LAWMAKERS URGE CAUTION AS STATE TAX COLLECTIONS SURGE

By Colin A. Young; February 6, 2018; State House News Service

STATE HOUSE, BOSTON, FEB. 6, 2018….Stung in each of the last two fiscal years by overestimated tax collections that forced major eleventh-hour spending adjustments, state budget writers sounded a cautious tone Tuesday as they kicked off a series of hearings on the governor’s budget proposal.

The issues that plagued the last two state budgets have not cropped up yet this fiscal year and tax collections are outperforming expectations more than halfway through fiscal 2018. But as the fiscal 2019 state budget begins to take form, lawmakers said they are encouraged by positive revenue reports but are not expecting it to be a smooth budget year.

“For the coming fiscal year, modest tax growth, rising fixed costs and an anticipated reduction in the income tax and the uncertainty at the federal level all make balancing a fiscally responsible budget that addresses the needs of the commonwealth … a difficult task,” House Ways and Means Chairman Jeffrey Sanchez said at the first budget hearing Tuesday.

His Senate counterpart, Senate Ways and Means Chairwoman Karen Spilka, said she is “heartened” by recent revenue reports that show the state has a cushion of $810 million above projections after seven months of fiscal 2018.

“After several years of concerning revenue, this clearly is positive and it’s positive signs of growth,” Spilka said. “However, we are all aware of the continued fiscal challenges and of the uncertainties. We recognize the realities of economic and financial uncertainty, especially in light of all of the potential changes on the federal level and how they may or may not impact the state.”

Sanchez also cheered the latest revenue figures, but warned that it is important that the Ways and Means Committee “make(s) sure that we’re cautious about assuming that the entire December revenue bump is a real increase.”

“Some of it will likely prove to be taxes paid early and borrowed from future months, so we need to continue examining revenue trends to understand the full impact,” Sanchez said of the December revenue report which catapulted revenues to $728 million above benchmark.

With that context in mind, Administration and Finance Secretary Michael Heffernan laid out the governor’s $40.9 billion budget proposal — “a thoughtful and careful roadmap” of fiscal 2019 — which raises state spending by 2.6 percent and is built around the assumption that state tax collections will grow at a 3.5 percent clip next fiscal year.

“In a strengthening economy, there are opportunities to make new investments in areas such as education, workforce development and economic development to help more of our residents share in this prosperity,” Heffernan said.

Heffernan, who served as revenue commissioner before being promoted to A&F secretary last year, said the governor’s budget relies on $95 million in one-time revenues and increases the Stabilization Fund by $96 million to bring it to a balance of $1.463 billion.

The rainy day fund had a $1.652 billion balance in 2011, after the last recession, but was drawn down in recent years despite a growing economy. The Baker administration has said that if the Legislature goes along with the governor’s latest proposal, the Stabilization Fund will have grown by more than 30 percent since Baker took office in 2015.

Among the “highlights” of the Baker budget proposal that Heffernan singled out for lawmakers Tuesday were more than $100 million in scholarship funding, $45.9 million in annualized rate increases for early educator salaries, $10.3 million to support summer jobs for about 3,600 at-risk youths, an increase of $5.2 million for the Massachusetts Rental Voucher Program, and almost $150 million for the Department of Public Health to combat the opioid crisis.

Spilka was most interested in how the administration’s budget addresses MassHealth, the behemoth of a program that is consuming more revenues that could be invested elsewhere.

To control costs at MassHealth, Baker’s budget recommends the transition of 140,000 non-disabled adults between 100 percent and 138 percent of the federal poverty line off MassHealth and onto comparable plans at the Massachusetts Health Connector, a shift Heffernan said is expected to save $60 million.

Lawmakers rejected a similar proposal last year, but Baker said the new version aims to address concerns raised at that time.

In his questioning, Sanchez continued to prod Heffernan about uncertainty around the budget and the state’s financial picture, asking how the administration keeps current with developments in Washington, D.C., and whether he is aware of any changes that the Ways and Means committees should be aware of. Heffernan said there are not.

There are more than 50 lawmakers on the Democrat-controlled Ways and Means committees, but only two other lawmakers — Reps. Shawn Dooley and Thomas Walsh — had questions Tuesday for the administration’s lead budget manager.

Dooley inquired about the cost of the governor’s proposal to increase the Earned Income Tax Credit from 23 percent to 30 percent of the federal level and Heffernan pegged the cost at $65 million annually beginning in fiscal 2020.

Walsh asked about the administration’s proposal to extend the room occupancy tax to short-term rentals made through platforms like Airbnb and how the administration settled on 150 days as the minimum number of days a year an operator would have to rent a room before being required to collect and remit the tax.

The administration is “not trying to impose a tax on folks who should not be taxed who are occasional renters,” Heffernan said. The real target of the proposal, he said, are people who have “created a business in the digital economy.”

The Joint Ways and Means Committee budget hearings continue next Tuesday in Worcester. Lawmakers will hold a total of eight hearings on the governor’s budget proposal around the state through mid-March before the House rewrites the budget and debates its version of the spending plan in April. The Senate is expected to follow suit and debate its own budget bill in May.

 

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