Dems feel Baker knew of looming tax-break blockbuster
'Eye-opening' April collections caught guv's attention, but apparently not lawmakers'
STATE HOUSE NEWS SERVICE
AS THEIR CAREFULLY crafted plans for tax relief and massive spending outlays began to slip away with last Thursday’s stunning news about a 1986 tax law, frustrated Democrats on Beacon Hill went into spin mode.
First, late Friday afternoon, Rep. Christine Barber of Somerville took to the House floor to suggest that plans by the Baker administration to sweep a $225 million fund may have been part of the administration’s move to trigger the 36-year-old law that the Baker administration a day earlier said could force nearly $3 billion in tax relief later this year, or about 7 percent of the income taxes paid in 2021.
“It’s becoming clear that to cover closing costs for 2022 and to possibly pay for the $2.8 billion that will go to the taxpayers under Chapter 62F, there may have been some other need for these funds,” Barber said. “I hope that those funds were not used at the expense of covering low and moderate income families’ health care, but that looks like what might be happening. But we know that rather than spend these funds that were in the Commonwealth Care Trust Fund, the governor swept those funds out and then replaced this new program that we created with a study.”
The Baker administration declined to speak on the record about the trust fund sweep plan, which was presented June 30 by Administration and Finance Secretary Michael Heffernan as an option in correspondence to House and Senate Ways and Means Committee chairs Rep. Aaron Michlewitz and Sen. Michael Rodrigues. But a senior administration official said there was an “established understanding” between the Ways and Means committees in the Legislature and the Executive Office for Administration and Finance since the start of fiscal 2022, which was back in July 2021, that the Commonwealth Care Trust Fund sweep may be necessary “due to an issue in the way the Legislature structured the final budget, which mismatched spending and revenue from that fund.”
“It is not uncommon for the Administration to send authorizations for trust fund sweeps at the close of a fiscal year, as having these authorizations can provide flexibility through the year-end reconciliation process, if needed,” the official said on Saturday. “For example, the Administration has filed before to sweep the CCTF, but then not done so after confirming it was not needed to close the books. The FY22 financial close-out process is ongoing, and the need for the CCTF could be impacted by the spending decisions that the Legislature makes over the next day in terms of pending legislation.”
APRIL REGULATORY EFFORT
Then Sunday rolled around, the last day of formal sessions for 2022, and the branches gaveled in sessions that would end late Monday morning.
During the overnight, the News Service reported that in May, long before the 62F tax relief became public, the Department of Revenue, an agency controlled by the Baker administration, initiated proceedings to repeal the regulation governing how a taxpayer obtains a credit toward personal income tax liability when the state auditor has determined under Chapter 62F that excess tax revenues for the previous fiscal year exist.
“This regulation is being repealed because it is obsolete; no credit has been required since 1987,” the agency said at the time. “If a credit becomes available, DOR will issue guidance and update forms specific to the year the credit is allowed.”
The Department of Revenue on April 14 circulated an email notice regarding the repeal regulation with a link to the May 12 public hearing notice.
“As part of routine review and cleanup of outdated regulations, DOR identified this regulation as it had not been used since 1987,” the official said. “DOR initiated the recission process by putting it out for public comment (no public comments were received), but has not completed the process of rescinding the regulation … If 62F were triggered, DOR would then issue relevant guidance or regulations for this year’s implementation.”
House officials, in the throes of internal debate about sidelining their tax relief and spending proposals in the economic development bill, made Rep. Alice Peisch available to discuss the 62F regulation issue.
“I don’t know that I draw any conclusions,” Peisch, the Education Committee co-chair, told the News Service during an interview in her office Sunday night. “I think the information that we got this week from the governor was obviously very concerning. And it would have been very helpful to have known that this was a possibility several weeks, if not months ago. I appreciate that no one knows what the numbers are ahead of time. But I don’t know whether that activity in May suggests that they were looking at the numbers and thinking that maybe we were going to hit it. DOR has the numbers, we don’t.”
On Tuesday, the Boston Globe reported that House Speaker Ronald Mariano believed the May regulatory proceeding indicated the administration saw something coming.
“They were obviously aware in May that this potentially was going to happen. We had leadership meetings [with Baker]. It was never brought to our attention,” Mariano said, according to the Globe. “We went through May, all through June, and into July without ever getting a heads-up that this might be a problem.”
The once-regular private meetings between Democratic legislative leaders and Baker have trailed off considerably in recent months, although it’s unclear how frequently the governor and top lawmakers communicate outside of those meetings.
The Department of Revenue publicly reports tax collection numbers at the mid-point of each month and just after the end of each month. However, the agency has still not reported collections for the full month of June, the last month of fiscal 2022 and historically a big month for tax collections.
A Baker administration official said Wednesday that June revenue numbers would be released “soon” and said a change in sales tax collection policies since fiscal 2021 means that some June sales tax receipts data is not available until late July.
“The 62F statute has been law for over thirty years, so of course the Administration was aware of its existence,” said Baker communications director Sarah Finlaw. “The 62F rebate is triggered by tax revenue which is publicly available and sent to the Legislature on a monthly basis. As revenue figures change month to month, the final amounts cannot be confirmed until the end of the fiscal year.”
‘EYE-OPENING’ APRIL SURGE
It’s unclear why no one in the Legislature or on its House and Senate Ways and Means, or Joint Committee on Revenue staffs publicly identified Chapter 62F implications during the final months of fiscal 2022 when revenues were bounding higher and higher, and apparently triggering the 1986 law’s tax relief.
Mariano told the Globe: “You expect our Ways and Means staff to keep abreast of every change or every potential change they’re going to make?”
Last Thursday, when asked about an estimate of 62F rebates and when the administration became aware the state would be hitting the cap, Gov. Baker said, “It’s obviously something we’ve been tracking for a while.”
“We get a report every year from the state auditor in September that basically lays out whether or not in fact we did hit it. I think the $2 billion surge in April was certainly kind of eye-opening — in tax collections. But it’s one of those things, it’s just part of the year-end wrap-up with respect to how we go about figuring out what we can put into a final deficiency, that kind of stuff. So it’s fairly recent. But we think the number’s probably north of $2.5 billion that would be in tax rebates to the people of Massachusetts.”
April tax collections added up to $6.941 billion, $3.076 billion or nearly 80 percent more than what was collected in April 2021 and $2.057 billion or just over 42 percent more than DOR’s own monthly benchmark, the News Service reported in April.
On Friday, Mariano described the tax relief trigger as a “one-time event” that “popped up.”
“We knew it existed, but we didn’t know how close we were,” Mariano said.
On Wednesday, after a public event in Medford, Baker said last year’s annual report from the state auditor on the 62F law, which he noted is a public report and is sent to the administration and the Legislature, “made very clear that tax revenue last year got the commonwealth very close to triggering this tax cap.”
“You don’t know where you are on this process until you actually get to the end of the year,” Baker said. “Once we got to the end of the year, and we figured out all the puts and takes associated with the bills that hadn’t been paid yet, the bills we expected would be paid, the revenue that hadn’t been collected, that we expected would be collected, and once we settled the dust on all that stuff and came to an agreement of what we thought tax revenue came in at, what expenditures looked like, people did the math to try to figure out, because last year in the auditor’s report was close, if we could predict where we thought this thing would land. And we came up with a range and when we came up with the range on that we talked to the Legislature about it and went from there.”
A Baker spokesman said the talk with lawmakers about the possibility of hitting the 62F revenue cap occurred in July.
Senate Ways and Means Chairman Rodrigues was asked about DOR’s regulatory repeal effort during a 5:20 a.m. media avail on Monday.
“It’s interesting. I just heard of that this afternoon. So again, I’ve been what I say ‘in the now’ for the last, you know, 72 hours, so focused on what’s right before me,” Rodrigues said. “So we’ll have time to delve into all that. And I’m sure we’ll have many more conversations about that.”
Just after Rodrigues spoke, at his own sunrise scrum on Monday, Mariano said “getting a $3 billion bill dropped on you the week before you are about to finalize the year-end finances doesn’t lead to good decision-making.”
Mariano called 62F “the law of the land and it’s going to happen” but also said he hasn’t given up hope of moving some form of the economic development bill out of conference committee and forward during informal sessions, when bills can only advance if there is unanimous support and no one objects.
“There’s a lot of time and there’s a lot of things in there that are really important so there’ll be discussions as we still continue to meet through the rest of the year and things can move,” he said. “It’s possible that we can pick away at this as we get more information on the financial state of the economy.”
Aid to hospitals was one area of spending that Mariano flagged for potential consideration in an economic development bill that could surface during the informal sessions that will run for the rest of the year, although Michlewitz said “I don’t think we can get into the particulars tonight.”Auditor candidate Sen. Diana DiZoglio on Wednesday said quarterly revenue reports should be discussed by the Comptroller Advisory Board, a panel with a seat for the auditor, who each September makes the determination of whether tax relief is warranted under Chapter 62F, which triggers income tax credits only when tax collections exceed an annual limit that is based in part on the three-year average growth in state wages and salaries.
“If they were made part of the regular agenda for all of those meetings, this 62F issue may not have caught folks by surprise the way that it did — putting an entire economic development and tax relief bill in jeopardy,” DiZoglio said.