With the $44.6 billion fiscal 2021 budget his administration unveiled Wednesday, Gov. Charlie Baker said Massachusetts would be able to fully fund both the letter and spirit of the new education funding law, make sizeable investments in public transit and workforce training, and still stash more money away for an eventual economic downturn.
"Every year, we're tasked with filing a budget to balance the books and make smart fiscal decisions but our budgets are far more than just a list of dollar amounts and line items," Baker said. "It is a body of work that reflects the priorities and needs of the people of this great commonwealth. It is designed to help our residents in every corner of the state find the support that they need to access a quality education, secure a good-paying job, and find a safe and strong community to live and raise their family in."
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The central themes of the Baker administration's sixth budget (H 2) are education and transportation, Administration and Finance Secretary Michael Heffernan said. Public schools would see $355 million in new spending -- the first payment towards a $1.5 billion, seven-year overhaul of the state's public education funding formula -- and the budget newly directs $216.7 million to the MBTA and other transportation agencies to address safety and infrastructure issues.
Baker's budget was built on the consensus agreement of his administration and lawmakers that the state will collect an estimated $31.15 billion in tax revenue during fiscal 2021 -- 2.8 percent growth, modest compared to recent years of higher-than-expected collections that resulted in large surpluses.
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The governor's budget would increase overall state spending by 2.3 percent above the current fiscal year, according to the administration, and accounts for a $96 million reduction in tax revenue associated with the income tax rate having dropped to 5 percent, a reduction of $95 million because of the state's new restrictions on the sales of vaping products, and another $64 million reduction from the scheduled re-emergence of a charitable giving tax deduction.
Baker's spending plan assumes the state will pull in $282.7 million in revenue from casino gaming, $146 million in marijuana taxes and another $14 million from Cannabis Control Commission license payments and fines.
It also assumes $35 million in revenue from an activity that is still illegal in Massachusetts -- sports betting -- another $16 million from an opioid tax the governor has asked the Legislature to approve, and the $237 million in one-time revenue that would materialize if the Legislature goes along with the governor's sales tax modernization plan.
The budget plan includes $237 million in one-time revenues associated with a two-phase plan to begin collecting sales taxes from certain companies in real-time or at least on an accelerated basis, similar to a plan the administration has previously attempted to get the Legislature to adopt.
Currently, sales taxes paid by consumers at the point of sale are held by businesses and remitted to the state on a monthly basis by the 20th day of the month after the taxes were collected. Heffernan said the system stems from "the days of paper checks and manual cash registers."
In the first phase of the Baker administration's plan, the largest 10 percent of businesses -- those with at least $100,000 in sales or room occupancy and meals tax collections -- would be required to remit taxes from the first three weeks of each month in the final week of that same month. The final week's remittance and reconciliation of any discrepancy would take place the following month.
Heffernan said phase one would affect 10 percent of businesses but account for 80 percent of sales tax revenue. The second phase would take effect in mid-2023 and require "all retailers and credit card processors [to] capture sales tax from electronic transactions at the moment of purchase and remit daily," the secretary said.
The Massachusetts Taxpayers Foundation said its members support phase one of the sales tax modernization effort, but have concerns about the feasibility of phase two.
"I think this second phase where it's a daily remittance is a whole other ball of wax. We know, certainly, from a large part of our membership that there are significant concerns about the complexity of it, the compliance cost and the fact that Massachusetts would be the only state to have such a collection process," MTF President Eileen McAnneny said.
Baker said Wednesday that the time has come to bring the state's sales tax collection efforts up to speed with the way commerce is conducted.
"The world of commerce has gotten to the point here where a lot of the transactional activity that we're talking about is practically real-time and virtually every element of that, at this point, is digital," he said. "In 2020, state government probably ought to have the same kind of relationship with the businesses and enterprises in the commonwealth that those businesses and enterprises already have with each other."
The governor acknowledged that the Legislature has been cool to the idea before, but said it is "impossible to imagine" that the state won't eventually have real-time sales tax collection.
"Sometimes issues like this take a few trips to the plate to get discussed, vetted, debated before they get enacted," he said.
The administration's spending plan also controls cost growth at MassHealth, the state-run Medicaid program that serves 1.86 million residents and has grown to consume about 40 percent of state spending. Baker proposed funding the program at $16.772 billion gross, a 0.6 percent increase over FY20.
"When we took office in 2015, MassHealth was broken and faced unsustainable year-over-year double-digit growth at 14.9 percent on a gross basis in fiscal '15, limiting our ability to invest in other key services," the governor said. "Thanks to significant reforms and improvements, we have been able to achieve more sustainable growth rates to ensure the long-term viability of the program and save taxpayers millions."
Elsewhere in the budget, Baker's administration proposes a $310 million deposit to the state's Stabilization Fund, an additional $27.1 million for the Department of Children and Families to help reduce caseloads for social workers and promote adoptions, an increase of $47.5 million or 17 percent for addiction treatment services across multiple agencies, a spending increase of $41.3 million or 2 percent for the Department of Developmental Services, $5.7 million to support a class of State Police recruits expected to begin at the academy during FY21, $19.7 million across departments to implement the recent criminal justice reform law, and a new employer tax credit worth up to $2,000 for each person with a disability hired and who works 18 consecutive months.
The House and Senate will redraft Baker's spending blueprint in April and May, with each branch's Ways and Means Committee presenting its own vision for fiscal 2021 spending. The new fiscal year starts July 1.
On Wednesday morning, Moody's Investor Services announced that it had completed a "periodic review" of its rating for Massachusetts (Aa1) and made note of a few things about the Bay State and its finances.
"The Aa1 rating reflects Massachusetts' growing economy, anchored by education, healthcare and technology sectors. Robust economic growth, combined with close monitoring of revenues and ample executive authority to make mid-year cuts, have resulted in balanced budgets," the agency wrote. "Strong year-over-year tax revenue growth, along with prudent planning, have afforded the commonwealth the opportunity to build reserves."
The rating agency also took note of the state's annual pension fund contribution, which is rising at a rate more rapid than revenues. Baker's fiscal 2021 budget would make a $3.115 billion transfer to the pension fund, an increase of $273 million or about 9.6 percent over the fiscal 2020 contribution.
"Debt and pension liabilities are among the highest in the nation, though these figures include borrowing and benefits for local governments," Moody's wrote.
