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A Message From Governor Argeo Paul Cellucci
and Lieutenant Governor Jane Swift
"We stand on the threshold of a new century, a century big with the fate of the great nations of the earth. It rests with us to decide whether in the opening years of that century we shall march forward to fresh triumphs, or whether at the outset we shall deliberately cripple ourselves for the contest." - President Theodore Roosevelt, 1900

The words of Theodore Roosevelt measured the great opportunity at the turn of what was undeniably the American Century. His words still hold true at the start of this century - especially in the Commonwealth of Massachusetts. How we collectively address today's most important issues of housing, education, health care and continued economic growth will determine the depth of our progress well into the new millennium.

The 21st century in Massachusetts looks very bright. We have more people working than at nearly any time in our state's history, and our crime rate is at its lowest point in decades. Massachusetts is at the forefront of the information age, just as we were at the forefront of the industrial revolution 200 years ago. Our economy is more diverse than a decade ago, when heavy reliance on a few shrinking industries left us vulnerable to a severe economic downturn.

Our fiscal affairs are in order, with record levels for the state's "rainy day" stabilization fund, unemployment insurance fund, welfare caseload reserve and capital reserve fund. We have made significant progress rebuilding the Commonwealth's aging infrastructure, which was largely neglected during the 1980s.

This level of success was achieved by following sound economic policy, controlling the level of spending each year, and by adhering to a self-imposed annual $1 billion capital spending cap. These efforts have not gone unrecognized at the national level. Massachusetts was recently designated as one of only eight states with reserves large enough to withstand a national economic downturn without raising taxes or cutting important state services. National studies consistently place our economy among the top five of the 50 states, and Wall Street is paying our economy its due - earlier this month Moody's Investor Services upgraded the Commonwealth's bond rating for the fourth time since 1992.

We have set economic policy and formed public-private partnerships that have allowed us to shed a reputation as an unfriendly place for employers. Understanding that not every part of the Commonwealth shares the same economic strengths or needs, we have developed a regional approach to ensure that no community or population is left behind. This approach has been quite successful: all 10 of the Commonwealth's major labor markets have unemployment rates at 4.5% or less.

But let us not forget that at the beginning of the 1990s many Americans felt that strong economic times were a thing of the past. Despair dominated, as a generation of Americans felt they were destined to fall short of the success their parents had enjoyed. Today, that sense of despair has been replaced by unwavering optimism. People speculate on how long this economic boom - perhaps the longest in our Commonwealth's history - will last.

Despite brimming revenue returns in the past few years, the Administration will not waiver from our commitment to maintain prudent levels of spending. We will also ensure that taxpayer funds we do commit are used in the most efficient way, while continuing to develop policies that create jobs and opportunity for the six million residents of the Commonwealth.

But progress and prosperity have created challenges unique to Massachusetts in the new millennium. The strong economy has inflated housing costs, making the American Dream of homeownership difficult for many families. While today's children have the opportunity to become as financially well off as their parents, they now ask the question: "Will I be able to afford a home like my parents' home?"

This budget helps point the state in the direction of a permanent solution to the housing crunch. We propose innovative changes to the local aid formula to encourage cities and towns to create more housing for families of all income levels. And, once again, we recommend spending more on housing and homelessness programs than nearly any other state of our size.

The Cellucci-Swift Administration has made it a priority to provide access to health care for children and adults. Since the summer of 1997, we have enrolled more than 230,000 children and adults in the MassHealth program, giving us one of the lowest uninsured percentages in the United States. Outlined in our FY 2001 budget submission is a detailed plan that addresses the new health care realities we are facing. We have proposed changes to the tobacco trust fund, which will allow us to reach out to those most in need, and to transition our health care system to meet these new realities. It also will ensure that the tobacco trust fund, signed into law by the Administration last year, will grow to more than $1 billion in the next five years.

The new century will also witness the next phase of Education Reform, landmark legislation that leveled the playing field for all communities and introduced competition to public education through charter schools. This budget maintains our commitment to fully-funding our communities at $2.9 billion for Chapter 70 education aid, while calling for greater accountability for both taxpayer funds and in what our students learn in the classroom. We also intend to change the antiquated and dysfunctional system for rebuilding our children's schools, giving increased choice to local communities and allowing more projects to be completed in a timely manner. In addition, we need to ensure that our critical educational programs that prepare students to learn are coordinated to maximize accessibility and to measure outcomes.

A growing economy needs a steady stream of skilled workers to fill the new jobs that will be created in all industry sectors. This is what makes the future of our educational system so important. Only with high standards reached, through both teacher testing and the Massachusetts Comprehensive Assessment System, or MCAS, will we ensure that our students are prepared to thrive in the new economy. But the skilled workers of tomorrow need good jobs, and that can only be reached through the continuation of the Cellucci-Swift economic development plan. The centerpiece of that plan is the rollback of the state's personal income tax to five percent, which will be voted on by the public next fall. Our tax cut plan will give our economy the momentum needed to continue the boom of the late 1990s well into the new millennium, by stimulating job growth and improving the Commonwealth's competitive economic position.

We have committed funding that makes state government operate more smoothly, and provide better customer service to residents, including a more efficient and customer-friendly Registry of Motor Vehicles. We have also developed programs that help state workers and low-income residents balance their work and family responsibilities, and have created a new Department of Children, Families and Learning that will provide more comprehensive and integrated support for young children and their families.

FY 2000 Overview

Unfortunately, the legacy of the FY 2000 budget will be one of tardiness and acrimony among members of the Legislature in what was the most protracted budget process in more than 40 years. But overshadowed by the budget delay were many initiatives that will benefit Massachusetts well into the new century. The Administration worked closely with the Legislature to expand pharmacy benefits for elders losing their HMO drug coverage at the beginning of the 2000 calendar year. The final FY 2000 budget included a plan - originally proposed by our Administration and later part of the House budget - to bring sweeping reforms to the MBTA's bizarre 80-year-old financing scheme. The end result of this reform effort will be a more efficient public transit system that is more responsive to the needs of its riders.

That is not to say that the late budget did not come at a tangible price: many new programs were unable to get underway until more than halfway through the fiscal year. And despite cooperative efforts between the Administration and the Legislature in recent years to create more jobs in the Commonwealth, it took an Executive veto to keep a five-year old promise made to everyday investors and the business community to phase-out the state's long-term capital gains tax. The phase out of the capital gains tax has already stimulated economic growth in the Commonwealth, especially in our high technology and financial services-driven economy.

We also vetoed surplus funding of Chapter 70 aid because it was passed too late and it was beyond the level that cities and towns could spend on education. That veto proved to be prudent when it was discovered that communities were using these taxpayer funds for new municipal buildings, property tax reductions and refurbishing administrative offices - in many cases on anything but initiatives that help students learn. In order to meet the objectives of Education Reform, we must instill accountability, not just in the classroom, but in the ways taxpayer money is spent on education. The Administration signed $3.5 billion for K-12 education in the FY 2000 budget, which amounted to an eight percent increase from the previous year. This is clear proof of the Administration's financial commitment to public education.

While we were pleased that the final budget contained 10 tax cuts, a tremendous opportunity to provide necessary tax relief to Massachusetts residents passed by once again. The last of the fiscal recovery bonds, fallout of overspending in the 1980s, was retired in 1997. By even the most conservative estimate, we are at least three years removed from any lingering effects of the fiscal crisis; there is no acceptable excuse by the Legislature not to keep a decade-old promise and return the state income tax rate to five percent.

FY 2001 Overview

This budget document takes a fresh approach in dealing with both traditional and new priorities of the Administration. At its core are initiatives that address housing, health care, education, quality of life and economic development - not just for this fiscal year, but over the long-term.

For the eighth straight year, we recommend salary increases for human service providers in recognition of the important job they perform everyday. As part of the Administration's continuing crusade to end the scourge of domestic violence in our society, this budget includes $29.2 million for programs to prevent abuse and provide support for victims. Once again, we have called for rate increases for the Executive Office of Elder Affairs so that our growing senior population receives the important services they need, and an additional $10 million to provide rate increases to child care providers.

We also include $56.9 million to retire the short term borrowing notes for the MBTA - an important step called for in the historic financing reform package approved in the last budget. This budget provides $4.3 million for a new State Police class, which will contribute to our success in reducing crime to record low levels across the Commonwealth. We also propose spending $10 million for 250 new correctional officers to staff our state prisons. As part of our continued efforts to preserve the Commonwealth's precious natural resources and scenic beauty, we propose raising fees on polluters and spending this new revenue directly on clean air initiatives.

Housing and Homelessness - New Approaches for a Changing State

We have also included innovative methods of addressing the limited supply of housing in the Commonwealth. A fund of $47 million has been set aside for communities that create new moderately priced housing or help put existing housing units back in circulation. This funding will be drawn from the additional assistance local aid line item, an account that serves fewer than half the Commonwealth's communities and is based on an arcane and arbitrary distribution formula. This new funding account will provide incentives for cities and towns to develop more housing opportunities for families and individuals of all backgrounds and incomes.

We also recommend raising the eligibility level for Emergency Rental Assistance to 130% of the federal poverty level for one-time assistance to prevent homelessness. We also included an additional $5 million for the expansion of family shelter services. In all, this budget invests $196.4 million on housing and homeless initiatives throughout the Commonwealth, not including the highly successful programs of the Massachusetts Housing Finance Agency in creating new housing and homeownership opportunities for low and middle-income families. Our House 1A budget proposal also calls for the Executive Office of Elder Affairs to build 12 new supportive housing sites, an ideal option for seniors who can no longer live on their own, but do not require nursing home care.

But money alone is not the solution for the growing problems of housing and homelessness in the Commonwealth. That is why the Administration has embarked on a comprehensive effort to revamp the Commonwealth's entire housing and homelessness continuum. With our new interagency task force, we will integrate services among all of our departments, ensure that programs and efforts are not being duplicated, determine a consistent way to track housing information, and explore innovative solutions like zoning changes and development incentives that yield real-life answers. If we do not address the shrinking supply and rising demand for housing in our state, it will constrain our economic growth and add to the difficulty of recruiting and retaining workers and employers.

Health Care - Stability for an Uncertain System

While there is some uncertainty over the financial stability of health care organizations in Massachusetts and across the nation, it is not the time to panic. It is, however, the time to act, and create safeguards that will ensure that residents have access to high quality health care despite the challenges to some of our most significant institutions. This budget proposes changing the Health Care and Community Services Trust to commit additional needed money to crucial new health care programs. This new formula would distribute our tobacco receipts evenly, ensuring that the trust will develop a healthy balance for future needs, while utilizing a portion to meet the challenges currently facing the Commonwealth's citizens. In FY01, this will result in $140 million being deposited in the trust, while dedicating $140 million on programs focusing on areas that need our immediate attention.

We propose spending $5 million for the expansion of MassHealth for individuals who work intermittently, but have no health coverage. We also include $10 million to create a reserve for a coordinated senior pharmacy program after the sunset of the current catastrophic pharmacy program at the close of the 2000 calendar year. This will provide us with a contingency plan should the federal government not intervene on behalf of seniors.

Federal cutbacks in Medicare funding and the tight employment economy have put significant financial pressure on many of the Commonwealth's nursing homes. For this reason, we have created a funding pool that will provide salary increases for long term care employees - the people who are caring for the oldest and frailest members of our society. This $10 million pool of funds will allow nursing homes to compete with other sectors in recruiting and retaining long term care professionals, and also reward nursing homes for meeting necessary quality standards to protect our elders.

The hardest hit by federal Medicare cuts are the Commonwealth's teaching hospitals. In order to assist these hallowed institutions that shape some of the best medical minds in the world, our budget recommends $6 million to help teaching hospitals treat complex long-term patients and $1.5 million for the training of new pediatricians. We also recognize the important place of community health centers in our health care continuum by including $3.5 million for community health center clinicians who serve as primary care doctors.

We have also enhanced health care coverage for the children of the Commonwealth by devoting $10 million for the Mental Health Initiative for Children, which provides transitional care for children (particularly DSS children) with psychiatric illnesses. We also provide an additional $260 million for the expansion of MassHealth benefits for low-income residents, bringing this year's investment in MassHealth to $4.6 billion. This unwavering commitment of the Administration in recent years has allowed us to significantly reduce the number of uninsured individuals in the Commonwealth, which now stands at eight percent, or about half the national average.

Education - Renewed Push for Accountability

The new century will be one without the tragedy of social promotion that has plagued Massachusetts public schools for generations. Beginning in FY01, 10th graders must pass the MCAS in order to graduate with the class of 2003. In support of students in danger of failing the MCAS, we have set aside $20 million for fundamental skills tutoring in schools throughout the Commonwealth.

In total, we have increased direct education aid to cities and towns by $132 million from last year's levels. This investment is in the true spirit of education reform, so that every school district remains at or above recommended levels of spending. Our budget addresses shortfalls in the current formula and provides a transitional year to a new formula, which will be determined by a diverse group of parents, educators, and business leaders.

As part of the Administration's push for high standards in all of our schools, this budget creates the new Office of Educational Quality and Accountability, an independent eye to monitor and ensure that all of the Commonwealth's school systems meet the Administration's call for high standards and academic excellence. This year will also witness the beginning of formal character education in our schools, a strong priority of the Administration and one that has reaped positive results in other states. The FY 2001 budget also includes $8 million to complete the Commonwealth's three-year commitment to fully reimburse eligible Regional School Transportation costs. In an effort to help more students get an early jump on academic success, this budget provides $11.6 million to significantly reduce K-3 class sizes in 46 low-income districts throughout the Commonwealth. We strongly believe that a child's address should not preclude him or her from acquiring the building blocks of learning that will last a lifetime.

At the same time that we are creating new programs in the classroom, we are offering sweeping changes to the program that rebuilds the school buildings that house the classrooms. For the first time in its 50-year history, the School Building Assistance program will be substantially changed to meet the needs of all of our school districts. This budget formally shifts the function of running the School Building Assistance program from the Department of Education to an independent agency within the Executive Office for Administration and Finance, and will have at its disposal expertise from a variety of state agencies. It also creates financial incentives for school districts to maintain their building stock; renovate historic schools rather than build new; and use innovative approaches to mercurial school demands (i.e. use of other public buildings, leasing and modular construction). It also changes the arbitrary community reimbursement rates to formulate rates that gauge community wealth and resident income. The new methodology will more accurately measure a community's ability to pay, and will more appropriately distribute funds to the poorest communities. In all, the new SBA program will enable the Commonwealth to undertake more projects and reign in what was in danger of becoming a budget buster. It also gives local communities the opportunity to build the kind of school that best meets their students' needs.

Another important reform designed to benefit the children of this state is the reorganization and expansion of the Office of Child Care Services. The newly created Department of Children, Families and Learning will be charged with supporting the healthy growth and development of children; assisting families in enabling children to become responsible and productive citizens; and promoting school readiness. This reform will move the Commonwealth's most effective and popular child-focused programs under one roof, which will allow for the sharing of resources and maximization of services among these important initiatives. (Please see separate narrative on FY01 education initiatives.)

Quality of Life

In November 1999, we unveiled a comprehensive benefits plan to assist state workers in their efforts to balance work and family responsibilities. This plan would allow Executive Branch employees to develop flextime, job-sharing and staggered hour work schedules, as well as offering up to 52-weeks of unpaid maternity and paternity leave, or to care for an ill relative. This budget recommends $4.8 million for this initiative, which includes funds that would provide a tuition-free education in the University of Massachusetts system for children adopted by state workers through the Department of Social Services. These family-friendly benefits do not just provide support to state employees and their families, but help the Commonwealth in our efforts to maintain a highly skilled workforce in this tight labor market.

Five years ago, Massachusetts implemented one of the most comprehensive welfare reform programs in the nation. With a work requirement for able-bodied recipients at its core, our reform efforts have reduced the welfare rolls by 50% since 1995. Our remarkably successful reform program supports our belief that a job is the single most important benefit we can provide to families and children who have been trapped by welfare. We believe, with continued support for child care and health care benefits - and through the creation of meaningful new jobs in our booming economy - even more of the state's welfare recipients can join the workforce. We continue this push in FY 2001, by bringing the work requirements up to national guidelines, while providing an additional $18 million in child care assistance so that recipients with young children can make the important transition to work.

Changing the Face of Government

"The people's government, made for the people, made by the people, and answerable to the people." - Daniel Webster, 1830.

We have continued to find ways to make your state government work better. This budget includes $9 million for staffing increases and technological upgrades at the Registry of Motor Vehicles, which will provide the resources the Registry needs to improve services for the Commonwealth's motorists. Massachusetts drivers also will become eligible for lifetime licenses in FY01.

In order to streamline coordination for residents who have contact with multiple state agencies, we also propose creating a single application form for state services. This works in concert with our efforts to make state government more user-friendly, including current initiatives by the Department of Revenue to develop a single business permitting system and integrated web site for business resources.

The Commonwealth will begin the process of abolishing Bristol, Plymouth and Nantucket county governments and transition the Suffolk County Sheriff into state government. This means that by FY 2003, 11 of the 14 county governments will have been eliminated.

Government must constantly evolve to best meet the needs of its constituencies. This budget proposes privatizing the operations of the Massachusetts Water Resources Authority, which, based on the success of similar efforts nationwide, could return to the ratepayers 20% to 40% in annual savings. We have also made changes to the state revolving fund to increase by $50 million the amount available to cities and towns for water and wastewater projects. We are able to achieve this increase by asking communities to contribute two percent toward the interest cost on their loans. This interest payment by the cities and towns - still the lowest rate of any state - would allow more communities to get the financial assistance they need.

While we intend to continue our efforts to rebuild the state's infrastructure, one line item we regret having to fund is for the bloated debt service costs on public construction projects. The Commonwealth spends far too much on public construction due to an unwieldy and illogical set of construction laws. The solution is found in the Administration's comprehensive construction reform bill that would save, according to an independent study, at least $220 million per year in taxpayer funds, shorten construction schedules and result in better quality projects - while safeguarding the reforms of the Ward Commission. These reforms would be reflected in significant debt services savings in future years.

Cities and Towns

For the first time ever, we will enter the fiscal year without a cap on the lottery distribution to cities and towns, and with all of the Commonwealth's school districts at or above the foundation level for Chapter 70 education aid. Over the past nine years, the Administration and the Legislature have made an unprecedented investment in our 351 cities and towns. According to the Massachusetts Taxpayers Foundation, an independent fiscal watchdog group, the coffers of the local communities have surpassed record levels. MTF has echoed the statements of the Administration that cities and towns should not expect these record levels of local aid to continue indefinitely.

Our budget proposal includes a four percent increase to $4.8 billion in direct local aid, including $14 million in new Lottery funds. Lottery aid has grown 140% from $306 million to $730 million since Fiscal Year 1992.

Fiscal Discipline Breeds Fiscal Stability

Our House 1 budget plan calls for spending $21.3 billion in Fiscal Year 2001. Our decision to place the tobacco settlement money in a permanent trust will ensure that this largess is protected and used for its intended purpose - to reimburse the Commonwealth for the costs of treating smoking-related illnesses and fund health care related programs. Total spending, including off-budget transfers, represents a 2.8% increase over anticipated Fiscal Year 2000 spending. The majority of this increase supports aid to cities and towns including education aid, health care expansion and for funding the state pension system.

Our tax and departmental revenue projections for both Fiscal Year 2000 and Fiscal Year 2001 are conservative. It remains our contention that a conservative revenue assumption is necessary since most economic forecasters project a slowdown in the economy for the second half of this year, which will continue into 2001. We believe that this fiscally prudent course is one that does not overreach, providing a guarantee that we will not be forced to renege on our commitments if revenues do not meet our expectations. This budget assumes base tax revenue growth in Fiscal Year 2000 of 7.3%, and base tax revenue growth in Fiscal Year 2001 of 4.4%.

This sense of discipline has positioned the Commonwealth well for the future. Our state's reserve accounts are now flush: $1.8 billion in the unemployment insurance fund; $131 million for the welfare caseload reserve and $1.4 billion in the stabilization fund - which we have once again moved to keep sacrosanct by including language requiring a two-thirds vote to authorize any appropriations. The state's public pension liability, less than 40% funded in the late 1980s, now approaches 80%, and will be fully-funded 10 years earlier than initially expected.

Looking Forward

Just like most families carefully make their fiscal decisions around the kitchen table, the entire Administration joins together to make difficult decisions on every penny of taxpayer dollars spent. We take our fiduciary responsibility with your money very seriously, as this budget proves. But though we have limited the growth of spending, we have prioritized funding for the programs that most benefit the residents of the Commonwealth.

This budget addresses the most pressing issues that face the Commonwealth today, housing, education and health care, but also keeps one eye closely trained on the issues of the future, such as a national recession or reductions in much needed federal funding. We believe that the Commonwealth shares its core objectives with the families of Massachusetts. Working together, we can ensure that life in Massachusetts in the 21st century will be an era of continued growth and prosperity.

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Commonwealth of Massachusetts

Executive Office for Administration and Finance
Fiscal Affairs Division
State House, Room 272
Boston, MA 02133
(617) 727-2081

Last updated on January 26, 2000

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