Healey files second annual budget amidst uncertain fiscal outlook
Image | Courtesy of Sam Doran / State House News Service
Gov. Maura Healey delivers the State of the Commonwealth address on Jan. 17.
The Healey administration wants to tap new revenue sources and keep spending growth somewhat constrained in a $58.15 billion state budget that officials pitched as putting Massachusetts on a "glide path" toward potentially better financial conditions further down the road.
Facing an uncertain fiscal outlook, Healey on Wednesday filed her second annual state budget that calls for about $2.07 billion or 3.7 percent more spending compared to the fiscal 2024 budget she signed in August.
The plan calls for significant new investments in education, housing affordability programs and transportation. Spending drivers include hundreds of millions of dollars to support operations at the beleaguered MBTA, continuation of free school meals for all students and another year of implementing the K-12 education funding reform law known as the Student Opportunity Act.
Amid a forecast for little to no tax revenue growth, Healey's team balanced their plan by trimming $450 million from various line items, proposing to prevent about half a billion dollars in other spending growth, and deploying $1.25 billion in other available state resources.
"We are tightening our belts. I want to be clear about that," Healey said. "Our economy remains strong, but the revenue picture is changing. Pandemic-era funding relief has gone away, and nationally, the economic recovery has stabilized. So in this environment, it is important that we manage spending in a way that is making strategic choices, examining the impact of every dollar we propose to spend, and that we bring our budget in line with a rate of inflation and in line with the resources and the revenue that we have."
[Read Healey's Fiscal Year 2025 Budget Documents]
The annual budget does not propose any new tax increases to generate additional revenue, nor does it recommend tapping into the state's more than $8 billion "rainy day" savings account.
Instead, it balances the spending growth and limited revenue outlook through cost-control measures. Administration and Finance Secretary Matthew Gorzkowicz said the budget constrained anticipated spending increases to save a total of $500 million and also features about "$450 million of reduced spending year-over-year [when] comparing line items," despite the overall growth in the bottom line.
For example, the bill would reduce charter school reimbursement funding by about $33 million. Gorzkowicz said that decrease is driven by lower formula costs rather than an outright cut. The budget also does not carry forward any earmarks that Healey approved in the final fiscal 2024 spending plan.
Other cost controls include closure of the MCI-Concord medium security prison, which features in an outside section of the budget and could save $16 million per year, and changes at MassHealth, which once again reflects the largest share of the budget with $20.3 billion in total funding. The budget will propose "flat spending" for MassHealth's personal care attendant (PCA) program, reflecting a cap on hours authorized for meal preparation and some eligibility changes related to Activities of Daily Living (ADL) support.
Healey's proposal would also tap into a wide range of other revenue sources, including one idea that failed to gain traction in the Senate in the past: authorizing online Lottery sales. The administration estimates that change could generate $75 million in recurring revenue, down from a $200 million estimate the House attached to its online Lottery plan last session.
To help fund another year of the K-12 education funding law known as the Student Opportunity Act, Healey's budget would draw down $300 million from an investment fund specifically designed to cover the costs of the law. Beacon Hill built up that fund in past years when the state was more flush with cash, and the withdrawal would leave about $200 million for future use.
Her spending plan would also pull $265 million from a similar early education and care affordability fund, fully depleting its balance.
Other new funding sources the budget targets include $100 million in redirected casino gaming revenue and a one-time "tax amnesty" program that officials say could generate $75 million.
And in what Gorzkowicz called an "option of last resort," the budget would authorize the administration to use up to $375 million in excess capital gains tax revenue, effectively preventing that money from automatically being transferred to the "rainy day" stabilization fund.
That would still leave some excess capital gains revenues available for their traditional uses, including $97 million to be deposited into the rainy day fund. Analysts at the Massachusetts Taxpayers Foundation estimate the fund's balance could surpass $9 billion by the end of fiscal 2025 with the additional transfer.
"Taken together, this combination of new recurring revenues and limited one-time and multiyear resources creates a glide path for future fiscal years, when tax revenues begin to rebound," Gorzkowicz said. "We believe this is a balanced and responsible approach to spending in fiscal year '25 that accounts for our fiscal reality while continuing to support essential programs and services."
State tax collections fell short of projections in each of the first six months of fiscal 2024, prompting Healey this month to slash $375 million in spending and tap $625 million in non-tax revenues.
Beacon Hill budget-writers anticipate little to no revenue growth in fiscal 2025, putting pressure on Healey's desire to boost spending.
Healey and Gorzkowicz on Wednesday sought to portray the bill as a $56.1 billion budget, referring to the amount it would spend before accounting for $1.3 billion in surtax funds and a $682 million transfer to the Medical Assistance Trust Fund. When one reporter began a question by citing the $58 billion bottom line, Healey interjected, "It's $56.1 [billion]."
"We don't want to face hard decisions down the line. We want to make the smart choices up front, the smart investments up front," Healey said. "None of these choices are easy, but we think the investments are smart, they're fiscally responsible, and they're also really forward-looking and transformative."
The $56.1 billion in non-surtax spending reflects a 2.9 percent increase over fiscal 2024, which Healey described as "less than half" the average state spending growth in the past four years and below the current inflation rate of 3.4 percent.
"When we talk about constraining revenue growth to 2.9 percent, we're living within available resources," Gorzkowicz said.
Funding from the voter-approved surtax on high earners drives many of the most noteworthy spending increases in Healey's latest plan, with about 55 percent of the stream directed toward education and 45 percent toward transportation.
Healey's budget proposes another year of funding free school meals for all students, using $170 million in surtax revenue, and $475 million in Commonwealth Cares for Children grants to early education and care providers funded partly via the additional levy.
MassReconnect, the program covering unmet community college costs for certain eligible adults that the state launched last year, would get $24 million in Healey's budget, representing a $4 million increase.
The bill proposes a total of $314 million in direct assistance for the MBTA, including twice as much operating assistance as last year, and $45 million to cover implementation of a low-income fare option at the T. If lawmakers jump on board, the additional funding could help the T deal with a fiscal 2025 operating budget gap as its leaders work to overcome a sustained period of service and safety problems.
The MBTA also receives considerable funding, projected to be nearly $1.47 billion next year, from a dedicated share of the sales tax.
Healey's budget would also use surtax funding to backstop $1.1 billion in new transportation-related borrowing capacity. Gorzkowicz said that move could steer $300 million in bonds to help the MBTA fix tracks and eliminate slow zones in fiscal 2025, and $800 million for other T and Department of Transportation capital projects in the next five years.
The budget calls for increasing unrestricted general government aid to municipalities by 3 percent and Chapter 70 aid for public education by 4 percent.
With an eye on the increasingly common extreme weather events that last year hammered Massachusetts residents, especially farmers, Healey's budget calls for creating a standalone disaster relief fund. The bill does not include seed money for the fund, instead proposing to automatically deposit 10 percent of excess capital gains tax revenues each year in addition to other sources like federal grants.
While her administration continues to navigate an emergency shelter crisis, Healey will look to a separate legislative vehicle to cover unmet costs for the system. She filed a standalone supplemental budget bill that proposes draining a savings account, known as the transitional escrow fund, to help manage the shelter crisis in fiscal years 2024 and 2025.
Her annual state budget proposes level-funding the emergency assistance shelter system at $325 million in fiscal year 2025, which officials said could fund service for about 4,100 families -- just a bit more than half of the 7,500-family cap the administration implemented in response to unprecedented demand. The administration has estimated in recent reports to the Legislature it will need more than $900 million annually this year and next year to cover costs.
Other housing programs and supports for vulnerable families are in line for funding boosts. Healey proposed a 22 percent increase to the Massachusetts Rental Voucher Program, a 4 percent increase to the Residential Assistance for Families in Transition program and a 55 percent increase in funding for HomeBASE.
Healey's filing kicks off budget season in the Legislature, where lawmakers will now hold a series of public hearings to weigh various spending initiatives before rolling out their own proposals. The House typically debates its budget in April, followed by the Senate in May.
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