Lawmakers strip tax breaks out of $3.7b spending agreement
Economic development legislation moving in informal sessions
THE MASSACHUSETTS HOUSE and Senate reached an agreement on an economic development bill on Wednesday, which makes $3.79 billion in investments but strips out tax breaks that lawmakers had previously considered.
In a joint statement, House Speaker Ron Mariano, Senate President Karen Spilka, House Ways and Means Chair Aaron Michlewitz, and Senate Ways and Means Chair Michael Rodrigues said the bill, combined with $3 billion in separate tax rebates that are in the process of being distributed, “constitute an unprecedented combination of economic investment and relief that will create needed breathing room for families and individuals feeling the pinch of inflation.”
The 203-page conference committee report was signed by all six members of the committee, which consisted of four Democrats and two Republicans.
Mariano said he is confident the House and Senate will send the bill to Gov. Charlie Baker on Thursday, despite the lack of time for members and the public to review the final version. “People have vetted this over the past four months, it’s been no secret what was in the bill,” Mariano said. He added that local earmarks sweetened the pot, and offered a surprisingly candid tie-in between that spending and next week’s election. “There’s a lot of important items for members back home fighting to be reelected,” Mariano said. “There’s a self-interest in making sure some of these projects get done.”
Lawmakers have already delayed the state comptroller from closing the books on the 2022 fiscal year, which state law requires him to do by October 31, by failing to pass a closeout budget bill. This bill will use up the 2022 state surplus and also allocate $510 million in federal American Rescue Plan Act money. That still leaves lawmakers with $1.75 billion in ARPA funds to spend next year.
The House and Senate both passed $4.8 billion spending and tax break bills in July, using state surplus and federal recovery money. But discussions were derailed after a last-minute revelation that the state would have to return an estimated $3 billion to taxpayers in direct tax rebates under a little-known tax provision referred to as 62F that was triggered by surplus revenues. Distribution of that money started this week.
The final bill does not include several major tax changes Baker and lawmakers had been discussing. Earlier proposals by Baker, the House, and the Senate would have increased tax breaks for families with children, renters, seniors, and the lowest income households. Baker and lawmakers had also earlier discussed adjusting the estate tax so it kicks in at a higher level, and Baker wanted to lower the short-term capital gains tax.
Legislative leaders said due to economic uncertainty in the coming year, the package is limited to one-time investments, rather than systemic tax changes or ongoing operating expenses. “House and Senate leaders are committed to revisiting the issue of broader, more permanent tax relief next session,” the statement said. “This will help to ensure that our discussion of permanent tax relief can and will be informed by the views of a newly elected Legislature and governor, while considering the looming challenges facing the Commonwealth.”
Baker, a Republican, leaves office in January. Democratic gubernatorial nominee Maura Healey, who is leading in all polls, is generally more supportive of raising new tax revenue than Baker. Also by next session, lawmakers will know the outcome of Question 1 on the ballot, in which voters are being asked whether to raise the tax rate on income over $1 million, which could net the state an additional $1.3 billion or so a year.
Mariano said lawmakers will have a fuller economic picture next year, noting that the Federal Reserve just hiked interest rates again on Wednesday. “We face an uncertain economic future, and we want to be sure what we do is smart and well thought out,” Mariano said.
Rodrigues said the plan is to address permanent tax cuts next session “when the smoke clears and we’re in full formal sessions so we can have full discussion with everyone.”
Baker resisted calls from some progressive lawmakers to tinker with the tax refund law, which was passed by voters in 1986, but Democratic legislative leaders and Healey also balked at the idea of making any changes to it this year.
Baker on Wednesday declined to comment on the economic development bill before seeing it. But he said he believes the tax breaks he proposed are good ones, and the people they intended to help, including seniors, renters, and low-income families, “are exactly the kinds of people we should be providing tax relief to given the state of the economy, the state of the housing market, inflation, and everything else.”
Baker said the state has financial resources to afford tax breaks, with revenues coming in almost $500 million higher than expected in the first third of the year.
After lawmakers were unable to agree on a final version of the bill before the end of formal sessions July 31, pressure had been mounting on them to pass something during informal sessions that the Legislature operates under for the rest of the calendar year. Business groups and other advocates wanted to get the proposed infusions of cash for housing projects, environmental initiatives, human services, hospitals, early education, and a wide range of other projects. In addition, the federal ARPA money must be appropriated by 2024 and spent by 2026, so Baker had been urging lawmakers to get the money out the door so things like construction projects can get underway.
According to the legislative leaders’ statement, the bill “provides relief for rising energy costs, boosts housing production, provides much needed immediate assistance to the MBTA, and allocates meaningful funding for hospitals and human service workers, all while promoting economic growth through support for our small businesses and investments in our communities.”
The bill includes a $112 million transfer to the MBTA, which has been plagued by safety issues. The money is earmarked for addressing safety issues, including those uncovered by a recent Federal Transit Administration inspection. It requires the MBTA to report monthly to the Legislature on the progress it makes addressing those issues.
The bill includes $150 million for grants to stabilize early childhood providers.
There is also $100 million for port infrastructure, and $57 million for low-income heating assistance in a year when heating costs are expected to spike. There is nearly $400 million for housing programs.
The bill includes myriad investments touching on a huge range of issues, from $100,000 for staff for a commission examining the state seal and motto to $20 million to address the needs of immigrants and refugees.
It has $75 million to improve broadband access, $153 million to help small businesses impacted by the COVID-19 pandemic, $20 million for gun violence prevention, and $175 million for public parks and conservation land.
On health care, the bill contains $195 million for nursing homes, rate increases for human service workers, workforce development initiatives, and money to help financially struggling community health centers and hospitals. There are a number of environmental and agricultural initiatives funded. There are also more than $315.5 million in local earmarks.
About half the bill is taken up with policy sections, with topics including encouraging employee-owned businesses, establishing a Massachusetts Cybersecurity Center, and setting rules related to starter home zoning and offshore wind company tax credits.After Roe v. Wade was overturned in June by the Supreme Court, policymakers suggested Massachusetts could become a haven for abortion-seekers. The bill has $17.5 million for organizations that provide reproductive health care, including abortion, that can be used for hiring, security, and education. That money will also fund a $1 million education campaign on crisis pregnancy centers, which are centers that do not offer abortion care but in some cases may have misleading advertising implying that they do.
While legislative leaders expressed confidence that the economic development package would be approved by both chambers, in informal sessions, the opposition of a single lawmaker can prevent a bill from passing. Baker would have line item veto power over the bill if it is passed.