Over the last year, we took action to reform government and to make it more responsive to the people of Massachusetts. We restructured bureaucracies and eliminated longstanding duplication. We refused to pass along our financial problems to the citizens. Instead, we produced a balanced budget on time and without raising taxes.
My FY05 Budget Recommendation continues on the same path to reform, and I'm pleased to present it to you once again in an easily readable, online format.
A year ago, our state was facing a fiscal crisis. Today, the state of our Commonwealth
is much stronger. With purpose and determination, we're moving again in the
right direction.
We still face hard choices. But, if we stay on the road of reform, placing the interests of people first, we can do some good things this year.
In my budget, I have outlined a Legacy of Learning initiative to improve public education in Massachusetts. This program will allow us to build more schools, target resources to the bottom tenth of our school districts and give our top-performing MCAS scorers free tuition at our public colleges and universities.
Overall, my total budget for K-12 education grows by over $100 million. Higher
education grows by over $70 million. I am also proposing a modest increase in
local aid.
In FY05 we are increasing Health and Human Services spending by approximately
$500 million or 5%. Some say that's not enough, but it reflects the necessary
reforms introduced in FY04 which have slowed the rate of growth of this part
of our budget. We will continue to be one of the most generous states in the
country when it comes to providing for those in need.
Now, you may ask, how can we do these things in such difficult financial circumstances? We can do these things because we will keep marching down the road to reform. When we eliminate waste in government, we can do more for people.
I'll ask the Legislature - again - to merge the Massachusetts Turnpike Authority with the Highway Department. That alone will save over $20 million a year and another $190 million in one-time money. Our choice is this: Do we waste $20 million of taxpayer money every year on two highway departments or do we invest in scholarships, schools and teachers? Let's choose our children.
There are many other areas ripe for reform.
The cost of construction in Massachusetts for schools and other municipal and state buildings is 20 percent higher than that in other states, even adjusting for our higher wages.
This excess is due to burdensome construction and bidding rules. Modernize these provisions and we can afford to build more schools with the money we save.
We need to reform state and municipal employment practices as well.
Right now, we virtually prohibit any private employer from competing for state work: state workers are given a monopoly. And monopolies mean inefficiency, waste and excess.
In addition to reform, my budget continues to pare back programs I believe are unnecessary, prone to abuse or simply lower priority.
I'm optimistic about our future. As the Legislature begins its debate over the budget for the coming fiscal year, let's keep in mind that we can make critical investments in our schools and our children if we have the will to make needed reforms to the way state government does business.
We started down the road to reform last year. This is no time to take our foot off the gas pedal. The people who elected us deserve the best government we can give them.
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.
The Governor's Budget guarantees that every school district is able to meet
its minimum foundation funding level with a $72 million increase over FY04 in
direct "Chapter 70" local aid to schools. In addition, no community with an operating school district will see
any year-to-year reduction in direct allocations of state aid. Overall, local
aid increases 1.7%. Additional local aid information based on the Governor's Budget, for individual cities and towns, is available at http://www.mass.gov/dls/CHERRY/
FY04-FY05 Local Aid
New Initiatives
Legacy of Learning, a collection of new initiatives, forms
the cornerstone of the Governor's Budget this year. Administered by the Department
of Education (DOE), this new investment of $44 million will help boost overall DOE spending
by 3.3%, as shown below.
FY04-FY05 K-12 Department of Education Spending*
John and Abigail Adams Scholarship
A new John and Abigail Adams Scholarship Program awards
the top 25% of Commonwealth high school seniors (measured by statewide MCAS
scores taken by the end of junior year) with free tuition to the University
of Massachusetts, or to any state or community college. In addition, the top
10% receive a $2,000 bonus to help cover additional campus expenses. Reimbursement
to higher education campuses for tuition and fees is administered through line
item 7077-0025.
This merit-based program requires full-time study (up to four
years) and is contingent upon maintaining at least a 3.0 grade point average.
Parochial and private school students who take the MCAS exam at their own expense
are also eligible to participate.
School Building Assistance Reform
Our historic Commonwealth contains many old buildings, and local
schools are no exception - the average school was built during the Eisenhower administration.
A state and local government partnership, called the School Building Assistance
program, now reimburses the construction or rehabilitation of over 750 buildings. But success has resulted in an unsustainable explosion in demand
and a long waitlist - now 420 projects valued at $4 billion.
Fiscal constraints, exercised through a moratorium, halt new projects
and delay reimbursements to ones already completed. The Governor's Budget reforms
the School Building Assistance program, clears the waitlist by FY09, and honors
all prior commitments made to cities and towns.
Projects Currently Receiving Reimbursement (748 Projects)
Under the current program, cities and towns with a school project
borrow for the entire cost of the project. The Commonwealth then reimburses
its share, 71% on average, in a series of annual payments. In essence, municipalities
borrow on behalf of the Commonwealth and the Commonwealth reimburses its portion
of the municipality's debt service.
Under the Governor's proposal, the Commonwealth will take advantage
of historically low interest rates to refinance its share of reimbursement payments
to cities and towns, extending borrowing from 20 years to 40 years to better
match the useful life of school buildings. Newly issued state debt will retire
all remaining local obligations (determined by the present value of all remaining
payments). Since the state will deposit its share into a local escrow
account, municipalities will avoid the uncertainty of future appropriations.
In addition, a single bond issuance will save the Commonwealth at least $150
million in FY05.
Projects on the Waitlist (420 projects)
The single issuance savings of $150 million will accelerate waitlist clearance
to as early as FY09 if proposed construction reforms are simultaneously adopted.
Reimbursement rates and sequencing originally promised by the Department of
Education remain unchanged. Click
for a School Construction Grant Schedule.
Key Related Reforms
In addition to an innovative financial restructuring, a comprehensive
solution to school building requires construction reform and future programmatic
changes to be developed by an independent commission.
Simply put, construction reform lowers project cost and improves
quality. Lower cost translates into more schools by accelerating the clearing
of the waitlist.
The proposed commission, comprised of members from the executive
and legislative branches, and local officials, must address long-term sustainability
of the program.
The lowest scoring districts and schools include the following
24 municipal districts, 5 charter schools, and 13 vocational technical high
schools:
Municipal Districts
Vocational
Technical High Schools
Boston
Brockton
Cambridge
Chelsea
Chicopee
Fall River
Fitchburg
Greenfield
Haverhill
Holyoke
Lawrence
Lowell
Lynn
Malden
New Bedford
North Adams
Salem
Somerville
Southbridge
Springfield
Wareham
Webster
Winchendon
Worcester
Assabet Valley
Blue Hills
Cape Cod Regional
Essex Agricultural
Greater Fall River
Greater Lawrence RVT
Greater New Bedford
Greater Lowell
Northampton-Smith
South Middlesex
Southeastern Regional
Upper Cape Cod
Whittier
Charter
Schools
Lawrence Family Dev. Charter School
Boston Renaissance Charter School
Seven hills Charter School
Somerville Charter School
Atlantis Charter School
These districts exhibit an unacceptable achievement gap: only
45% of first-try students pass the MCAS, compared with 77% statewide. Furthermore,
while they represent less than a third of total enrollment, these districts
struggle with the majority of performance issues, including:
54% of all tenth graders who fail the 2003 MCAS.
90% of students statewide who are not proficient in English.
Clearly, these communities need additional help. The Governor's Budget proposes
$20 million to provide 60 hours of individual or small group instruction by
qualified teachers after school and during the summer for children in 4th through
8th grade, and similar assistance to 9th and 10th graders during regular school
hours. This assistance complements the $10 million for MCAS tutoring already
appropriated in FY04.
Full-day Kindergarten
According to several studies, full-day kindergarten improves a child's school
success, social skills, and achievement on standardized tests. Seven low scoring
districts - Brockton, Fitchburg, Haverhill, Lynn, Southbridge, Wareham, and
Winchendon - do not offer full-day kindergarten to all students. The Governor's
Budget expands full-day kindergarten in these districts with $9.9 million in
new funding for teacher salaries, appropriate furnishings and equipment, and
if needed, portable classroom space. This appropriation complements the $23
million appropriated in FY04 for kindergarten development grants.
Disciplinary School Grants
Disruptive youth spoil learning opportunities for their peers, and make it
difficult for teachers to focus on classwork. Five million dollars in new grants will
help districts handle difficult student behavioral issues without distracting
those focusing on their studies.
Parent Orientation and School Participation
Parent orientation - $2 million
All parents of children enrolled in state-subsidized child care are already
required to meet with an intake counselor every six months. For parents in these
programs with children under five, $1.7 million will provide individual parenting
orientation sessions as an integral part of this mandatory process. Counselors
trained in child development will share information with parents on what to
expect at various stages of their child's development, how they can participate
in their child's school, and what they can do to encourage their child to learn
and grow.
These parents will also receive a guidebook developed by the Department of
Education, the Office for Child Care Services and other organizations, to help
them better understand what they can do to help their child. The Governor's
Budget includes $300,000 to publish this guide in five languages for the parents
of over 60,000 children.
School Participation Incentives
The Governor's Budget also provides $2 million in grants for 29 low-scoring
districts to boost parental participation through teacher/parent conferences,
open houses, family nights, volunteer opportunities, and family outreach.
Math and Science Teachers
In some districts, over 50% of students are failing MCAS math. Improving our
students' math and science skills is the best way to help them meet the challenges
of today's economy. The Governor's Budget includes $3 million for a number of
initiatives aimed at improving students' math achievement by improving the math
skills of current teachers, and retaining and recruiting new teachers.
The proposals include:
$1.46 million to expand the federally-funded Math and Science Partnership
Program for teacher math and science skills.
$600,000 to fund a $3,000 incentive for math and science teachers, with
an enrollment goal of 200.
$500,000 for online self-diagnostic tools for math skills to help teachers
assess their professional development needs.
$440,000 to fully fund third-year bonuses to 110 teachers in the Massachusetts
Institute for New Teachers Program.
Management Support for Under-performing Districts
Under-performing districts need technical assistance and management support
to turn their schools around. The Governor's Budget includes $2 million for
leadership and management training, performance management assistance, and curriculum
review.
Charter School Expansion
Charter schools provide choices for families and introduce competition into
our school system. Public charter schools in Massachusetts have shown impressive
results in student MCAS performance and have expanded the array of rigorous
and innovative programs available to students in the Commonwealth. Unfortunately,
the current charter school cap puts this educational option out of reach for
families in some communities.
The Governor's Budget removes these limits, thereby lifting restrictions on
152 school districts that are virtually prohibited from adding new charter schools
under the current law.
The Governor's Budget also establishes charter school management organizations
for multiple campus administration. Current law mandates that each charter school
hold an individual license with separate boards and management. This unnecessary
restriction makes the sharing of resources difficult, especially in smaller
communities.
Higher Education
The Governor's budget increases higher education funding by $75 million, or
9.6%, as shown below.
FY04-FY05 Higher Education
Unlike previous years, the distribution of new funds to individual state and
community college campuses reflects a consensus formula based on objective criteria,
including instructional costs driven primarily by enrollment and program needs,
support staff requirements, and physical plant costs.
As the Central Artery/Third Harbor Tunnel project nears completion, we must
embrace new thinking about the Commonwealth's transportation leadership,
beginning with unified highway operations -- accomplished through the merger
of the Massachusetts Turnpike Authority and the Massachusetts Highway Department.
The Turnpike is too small to exist as a stand-alone entity in the 21st century;
it manages only 8% of state lane-miles, but spends more than 35% of all road-related
operating cost. Top-heavy overhead generates losses every year in road operations.
As a result, the Turnpike has raised cash by selling off important land holdings
(such as Allston Landing) and by speculating on future interest rates. This
speculation - called swaptions on Wall Street - contributed to credit
downgrades from independent credit ratings agencies.
Recent Turnpike actions have placed the entire statewide transportation plan
in jeopardy. In addition, the once-in-a-century opportunity to re-envision 200
acres in central Boston will be squandered if delegated to the Turnpike without
significant city or state involvement. A simple merger will bring this dysfunctional
organization under constitutional control.
By sharing overhead and other management changes, the Commonwealth will save
over $20 million annually, all without any negative impact on road quality.
The merger will also free up more than $190 million that are no longer needed
given the credit strength of the combined entity.
In public construction, Massachusetts experiences more delays and higher costs,
even after adjusting for local wage rates and climate, than other states. The
Governor's Budget outlines important steps to save at least 10% on vertical
construction:
Releasing state and municipal governments from unnecessary restrictions
on procurement and delivery methods for complex projects.
Eliminating the economic disadvantages of filed subcontractor bidding.
Improving municipal project oversight with professional managers for construction
over $5 million.
Procurement and Delivery Methods
Current law mandates a so-called design-bid-build construction process where
each phase must be completed before the next begins. Private sector experience
shows that design-build methods dramatically reduce completion time for large,
complex projects. Under construction-manager-at-risk, the state would be protected
from unforeseen cost exposures. Recent evidence underscores the economic benefits
of flexible building processes:
Traditional design-bid-build at the Brooke Courthouse in Boston cost $267
per square foot
Flexible design-build for a courthouse in Brockton cost 25% less on an
equivalent basis
Construction reform will strengthen, not weaken, anti-corruption efforts and
Ward Commission reforms, such as:
Designer Selection Board, which selects project designers devoid of political
influence, remains in place
Enhanced pre-qualification procedures
Current laws that guard against corruption in public construction are unaffected,
including false qualification sanctions, tight record-keeping requirements,
and prohibitions against commercial bribery, economic extortion and fraud
Eliminate Filed Subcontractor Bidding
The complex process known as filed subcontractor bidding
results in unacceptable delays and wasted money. Filed sub-bids require bids
from 17 separate specialty trades as the first step in construction; when a
general contractor is then hired, the subs are essentially pre-selected. Unlike
private construction, this bid process results in needless adversarial relationships
with change orders, claims and delays.
Municipal Project Oversight
Local government may lack the expertise to effectively oversee school and other
construction projects, which often results in waste and delay. Professional
management is a needed component of modern construction methods.
Pensions
The state's pension system has loopholes that allow certain insiders
to take advantage of the system, gain unreasonable and unfair benefits, and
erode public confidence. The Governor's Budget ensures greater fairness
and calculation transparency with the following prospective changes (current
retirees are not affected):
A pension cap, based on earnings over an employee's entire career, to eliminate
gaming over salary and timing differences.
Reforms that eliminate unreasonable benefits.
A requirement to fully fund any new liability within three years.
Pension Cap
Retirement benefits for most public employees will be capped at the value of
the lifetime annuity an employee could buy, assuming a contribution to the pension
system of 15% of earnings, plus interest, throughout his or her entire career.
Group 2 employees will have an assumed contribution of 17.5%. For Group 4 employees
who work mostly in public safety and receive more generous retirement benefits,
the cap will be based on an assumed 20% contribution. State police, whose pension
calculation works differently than others, are excluded from the cap.
These reforms will curtail a few excessive pensions but will not affect the vast majority of public employees; the cap will allow pensions of up to three times the annuity value of an employee's pension contributions plus a generous rate of interest. Only employees with unusual pension contribution patterns, such as those who receive a spike in salary at the end of their career in government will be affected by the cap. A dramatic example - a long-term, part-time municipal official who gets a full-time government position at the end of his career - is illustrated below.
Unreasonable Benefits
Gaming the pension system to achieve unreasonable benefits undercuts the public
interest. The Governor's Budget:
Clarifies that perks, such as cars and housing allowances, do not add to
pension benefits;
places certain terminated employees and elected officials (under 55 with
20 or more years of service) on the same benefit calculation as other employees
eliminates the "January 1" loophole that grants a year of pension
credit to elected officials for a single day of service;
puts economic fairness into "buy back" provisions by charging
accrued market-rate interest over the buy back time period; and
pro-rates pension benefits, based on time in Group 1, 2, or 4.
The consensus agreement on pension funding - a 2023 amortization date, end-of-year portfolio valuation, and other technical factors - becomes meaningless without discipline on the growth of future liabilities. For example, three recent early retirement incentive programs added over $2 billion to the Commonwealth's unfunded pension liability. In FY05 those programs account for $61-75 million of the required pension fund appropriation.
Pension Impact Statements
An additional reform - pension impact statements - will insure that new liabilities created by future changes to or exceptions from the pension law will be fully funded within 3 years, forcing accountability on all new pension proposals.
Workforce
Public employee unions in Massachusetts enjoy a special monopoly status. The
result is, in effect, two states within a state. One - the private and
non-profit sector - enjoys fair competition and the benefits of an open
market; workers freely elect to join unions only about 10% of the time. In contrast,
state and local government is a labor monopoly of rigid work rules; devoid of
incentives or performance standards; workers must follow union agreements and
pay dues (except for elected officials and their immediate staff).
No explicit savings from workforce-related reforms are counted in balancing
the FY05 budget. Yet the imperative for reform is compelling. Governmental affairs
must re-establish a healthy balance between public servants and the citizens
they work for. The Governor's Budget:
Eliminates managerial conflict of interest by clearly delineating union
and supervisory positions.
Encourages private sector competition while preserving safeguards for state
employees.
Limits civil service to public safety employees.
Courts
Budgetary appropriations for the Judiciary remain too fragmented despite some
reforms adopted in FY04. The Governor's Budget promotes additional management
flexibility and also identifies over $1 million in savings by consolidating
the Boston Municipal Court and District Courts' administrative functions.
Increase in Managerial Flexibility through Consolidated
Appropriations
In FY05, court operating and capital plans will become more integrated. For
example, a new Worcester court with consolidated Superior, District, Family,
Probate, and Juvenile operations will substantially reduce costs in the future.
The Governor's Budget also accelerates incentives for fee
collection that have already proven to be highly effective this year. For example,
Trial Court collections in FY04 are expected to increase by 40%, a $30 million
improvement over FY03. In FY05, an additional $27 million is forecast by implementing
these proven incentives.
Trial Court Revenue History
The Governor's Budget also includes incentives for
the Committee for Public Counsel Services to keep the fair market value of legal
services provided to clients who have fraudulently claimed indigence. This results
in a $3 million savings to the taxpayer.
Massachusetts's taxpayers will spend an estimated $75 million this year
on lawyers for indigent defendants in criminal cases. While there is
currently a requirement for defendants to pay a small amount for these services
based on income, the process for determining the amount is onerous and routinely
ignored. The Governor's Budget includes an innovative reform to help ensure
that an appropriate fee is collected from every client who can afford to pay
one. Moving to a defined compensation payment system for outside lawyers is
projected to save $15 million in FY05.
Finally, the Massachusetts Legal Advisors Corporation, Massachusetts Correctional
Legal Services, and Mental Health Legal Advisors will be consolidated.
This year, the Governor's Commission on Housing and Homelessness recommended
a focus on self-sufficient permanent housing. A new program - Shelter-to-Housing
(line item 4403-2120) - will assess homeless families, develop a work plan,
oversee application for federal and state aid programs, and provide temporary
transitional housing assistance directly to the landlord or provider.
Another priority is finding appropriate housing for mentally ill individuals.
Typically 100 adults on any given day prepare to be discharged from mental health
inpatient units. These clients, many of them formerly homeless, are unable to
pay for security deposits and basic furniture, which poses an insurmountable
barrier to permanent housing. The Governor's Budget includes $3 million (line
item 5046-0000)
to leverage federal aid to support the following programs:
FY05 Additional Federal Aid Leveraged for Homeless ($millions)
Neediest Children
Since 1998, DSS has lost 800 foster homes, so many children are
temporarily placed in sub-optimal institutional settings. To address this problem,
foster care rates will be raised 11.3% and expedited recruiting will concentrate
on support and family outreach. Funding for these changes is included in line
item 4800-0038.
FY05 Foster Care Proposals
To minimize the inappropriate over-prescription of psychiatric drugs to mentally
ill children, the Governor's Budget provides $2.65 million in line item 5042-5000
for new consultation teams, comprised of child psychiatrists and psychologists.
Modeled after a successful pilot program in Central Massachusetts, the teams
will answer pediatricians' prescribing questions, assist families in understanding
and accessing psychiatric services, and arrange for more timely consultations
with child psychiatrists.
Over the past 10 years, the number of girls committed by the courts to the
custody of the Department of Youth Services (DYS) has nearly quadrupled, while
the number of beds available for DYS girls has only slightly more than doubled.
Girls in DYS Custody vs. Number of Beds
The Governor's Budget includes additional funding for this area
in line item 4200-0300.
FY05 Mental Health Services for DYS Girls
Welfare to Work
New federal proposals broaden the scope of welfare to work requirements. To
help ease the transition, the Governor's Budget:
Increases work requirements from 20 to 24 hours per week for families with
children aged 2-5, and 34 hours per week for families with school-age children.
Customizes work placement for those with learning disabilities, mental disabilities,
and/or physical disabilities.
Provides employment and training for TAFDC clients with disabilities.
Improves the identification and treatment of substance abuse.
Provides transportation to help recipients get to and from work, training,
and child care.
FY05 Welfare to Work Summary
Counter-Terrorism Unit
A dramatic upgrade of the State Police Counter Terrorism Unit
will centralize and improve intelligence-gathering efforts. The Governor's
Budget includes $2.7 million for the following enhancements in line item 8100-0000:
8-12 assigned troopers
24/7 intelligence coverage
15 new research analysts to process and analyze data
A state-of-the-art intelligence database
Enhanced training
This funding will also complement a $5 million grant from the
federal Department of Homeland Security.
New State Police Classes
To address a decline in the number of uniformed troopers, due mostly to retirements,
the Governor's Budget allocates $11 million for two new classes, each consisting
of 150 troopers (line item 8100-0515):
State Police Force Since 9/11/01 * Reflects Aug 02 graduation of 122 troopers
DNA Crime Lab and Forensics
Massachusetts, with its biotechnology expertise, should be at
the forefront of forensic science. The Governor's Budget adds $4.15 million
to enhance crime and DNA analysis at the Office of the Chief Medical Examiner
and the State Police. New funding of approximately $2 million will expand the
State Police Crime Laboratory capacity (line item 8100-0000), and $2.1 million for the
Chief Medical Examiner's Office (line item 8000-0105) will facilitate the 3,000 forensic
autopsies and 1,000 post-mortem examinations conducted annually.