A First Take On The Governor's Budget

The budget proposed by the Governor today has some bright spots, including an increase in the earned income tax credit that will improve the economic security of lower income working families, and additional resources aimed at reducing opioid misuse and expanding prevention efforts. The budget does not, however, propose significant new investments to strengthen our economy and expand opportunity such as by improving our local schools, making higher education substantially more affordable or fixing our roads and public transportation systems.

MassBudget will publish a detailed examination of this budget next week. Based on our first look, these are a few of the more significant elements proposed by the Governor's budget:

Education

Increases Chapter 70 local aid for education by $103.6 million or 2.2 percent. Also proposes an additional $15 million for districts that recently enrolled Puerto Rican or US Virgin Islands students.
Provides essentially level funding for Early Education and Care, after accounting for inflation. The nominal increase is $13.9 million, or 2.4 percent, over the current FY 2018 budget.
Leaves total higher education funding essentially flat once accounting for inflation. Direct support for the University of Massachusetts, State University, and Community College campuses increases by $13.9 million (1.4 percent), but this is insufficient to keep up with inflation. The budget adds $7.1 million to the MASSGrant program, which the administration describes as the amount needed to cover "all unmet need for students to cover tuition and fees at the Commonwealth's 15 community colleges." This $7.1 million represents a doubling of state scholarship funding for community colleges, but it is not clear if this is intended to make community college more affordable while holding enrollment constant, or to increase access to community college, or a combination of both.

MassHealth and Health Reform

Aims to hold down MassHealth costs with two significant initiatives:

Approximately 140,000 adults (without disabilities) with incomes between 100 to 138 percent of the federal poverty level would lose MassHealth coverage, and would instead be eligible for subsidized commercial health insurance on the Health Connector. The Administration anticipates this change would generate $60 million net in FY 2019 and $120 million annually thereafter because of the federal subsidies available for commercial insurance for low-income people under the Affordable Care Act. It is not clear, however, how this shift will affect cost-sharing and premiums for these low-income adults. The Governor, does, however, intend to expand dental coverage for some of these individuals.
The Governor proposes two initiatives to reign in pharmaceutical costs: one to improve the state's ability to negotiate prices with drug manufacturers; and an exclusion of specific high-cost medications from the MassHealth formulary. This latter proposal still requires federal approval.

Mental Health and Public Health

Continues the commitment to increased services for behavioral health and funding to address the state's opioid crisis. The Governor's budget proposes an increase in funding for adult mental health services, to expand treatment at the community level for adults with serious mental health needs. The Governor's budget also proposes increased funding for treatment and prevention of substance misuse, including increased funding for treatment and prevention within the Department of Public Health.

Disability services

Increases funding for the Turning 22 Program slightly, from a combined $37.3 million to $39.1 million, or about 4.9 percent. The Turning 22 Program funds services for eligible young adults with disabilities who have graduated from special education and includes funding across three different departments.
Increases funding for Autism Omnibus Services, which provides services to people with autism spectrum disorders by 36 percent, from $13.3 million to $18.1 million.

Housing

Provides $2.7 million to implement the Housing Choice program, which encourages cities and towns to increase housing development, and increases the Massachusetts Rental Voucher Program by $4.7 million. According to documents accompanying the budget, this increase would allow the state to create more than 200 additional supportive housing vouchers for low-income renters.

Local Aid

Unrestricted General Local Aid would increase to $1.099 billion, a $37.2 million (3.5 percent) increase, which is less than FY 2017's 3.9 percent increase of $39.9 million.

Revenue

Expands the state's Earned Income Tax Credit (EITC) to increase the amount by which it matches the federal EITC from 23 to 30 percent of the federal amount. This is a refundable tax credit for low-income workers to increase the after-tax rewards from work. It is available to tax filers with earned income and provides benefits primarily to workers with children. The new federal tax law would erode the increase in value of the EITC over time by using a slower growth factor for inflation. A body of research has shown that in addition to encouraging people to work, the EITC improves health outcomes for mothers and children, boosts children's academic performance, and improves their future earning potential. By increasing Massachusetts's state match rate of this federal program, the Commonwealth would be on par with New York's match, but below other states such as Vermont, New Jersey, and California. The proposed increase would begin January 1, 2019. The cost will be about $65 million per year, beginning in 2020, when people pay their 2019 income taxes.
Extends the state's 5 percent room occupancy tax paid by hotels and motels to include short-term housing rentals, including those rented on online platforms such as Airbnb. This is similar to the Governor's previous proposals in earlier years. It would apply only to rooms rented 150 or more nights per year and is estimated to generate $13 million in additional state revenue. Localities would also be empowered to charge their own tax of up to 6 percent (6.5 percent for Boston). Companies like Airbnb would be able to enter voluntary agreements to collect these taxes on behalf of the state. For more information on Airbnb and Massachusetts state taxes, see MassBudget's July 2016 fact sheet.