Lawmakers may break for election cycle without annual budget

Boston Statehouse

Photo: SHNS

BOSTON (SHNS) – In one of the clearest signs yet that Beacon Hill may fade into a summer recess without even debating the overdue annual state budget, Gov. Charlie Baker on Tuesday filed another one-month spending bill to keep state government-funded through August with an additional $5.51 billion.

Baker in January filed a $44.6 billion fiscal 2021 budget that soon thereafter became obsolete due to a tax revenue collapse sparked by government-forced shutdowns of businesses and commerce during and after the peak COVID-19 surge.

The Baker administration and Democratic legislative leaders since then have not announced any steps to address fiscal 2020 budget woes and the House blew by April and July deadlines without producing an annual spending plan for fiscal 2021 or outlining a new budget timeline.

Budget writers have been waiting to see what the state’s finances look like after state officials delayed the April 15 tax filing deadline to July 15, which jumbled the ordinary flow of revenues and made tricky forecasting even more dicey. The federal government has delivered large amounts of aid to the states, but with many states still facing unprecedented budget holes talks remain active in Washington about additional aid to individuals, businesses and states.

Without any full-year, post-pandemic budgets on the table, it appears certain that this year’s budget deliberations will extend beyond the July 31 end of formal sessions, although legislative leaders refuse to give voice to plans for a fall budget debate, which would blend into the election season.

Asked Tuesday if lawmakers planned to pass a fiscal 2021 annual budget by July 31, or if not then when, Senate budget chief Michael Rodrigues said he would be “happy” to answer questions about the budget “some other time.”

Both branches are in session this week with an opportunity to adopt an interim budget for August, which seems inevitable given that the alternative would be for state government to shut down. When coupled with July’s $5.25 billion interim budget, the two interim budgets total $10.76 billion in spending, but Baker administration officials say spending levels can fluctuate significantly during the fiscal year and the summer budgets include some larger expenditures.

Budget clarity could be coming soon to one important budget constituency – the 351 cities and towns that deliver essential services at the local level.

The governor indicated Tuesday that in the “coming weeks” he and Democratic leaders in the House and Senate would be finalizing a full-year projection for local aid and Chapter 70 school funding from the state to provide “important clarity” for municipal leaders.

Local aid levels have been held level for July and August, but municipal officials don’t know what to expect for the final 10 months of fiscal 2021.

“We also look forward to continuing the important work already underway with you on a full-year local aid and chapter 70 announcement that will be guided by additional information expected from the federal government in the coming weeks,” Baker wrote in a filing letter that accompanied his interim budget bill.

“An agreement between both branches and the Administration on a baseline full-year projection will provide important clarity to local officials budget for Fiscal Year 2020,” the governor said.

Massachusetts Budget and Policy Center President Marie-Frances Rivera said Beacon Hill needs the “moral courage” to raise taxes, as the Legislature has in previous recessions, and to ask for more revenues from the state’s “richest neighbors and most profitable corporations.” She called the alternatives of receiving massive amounts of federal aid or making steep state budget cuts a “false choice.”

“With two weeks before the close of formal session, our state’s elected leaders have still not announced plans to unveil an overdue Fiscal Year (FY) 2021 budget. Meanwhile, people across the state – especially our Black, Indigenous, and People of Color (BIPOC) communities – are still suffering,” Rivera said in a statement Thursday. “These ongoing delays and uncertainty in funding levels for critical supports such as early education, public schools, care for elders and people with disabilities, public health facilities and others are causing panic in communities across the Commonwealth.”

As of July 8, 42 states have enacted a full-year budget for fiscal 2021, including 17 states that previously enacted a two-year budget, according to the National Association of State Budget Officers.

Budget writers here have focused their attention on documented revenue volatility, but spending levels are another area of uncertainty.

The state received $2.7 billion in COVID-19 relief funds under the CARES Act and the Baker administration has been doling out that money. There are strings attached as the federal funds can only cover expenditures that had not been budgeted as of March 27, 2020 when the CARES Act was enacted. The money may not supplant state or municipal spending, and also may only cover expenditures incurred on or after March 1, 2020, and up to December 30, 2020.

However, the governor this spring did not officially lower the state’s shattered fiscal 2020 revenue estimate in the face of falling revenues and detailed information was not available Tuesday about how state spending has stacked up against the $43.3 billion fiscal 2020 budget Baker signed in July 2019.

The revenue collapse is clearer. Over the first 11 months of fiscal 2020, state tax collections totaled $24.782 billion. That is $1.726 billion, or 6.5 percent, less than the same fiscal year-to-date period in 2019, and $2.253 billion, or 8.3 percent. less than the benchmarks used to formulate spending plans.

The U.S. Senate returned this week from a two-week recess, and state officials are watching closely in anticipation of Republican leadership in the Senate offering a counter-proposal to the $3 trillion relief bill already passed by the U.S. House.

State officials have had enough cash on hand since the pandemic struck in mid-March to keep up with bill payments, including large monthly local aid payments, but state Treasury officials confirmed to the News Service in late June that they were drawing down $500 million from a $1.75 billion line of credit established with a group of commercial banks to help manage cash flow, if necessary.

The move, according to First Deputy Treasurer James MacDonald, was made to help the state prepare to manage the deferral of tax revenue associated with moving the tax filing deadline to July 15 and to “be ready for July.”

The deferred revenue means the state is still collecting taxes that will be applied to last fiscal year, keeping fiscal 2020 books open longer and lending to an unusual degree of overlap between the two fiscal years.

The Department of Revenue plans to offer a preliminary update on June state tax revenues this month, but does not expect a full June revenue report until September due to the deferral ]of the personal income tax return deadline and payment due dates.

In a letter to legislators Monday, Revenue Commissioner Geoffrey Snyder said tax revenues collected in the first half of July included a “material amount” of the deferred payments on personal income tax and corporate excise payments, and excluded some postponed sales, meals and room occupancy taxes. Snyder reported that total tax collections for the month-to-date period were $2.133 billion, up $1.338 billion or 168 percent versus the same period in July 2019.

By contrast, total tax collections for the first half of June were $1.207 billion, down $609 million or 33.5 percent versus the same period in June 2019.

Amidst the crisis, Baker and the Legisalature have so far resisted calls to draw from $3.5 billion in reserves to address spending needs.

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