State budget 'dance' sends mixed message to business
The annual budget dance between the legislature and the governor is, for the most part, over. Lawmakers approved a $38.1 billion budget that they sent to Gov. Charlie Baker for his signature, maybe even a veto here and there.
That message is mixed. Here's why:
The bigger issue, as far as the state's fiscal policy is concerned, is the message that's telegraphed to the business community while everyone's engaged in the dance.
All that's left to do is the cleanup — and the assessment of how the fiscal year 2016 spending plan will impact everyone, including the business sector.
FAS 109. This is a loss for business, specifically multinational corporations, now that the legislature voted to eliminate it. But it's really not a loss. FAS 109 provides a business tax deduction, based on a financial accounting standard that requires that the effects of income taxes resulting from transactions occurring in the current and preceding years be reported on a company's financial statements for current and future years, according to the state revenue department. It includes accounting for certain deferred tax liabilities and assets to reflect the future tax consequences of events that have been recognized in a corporation's financial statements or tax returns. (Editor's Note: After this edition went to press, Baker and legislative leaders reached an agreement to keep the deduction.)
But the bigger issue, as far as the state's fiscal policy is concerned, is the message that's telegraphed to the business community while everyone's engaged in the dance.
But here's the rub: FAS 109 has not been implemented in Massachusetts. It was born within a larger corporate-tax-raising reform in 2008 and would have allowed write-offs over seven years to minimize the impact on state tax revenues. But lean budget years after 2008 meant lawmakers never let the deduction bear fruit. Nonetheless, business groups this month urged Baker to let FAS 109 stay. Yet, since it was only on the books and never carried out, it's a battle that business will likely lose. The governor himself has indicated he was willing to cut it loose.
Film tax credit. Baker had sought the elimination of this nine-year-old incentive — a 25-percent payroll tax credit to help lure the movie business — to help fund expansion of an income tax credit for low-income residents. But House leaders wanted to maintain the credit, and a lobbying campaign by film-industry workers and related professionals helped reinforced that position. Keeping it could also be a boost for the state's tourism industry.
Sales tax holiday. The holiday itself has become an annual event. Unfortunately, so have the legislature's deliberations leading up to it. Just before press deadline, lawmakers were moving toward approval of this year's holiday: the weekend of Aug. 15 and 16, but not until after the budget dance and a push earlier this month from the state's retailers. The 6.25-percent sales tax ranks within the top 20 among the states. With such a relatively high rate, there's no need to manufacture a little political suspense for the sake of retailers and consumers when potential extra business is on the line for stores, along with savings for shoppers.
Reforming the MBTA. This is not an issue that directly impacts business as much as it sends a message that the state's leaders can come to an agreement and demonstrate flexibility on fiscal policy. The MBTA, following a harsh winter stretch that halted service and left commuters scrambling to find ways to get to work, will fall under a new control board and be freed from the restrictions of the Pacheco law that regulates privatization. The law, officially called the Taxpayer Protection Act, has been cited as an obstacle to government efficiency. The state budget suspends the T from the law for three years. The agency's annual budget is about $2 billion, and the system needs a capital infusion to upgrade its equipment. The T's problems provided Baker with his first test of the management skills that, in part, won him election. Success in reforming the T has the potential to change the business sector's perception of Massachusetts.
The commonwealth is in better shape than most states after a crippling recession. With business growing in Central Massachusetts and elsewhere, a key challenge for the state is to stay on a growth track. Agreements on fiscal policy can go a long way toward reversing the commonly held perception that Massachusetts is anti-business.
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