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CLT UPDATE
Thursday, June 30 2016

FY'17 state budget vote today


The fiscal 2017 budget, mired in uncertainty for the last two weeks amid worsening revenue projections, emerged from conference committee Wednesday night and is expected to clear both branches Thursday, the last day of fiscal 2016.

The $39.15 billion budget accord (H 4450) agreed to Wednesday by six House and Senate negotiators cut $750 million in projected revenue and $413 million in proposed spending from the budget bills the branches agreed to in April and May.

The House and Senate both plan to meet in full formal sessions Thursday starting at 11 a.m. The conference committee report is likely to ping-pong between the two chambers for acceptance and enactment amid other legislative business.

State House News Service
Thursday, June 30, 2016
Budget vote expected on last day of FY16


Responding to instability in the stock market that has shredded revenue estimates for next year, House and Senate leaders on Thursday will seek passage of a $39.15 billion budget accord for the fiscal year beginning Friday that slashes $750 million in projected revenue and $413 million in proposed spending from budget bills agreed to in April and May....

"I'm proud that, in the midst of a tough fiscal climate, we came to agreement on a fiscally-responsible budget that minimizes cuts and protects our most vulnerable residents," House Speaker Robert DeLeo said in a statement.

Senate President Stanley Rosenberg said the budget deal underscored the need for the state to raise more revenue.

"This budget is a reflection of fiscal realities we cannot afford to ignore," Rosenberg said in a statement. "Relying on unpredictable, one-time sources of revenue has forced us to make painful cuts. We must increase efficiencies, make sure corporate tax breaks lead to economic growth, and begin to implement fiscally responsible ways to raise revenue so we can make prudent investments to grow the economy. We cannot cut our way to prosperity."

The deal scrapped numerous outside policy sections, many of which had been endorsed by the Senate but were criticized by Gov. Charlie Baker and DeLeo for being unrelated to the state budget....

[House and Senate Ways and Means chairs Rep. Brian Dempsey and Sen. Karen Spilka] said the compromise cuts $260 million in direct spending from the roughly $39.5 billion spending plans approved by the House and Senate in April and May, including $142 million from Medicaid by deferring some payments until fiscal 2018 and reducing caseload estimates in public assistance and health insurance programs....

Dempsey said the budget conferees, with the help of the Baker administration, identified $100 million in savings through "procurement efficiencies," and are no longer assuming a reduction in the income tax rate from 5.1 percent to 5.05 percent in January, freeing up $80 million in taxes for spending. However, the economic benchmarks required to trigger an income tax reduction could still be reached, leaving a vulnerability in the budget that would have to be addressed mid-year....

After initially projecting revenues to climb in fiscal 2017 by 4.3 percent, the compromise budget has lowered expectations to 2.7 percent revenue growth, or $677 million. Spending, under the plan, would climb by $650.3 million, or 1.7 percent, over estimated fiscal 2016 levels....

Rosenberg has repeatedly made clear his belief that the state needs to finds ways to increase its revenue streams to support the government programming and capital infrastructure improvements that the public expects.

His calls for new taxes to be debated, however, have been thwarted by a resistance from both the governor and Speaker DeLeo to ask taxpayers for more money, leaving him to pin his hopes on proposed constitutional amendment that won't get decided until 2018 to tax income over $1 million at a higher rate....

Massachusetts Budget and Policy Center President Noah Berger seemed to share Rosenberg's feelings about the budget, echoing his call for increased revenues.

"This budget represents another year of just barely getting by without any clear path to addressing the big challenges our Commonwealth faces, such as rebuilding our transportation infrastructure, making college affordable, and expanding access to high-quality education for all of our children. Our Commonwealth could get those big things done, but it would likely require reforming our tax system so that our highest income residents would no longer pay a smaller share of their income in state and local taxes than middle income residents pay," Berger said.

State House News Service
Thursday, June 30, 2016
Lawmakers slap together on-time budget with limited new $$$


Former Gov. Michael Dukakis said Tuesday he wasn't surprised by the state's souring tax revenue picture, describing the state as "patching things together" in its budget in the past couple of years....

"We haven't had a really truly balanced budget here for the last two or three years so it doesn't come as a surprise, but both the governor and the Legislature have got to take a good look at this, decide what they're going to do about it," Dukakis told the News Service after attending an event for former Treasurer Robert Crane. "But I think most people think we've really been kind of patching things together for the past couple of years, and we don't have a revenue base that can support what we're trying to do so people are going to have to step up and make some serious decisions." ...

"I think the state needs additional revenue," Dukakis told the News Service. "I think there are a lot of ways to get it. We've got all kinds of loopholes in our tax laws that ought to be closed and a lot of them could produce plenty of revenue, but somebody has to step up and say that, otherwise we're going to find ourselves dragged down by this thing." ...

On a 135-57 vote, House and Senate lawmakers in May advanced a constitutional amendment that would impose a 4 percent surtax on incomes over $1 million, providing an estimated $1.9 billion in new revenue that proponents say would be devoted to education and transportation. The measure, which opponents say will lead to a graduated income tax structure, could appear before voters in 2018 if it receives a second favorable vote by the Legislature in 2017-2018.

The Massachusetts Budget and Policy Center, a liberal-leaning organization where Dukakis serves on the board, offers some proposals that would provide a "fairer tax system" and "not hit the average taxpayer," the former governor said.

State House News Service
Tuesday, June 28, 2016
Dukakis: Closing tax "loopholes" could seal state budget patches


Human nature is such that elected officials aren’t always great about doing what’s in their constituents’ long-term interests. “Long-term,” after all, often translates to taking a political hit now only to have one of your successors get credit down the line.

But as the state budget debate continues, a recent report from J.P. Morgan demonstrates why Governor Baker and legislators should be careful not to lose sight of the Commonwealth’s long-term fiscal sustainability. It finds that only five states need to dedicate a larger percentage of state revenues to amortize pension, other post-employment benefits (mostly health insurance), and bonded debt liabilities over 30 years than Massachusetts does.

Michael Cembalest, author of the Morgan report,“The ARC and the Covenants, 2.0” (ARC refers to the acronym for “annual required contribution”), finds that it will take about 22 percent of the Commonwealth’s revenues to retire these liabilities; right now we’re contributing around 14 percent. His projections assume a realistic 6 percent return on assets like state pension funds....

As it currently stands, retiring liabilities in 30 years would require Massachusetts to do one of the following: increase taxes by 7 percent, cut spending 6 percent, or more than double employee contributions.

The Boston Globe
Wednesday, June 29, 2016
In balancing the budget, Baker and legislators need to think long-term
By Charles Chieppo


Chip Ford's CLT Commentary

It's interesting to note the correlation between revenue and spending.  Note that the conference committee budget for the fiscal year beginning tomorrow cuts $413 million from the $39.5 billion spending plans approved by the House and Senate in April and May.  They were able to do this because now the revenue expected to come in is $750 million less than expected back in the early spring.

That's still $337 million more spending than the projected revenue will afford.

It's also interesting that, when the taxpayer-spigot shut off prematurely, the Legislature was able to find $413 million to cut from the billion-dollar spending increase over the prior fiscal year's budget.

This again demonstrates that when our money is available to the state the Legislature will spend it.  If it isn't there, Massachusetts will make do and move along.

Senate President Stanley Rosenberg, Massachusetts Budget and Policy Center's Noah Berger, and former-Governor Michael Dukakis calling for higher taxes is a dog-bites-man story.  When haven't they lusted for higher, ever higher taxes?  And who asked for or cares about the opinion of Michael Stanley Dukakis.  Hasn't he done enough damage to the taxpayers of Commonwealth? We're still paying his "temporary" income tax hike twenty-seven years later.

"The Duke" now "serves on the board" of the Massachusetts Budget and Policy Center, of which Berger is president.  Both are among the vanguard pushing for a graduated income tax ballot question the sixth such effort.  You might be more familiar with that organization before its changed it name to camouflage its nefarious goals and intentions, TEAM:

Here's the introduction of TEAM's reincarnation into the Massachusetts Budget and Policy Center (MBPC), as reported by Michael Jonas in the December 2002 issue of Commonwealth Magazine ("TEAM finds a less taxing name"):

Formed in 1987 as a liberal counterweight to Citizens for Limited Taxation, the Tax Equity Alliance for Massachusetts has made the case for public spending and progressive taxation with the same zeal its foes have brought to their anti-tax crusades. But after 15 years in the tax-battle mosh pit, TEAM is getting a makeover. Shedding its name – and well-known acronym – for a wonkier moniker, the organization-formerly-known-as-TEAM has recast itself as the Massachusetts Budget and Policy Center....

Citizens for Limited Taxation executive director Barbara Anderson, who says the TEAM acronym should have stood for “tax everything and more,” sees the name change as an effort to camouflage the group’s left-wing image. “I think they’re trying to get away from TEAM because people aren’t into liberals anymore,” says Anderson....

Back to the Dukakis "temporary" tax hike of 1989 that still burdens taxpayers twenty-seven years later.  CLT put its rollback on the 2000 statewide ballot where voters resoundingly mandated that it be dropped back to its historic 5 percent over three years.  (That was two years before TEAM transformed itself into the MBPC.)  The arrogant Legislature was not deterred for long.  It "froze" the voters' mandate in 2002, set up its own mechanism to reach 5 percent someday dependent on economic activity and state revenue.  After twenty-seven years the income tax rate came down to 5.1 percent this year, was expected to be reduced by five-one-hundredths of one percent next year, to 5.05 percent.

State officials are "no longer assuming a reduction in the income tax rate from 5.1 percent to 5.05 percent in January, freeing up $80 million in taxes for spending. However, the economic benchmarks required to trigger an income tax reduction could still be reached, leaving a vulnerability in the budget that would have to be addressed mid-year."

Why is $80 million in taxes not collected, that should not be collected, considered "a vulnerability" for the state, but not for the taxpayers from whom it is taken and has been taken for the past twenty-seven years?

We'll be watching to see if and how they manage to wiggle out of keeping the 1989 promise for Year Twenty-Eight of the Dukakis "Temporary" Income Tax Hike," try to abuse taxpayers for even longer.

Chip Ford
Executive Director


 

State House News Service
Thursday, June 30, 2016

Budget vote expected on last day of FY16
By Colin A. Young


There will not likely be a champagne toast at the State House when the clock strikes midnight and the new fiscal year dawns, but lawmakers are aiming to celebrate the passage of an on-time budget by the end of the day Thursday.

The fiscal 2017 budget, mired in uncertainty for the last two weeks amid worsening revenue projections, emerged from conference committee Wednesday night and is expected to clear both branches Thursday, the last day of fiscal 2016.

The $39.15 billion budget accord (H 4450) agreed to Wednesday by six House and Senate negotiators cut $750 million in projected revenue and $413 million in proposed spending from the budget bills the branches agreed to in April and May.

The House and Senate both plan to meet in full formal sessions Thursday starting at 11 a.m. The conference committee report is likely to ping-pong between the two chambers for acceptance and enactment amid other legislative business.

In the Senate, the other business of the day is an energy bill (S 2372) that would require utilities to solicit long-term contracts of between 15 years and 20 years for 2,000 megawatts of offshore wind by 2030 -- well beyond the 1,200 megawatts proposed in the House's energy plan -- and roughly 1,500 megawatts of clean energy generation from other sources, including hydropower, land-based wind, energy storage, anaerobic digestion and solar.

Senators have filed 108 amendments to the energy bill and Senate President Stanley Rosenberg on Wednesday suggested that members may want to "bring your sleeping bags" in expectation that debate could last well into Thursday night.


State House News Service
Thursday, June 30, 2016

Lawmakers slap together on-time budget with limited new $$$
By Matt Murphy


Responding to instability in the stock market that has shredded revenue estimates for next year, House and Senate leaders on Thursday will seek passage of a $39.15 billion budget accord for the fiscal year beginning Friday that slashes $750 million in projected revenue and $413 million in proposed spending from budget bills agreed to in April and May.

The (H 4450), reached on Wednesday by six House and Senate negotiators, preserves increases to local aid and school funding for cities and towns, as well as substance abuse programs, but leaves many agencies and programs receiving level funding or minimal increases as the page turns Thursday night from fiscal 2016 to fiscal 2017.

Budget writers attempted to limit the pain across state government by identifying "efficiencies," they said, and by deferring Medicaid payments and revising estimates of how many people would seek health care services and transitional assistance in the new year.

"I'm proud that, in the midst of a tough fiscal climate, we came to agreement on a fiscally-responsible budget that minimizes cuts and protects our most vulnerable residents," House Speaker Robert DeLeo said in a statement.

Senate President Stanley Rosenberg said the budget deal underscored the need for the state to raise more revenue.

"This budget is a reflection of fiscal realities we cannot afford to ignore," Rosenberg said in a statement. "Relying on unpredictable, one-time sources of revenue has forced us to make painful cuts. We must increase efficiencies, make sure corporate tax breaks lead to economic growth, and begin to implement fiscally responsible ways to raise revenue so we can make prudent investments to grow the economy. We cannot cut our way to prosperity."

The deal scrapped numerous outside policy sections, many of which had been endorsed by the Senate but were criticized by Gov. Charlie Baker and DeLeo for being unrelated to the state budget.

While proposals to restrict gas pipeline siting, ban plastic bags and put a moratorium on the resettlement of rattlesnakes on an island in the Quabbin Reservoir were rejected, a deal was reached to bring Massachusetts into compliance with the federal Real ID Act, enabling the state to prepare to issue new licenses that will allow residents to fly domestically and enter federal buildings without a passport.

The compromise plan would increase Chapter 70 school aid by $116 million and unrestricted local aid by $42 million, House and Senate Ways and Means chairs Rep. Brian Dempsey and Sen. Karen Spilka said. The leaders also said funding for higher education would increase on average by 1 percent, including a 1.4 percent increase for the University of Massachusetts that will factor into calculations that must be run to set tuition and fee levels.

Dempsey and Spilka said the compromise cuts $260 million in direct spending from the roughly $39.5 billion spending plans approved by the House and Senate in April and May, including $142 million from Medicaid by deferring some payments until fiscal 2018 and reducing caseload estimates in public assistance and health insurance programs.

Spilka said information technology accounts and the state's sheriffs would also absorb some of the cuts made to balance the spending plan.

The budget bill, which will be put before House and Senate lawmakers Thursday for passage, also cancels a proposed $200 million deposit in the state's reserves due to lower than anticipated capital gains taxes, which have taken a hit from the volatility in the stock market.

Dempsey said the budget conferees, with the help of the Baker administration, identified $100 million in savings through "procurement efficiencies," and are no longer assuming a reduction in the income tax rate from 5.1 percent to 5.05 percent in January, freeing up $80 million in taxes for spending. However, the economic benchmarks required to trigger an income tax reduction could still be reached, leaving a vulnerability in the budget that would have to be addressed mid-year.

"I think that this action on the part of the House and Senate, the conferees that have worked very, very hard over the last several weeks, shows that we are taking strong action that will certainly deal with the challenges and adjustments that we see with respect to revenue," Dempsey said.

As a result of the lower anticipated revenues in fiscal 2017, automatic transfers to the School Building Authority and the MBTA from sales taxes will occur at lower levels, reducing the amount delivered to each entity by about $30 million, Dempsey said.

No other cuts have been proposed for the MBTA's operating budget, and negotiators also agreed to a cap on fare increases for riders of public transit to 7 percent every two years. With MBTA fares slated to rise Friday on average by 9 percent, the Senate tried to revisit the fare issue in the budget and compromised on a cap between the 5 percent sought by leaders in that branch and the 10 percent allowed under current law.

Estimates of tax revenues needed to support next year's proposed $39.5 billion budget proposals were sharply lowered in the weeks since conferees first sat down this month to begin working on a budget accord, with Gov. Baker indicating on Monday that the shortfall could climb as high as $950 million. Elected officials said the stock market performance in 2015 is negatively affecting tax revenues now.

"Nobody in the state, it's clear, was able to predict the volatility in the stock market that's led to our revenue shortfall," Spilka said, expressing pride in the fact that the budget makes "modest investments, but still investments."

Dempsey said the vote in Great Britain last week to leave the European Union also remains a "real unknown" after the referendum roiled the global markets in the days after the vote.

After initially projecting revenues to climb in fiscal 2017 by 4.3 percent, the compromise budget has lowered expectations to 2.7 percent revenue growth, or $677 million. Spending, under the plan, would climb by $650.3 million, or 1.7 percent, over estimated fiscal 2016 levels.

Spilka ticked through some of the increases in spending, including $2 million for regional school transportation, $12.5 million for early education salaries, a $100,000 anti-poverty mentorship pilot program and $20.6 million for mental health services.

The budget, if signed by Gov. Baker, would also increase spending by $23.6 million to $139.2 million on programs designed to fight the state's opioid abuse epidemic, including supports for 125 new residential treatment beds.

Rosenberg has repeatedly made clear his belief that the state needs to finds ways to increase its revenue streams to support the government programming and capital infrastructure improvements that the public expects.

His calls for new taxes to be debated, however, have been thwarted by a resistance from both the governor and Speaker DeLeo to ask taxpayers for more money, leaving him to pin his hopes on proposed constitutional amendment that won't get decided until 2018 to tax income over $1 million at a higher rate.

If the House and Senate pass the compromise budget on Thursday, Baker will have 10 days to review bill and veto any spending he disapproves, or return sections with amendments. Dempsey said he spoke to Baker on Wednesday, and the governor expressed his appreciation that a deal was struck ahead of the start of the new fiscal year and that talks didn't drag later into the summer.

Massachusetts Budget and Policy Center President Noah Berger seemed to share Rosenberg's feelings about the budget, echoing his call for increased revenues.

"This budget represents another year of just barely getting by without any clear path to addressing the big challenges our Commonwealth faces, such as rebuilding our transportation infrastructure, making college affordable, and expanding access to high-quality education for all of our children. Our Commonwealth could get those big things done, but it would likely require reforming our tax system so that our highest income residents would no longer pay a smaller share of their income in state and local taxes than middle income residents pay," Berger said.


State House News Service
Tuesday, June 28, 2016

Dukakis: Closing tax "loopholes" could seal state budget patches
By Andy Metzger


Former Gov. Michael Dukakis said Tuesday he wasn't surprised by the state's souring tax revenue picture, describing the state as "patching things together" in its budget in the past couple of years.

The Brookline Democrat and Northeastern University professor suggested closing tax "loopholes" could solidify the state's revenues without damaging the business climate.

House and Senate budget negotiators are facing Friday's start of fiscal 2017 with a revenue shortfall approaching $1 billion below what they used to craft roughly $39.5 billion annual spending bills. Those budgets have yet to be reconciled in conference committee.

"We haven't had a really truly balanced budget here for the last two or three years so it doesn't come as a surprise, but both the governor and the Legislature have got to take a good look at this, decide what they're going to do about it," Dukakis told the News Service after attending an event for former Treasurer Robert Crane. "But I think most people think we've really been kind of patching things together for the past couple of years, and we don't have a revenue base that can support what we're trying to do so people are going to have to step up and make some serious decisions."

An opponent of additional taxes, Gov. Charlie Baker has predicted the fiscal 2016 budget will be balanced even as revenues are expected to come in hundreds of millions below benchmark. The governor says his team has managed through a fiscal 2016 revenue shortfall of at least $320 million without affecting core government services.

"People did a tremendous amount of work nipping and tucking all over the place over the course of the last sixty days or so and I feel quite confident that we'll end the year in balance," Baker told reporters Monday.

Baker added, "For the most part, we've done everything we can to protect what I would describe as core services and I think we've done a pretty good job with that."

Dukakis said additional revenue could improve the budget picture.

"I think the state needs additional revenue," Dukakis told the News Service. "I think there are a lot of ways to get it. We've got all kinds of loopholes in our tax laws that ought to be closed and a lot of them could produce plenty of revenue, but somebody has to step up and say that, otherwise we're going to find ourselves dragged down by this thing."

With DeLeo joining Baker this session in rejecting new taxes, the climate for higher levies on Beacon Hill has been chilly and so-called loophole-closing measures have also encountered resistance historically from interests who favor tax credits and incentives.

On a 135-57 vote, House and Senate lawmakers in May advanced a constitutional amendment that would impose a 4 percent surtax on incomes over $1 million, providing an estimated $1.9 billion in new revenue that proponents say would be devoted to education and transportation. The measure, which opponents say will lead to a graduated income tax structure, could appear before voters in 2018 if it receives a second favorable vote by the Legislature in 2017-2018.

The Massachusetts Budget and Policy Center, a liberal-leaning organization where Dukakis serves on the board, offers some proposals that would provide a "fairer tax system" and "not hit the average taxpayer," the former governor said.

The Baker administration on June 14 pegged the revenue shortfall for fiscal 2017 at $450 million to $750 million. The lower estimates were based on volatility and underperformance in the stock market impacting investment related tax collections, officials said. On Monday, Baker assigned a new fiscal 2017 revenue shortfall range of $650 million to $950 million.


The Boston Globe
Wednesday, June 29, 2016

In balancing the budget, Baker and legislators need to think long-term
By Charles Chieppo


Human nature is such that elected officials aren’t always great about doing what’s in their constituents’ long-term interests. “Long-term,” after all, often translates to taking a political hit now only to have one of your successors get credit down the line.

But as the state budget debate continues, a recent report from J.P. Morgan demonstrates why Governor Baker and legislators should be careful not to lose sight of the Commonwealth’s long-term fiscal sustainability. It finds that only five states need to dedicate a larger percentage of state revenues to amortize pension, other post-employment benefits (mostly health insurance), and bonded debt liabilities over 30 years than Massachusetts does.

Michael Cembalest, author of the Morgan report,“The ARC and the Covenants, 2.0” (ARC refers to the acronym for “annual required contribution”), finds that it will take about 22 percent of the Commonwealth’s revenues to retire these liabilities; right now we’re contributing around 14 percent. His projections assume a realistic 6 percent return on assets like state pension funds.

Once a state gets to 25 percent, Cembalest says “the math becomes very difficult.” If you’re wondering how difficult, consider this: To solve the problem exclusively with additional revenue, spending cuts, or increased employee pension and retiree health insurance contributions, New Jersey, which would have to dedicate more than 35 percent of state revenues to amortize its massive liabilities over 30 years, would either need to increase revenues by about one quarter or cut spending by a similar amount. Connecticut, which would need to dedicate just about 35 percent of revenue, would have to raise employee contributions by a stunning 699 percent.

As it currently stands, retiring liabilities in 30 years would require Massachusetts to do one of the following: increase taxes by 7 percent, cut spending 6 percent, or more than double employee contributions.

The news isn’t all bad for Massachusetts. The J.P. Morgan report’s finding that the 22 percent of revenues the Commonwealth would have to devote to amortize liabilities represents an improvement over the original 2014 study, which calculated that a quarter of state revenues would be required — the point at which Cembalest says the math stops adding up.

In addition, the study confirms that our “Taxachusetts” days are a thing of the past. Of the six states that require the largest percentage of revenues to retire their liabilities, only New Jersey has a lower effective tax rate on middle-income earners.

But it also suggests that the problem can’t be solved by taxes alone. Of the four states that are in the worst shape, three — Illinois, Connecticut, and Kentucky — already have effective tax rates that are among the nation’s highest. The best solution is likely a balanced approach that includes a combination of revenue, cuts, and increased employee contributions.

“The ARC and the Covenants, 2.0” offers a cautionary tale about the dangers of short-term thinking. In an era in which leaders struggle to balance the books from year to year, let’s hope the budget Governor Baker ultimately signs will exhibit one of the rarest characteristics of leadership: the ability to postpone gratification for the sake of a sustainable future.

Charles Chieppo is the principal of Chieppo Strategies LLC, a public policy writing and communication firm.

 

NOTE: In accordance with Title 17 U.S.C. section 107, this material is distributed without profit or payment to those who have expressed a prior interest in receiving this information for non-profit research and educational purposes only. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml


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