ATTACHMENT E

June 29, 2009

To the Honorable Senate and House of Representatives:

Pursuant to Article LVI, as amended by Article XC, Section 3 of the Amendments to the Constitution of the Commonwealth of Massachusetts, I am returning to you for amendment Section 22 of House Bill No. 4129, "An Act Making Appropriations for the Fiscal Year 2010 for the Maintenance of the Departments, Boards, Commissions, Institutions and Certain Activities of the Commonwealth, for Interest, Sinking Fund and Serial Bond Requirements and for Certain Permanent Improvements."

Section 22 limits the amount of volatile revenues that could be incorporated into the annual operating budget, but also provides a mechanism for building a significant level of reserves to help mitigate the negative effects on program and services during difficult fiscal times such as the present one. I am pleased that the House, the Senate, and my Administration agree on this important principle that will stabilize future state revenues.

My Administration has been discussing with key legislators some technical improvements in this mechanism. To advance that discussion, I am proposing the following language, which will require the annual consensus revenue forecast to include a maximum available amount of capital gains income tax revenue and limit the amount that may be considered for general appropriation to $1 billion. When capital gains income tax revenue exceeds an amount that would be consistent with $1 billion annually, according to quarterly estimates by the Department of Revenue, the excess will be transferred to a new Capital Gains Revenue Holding Fund and then annually to the Commonwealth Stabilization Fund.

For these reasons, I recommend that Section 22 be amended by striking out the text and inserting in place thereof the following text:-

SECTION 22. Chapter 29 of the General Laws is hereby amended by inserting after section 2ZZZ the following section:-

Section 2AAAA. There shall be established upon the books of the commonwealth a separate fund to be known as the Capital Gains Revenue Holding Fund, in this section called the fund. Upon the periodic certification by the commissioner of revenue during a fiscal year, as provided in section 5B, of the tax revenues estimated to be collected during the preceding interim period from capital gains income, if the estimate of year-to-date revenue from capital game income through the interim period exceeds the year-to-date amount that would be consistent with $1 billion in annual revenue from capital gains income through such period, as provided in section 5B, the comptroller shall transfer between the General Fund and the fund the amount required to ensure that the balance in the fund is equal to the difference between the estimate of year-to-date revenue from capital gains income through the interim period and the year-to-date amount through such period that would be consistent with $1 billion in annual revenue from capital gains income. But this transfer shall occur only if the total state tax revenues received as of that date equal or exceed the consensus tax revenue forecast determined under section 5B through that date. Upon any periodic certification by the commissioner of estimated year-to-date tax revenue collected through the preceding interim period from capital gains income in an amount below the year-to-date amount of revenue from capital gains income that would be consistent with $1 billion in annual revenue from capital gains income through such period, as estimated in accordance with section 5B,the comptroller shall transfer the difference in such amounts from the fund, to the extent of any balance in the fund, to the General Fund. Following the commissioner's certification of estimated tax revenues from capital gains income in the final interim period of a fiscal year and any associated transfers to or from the General Fund as provided in this section, the comptroller shall transfer any remaining balances in the fund to the Commonwealth Stabilization Fund established by section 2H.

SECTION 22A. Section 5B of said chapter 29 is hereby amended by striking out the last paragraph, as appearing in the 2008 Official Edition, and inserting in place thereof the following paragraph:-

On or before January 15, the secretary of administration and finance shall meet with the house and senate committees on ways and means and shall jointly develop a consensus tax revenue forecast for the budget for the ensuing fiscal year which shall be agreed to by the secretary and those committees; but in the first year of the term of office of a governor who has not served in the preceding year, they shall agree to the consensus tax revenue forecast not later than January 31. In developing the consensus tax revenue forecast, the secretary and the committees, or subcommittees of the committees, may hold joint hearings on the economy of the commonwealth and its impact on tax revenue forecasts. The consensus tax revenue estimate shall be net of the amount necessary to transfer, from the General Fund to the commonwealth's Pension Liability Fund, to fully fund the system according to the schedule established pursuant to paragraph (1) of section 22C of chapter 32. The commissioner of revenue shall recommend and the secretary and the committees shall agree upon an amount of taxes to be included in the consensus tax revenue estimate from capital gains income, as defined under chapter 62, taking into account the commissioner's projection of capital gains tax revenue for the fiscal year and principles of prudent budgeting necessary to modulate the year-to-year impact of this fluctuating revenue source. Any amount of estimated tax revenue from capital gains income in excess of $1 billion shall be transferred to the Capital Gains Revenue Holding Fund, established by section 2AAAA, such that the amount of taxes to be included in the consensus tax revenue estimate from capital gains income shall not exceed $1 billion. To facilitate accurate periodic transfers into the Capital Gains Revenue Holding Fund, the department of revenue shall provide an estimate of the level of income from capital gains, for each month of the fiscal year, which would be consistent with $1 billion in annual capital gains revenue. The department of revenue shall report on or before February 15, June 1, July 15, and October 15 with respect to the estimated capital gains revenue received through the end of the prior month, to the house and senate committees on ways and means, the joint committee on revenue, the secretary and the comptroller. The consensus tax revenue forecast, including the consensus tax revenue estimate from capital gains income as determined above, shall be included in a joint resolution and placed before the members of the general court for their consideration. This joint resolution, if passed by both branches of the general court, shall establish the maximum amount of tax revenue which may be considered for the general appropriation for the ensuing fiscal year.

SECTION 22B. Section 5C of said chapter 29, as so appearing, is hereby amended by inserting after the word "and", in line 7, the following words:- , if no transfer to the Commonwealth Stabilization Fund has been made under section 2ZZZ for that fiscal year,.

SECTION 22C. Section 6A of chapter 62F of the General Laws is hereby repealed.

Respectfully submitted,

Deval Patrick