With a Conference Committee of three Representatives and three Senators meeting to meld the proposals of the two branches into a final budget to present to the Governor, we are entering the final stages of the annual budget debate. As MassBudget's new Budget Monitor describes,the House and Senate proposals have a lot in common: both modestly increase funding for K-12 education and both make new investments in early education (although in different ways); both take steps to address the cost increases borne by the state as the result of fewer employees getting health care coverage from their employers; and both increase funding for affordable housing to help reduce homelessness. Both branches also incorporate revenue from the Governor's initiatives to require larger on-line retailers to collect state sales taxes.
There are also significant differences that will need to be worked out in conference: the Senate provides more funding for higher education and raises modest amounts of additional revenue by taxing on-line rentals through services such as Airbnb and by changing the way taxes are calculated on hotel rooms booked on-line; the House funding levels are higher than the Senate in several areas including MassHealth and the Municipal Regionalization and Efficiencies Incentive. The Senate also included a proposal that was not in the House budget to begin a process of examining the costs and benefits of tax expenditures. The state loses over a billion dollars a year in revenue as a result of various special business tax breaks that are part of our tax code and not regularly evaluated. In the links below, this Budget Monitor describes all of the major differences between the House and Senate budget proposals in each section of the budget.
While the May tax revenue numbers came in a little above projections, overall tax revenue for the year is $439 million below projections with one month to go. The good news is that revenue from income tax withholding has been reasonably strong - and that is a good measure of current economic circumstances. The big drop we saw in April was due mostly to payments with returns when people filed their 2016 taxes. Part of that drop may have been due to taxpayers with significant business and investment income anticipating federal income tax cuts in 2017 and shifting income from 2016 to 2017 (such as by waiting to sell stocks that had increased in value). But while there are some positive signs, tax revenue this year is below projections and there is always the danger that our national economy will weaken. It will be important for the 2018 budget to be as structurally balanced as possible.
The budgets enacted by the two branches of the Legislature both rely on over $500 million in temporary solutions. This is considerably more than the amount relied on in the Governor's budget because he had proposed addressing the state costs of fewer employees getting health care coverage from their employers by enacting a permanent assessment on employers who don't meet certain benchmarks for providing coverage. That plan would have raised $300 million in FY 2018 and more in future years. The House and Senate plans would raise only $180 million in FY 2018 and nothing after two years.
MassBudget's new Budget Monitor describes the major amendments adopted during the Senate budget debate and examines the differences between the House and Senate proposals. The links below also allow readers to jump quickly to specific sections.
Individual sections:
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