Offers some a workaround to a 2017 federal tax law change
THE SENATE WAYS and Means Committee on Tuesday released a $47.6 billion budget proposal for fiscal 2022, a $1.2 billion increase over the current year’s budget that reflects the anticipated need for additional social services as Massachusetts emerges from the pandemic.
“If the COVID-19 pandemic and its economic aftershocks have frayed the fabric of our Commonwealth, this budget takes on the important but sometimes invisible work of stitching that fabric back together,” Senate President Karen Spilka said at a virtual briefing with reporters.
The Senate budget includes a small number of significant tax changes related to the film tax credit, a childcare tax credit, and a workaround to help some business owners circumvent a 2017 federal tax change. It does not include any new broad-based revenue or tax proposals.
The budget’s bottom line is nearly identical to the budget released by the House Ways and Means Committee, although it takes the money from slightly different places and does not reflect approximately $64 million in addition spending that was added on the House floor. The proposal now goes to the full Senate for consideration the week of May 24. Lawmakers generally try to have a final budget on the governor’s desk before the July 1 start of the next fiscal year.
Senate Ways and Means Chair Michael Rodrigues said the budget is about charting a path forward to a post-pandemic future with “targeted investments in areas like education, mental health, public health and much more while working to combat poverty, expand opportunity, and ensure residents can benefit equitably as we recover from the impact of the pandemic.”
With predictions of 3.5 percent tax growth next year, in addition to tax revenues coming in at a stronger rate than expected and an influx of pandemic-related federal money, House and Senate budget writers had a fair amount of money to work with in crafting next year’s budget. Both bodies declined to include any money from the newly passed American Rescue Plan, instead planning to craft supplemental budgets to spend the anticipated billions of new federal dollars. But the state must also deal with continuing needs for social services, whether housing assistance or mental health supports, as residents deal with the after-effects of the COVID-19 pandemic.
Both the House and the Senate anticipate taking money from the state’s rainy day fund to balance the budget. The Senate would cap that withdrawal at $1.55 billion, which is $375 million less than the House is willing to withdraw.
The Senate budget assumes the state will get more money from the federal government through pandemic-related Medicaid and FEMA reimbursements. It also uses more optimistic estimates of Lottery revenues.
The Senate budget would also rely on $90 million from a tax change that Rodrigues called a “SALT pass-through entity excise” — a complicated mechanism that would let owners of certain businesses get around a 2017 federal tax change that capped the amount they could deduct from their federal taxes for paying state and local taxes.
In “pass-through” businesses, income flows through the company to the owner or shareholder, who pays individual taxes on the profits. Under the Senate proposal, the business would pay the state tax, rather than the individual, so it would be fully tax deductible on federal taxes. That is estimated to save around 55,000 taxpayers $1.1 billion, according to the Department of Revenue.
Under a similar plan proposed by Gov. Charlie Baker, the taxpayer would get an offsetting state tax credit, to reflect that the business already paid their state taxes, and it would be revenue neutral for the state. The Senate plan would give the business owner a tax credit that is 5 percent lower, so the state would make an estimated $90 million.
Other states, like Connecticut, have instituted similar programs. In the Senate’s version of the plan, individual business owners could choose whether to opt in.
There are two other substantive tax changes proposed in the budget. One would be to extend the length of the film tax credit, which is now set to sunset in 2022, until 2027, and also tweak several aspects of the tax break which costs the state $50 to $80 million a year. (For more on the film tax credit, click here.)
The other would be to take an existing child tax credit and make it refundable. Today, someone can only claim the tax credit if they earn enough income from which they can deduct the credit. Making it refundable means even if someone does not earn enough income to owe taxes, the person will get a tax refund. Senate budget writers estimate that 85,000 families will get on average $190. The state will lose an estimated $16.3 million in revenue.
As is typical, the Senate identified some areas of investment that are different from the House.
One long-time priority of Spilka’s has been improving mental health care. The budget proposal contains $10 million for a new program to provide mental health treatment to children and teenagers within the community; $5 million for a new grant program to address students’ post-pandemic emotional and social needs; $1 million for a pilot program to provide mental health screenings in schools; $5 million for student loan forgiveness for mental health professionals; and a $5.6 million boost to Family Resource Centers, which provide services to struggling families. The budget would create a new commission to study COVID-19’s impact on children’s behavioral health.
The Office of the Child Advocate recently made recommendations to improve the Department of Children and Families in light of the tragic death of Fall River teenager David Almond. The Senate budget includes $500,000 to improve quality assurance measures at DCF in response to these recommendations.
Responding to other expected post-pandemic needs, the Senate budget includes large investments in public health, including an increase in treatment money for substance use disorders. It envisions paying parent fees for low-income parents using state-subsidized childcare through the end of the year. The Senate adopts a policy that was also approved by the House of adding another 10 percent to cash welfare grants, on top of a 10 percent increase that went into effect this year. The budget includes major investments in housing assistance programs, including increasing how much money an individual family can get.
The budget would create a special commission on poverty to study “historical rates of poverty, the efficacy of existing poverty programs, the underlying causes of poverty, and the existence of demographic disparities,” according to a budget summary.
A $220 million boost in education funding was agreed to by the House and the Senate to fulfill the first year of a new Student Opportunity Act funding formula. The Senate adopts a House proposal to create a $40 million reserve fund to help districts that were impacted by pandemic-related enrollment drops.
The budget does not include a controversial plan proposed by Baker to penalize drug companies for excessive price increases.
In a public executive session, 14 members of the Senate Ways and Means Committee voted for the budget and none voted against it, but Senate Minority Leader Bruce Tarr did not take a position. In a statement, Tarr said he looks forward to continuing to work with Rodrigues on the bill. “This proposal presents the Senate with a solid foundation on which to build a final budget document, and the members of our caucus look forward to engaging with all of our colleagues to produce a budget that does not increase taxes, responds to important spending priorities and the impacts of the COVID-19 pandemic, and sets the stage for the robust recovery of our economy,” Tarr said.