MASBO February meeting: Perspective on the next state budget from Mass Taxpayers

Eileen McAnneny, President of Mass Taxpayers
Trifecta of budget challenges: revenues slowing, non-discretionary spending growing, need to replenish reserves
happening during economic recovery

Taxes are 2/3rds of revenue; 60% of taxes are the income tax
$10B from federal gov't, largely for MassHealth
negative growth rate in tax revenues over all fifty states; Massachusetts growth not keeping up with growth of spending
"driven by more macroeconomic policies or federal policies...not unique to the Commonwealth"
MassHealth dwarves all other spending, growth outpaces inflation
state/federal partnership: get 50% of what we spend back from fed
FY17
"this has been a very interesting year"
previous years we were doing really well "and then it dropped out across the board"
had to readjust consensus revenue by $620M before they went to conference committee
the revenue picture "continues to be fluid"
9C cuts; Leg was expected to reverse some
revenue trending lower than expected; in light of January revenue "they may rethink that" (though we haven't heard)
capital gains is a subset of income tax "and that's particularly volatile"
one of the reasons for the drop in revenue last year
non-discretionary spending is outpacing tax revenue growth; "that poses a long-term challenge, for sure"
non-discretionary spending is now 91% of new tax funds
the state faced a $400M gap in FY17; some from tax revenues being down; MassHealth grew at a rate higher than expected; chronic underfunding of some accounts
Q: where is the pay raise coming from?
That remains to be seen.
Q; economy seems to be very strong; why isn't it being reflected in tax revenue?
Boom in Boston, not true in all parts of the state; some of it is income tax and capital gains
I'm going to interrupt here to point out that MassBudget always points out that taxes were CUT earlier on and have never come back
Ballot Q on income tax "which the Taxpayers Foundation has some pretty grave concerns about"
Massachusetts budget has doubled since 2000, "and I think we have to look at both sides of the ledger"
Q points out the downward trend in percentage of tax rate
anything coming on that?
Massachusetts administers MassHealth on a 10-15 waiver, but it has to not cost more than if it were running under federal guidelines
Q impact of online shopping?
deal was reached with Amazon, so collecting at least a portion of it
issue for all states; multistate project to work on issue
FY18
Gov's budget: $45.2B in spending
$1.5B increase
budget process doesn't start with Gov's budget; starts with consensus revenue in December
"Consensus revenue process is a good one; we think it's an important one"
3.9% growth rate decided on in consensus revenue (which is bigger than MassTaxpayers wanted)
$835M gap this year: some FY17 solutions aren't available and there are new spending needs
$400M in new revenue in Gov's budget: $300M employer assessment (MassHealth); $62M in tax changes
cuts one time spending to $95M; "improves process for building reserves"
MassHealth's enrollment drives cost growth; 28% of Mass population is covered by the program
$91.4M increase in Ch.70; increased foundation budget rate for "employee benefits and fixed charges": $20/pupil increase
Level funds: circuit breaker, charter school reimbursement, regional transportation, homeless transportation, non-resident pupil transportation, and early ed
MassTaxpayers would like to see 1% put into stabilization fund every year; withdrawals made but not replenished
"as a percentage of spending, it's much lower"
Q; increase in health insurance coming from prescription; does spending on prescriptions generate tax to state?
Prescriptions aren't taxed, but there are pharmaceutical companies in MA
Big issue is not overpaying for outpatient and inpatient care