Massachusetts Taxpayers Foundation
April 26, 2000
House 2001 Budget: Important Initiative Undercut
by Spending Growth and New Entitlements
In MTF's view, however, these
accomplishments are seriously undercut by both the short- and long-term spending
obligations built into the House budget: on the one hand, an excessive rate of spending
growth -- approaching 8.0 percent above fiscal 2000 -- that cannot be sustained with
normal revenue gains; and on the other, the addition of new entitlement programs for early
teacher retirement and prescription drug benefits that will impose major additional
spending requirements beyond 2001. Moreover, it will be difficult to hold spending
authorizations for 2001 to even this high rate of growth through the rest of the budget
process -- in recent years, differences between the House and Senate line item
recommendations have too often been resolved by choosing the higher spending amount.
In a particularly positive step, the
House budget proposes to reduce the income tax rate to 5 percent at a gradual pace tied to
growth in the state economy, an alternative to the Governor's ballot initiative to reduce
the rate over three years. Based upon a plan developed by the Foundation, the House
proposal would provide a fiscal hedge against a slowing of the economy while ensuring that
the state can address a range of critical spending issues....
Based upon a preliminary analysis of
floor amendments, the House budget proposes about $22.44 billion in 2001 spending, $1.6
billion or 7.7 percent more than the 2000 budget and $470 million more than the Governor's
fiscal 2001 recommendation of $21.966 billion (including $645 million of spending moved
off-budget under MBTA reforms adopted last year). While the House spending total is an
estimated $55 million higher than the House Ways and Means recommendation -- only slightly
more than the amounts added during budgetary debate in recent years -- the impact of the
floor amendments on future budgets is significantly larger.... What tips the scales,
however, are new entitlements for prescription drug benefits and early teacher retirement
adopted on the House floor that are likely to add hundreds of millions of dollars to
future spending obligations.
Maintaining the agreement included in the fiscal 2000 budget, the House has wisely
dedicated 70 percent of this year's tobacco settlement money to a trust fund created to
meet future health care needs, rejecting the Governor's proposal to reduce to 50 percent
the share of tobacco monies pledged to the fund.
The budget proposal provides $2.96 billion of direct aid to local schools, $159 million
above fiscal 2000. The House recommendation is $32 million more than the funding proposed
by the Governor and $28 million less than the amount supported by the Senate leadership.
For all the hoopla surrounding this issue, there is clearly agreement that significant
additional education aid is necessary in 2001 -- the differences among the three parties
are relatively minor. While the Governor's funding recommendation is the lowest of the
three amounts, it fully funds the requirements of the education reform law, and there is a
legitimate question whether spending above the required level will result in improvements
in student performance.
Prescription drug benefit:
In a fiscally worrisome development, the House has adopted a major new entitlement
program that would place Massachusetts alone among the states in offering coverage of all
prescription drug costs for senior citizens. While the new program is close to revenue
neutral in the first year, a combination of factors -- including the plan's structure, the
demographics of the "baby boomers," soaring drug costs, and the powerful
political forces that will be unleashed -- are likely to push the state's expenditures up
by hundreds of millions of dollars in just a few years. In a telling indication of these
cost pressures, House amendments to the plan have already added 15 percent to its annual
Early teacher retirement:
In another troubling expansion of entitlement programs, the House adopted separate
legislation to provide early retirement benefits to teachers. The proposal is similar to
an initiative in the fiscal 2000 budget which was appropriately vetoed by the Governor....
This expensive and problematic proposal would require an additional $50-70 million of
annual appropriations and will likely open the door to similar costly demands for all
state employees. The proposal would reduce the teaching ranks at a time when schools are
trying to retain quality teachers, while making it more difficult for districts to hire
new teachers because of the reduction in take-home pay arising from the increase in the
required retirement contribution.