERVICES

Human services include an array of programs to promote the well-being of children, seniors, veterans, people with disabilities, and others across Massachusetts. The Fiscal Year (FY) 2020 General Appropriations Act (GAA) funds these supports at over $4.84 billion. For information on funding for all individual human services budget items going back to FY 2001, see MassBudget’s Budget Browser here.

The FY 2020 GAA includes several elements related to Transitional Aid to Families with Dependent Children (TAFDC), a program that provides cash assistance to families with little to no income. The GAA increases the program’s funding to $204.5 million, 1.4 percent above current funding, but this leaves it essentially flat after accounting for inflation.

The budget enacts a reform to existing regulations by not counting the value of a single vehicle among assets in determining a family’s TAFDC eligibility. Additionally, the GAA includes specific language which prevents administrative changes to the calculation process of benefit amounts for families. This is notable because of a debate over the budget cycle, in which the Governor made attempts to count Supplemental Security Income (SSI) in the calculation of TAFDC benefits as part of a larger set of reforms. This would have reduced eligibility for many families.

Other pieces to note in the GAA are investments into programs that serve the elderly and people with disabilities. For example, the Elder Nutrition Program receives a 34 percent increase in funding, bringing it to $9.7 million. The increase seeks to maintain nutritional quality and meet higher projected need for the program, which provides over 9.1 million health meals a year, along with screenings, education, and counseling.

Autism Omnibus Services, which expand the scope and quantity of supports available to youth under 21 with autism spectrum disorders, receives a 70 percent increase in FY 2020. This brings it to a total of $30.8 million.

A new program to fund advanced skills training for home care aides that serve those in the elder home care program is also included in the GAA. Originally introduced in the Senate budget proposal, this account is funded at $1.0 million. 

The Office of Refugees and Immigrants’ Low-Income Citizenship Program receives a major increase of 105 percent, bringing its funding to slightly over $1.0 million. This program aids legal permanent residents in becoming citizens, with priority given to those with low incomes.

For additional questions, email info@massbudget.org with “Budget question” in the subject line.


LOCAL AID

"Local aid" refers to money that flows from the state budget to city and town budgets, helping municipalities fund local services such as police and fire protection, parks, and public works. Some local aid has few restrictions on its use, while other aid goes to some cities and towns for specific purposes. The “Education” section of this report discusses local aid for education. For information on funding for all Local Aid budget items going back to FY 2001, please see MassBudget’s Budget Browser here.

351 separate city and town governments with widely varying levels of wealth make up Massachusetts. Despite wide variations in wealth, they are charged with providing similar levels of vital public services. State Unrestricted General Government Aid helps less-wealthy cities and towns provide local services that they couldn’t otherwise support with their local property tax bases.

The Fiscal Year (FY) 2020 budget provides cities and towns with $1.13 billion in Unrestricted General Government Aid. This is an increase of $29.7 million over the FY 2019 amount, or 2.7 percent. It is the smallest annual increase of any year since Governor Baker took office. Last year’s FY 2019 budget provided a 3.5 percent increase over FY 2018.

The Commonwealth’s capacity to fund general local aid is hindered by a series of significant state-level tax cuts during the 1990s and 2000s. While over the past several years general local aid funding has increased in step with or slightly above inflation, it still remains 40 percent below FY 2001 levels, when adjusted for inflation. Further adjusting for population growth during this time, the value of general local aid fell from $287 per person in 2001 to $159 per person in FY 2019.


bar graph: General local aid remains 40% below fiscal year 2001 levels

The FY 2020 budget slightly reduces funding for the Municipal Regionalization and Efficiencies Incentive Reserve to $10.5 million, a $478,000 reduction from FY 2019. This reserve promotes municipal best practices through several local grant programs. As in past years, a fraction of the funding also supports several targeted local improvement projects.

Meanwhile the FY 2020 budget provides municipalities with $30.0 million for Reimbursements to Cities in Lieu of Taxes on State-Owned Land. This fund helps to compensate cities and towns that lose the ability to collect property taxes on land exempt from paying because it is owned by the Commonwealth. The amount provided in FY 2020 is $1.5 million more than in FY 2019.

For additional questions, email info@massbudget.org with “Budget question” in the subject line.


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. The Commonwealth’s annual budget directly funds many transportation programs, but most state support occurs outside the annual budget process.

The Fiscal Year (FY) 2020 budget increases support for the Commonwealth’s 15 Regional Transit Authorities (RTAs) to $90.5 million, an increase of $2.5 million above FY 2019 funding. Of this amount, $3.5 million is conditioned upon RTAs establishing a set of mutually agreed upon performance metrics with the Massachusetts Department of Transportation.

photo: snowplow The budget provides $345.8 million to support the Massachusetts Transportation Trust Fund (MTTF), an amount that is $48.8 million less than FY 2019 spending. This is due to underfunding of snow and ice removal. The MTTF contributes to highways, transit, intercity rail, small airports, the Massachusetts Turnpike, and the Motor Vehicle Registry. The MTTF receives funds from tolls, federal transportation sources, and the state’s Commonwealth Transportation Trust Fund. The budget underfunds snow and ice removal by about $50 million. Instead of fully funding the program upfront, it continues the longstanding practice of annually funding snow and ice control below anticipated levels. The expectation is lawmakers will provide supplemental funding to the MTTF later in the year for clean-up from winter storms.

The Massachusetts Transportation Trust Fund also includes small amounts of funding targeted for several additional initiatives. This includes: $270,000 to operate the pilot season of Berkshire Flyer passenger rail service between New York City and the Berkshires between Memorial Day and Columbus Day in 2020; and $90,000 for the Franklin Regional Council of Governments to launch a rideshare demonstration program for social service recipients.

The Commonwealth finances long-term capital investment projects such as reconstructing bridges or ordering new train vehicles by issuing bonds. Rather than being negotiated through the budget process, bond agreements dictate borrowing and subsequently paying interest, principal, and other related costs over future years.  A total of $1.44 billion in FY 2020 will be transferred to make transportation-related debt payments (this account does not include debt payments from other separate transportation entities such as the MBTA or Massport). This transfer is from the Commonwealth Transportation Fund, which receives dedicated revenues mostly from gas taxes, vehicle registration and inspection fees, and sales taxes on vehicle sales. For FY 2020 these debt payments include:

  • $1.16 billion as part of Consolidated Long Term Debt Service, an account that pays for several sources of state debt. Payments from the CTF constitute just over half of all such long-term debt service.
  • $209.7 million for debt incurred to finance the largely completed Accelerated Bridge Program and the Rail Enhancement Program.
  • $70.0 million for debt incurred from funding shortfalls for the “Big Dig” — the Central Artery/ Third Harbor Tunnel project.

The largest source of operating funds for the Massachusetts Bay Transportation Authority (MBTA) is likewise an automatic statutory transfer of tax revenue anticipated to total $1.11 billion, which is $75.8 million more than in the FY 2019 budget. The sizeable increase is partly due to anticipated increases to (non-meals) sales taxes, plus about $15 million transferred from the Sales Tax Marketplace reform (see Revenue section), and anticipated Marijuana tax transfers.

The FY 2020 budget instructs the Massachusetts Department of Transportation to conduct feasibility studies regarding: extending Blue Line service from Wonderland Station to Lynn; and connecting North Adams, Greenfield, and Boston with passenger rail service along the tracks currently used by freight rail.

For an illustrated chart and description of funding flows for transportation debt service and operations together (as of 2015), see MassBudget’s fact sheet, What Does Massachusetts Transportation Funding Support and What Are the Revenue Sources? To read about different areas of federal support for state transportation programs in Massachusetts, see MassBudget’s How Vulnerable is Massachusetts Transportation to Federal Spending Cuts? For information on all transportation items supported through the state budget going back to Fiscal Year (FY) 2001, please see MassBudget’s Budget Browser here.

For additional questions, email info@massbudget.org with “Budget question” in the subject line.


OTHER NEWS IN THE BUDGET

  • The Fiscal Year (FY) 2020 budget includes a new $2.5 million initiative within the Secretary of State’s office. This initiative will support a competitive grant program for outreach and education to ensure a complete and accurate count in the upcoming 2020 Census. These grants will target historically undercounted or hard-to-count communities.
  • The Fiscal Year (FY) 2020 budget includes $25.1 million for “other post-employment benefits” (“OPEB”) for state retirees. These benefits are paid from debt reversions or, if those reversions are not available, using Tobacco Settlement funds. However, statute requires that by FY 2020 the state should be transferring 80 percent of the Tobacco Settlement to the State Retiree Benefits Trust (which holds the money for OPEB), or $201.0 million. This means the budget is underfunding this liability for retiree benefits by $175.9 million.
  • The budget includes language in the Executive Office of Health and Human Services and a $1.0 million earmark creating a new pilot program. This program will allow people to apply for the Supplemental Nutrition Assistance Program (SNAP) at the same time as they apply for or renew their application for MassHealth or the Medicare Savings Program. The intent of this pilot is to pave the way towards creating a common application portal for these programs for people with incomes under 200 percent of the federal poverty level.
  • In mental health, the FY 2020 budget includes a $10 million fund to help improve access to and awareness of behavioral health services in its FY 2020 budget. Specifically, the fund will help integrate behavioral health with other medical services, ensure that current and future behavioral health professionals offer culturally-sensitive services, and ensure that all clients have access to services “regardless of race, color, religion, creed, national origin, sex, gender identity, sexual orientation, genetic information, ancestry, status as a veteran, disability, place of residence, or socioeconomic status.”
  • The Committee’s budget also includes language to better protect behavioral health service providers from retroactive claims denials (denials for services that were previously paid for). When claims are retroactively denied, providers have to repay the claim or they see reductions in other payments to recoup the denied claim amount.

REVENUE

In an unusual twist, the biggest revenue story related to the General Appropriations Act (GAA) of Fiscal Year (FY) 2020 is not a new tax or non-tax revenue proposal contained within the budget itself. Instead, the big story is the surprisingly strong finish to tax collections in FY 2019 and how that has affected the final FY 2020 budget. With collections in FY 2019 exceeding earlier projections by more than a billion dollars, the FY 2020 GAA is built on the expectation of close to $600 million more in tax revenue than had been agreed to at the start of the FY 2020 budget process, back in December 2018. This new revenue benchmark has allowed lawmakers to increase significantly the funding provided to a variety of programs and services, while also adding to the state’s Stabilization Fund. The FY 2020 GAA directs some $231 million of the additional dollars to this reserve fund, boosting the planned year-end deposit.

Beyond establishing a new benchmark for expected tax revenues, the FY 2020 GAA also includes other additional, anticipated revenue from recently-enacted tax changes (such as taxes on recreational marijuana and on short-term rental accommodations like Airbnb) and from anticipated growth in already-enacted, non-tax sources (such as expanded casino resort gambling). (See the summary table and further discussion below.)  Together, these various tax and non-tax sources are expected to deliver a total of $504.4 million in additional revenue in FY 2020.   A number of already-scheduled tax cuts and other revenue losses, however, will eliminate most of this half billion in anticipated and proposed gains (see summary table and further discussion below).

NOTABLE ADDITIONS TO FY 2020 REVENUE
($ millions)
Governor House Senate Final
TAX REVENUES - TEMPORARY
Life Sciences Tax Credit Cap
5.0 5.0 5.0 5.0
Sales Tax Acceleration
306.0
SUBTOTAL TAX TEMPORARY
311.0 5.0 5.0 5.0
TAX REVENUES - ONGOING
Recreational Marijuana
132.5 132.5 132.5 132.5
Tax-Related Settlements & Judgments
50.0 100.0 100.0 100.0
Sales Tax Marketplace Reforms
41.7 41.7 41.7 41.7
Transient Accommodation/Room Occupancy
27.5 27.5 27.5 27.5
Tax on Opioid Gross Receipts
14.0 14.0
Excise Tax on Vapor (Vaping) and E-Cigarette Products
6.0 12.0
Withholding on Non-Residential Property Sales
4.0 4.0
Sales Tax Integrity Measures
2.0 2.0
Real Estate Transfer Tax Increase (in separate legislation)
75.0
SUBTOTAL TAX ONGOING 352.7 301.7 333.7 301.7
TOTAL TAX REVENUES
663.7 306.7 338.7 306.7
NON-TAX REVENUES - TEMPORARY
Sale of state-owned property
29.3 29.3 29.3 29.3
Transfers from Trusts
25.4 5.0
SUBTOTAL NON-TAX TEMPORARY
29.3 29.3 54.7 34.3
NON-TAX REVENUES - ONGOING
Expansion of Resort Casino Gambling
155.5 155.5 155.5 155.5
Expanded Licensing of Recreational Marijuana Vendors
6.0 6.0 6.0 6.0
Increased business fees at Department of Public Utilities
2.0 2.0 2.0
Casino-Based and Online Sports Wagering (separate legislation)
35.0
SUBTOTAL NON-TAX ONGOING
196.5 163.5 163.5 163.5
TOTAL NON- TAX REVENUES
225.7 192.7 218.1 197.7
GRAND TOTAL NOTABLE ADDITIONS
889.4 499.4 556.8 504.4

NOTABLE REDUCTIONS TO FY 2020 REVENUE
($ millions)
Governor House Senate FInal
TAX REVENUES
Personal Income Tax Rate Reductions to 5.05%
(175.0) (175.0) (175.0) (175.0)
Personal Income Tax Rate Reductions to 5.00%
(88.0) (88.0) (88.0) (88.0)
Increase in State’s Earned Income Tax Credit Amounts
(65.4) (65.4) (65.4) (65.4)
SUBTOTAL TAX (328.4) (328.4) (328.4) (328.4)
NON-TAX REVENUES
Sunset Supplemental Employer Medical Assistance Contribution 
(161.3) (144.3) (161.3) (161.3)
SUBTOTAL NON-TAX
(161.3) (144.3) (161.3) (161.3)
GRAND TOTAL NOTABLE REDUCTIONS
(489.7) (472.7) (489.7) (489.7)

Taxes

Setting a Higher Benchmark for FY 2020

As noted above, lawmakers agreed to a number of revenue-raising additions in the FY 2020 GAA. The largest among these is the new benchmark amount ($29.893 billion), which assumes the Commonwealth will collect $593.5 million more in tax revenue than was expected under the FY 2020 Consensus Revenue Estimate, the amount agreed to by the Governor, House and Senate on December 31st, 2018 (and upon which earlier FY 2020 budget proposals were built). It appears this decision was driven by the surprisingly strong end to FY 2019 – with collections exceeding the revised FY 2019 benchmark (also set in December 2018) by some $1.2 billion. Only several months ago, at the beginning of 2019, collections were falling well short of benchmark expectations and there was concern at that time that the Commonwealth could be running a deficit by the end of FY 2019.

With an original FY 2019 benchmark total of $28.392 billion (set at the time the FY 2019 budget was finalized in July of 2018), this benchmark was revised upward in December 2018 to $28.529 billion. (This amount excludes revenues that were expected from marijuana sales and excise taxes during FY 2019. The FY 2020 Consensus Revenue Estimate and the newly revised FY 2020 benchmark also do not include these marijuana taxes.) Also in December 2018, the Governor, House and Senate agreed to a Consensus Revenue Estimate for FY 2020 of $29.299 billion, representing $770 million - or 2.7 percent - growth over the FY 2019 revised benchmark. Collections during FY 2019 ($29.693 billion), however, exceeded the revised FY 2019 benchmark by some $1.164 billion,  and in fact far exceed the total growth expected during FY 2020 at the time the FY 2020 Consensus Revenue Estimate was agreed to.

Given that revenue collections in FY 2019 exceeded expectations by over $1 billion, and taking into account the anticipated revenue growth of 2.7 percent in FY 2020 assumed back in December of 2018, the FY 2020 GAA appears quite conservative  in setting its new benchmark. The FY 2020 GAA is built on the expectation of additional revenue of less than $600 million above the original FY 2020 revenue estimate. Achieving this new FY 2020 benchmark requires growth of only $200 million above FY 2019 levels – a growth rate well less than 1 percent. Additionally, the GAA assumes that some $231 million of the upward revision will come from above-threshold capital gains revenues and thus, by law, will be deposited into the state’s Stabilization Fund rather than be available to fund ongoing operations. These dollars are not built into the operating expenses of the FY 2020 GAA. This means that the GAA’s  appropriations total is balanced with the expectation of roughly $360 million in increased benchmark revenues, not the full $593.5 million - though this $360 million will need to be collected from non-capital gains sources. (For more on capital gains collections and the Stabilization Fund, see further discussion, below.) While revenue projections are always uncertain – and economic conditions could change significantly during FY 2020, affecting state collections – the revised GAA benchmark appears readily attainable.

For additional questions, email info@massbudget.org with “Budget question” in the subject line.

Other than Higher Benchmark Tax Revenues

Beyond setting a new, higher benchmark for FY 2020 collections, the GAA also contains additional revenue from a number of specific sources not included in the FY 2020 Consensus Revenue Estimate that was set back in December 2018. Some of these revenues will come from already-enacted tax law changes, while others will come from new proposals included in the GAA. It is important to note, however, that these additional revenues are offset in large part by already-scheduled revenue reductions that will occur in FY 2020. (For more detail on these reductions, see further discussion in the next section.)

Two of the tax revenue-raisers included in the FY 2020 GAA are ones that already are part of the tax code but were added recently enough that no estimate of anticipated revenue from these sources was included in the FY 2020 Consensus Revenue Estimate. The GAA assumes that taxes associated with the sale of recreational marijuana will deliver $132.5 million in FY 2020, and that revenue from the newly adopted short-term room occupancy tax (often referred to as the “Airbnb Tax”) will total $27.5 million. Both sources will deliver ongoing revenue (i.e., recurring revenue, available in future years).

New sources of additional tax revenue - above and beyond the upwardly revised FY 2020 revenue benchmark - that are used to balance the GAA or fund other priorities include the following (both of which were proposed first in the Governor’s FY 2020 budget): 

  • Reforms to online, retail sales tax collection rules. Under this proposal, “marketplace facilitators” such as eBay, Amazon, and Etsy would be required to collect and remit sales taxes on behalf of smaller vendors who sell through these sites. This and other associated changes would result in an estimated $41.7 million in additional, ongoing sales tax revenue in FY 2020, taxes that are owed under existing law, but which currently go uncollected.
  • Limiting the amount of funding to be transferred from the state’s consolidated net surplus to the Massachusetts Life Sciences Fund. This limit on the funding available for distribution through the Massachusetts Life Sciences Credit program effectively caps the program’s annual cost at $20 million rather than the statutory cap of $25 million, and thus is assumed to save $5 million in FY 2020. This fund supports the cost of a corporate tax credit program that is intended to incentivize companies involved in “life sciences research and development, commercialization and manufacturing” to create and retain full-time permanent jobs within the Commonwealth. Companies must apply for and be awarded these credits, but the state awards credits only to the extent that funds are available.

A number of other tax proposals included in earlier iterations of the budget did not make it into the FY 2020 GAA. These include a proposal to tax manufacturers of opioids in order to help fund efforts to prevent and treat opioid addiction; a proposal to extend existing tobacco taxes and regulatory rules to electronic cigarettes and “vaping products”; and a proposal to require capital gains tax withholding on property sales made by non-resident owners in order to ensure these taxes do not go unpaid. While each of these proposals would have generated ongoing tax revenue, together they were expected to produce less than $30 million annually.

For additional questions, email info@massbudget.org with “Budget question” in the subject line.

Scheduled Tax Revenue Losses in FY 2020 & Beyond

While the FY 2020 GAA depends on additional tax and non-tax revenues (some of which are outlined in the preceding section), a number of already-scheduled tax cuts will remove almost half a billion dollars from the Commonwealth’s revenue stream in FY 2020 and beyond.

These scheduled cuts and losses (see table, above) include reductions in the personal income tax rate, the planned sunsetting of the temporary Supplemental Employer Medical Assistance Contribution, and an increase in the state’s Earned Income Tax Credit program (a successful, income-boosting tax credit program for low- and moderate-income working households). While these reductions already have been factored into budget writers’ revenue estimates — and thus do not create an unexpected hole in the FY 2020 budget — they nevertheless reduce the net revenue available in the coming fiscal year and beyond.

These reductions will total approximately $490 million in FY 2020. This amount is very close to the $504.4 million expected from additional other-than-benchmark tax and non-tax elements in the GAA. Alternatively, this amount represents a substantial portion of the $593.5 million expected from the upward revision of benchmark tax revenue collections. The expected reductions thus will all but eliminate one or the other of these two sources of additional FY 2020 revenue.

A large portion of the already-scheduled tax revenue reductions will be reducing revenue from progressive sources (meaning people with higher incomes contribute a larger share of their household income toward these taxes than people with low and moderate incomes). By contrast, a sizeable portion of the additional revenue would come from a variety of consumption taxes and fees, which typically are regressive (meaning low- and moderate-income households pay a larger share of their income toward these taxes than people with high incomes). This includes additional revenue from recreational marijuana taxes, “Airbnb taxes”, and sales tax marketplace reforms. With reductions in revenues from more progressive sources and increases in revenues from typically regressive sources, the FY 2020 GAA does not appear to help turn the state’s regressive, “upside-down” tax system right side up.

An important exception to the foregoing discussion about the regressive impacts of recent tax changes is the scheduled increase to the state’s Earned Income Tax Credit program, which will begin offering larger tax credits in FY 2020. The $65.4 million in additional credits will reduce collections from the state personal income tax, a progressive revenue source. Nevertheless, the net effect of this tax cut is progressive. The EITC program targets tax benefits to low- and moderate-income working households, enhancing the overall progressivity of the state personal income tax.

Relatedly, funding in the GAA for the Department of Revenue includes $200,000 to support local volunteer income tax assistance (VITA) programs across the state. VITA sites provide free tax preparation assistance using volunteers who have been certified by the IRS. The programs can bring additional federal funds to the Commonwealth by boosting the number of eligible taxpayers who apply for the federal Earned Income Tax Credit and the Child Tax Credit.

For additional questions, email info@massbudget.org with “Budget question” in the subject line.

Non-Tax Revenues

Every budget relies on a variety of non-tax revenues—federal revenues, which are mostly reimbursements for state spending on Medicaid (MassHealth and related costs); departmental revenues, which are fees, assessments, fines, tuition, and similar receipts; and “transfer” revenues, which include lottery receipts, revenues from the newly-licensed gambling facilities, and funds that the state draws from non-budgeted trusts.

One of the most notable changes in these non-tax revenues in the Fiscal Year (FY) 2020 budget is that only $70.0 million will be available from the supplemental Employer Medical Assistance Contribution (EMAC). This is a $161.4 million reduction from the FY 2019 amount. The supplemental EMAC is a temporary assessment on employers that rely on publicly-subsidized health insurance (MassHealth or ConnectorCare) for their employees. This temporary assessment was new in FY 2018 but it will sunset on December 31, 2019. (See also the MassHealth and Health Reform section of this analysis.)

The FY 2020 budget also estimates that the continuing expansion of various forms of gambling in the state will bring in substantial additional revenue for FY 2020. Legislation authorized the establishment of one slot facility (currently operating in Plainville) and up to three resort casinos (two are currently open, one in Springfield and in Everett). The legislation also includes formulas that direct gambling revenues to specific purposes within the budget, such as local aid. The budget anticipates gambling will generate $293.5 million for the budget, an increase of $155.5 million from the amount anticipated for the FY 2019 budget. Of this total,

  • An estimated $78.0 million in tax revenues would come from slot machines, level with FY 2019. $64.0 million of this is directed to the state’s Gaming Local Aid Fund, $14.0 million to the Race Horse Development Fund.
  • An estimated $215.5 million in tax revenue would come from the state’s two resort casinos, an increase of $155.5 million compared to FY 2019.

There are several other revenues in the FY 2020 budget to note:

  • $29.5 million from the sale of the East Cambridge Court House. This one-time revenue was initially anticipated for the FY 2019 budget, but the sale has been moved to FY 2020.
  • $5.0 million transferred to the General Fund from the off-budget Family and Employment Security Trust to support the implementation of the state’s Paid Family Medical Leave Program.
  • $6.0 million more in licensing fees from the continued expansion of the retail recreational marijuana industry for a total of $12.0 million in these fees in FY 2020.
  • $2.0 million from an increase to fees at the Department of Public Utilities. This increases the ceiling on the assessment on electric and gas companies.

Also in FY 2020, the state will be receiving less in federal reimbursement for the Children’s Health Insurance Program (CHIP) compared to FY 2019. One of the provisions of the federal Affordable Care Act was that the federal reimbursement rate for CHIP would increase by 23 percentage points until September 30, 2019. After that, the enhanced reimbursement rate (88 percent) for that program drops back to its previous level of 65 percent. The Baker Administration has estimated that the impact of this reimbursement rate change will be $54.0 million in FY 2020. 

The budget also includes an increase to fees paid to the various county-level Registries of Deeds for recording property transfers, raising the fee from $20 to $50. The fee for municipal lien certificates also will increase, from $10 to $25. Revenue generated from these sources goes to the Massachusetts Community Preservation Trust Fund, an off-budget state fund that helps support local efforts to preserve open land and historical buildings, as well as create affordable housing. Because these additional dollars will flow to an off-budget fund, this additional revenue will not affect the FY 2020 budget directly.

Stabilization Fund

Lawmakers anticipate that the cumulative effect of the various tax and non-tax elements contained in the FY 2020 GAA – including the upward revision of the tax revenue benchmark - will result in a net deposit for FY 2020 of $469.1 million into the state’s Stabilization Fund (often referred to as the “Rainy Day Fund”). If realized, this amount would help boost the fund’s total to about $3.3 billion by the end of FY 2020. A total of $3.3 billion would represent a substantial increase over the $1.3 billion held in the fund at the close of FY 2017.

The Department of Revenue reports that a net total of $764 million was deposited into the Stabilization Fund in FY 2019. This recent growth is in large part due to strong capital gains collections over the last few years. With the stock market and other capital assets performing very well in both FY 2018 and FY 2019, investors have enjoyed large profits on their sales. This in turn has translated into a boost in capital gains tax collections for the Commonwealth. Budget writers expect that capital gains collections will continue to perform well in FY 2020.

Collections from capital gains that exceed an annually set threshold (of about $1.2 billion, currently), by law must be deposited into the state’s Stabilization Fund rather than be used for ongoing operational expenses. In practice, on occasion the Legislature has opted instead to suspend a portion of the required deposit and to expend some of these additional dollars on current expenses rather than banking them for future use. Diversions of funds away from the Rainy Day Fund, however, have been less common in recent years. If lawmakers succeed in making the scheduled deposit in FY 2020, they will have taken an important step toward preparing the Commonwealth for the next recession. At the same time, a fund total of $3.3 billion still would be equal to a smaller share of the state’s operating budget than is recommended by many fiscal experts.

For additional questions, email info@massbudget.org with “Budget question” in the subject line.

 

TOTAL BUDGET BY CATEGORY AND SUBCATEGORY

BUDGET BY CATEGORY AND SUBCATEGORY
($ millions)
FY 2001 Final Adjusted for Inflation to FY 2020 FY 2019 Current FY 2020 FInal
EDUCATION
7,874.5 8,385.0 8,890.9
Early Education & Care
778.0 649.6 686.7
Higher Education
1,438.6 1,225.4 1,286.9
K-12: Chapter 70 Aid
4,446.0 4,922.6 5,186.5
K-12: Non-Chapter 70 Aid
728.7 705.3 776.7
K-12: School Building
483.2 882.1 954.2
ENVIRONMENT & RECREATION
322.4 222.0 247.5
Environment
143.6 95.6 103.5
Fish & Game
26.0 31.2 33.1
Parks & Recreation
152.7 95.2 110.9
HEALTH
10,759.4 20,749.3 20,961.3
MassHealth (Medicaid) & Health Reform
8,114.2 17,604.2 17,706.8
Mental Health
885.6 876.3 902.0
Public Health
808.7 675.6 714.6
State Employee Health Insurance
950.9 1,593.2 1,638.0
HUMAN SERVICES
3,974.6 4,614.9 4,844.5
Child Welfare
825.6 1,009.7 1,058.4
Disability Services
1,441.9 2,018.9 2,187.4
Elder Services
279.4 529.2 544.4
Juvenile Justice
177.1 179.3 179.2
Transitional Assistance
1,113.8 668.6 680.4
Other Human Services
136.9 209.2 194.6
INFRASTRUCTURE, HOUSING & ECONOMIC DEVELOPMENT
2,170.7 2,439.5 2,512.4
Commercial Regulatory Entities
64.2 72.4 83.5
Economic Development
314.4 187.9 223.3
Housing
371.0 521.3 518.0
Transportation
1,421.1 1,657.8 1,687.6
LAW & PUBLIC SAFETY
2,776.2 3,027.0 3,119.0
Courts & Legal Assistance
841.0 812.2 846.5
Law Enforcement
405.9 411.8 465.5
Prisons, Probation & Parole
1,308.8 1,552.0 1,541.2
Prosecutors
171.7 189.8 195.5
Other Law & Public Safety
48.9 61.3 70.4
LOCAL AID
1,898.6 1,143.0 1,183.8
General Local Aid
1,869.5 1,098.9 1,128.6
Other Local Aid
29.1 44.0 55.2
OTHER
5,008.8 6,125.0 6,403.2
Constitutional Officers
116.9 90.1 86.9
Debt Service
2,366.2 2,678.8 2,772.0
Executive & Legislative
90.1 77.2 81.5
Libraries
51.4 27.2 30.5
Pensions
1,546.3 2,612.9 2,864.3
Other Administrative
837.8 638.7 568.0
TOTAL BUDGET
34,785.1 46,705.8 48,162.5