Mass. $56.2B state budget taps one-time state funds to fuel spending boost

The Legislature in its new annual budget agreement used about $1 billion from the state's new income surtax to push state spending up by more than $3.5 billion, but also tapped more than $600 million from other state funds and sources to fuel the spending surge.

The record $56.2 billion fiscal 2024 budget that the House and Senate sent to the governor's desk Monday will drive education, transportation and health care investments, and House and Senate Democrats used an array of tactics to come up with the pool of money needed to make fiscal ends meet.

The budget (H 4040) cleared the Senate unanimously and the House 156-2, winning support from all but two House Republicans.

Gov. Maura Healey will have 10 days to review the month-late annual spending bill, and on Monday signed a second, $6 billion interim budget to keep state government running while she considers budget amendments and vetoes.

The proposed spending represents a 6.6%, or $3.5 billion increase from the $52.7 billion annual budget former Gov. Charlie Baker signed on July 28, 2022. Spending has increased 18% in two years, from a $47.6 billion state budget in fiscal 2022. If signed in full, Healey's first state budget will represent a 47.5%, or $18.1 billion, increase from the first budget Baker signed in fiscal year 2016, a $38.1 billion spending plan.

When lawmakers started negotiations in June, the Massachusetts Taxpayers Foundation (MTF) said the maximum proposed spending from both House and Senate budgets would exceed available revenues by about $500 million, forecasting a need to rein in some outlays.

The final budget closes that gap using $205 million from a transitional escrow fund and roughly $200 million from projected reversions of unspent state appropriations, and by selecting the lower proposed spending in multiple line items.

With revenue growth slowing down, budget negotiators also opted to pull $192 million from a behavioral health trust fund created in December 2021, and drew $225 million from an early education trust fund that lawmakers put about $490 million into last year, according to the MTF.

MTF President Doug Howgate said his group always tracks the use of one-time revenues, but noted that the budget also forecasts a deposit of more than $700 million into the state's rainy day fund.

"The behavioral health trust fund and early education trust fund, that was money set aside to support future investments in those areas," Howgate said. "The thing we're paying attention to is the new use of escrow funds and remaining [American Rescue Plan Act] funds ... We want to make sure those resources continue to be available to help buttress economic downturns."

The bill includes major wins for education and immigration advocates, including funding for universal free school meals, clearance for students without legal immigration status to qualify for lower public higher education tuition rates and state financial aid if they attended a Massachusetts high school or got a GED in the state, and a commitment to allow everyone over 25 to attend community college for free.

House Democrats failed to persuade senators to authorize online Lottery sales, which representatives included in their version of the budget bill, which they say would have generated $200 million for early education and care grants.

Another glaring omission was never actually in the budget, but was a piece of companion legislation -- tax relief that was promised over 18 months ago. Healey originally sold the budget and her tax cut plan as a package deal, though she filed them as two separate bills. Both chambers followed suit, since the tax relief may eventually have as much as a $1 billion impact on the budget.

But the bill lawmakers passed on Monday only has a $580 million placeholder, as it moves forward without its "companion." Tax cut talks are continuing.

Lawmakers had a new $1 billion pot of money at their disposal for spending, available for the first time this year after voters in November passed a new 4% surtax on household income above $1 million per year.

Of that, the compromise bill sends $523 million toward education initiatives and $477 million for transportation.

This includes $50 million for grants to help repair public school facilities and provide them a clean energy infrastructure, $100 million for capital improvements for public schools, $50 million for higher education capital projects, $25 million for scholarships, $40 million in mixed early education initiatives, $84 million in expanded financial aid and a portion of the $172 million needed to provide free school meals to public school students.

The spending makes Massachusetts the seventh state in the country to make the free lunch program permanent, after it gained popularity during the pandemic when the federal government covered the cost of students' meals.

Almost half of the surtax transportation spending will go toward the MBTA, including $70 million for station repairs, $50 million for bridges maintenance, $30 million for track and power repairs and $20 million for safety and workforce needs. Local road and bridge funding will get a $100 million boost, $90 million for the regional transportation authorities, $50 million for highway bridge repairs and $5 million for water transportation.

Lawmakers also included $5 million to study means-tested fares for the MBTA.

In dozens of line items, negotiators boosted outlays beyond the spending levels that either branch authorized.

The line item for the Executive Office of Health and Human Services and MassHealth might be the most significant example. The House had approved $126.87 million, the Senate voted for $134.88 million and the conference committee's budget includes $141.99 million for the account.

The Department of Public Health benefited from the conferees' largesse in a few of its accounts: the negotiators bumped the agency's administrative account to more than $23.99 million, about $850,000 more than either branch voted on; DPH's community health centers account got $1 million more than either branch approved with a total of $7.075 million; substance addiction treatment was increased to $219.49 million, beyond the $209 million the House approved and the $214.27 million the Senate voted on; and the $26.07 million in the conference budget for school-based health programs is more than $3 million more than what senators okayed and more than $7 million more than what the House approved.

The conference committee even boosted accounts in some situations where the House and Senate budgets included the exact same dollar amounts. Both branches approved a $25 million transfer to the Mass. Clean Energy Center, but the conference committee budget calls for a $30 million transfer. Similarly, both branches included $2,888,473 for a toxics use retained revenue account but the conferees bumped the amount up to about $4.03 million.

The joint rules that govern conference committee behavior state that "matters on which there exists no disagreement between the branches shall not be disturbed by the committee on conference."

"This has been a drawn out and complicated conference report to negotiate to say the least, whether it was implementing the first year of the billion dollar fair share revenue or being confronted with a number of the federal COVID-era programs that Washington is no longer paying for or if it was a leveling off of state revenues. This has been a challenging budget to get over the finish line," Rep. Aaron Michlewitz, who leads the House Ways and Means Committee and chaired the conference committee who negotiated the compromise bill, said on the House floor Monday.

Michlewitz also said that using one-time state funds to pay for an ongoing existing program, the popular Commonwealth Cares for Children grants to pay for early education and care, is "not always fiscally prudent" but was "the most viable option" this fiscal year.

The House had hoped to authorize online Lottery sales to contribute $200 million to the $475 million program. The iLottery authorization was unpopular in the Senate and didn't make it into the final budget. The bill will fund the C3 grants through a combination of general fund and surplus state revenue, Michlewitz said.

"As we continue to work towards making early child care more affordable and accessible to all, it is our continued belief that this program needs a dedicated revenue source to remain viable," he said.