Baker’s budget balance

IF THERE IS a punching bag in state government, it is the Governor’s Council.

Derided as an anachronistic holdover from colonial days, the eight-member body’s main job is to confirm judicial appointments, a role some have suggested the state Senate could play. The elected council, which meets just one day per week, has been called a wasteful relic and targeted for elimination many times over the years. Today, it was Gov. Charlie Baker calling out its members. But he came not to bury them, but to praise them.

Well, praise might be going a little too far. Butter them up might be more apt. The governor let stand a $10,000 raise for Governor’s Council members that was included by the Legislature in the 2016 budget plan he signed on Friday afternoon.

Going along with the pay raise was far more symbolic than a substantive spending issue in a $38.1 billion budget. What it represents is a clear sign that Baker is determined to do business on Beacon Hill, and he knows that means sometimes giving things in order to get things.

With the 2016 budget, the administration trumpeted that it had solved a $1.8 billion structural deficit without new taxes, while allowing for an overall 3 percent increase in spending that will provide new funding in education, transportation, and local aid.  The budget also sets out to tackle the problem-plagued MBTA by creating a new fiscal and management control board and by suspending for three years the law regulating privatization of services at the T.

Though he was asked immediately at a budget press briefing about the Governor’s Council pay, Baker wasn’t interested in dwelling on the 40 percent raise, which will boost the salary of governor’s councilors from $26,025 to $36,025 per year. He was focused on the 50 percent raise in the earned income tax credit included in the budget, which will help some 400,000 low-income individuals and households.

The EITC boost, which could mean as much $1,400 returned to households with less than $50,000 in annual income, was a cornerstone of Baker’s budget proposal. The Senate immediately backed the idea and the House came around to support it as well.  But how to pay for the tax break proved to be tricky.

Baker originally proposed paying for it by scrapping the state’s film tax credit. The Senate has seemed more open to jettisoning the tax credit, which has generated only a few hundred jobs per year for state residents and cost the state $119,000 per Massachusetts-based position, according a 2012 Department of Revenue analysis.  But the House, whose leaders have taken a shine to the film credit, balked.

The three parties eventually agreed on a different plan to fund the EITC increase: They would pay for it by eliminating an obscure business tax deduction known as FAS-109, which was first put in place several years ago but has been suspended each year, so companies have never actually been able to claim it. The state’s leading business organizations raised strenuous objections to the plan, making for an uncomfortable conflict with a Republican governor who came to office vowing to make the state friendlier for private enterprise.

It was all the more awkward for Baker because he insisted that killing the business deduction would not amount to a tax increase, even though a Supreme Judicial Court advisory ruling issued last month said it was indeed a tax.

Today came yet another wrinkle, as the governor’s office announced that House Speaker Robert DeLeo and Senate President Stan Rosenberg had agreed to maintain the earned income tax credit increase while also preserving the business tax deduction. The agreement calls for implementation of the business deduction to be delayed for five years, and for the time in which companies will claim the deduction to be extended from the originally scheduled seven years to 30 years. That move will spread out the cost to the state budget of the deduction, pegged at $535 million, to roughly $17 million a year.

The administration announced no plan for funding the postponed deduction. It seems to be relying on a time-honored budget ploy: amortizing a cost to a small annual amount, which won’t even start to come due for a number of years.

Baker said businesses convinced him that sticking with the plan to eliminate the deduction would have been a “bad faith break” with the deal reached at the time the deduction was first approved, and that it would have suggested that businesses “can’t trust the Commonwealth to live up to its commitments.”

Baker seemed very deliberate in singling out both Rosenberg and DeLeo for praise. He tipped his cap to Rosenberg on the earned income tax credit, which the Senate was on board with early. And he offered particular thanks to DeLeo for his support of MBTA reforms.

In defending the pay raise for the Governor’s Council, Baker said its members haven’t had a significant increase since 2000, and added they were likely to be particularly busy in the coming months with a large number of judicial vacancies to be filled. Left unsaid was that he is the one who will be making the appointments that require their approval. Nixing the pay raise might not have been the best way to engender good will and smooth sailing for his judicial picks. Baker simply said of the raise, “It was something that was important to the Legislature.”

It is still mostly an era of good feeling on Beacon Hill, and that seemed to be good enough reason for him.

Before Baker went off for the weekend feeling too giddy, Rosenberg made it clear he wasn’t happy with all of his budget moves.  The Senate president’s office released a statement voicing “serious concerns about many of the Governor’s vetoes, particularly related to education, where he has cut programs ranging from early childhood to colleges and universities.” Citing the importance of education to closing the income gap, the statement went on to call the cuts “short-sighted at best” and said the Senate would “take a hard look at these and other cuts as we consider these vetoes.”

Among the larger education cuts Baker made were $17.5 million to funding for kindergarten expansion grants, $5.2 million for the University of Massachusetts, and a $1.2 million cut that zeroed out a program for English language learners in Gateway Cities. Baker’s budget office said the kindergarten expansion grant cut was made because this money was intended to help communities launch new programs, not to fund ongoing kindergarten operations, which districts are expected to pay for through regular education accounts.

Those may be among the items the Legislature takes up as it considers overrides to the $162 million in spending that the governor vetoed. The Legislature can restore any of the cuts with a two-thirds vote of both branches.

On the whole, however, today’s budget news seemed to highlight Baker’s nimble hand at bringing the business-friendly fiscal discipline he promised, while also viewing state government as more than just a runaway spending machine to be reined in. Nothing underscored that more than his ability to offer a boost to low-income families, while also mending the rift that had opened with the business community.

For a Republican trying to navigate his way in a state government dominated by Democrats, it was not a bad start to Beacon Hill budgeting.