Executive Summary - Overview

The Governor's FY05 Budget Recommendation adheres to the principle that fiscal responsibility with reform can maintain budgetary balance without raising taxes. This budget proposes new investments in education, covers escalating healthcare costs, and outlines necessary reforms, such as:

• Creating a single highway department by combining the MassPike and MassHighway operations.
• Building local schools by refinancing the School Building Assistance program.
• Lowering the cost of public building by changing the way construction projects are handled.
• Improving service quality by putting the public interest ahead of union and other special interests.

Reform means we can protect local aid from cuts, and eliminate reliance on reserves and higher fees. In addition, this budget rejects financial fads like deficit financing and tobacco securitization.

Trends

Total estimated spending in FY05 is $22.979 billion versus $21.886 billion this fiscal year. Some areas, like Medicaid and debt service, will increase more than others. In fact, half the budget will grow at 7% while the remainder will stay relatively flat, yielding a 5% average budget increase, as shown in the table below.

FY04-FY05 Budgeted Spending by Major Area ($ millions)

The sustainability of this spending mix - more health, debt and education costs, but less of everything else - is under constant vigilance, and underscores the imperative for reform.

What's Different in FY05

Various changes impact the presentation of this budget.

• Funding for School Building Assistance has been moved from the operating to the capital budget; as a result, the previous appropriation under the Department of Education has been replaced with a debt service appropriation under the Executive Office for Administration and Finance.
• Pursuant to a consensus agreement with the legislature, funding for the state's pension system is accounted for using an "off-budget" method; while costs will rise 77% to $1.217 billion in FY05, the impact is a reduction in revenue, not an increase in a line-item appropriation (see chart in Revenues section).

Revenues

By consensus, tax revenue will be $15.801 billion in FY05, reflecting a modest economic recovery. In addition to the consensus forecast, $70 million is anticipated from closing certain tax loopholes, including untaxed transactions of corporate assets, and sales taxes on promotional materials and out-of-state purchases.

FY04-FY05 Tax Revenue Estimate ($ millions)

Other revenue sources include the lottery, fees and federal reimbursements.