House budget chief uncertain about economic development bill

Won't tinker with tax cap giveback now but possibly in future

STATE HOUSE NEWS SERVICE

THE HOUSE BUDGET chief wants to “get something done in the shortest period of time possible” to revive an economic development bill, but he will not commit to keeping already-approved tax relief measures in the final legislation as the state prepares to return billions of dollars to taxpayers via another route.

While effectively stamping his support on the Baker administration’s plans to ship out $2.94 billion of checks and direct deposits to taxpayers this fall, House Ways and Means Committee Chair Aaron Michlewitz on Tuesday said legislative negotiators still need more time to reach agreement on a bill they shelved this summer.

It’s been nearly two months since Gov. Charlie Baker announced he expected more than $2.9 billion to be due back to taxpayers under a law known as Chapter 62F, a revelation that paralyzed lawmakers at the time and has still left them in an indecisive state.

Baker projects the Legislature will have more surplus money to spend than they expected during debate of the economic development and tax relief bills, even after accounting for the money that needs to be returned under a law known as Chapter 62F, yet Michlewitz indicated he is not yet sure of “what we can and can’t afford.”

Michlewitz also said that he and Senate Ways and Means Committee Chair Michael Rodrigues “weren’t close enough” to consensus to spring into rapid action as soon as the dust settled on the mandatory tax relief.

“Certainly, the 62F discussion changes things a little bit in terms of what we can and can’t afford, so we are re-analyzing all of that right now with that spending discussion,” he said. “There’s a lot of important things in both of those bills that we know are priorities for members. We want to make sure we get something done in the shortest period of time possible.”

The House and Senate earlier this summer approved targeted one-time rebates for middle-income earners in their economic development bills, calling for $250 checks for single taxpayers who earned between $38,000 and $100,000 and $500 checks for married joint filers who earned between $38,000 and $150,000. They also passed permanent tax breaks for renters, seniors, parents, and caretakers, which legislative leaders said would provide relief toward populations in need, as well as changes to the estate tax.

“It’s an option, but it’s a little too early in the process to be more specific about that,” Michlewitz said of those tax breaks and rebates.

Michlewitz was also noncommittal about a timeline, suggesting that the group still needs more time to grapple with financial questions nearly two months after the Baker administration publicly estimated the 62F price tag would be $2.965 billion — a figure nearly identical to the final amount certified by Auditor Suzanne Bump.

After state tax collections smashed expectations and blew past the limit allowed under a 1986 voter-approved law, the Baker administration announced last week it will return money to taxpayers this fall in proportion to the amount they paid in income taxes last year, meaning those with the highest incomes could expect tens of thousands of dollars back from state government.

Some of Michlewitz’s Democrat colleagues have called for prompt action to reshape the law and steer more of the money to lower-income earners for whom it might make a bigger difference. The Boston Democrat said he would rather allow the process to unfold as expected in the next few months, and then rethink Chapter 62F for any future instances in which the tax cap is triggered.

“I certainly think it’s a legitimate gripe of the way the law has been written in the past,” Michlewitz said about criticism of the formula. “This law has not been tinkered with in 35 years. We’re not in the process of changing it midstream while this discussion is happening, but I think it is something to maybe look toward to the future of trying to make it a little more equitable and not as regressive as it is currently. We have to see how the process plays itself fully out before we do any of that, but right now, that’s certainly something we’re going to look towards maybe in the next session or beyond.”

State tax revenues exceeded the cap only once before. In 1987, a year after voters approved the limit via a ballot question, taxpayers were allowed to claim a share of the $29.22 million overage in the form of a credit when they filed their income taxes.

A day after Auditor Suzanne Bump filed a report certifying the need to return $2.94 billion, Baker’s team last week said it would deploy checks and direct deposits this fall rather than offer tax credits for next year’s filing cycle.

Michlewitz said that move is “within the letter of the law,” even as he described an ongoing “discussion on whether it was supposed to be tax credits or checks.”

“I think the administration has felt they have the authority to be able do that,” he said. “We’re reviewing that, but I think at the end of the day, we’re going to move forward with it as is. It is the letter of the law that this money should go back to the taxpayers, so we’re going to follow suit with that.”

Baker said his closeout budget bill that partitions $2.94 billion to cover 62F returns also leaves lawmakers about $1.5 billion in fiscal 2022 surplus tax revenue to allocate, a bit more than the $1.43 billion cap on surplus spending in the House’s final economic development bill.

Both versions of the economic development bill called for a combination of bond authorizations, which lawmakers cannot approve in informal sessions, as well as direct spending split between the state’s tax surplus and American Rescue Plan Act funds. If lawmakers back the bond funding out of their bills, there’s less money available to finance tax breaks and spending that totaled more than $4 billion.

Legislative rules call for the branches to meet only in informal sessions, where lawmakers cannot take the roll call votes necessary for bond authorizations and a single objection can derail a bill, until the term ends in January. That dynamic would almost certainly prevent any 62F changes before the refunds flow this fall.

Michlewitz suggested it remains an open question if top Democrats will try to call lawmakers back into a rare lame-duck formal session to consider the economic development bill, calling it “too early to tell.”

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“We can’t really discuss whether or not we’re going to come back to a full formal session until we have an agreement and what that agreement will look like and what that agreement would be,” he said. “It’s really kind of a little premature to specifically say that at the moment, but we’re committed to trying to get this economic development bill done, and so however we have to do that, we will do it. But right now, I think it’s still too early to tell on that.”

[Sam Drysdale contributed reporting.]