House budget raids reserves to push spending to $46 Bil

Boston Statehouse

BOSTON (SHNS/WWLP) – House leaders put forward a $46 billion state budget on Thursday that top Democrats said has no “drastic cuts” or broad-based tax increases, but does rely heavily on one-time funding from the federal government and state reserves to protect services during the ongoing pandemic.

The House budget, which is usually debated in April, proposes to spend about $188 million more than Gov. Charlie Baker has recommended, in areas like education, food security and substance addiction services. Leaders said they will open debate on the bill next Tuesday, and Speaker Robert DeLeo said he hopes to work with the Senate to deliver a budget for fiscal 2021 to the governor by the end of the month. That would be a record turnaround time for the branches, which have been known to haggle for months over budget details.

“This is a budget that pays bills by concentrating on those who are most in need of our help,” DeLeo said.

Like Baker, the House’s fiscal 2021 budget assumes a $2 billion reduction in tax revenues from fiscal 2020 due to the pandemic. The House proposes a 5.3 percent spending increase over the $43.6 billion fiscal ’20 budget.

The House budget includes a section that would restrict courts from finalizing evictions if a tenant has an active application for rental assistance pending with the administration. As a sort of middle ground plan between Gov. Baker and those House Democrats who want to revive the pandemic eviction moratorium, the budget would put $50 million into the Rental Assistance for Families in Transition program.

Many progressive groups also have been urging the Legislature to consider taxes on wealthy businesses and individuals to avoid cuts to safety net programs during the pandemic, but business leaders have warned that employers bracing for higher minimum wage and unemployment insurance costs next year could choose to leave the state.

House Ways and Means Chairman Aaron Michlewitz said it was “unthinkable” back in the spring that the House would debate a fiscal 2021 budget that doesn’t propose sharp reductions in spending or raise taxes, but the spending plan offered Thursday accomplish that, in part, by tapping into the state’s “rainy day” fund for more than $1.5 billion, or $155 million more than Gov. Baker recommended.

“I think we tried to create a budget that addressed the immediate needs that we see are important during this COVID world that we’re living in, but also didn’t burden forever our constituents in this difficult time,” Michlewitz said.

The budget does delay a charitable giving tax deduction that was set to become available for tax year 2021. And the Boston Democrat did not rule out revisiting tax increases in fiscal year 2022, planning for which will begin as soon as the budget for fiscal year 2021 is complete.

“It was something that we obviously considered but being able to do these one-time revenue fixes allowed us to get through this fiscal year. We’ll have to see where we go in FY 22 because we’re not out of the woods just by getting through FY21, that’s for sure,” Michlewitz said.

The House budget adopted many of the same one-time revenue sources that Baker relied on in his revised budget submission last month, including $550 million in federal CARES Act funding and $834 million in enhanced Medicaid reimbursements for MassHealth. Overall, the proposed budget for fiscal 2021 would use $13.86 billion in federal money, up from $13.23 billion in fiscal 2020.

For the first time in many years, House leaders are also recommending a substantial withdrawal of $1.5 billion from the state’s “rainy day” fund,” which would draw down the $3.5 billion reserve by 43 percent and leave nearly $2 billion for future years. Baker recommended using $1.35 billion from the stabilization fund in his budget plan.

DeLeo said he brought his experiences having dealt with financial crises in 2008 and 2009, the dot-com bust and the aftermath of the 9-11 terrorists attacks to the process of putting the budget together. He said in 2009 the state used 60 percent of its reserves to get through the first year of the crisis.

“We built it and we protected it for times just like these,” DeLeo said.

The Massachusetts Fiscal Alliance, which has argued against tax hikes, said the House’s approach would be welcomed if lawmakers had shown more restraint with their spending.

“Massachusetts taxpayers would be more supportive of seeing their savings being spent if it included at least some belt tightening by State House leaders,” said Paul Diego Craney, spokesman for the group.

House leaders are also ready to embrace Gov. Baker’s plan to speed up collections of sales taxes from businesses, which would net the state $267 million in one-time revenue. Businesses that do at least $2.4 million in annual sales would be required to remit the sales taxes they collect from consumers to the state at the end of each month, instead of the month after they are collected.

Michlewitz said that despite the Legislature repeatedly rejecting the administration’s accelerated sales tax proposal in past years, leaders “always looked at it as a potential resource to use.”

“I think it’s one of those break glass in case of emergency kind of conversations and this is obviously a fiscal emergency in terms of what we’re dealing with, so we think that it’s the appropriate year to be doing this,” Michlewitz said.

Unlike the governor, the House does not propose to have businesses transition to daily remittance by 2024.

DeLeo and Michlewitz said the goal is to pass the budget through the House next week, and Michlewitz said the “framework”of the bill has been discussed with Senate Ways and Means Chairman Michael Rodrigues.

“We had conversation about trying to keep things relatively together on some of the bigger pieces and bigger conversations,” Michlewitz said.

Asked what that meant for earmarks or other policy proposals from legislators, DeLeo said the House must be “careful” to consider the limited resources available, and also mindful that by the time the budget is finished there will be only six months left in the fiscal year.

“We’re also going to be on a very short timeline here because, basically we have to get this moving because we have FY22 budget conversation starting very shortly so there is a need to get this done,” Michlewitz said.

House leaders told members to file amendments to the budget by 8 p.m. on Friday.

Unlike the governor’s budget, the House plan does not include governor’s proposal to increase per-ride fees on Uber and Lyft from 20 cents to $1, and Michlewitz said the legalization of and revenue that could come from sports betting is part of separate negotiations with the Senate over an economic development bill.

Tax revenues over the first four months of the fiscal year are up over last year, and Michlewitz allowed for the possibility that the revenue picture could improve, but said the economy was “at the mercy” of COVID-19.

“If we’re wrong and something happens in the positive, we’ll adjust as we go,” he said.

The Massachusetts Taxpayers Foundation last month warned that the $2.2 billion that would be left in the rainy day fund under Baker’s budget “is not sufficient to weather this storm” and would leave the state in the position of hoping for further federal assistance, an economic rebound and strong tax revenue growth.

One of the largest increases in spending in the House budget compared to the governor’s plan is the $33 million in additional funding House leaders want to put into the Rental Assistance for Families in Transition program.

The House Ways and Means budget also puts more money into food security programs, community day and work programs, substance addiction services, domestic violence and sexual assault prevention and legal assistance. It includes some, but not all, of the governor’s $100 million small business recovery program.

While leaders admitted being unable in the budget to fully fund the Student Opportunity Act, DeLeo said the House bill would increase Chapter 70 by $108 million, consistent with the agreement with the Senate and governor, and spend $80 million more on educational support programs, including a new $50 million COVID student support fund to be targeted for low-income students.

The budget also includes a new $10 million program to help low-income families afford child care and new funding for the Massachusetts Legal Assistance Corporation, Prisoners’ Legal Services and the implementation of criminal justice reform.

Environmental groups were among those pleased with the House proposal. Casey Bowers, assistant vice president at the Environmental League of Massachusetts, said the $7 million in new funding for the Department of Environmental Protection would “allow this agency to carry out its ever growing mission to safeguard our air, water, and land, protect public health and advance our updated climate change targets.”

The governor last month proposed a spending plan that his administration said totaled $45.5 billion, excluding a Medical Assistance Fund transfer. House leaders said Thursday that their $46.02 billion plan was $188 million more than Baker’s $45.83 billion budget, or a 0.4 percent increase.

The state has been operating since the July 1 start of the fiscal year based on interim budgets, the latest of which carries state spending through November.

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