House budget boosts spending, keeps fed funds in reserve
Mariano includes $10m for offshore wind initiative
HAPPY DAYS are here again. That may not be the case for most Massachusetts residents, still in the grip of the COVID pandemic, but it appears to be the case for state budget writers – at least for now.
The House Ways and Means Committee budget proposal released Wednesday would spend $47.649 billion in fiscal 2022 – or $1.8 billion more than what Gov. Charlie Baker proposed, and a 2.6 percent increase over this year’s budget.
The House budget includes no new revenue initiatives and no significant spending cuts – and doesn’t rely on the enormous influx of federal dollars that are expected to flow into Massachusetts from the American Rescue Plan, which President Biden signed in March.
State and local governments are expected to get nearly $8 billion, but House Ways and Means chair Aaron Michlewitz estimated that the overall impact on the state’s economy could be as high as $40 billion, counting federal business loans, direct aid to families, and other pots of money, such as those for transit and schools. The Legislature plans to craft separate spending proposals for this money after the US Treasury releases guidance in May regarding how it can be spent.
Michlewitz said he would rather use the federal money to address one-time needs related to the COVID-19 recovery and its aftermath. “We have a long road to travel until this crisis is behind us, and using federal dollars, we can think about what the new normal will look like,” Michlewitz said.
Michlewitz said lawmakers are taking a “cautiously optimistic approach” to Massachusetts’s fiscal picture, though he warned to “expect the unexpected, and be wary of false starts.” He also warned against having a “false sense of security,” since Massachusetts will have to find a way to restart its economy after the federal aid lapses. He noted that revenue projections remain more than $1 billion off from where they were pre-pandemic.
Yet overall, the budget prediction is far rosier than had been anticipated. Dire predictions at the start of the pandemic that the state could see budget shortfalls as high as $6 billion were proven wrong, buoyed by higher-than-expected tax revenues (partly due to high unemployment insurance benefits) and lots of federal stimulus money. Current year revenues are coming in $1.5 billion higher than what was expected – though Michlewitz warned against “declaring victory” until the end of the year, with individual income taxes due in May.
One reason the House budget can spend more money than Baker’s is because the House counts on withdrawing $1.875 billion from the state’s $3.5 billion rainy day fund – or $275 million more than Baker’s budget. But the rainy day fund authorization is a very fluid number. In the current year’s budget, for example, lawmakers authorized using $1.7 billion from the rainy day fund, but given higher-than-expected revenues coming in, Michlewitz said the state will likely withdraw “considerably less.”
Another reason for the higher revenue expectation is because of federal changes in MassHealth related to the pandemic.
Baker’s budget had assumed that the state of emergency would remain in effect through April 2021, but then the Biden administration extended it through December. During the public health emergency, federal rules prohibit MassHealth from recalculating someone’s eligibility and kicking them off MassHealth if their income increased so they are no longer eligible. At the same time, the federal government is providing enhanced MassHealth reimbursement rates. The higher rate outweighs the increased caseload, leading to around $26.2 million less state spending.
One area where the House Ways and Means budget is more generous than Baker’s is in education funding. As lawmakers previously announced, they are proposing spending $22 million more than the governor in Chapter 70 funding, to phase in a new education funding formula over the next six years rather than seven. They also want to create a $40 million fund to help schools handle enrollment increases that were not accounted for in the formula, and a $15 million fund for summer school and mental health services to account for the pandemic’s impact on students.
The budget includes a $20 million rate increase for child care providers, a $10 million increase over last year in college scholarship funding, and increases over the governor’s budget in food assistance, housing assistance, legal assistance, and substance use programs. It maintains a 10 percent increase made this year in welfare payments, which Baker would have eliminated.
Overall, the committee steered clear of making any major policy proposals. It does not count on getting revenue from sports betting, which Baker’s budget did. Michlewitz said he does not want to rely on that money until lawmakers actually pass a bill legalizing sports betting.
It does not include any new Uber and Lyft fees or major transportation changes. Michlewitz said given pandemic-related changes in commuting patterns, it would be “premature” to have that conversation. He said it is possible that federal money could be used to make transportation investments.Lawmakers also did not include a controversial policy aimed at curbing the growth in drug prices, which Baker proposed. Mariano said he would welcome having a policy discussion through the typical legislative process, but not through a budget amendment.
The proposal will now go to the full House for a vote the week of April 26, after which it will move to the Senate.