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Governor's Message

 

Introduction

Six years ago, the Weld/Cellucci Administration began its tenure with one fundamental goal in mind: to change the structure, culture, and financial position of state government in the Commonwealth of Massachusetts. Since then, we have re-structured hundreds of programs, eliminated others, and created new ones to reflect our priorities and philosophy. We have worked diligently to make the Commonwealth a more flexible and responsive partner to business and the greater community. This is perhaps best reflected in our efforts to re-write and update the Code of Massachusetts Regulations. This project, which is nearly complete, has resulted in the elimination or modification of 65% of the State's regulations, affecting 75% of the total Code. There has never been a more thorough attempt to make this core component of government operations more cohesive and clear.

We have also made dramatic strides in improving our fiscal position. In 1991, the Commonwealth was in severe fiscal distress. Our bond rating had plummeted; our statutory fund balance was just over $1 billion in the red; our GAAP balance, which is a far better indicator of our true financial position, was a staggering $1.9 billion in the red; our Stabilization Fund was empty; and Financial World had just granted us the dubious distinction of being the worst-managed state in the country.

After six years of close collaboration between this Administration, the Legislature, and the public, the Commonwealth's fiscal position is among the finest in the country. According to the Comptroller's Fiscal Year 1996 Comprehensive Annual Financial Report, our statutory balance is a little over a positive $1 billion and our GAAP balance is over $700 million. This represents a $2.7 billion turnaround in just six years.

More importantly, we fixed our financial circumstance without raising taxes. In fact, we have worked with the Legislature to cut taxes fifteen times since 1991, reducing the tax burden on Massachusetts taxpayers by over $1 billion. Funding available in Fiscal Year 1996 to support the Stabilization Fund exceeded statutory limits, resulting in a $150 million tax cut for all Massachusetts taxpayers in Tax Year 1996.

Not surprisingly, the Massachusetts economy has responded favorably to this potent combination of fiscal restraint and tax reductions. Over 250,000 new jobs have been created during the past six years. Our unemployment rate has dropped from 9.5% in March of 1991 - one of the highest in the nation - to 3.9% in November of 1996. Over three million people are now working here in the Commonwealth; and we are the only large state in the nation with an unemployment rate below 4%.

Fiscal Year 1998 Overview

When the Fiscal Year 1998 budget is signed into law in June of 1997, the Year 2000 will be less than 1,000 days away. In many ways, the first six budgets of the 1990s were designed to rectify the problems created by the excesses and mistakes of the 1980s. By working with the Legislature and others, we have succeeded beyond anyone's expectations in this regard. We enacted and began implementing the most comprehensive welfare reform program in the country - two years before federal welfare reform; developed a Medicaid program that serves as a national model; passed landmark truth-in-sentencing legislation; fixed a desperately broken workers' compensation system; opened the Third Harbor Tunnel and brought the runaway costs of the Central Artery Project under control; paved thousands of miles of state and local roads; fixed hundreds of bridges; enacted and funded the most ambitious kindergarten through grade twelve education reform program in decades; and are in the process of returning all State Lottery revenues to the Commonwealth's 351 cities and towns.

For the next several years, however, we must begin laying the groundwork for the next century, thereby ensuring that our families, our children, and our businesses begin the next millennium with every opportunity to succeed.

The Economy

For the past six years, we have worked diligently with Legislative leaders to achieve these three fundamental objectives for economic development:

  • to limit the growth of state government spending to less than the rate of growth in both available revenue and Gross State Product;
  • to cut individual income tax rates, and to support strategic efforts to reduce corporate tax rates (sales tax on services, single sales tax for manufacturing and financial services); and
  • to reduce the cost of doing business whenever possible.

So far, we have succeeded. State spending has grown more slowly than either available revenues or the Commonwealth's overall economy for six years in a row. Fifteen tax cuts, worth more than $1 billion, have been enacted, reducing the tax burden on millions of people and thousands of businesses. Countless initiatives to reduce the cost of doing business have been developed and implemented. Workers' compensation rates, which were growing at astronomical rates before we worked with the Legislature to enact reform in 1991, have fallen by almost 40% over the past three years, the first time ever that rates have declined for three years in a row.

But we must remain vigilant because our competition is fiercer than ever. Other states are working just as hard as we are to make themselves attractive to employers and employees; and we have to be certain that we maximize every opportunity we have to capitalize on our strengths. With this in mind, we offer a number of proposals for Fiscal Year 1998 which we believe can dramatically enhance the Commonwealth's economic position well into the next century.

Our most important proposal is the repeal of the existing sales tax on telecommunications services over a five year period. Right now, Massachusetts has the largest concentration of telecommunications companies in the United States: over 600 companies employing in excess of 100,000 people. These firms represent one of the most significant growth industries of the next decade; and we have a unique opportunity to make sure they grow and prosper here, and not somewhere else. In addition, many other industries that are significant participants in the Commonwealth's economy, such as financial service companies and banks, are high users of telecommunications services. They and their employees would also benefit significantly from this proposal.

Once upon a time, the semiconductor industry was born in Massachusetts. Unfortunately, it was nurtured and developed into an industry of enormous size and scope by others. It would be a disaster if the same thing were to happen with the telecommunications industry. We can ensure that this industry grows and flourishes here if we choose to make Massachusetts the one state in the nation that does everything it can to encourage the growth of this dynamic sector of the economy.

The structure we propose, which phases out the existing 5% tax on telecommunications over five years, is based on the approach we have used successfully on other tax reform initiatives, and deserves very serious consideration by the Legislature.

We want to eliminate a long-standing inequity of state tax law: taxing the investment income earned by life insurance companies located in Massachusetts, but not taxing the tax investment income earned by life insurance companies that are not located here. We call for the repeal of this tax on Massachusetts-based companies, effective January 1, 1998.

We propose to reduce, over five years, the existing 12% tax on so-called "unearned" income to 5.95%, the existing tax rate on other income. Massachusetts is the only state in the country that taxes investment earnings at a higher rate than wage and salary earnings. The existing policy penalizes saving and investing, making Massachusetts a less attractive state in which to invest in job-creating entities. It also penalizes people who make most of their money through so-called "unearned" income, many of whom are senior citizens living on fixed incomes made up of pension benefits and Social Security.

We also propose to make the 3% Investment Tax Credit permanent. The tax credit is working, and it sends a significant signal about the business climate here in Massachusetts. It should, therefore, become a permanent feature of our tax structure.

Finally, we have already offered legislation to reduce our unemployment insurance rates. These rates rank second in the nation on a cost-per-employee basis, more than twice the national average. Massachusetts employers pay $476 per employee to support the unemployment compensation system, while employers nationally pay an average rate per employee of only $184. In addition, our Unemployment Trust Fund has an existing balance of over $840 million, making it possible to reduce unemployment insurance rates in 1997 and still close the calendar year with more than $1 billion in the Fund. There is no excuse for not taking advantage of this opportunity to reduce the cost of doing business here in the Commonwealth, and we look forward to working with the Legislature to secure enactment of this critical economic development legislation.

Children and Families

For the past six years, we have worked hard to improve the quality of the Commonwealth's economy. After all, the best government program for children and families is a private sector job. There are, however, other opportunities for the Commonwealth to enhance the lives of its most important assets, and we offer a number of proposals in this year's budget that are designed to support them.

First, we propose to increase the dependent tax deduction for children under the age of twelve by $1,000, from $600 to $1,600, thereby assuring that the deduction reflects the past twenty-two years of inflation. A $600 deduction in 1976 was the equivalent of a $1,600 deduction in 1998, but we have never adjusted our dependent tax deduction to account for the time value of money. We believe Massachusetts families in 1998 deserve the same tax break they received for their children in 1976.

Second, we believe it is time to exempt the retirement pay of our Veterans from the state income tax. We have proposed this tax cut before, and it has been supported by both Democrats and Republicans. Massachusetts is the only state in the country that taxes Veterans' pensions, but does not tax income earned with state and local pensions. It is time to fix this unfortunate injustice.

In addition, our enormous success in righting the Commonwealth's fiscal ship makes it possible for us to propose a number of spending increases that will make a significant difference to Massachusetts families and children over the course of the next several years.

First, we propose to increase child care spending by $25 million, most of which will be targeted to low-income, working families. This increase would add over 2,200 new child care slots in Fiscal Year 1998. In addition, we propose to increase the Department of Education's Early Childhood Education program by 47%, bringing proposed Fiscal Year 1998 spending up to $50 million from $34 million in Fiscal Year 1997. Taken together, these proposals would boost state spending on child care, Head Start, and early childhood education to $302 million, a 65% increase since 1994.

Next, we propose a significant increase in funding for services to support people with mental retardation who are currently on the Department of Mental Retardation's (DMR) waiting list for day and residential services. Our request, which calls for a $10 million increase, is consistent with the recommendation made earlier this year by our Commission on Mental Retardation. We also propose other funding increases at DMR to support individuals who have turned twenty-two years of age and are no longer eligible for the Department of Education's special education programs. This recommended level of support exceeds expected Fiscal Year 1997 spending by $15 million.

Third, we recommend several state initiatives to make it easier for Massachusetts families to participate successfully in welfare reform. We recommend making cash and medical benefits available through our Emergency Aid to the Elderly, Disabled, and Children (EAEDC) and Medicaid programs to legal immigrants who are already living in the Commonwealth. We propose a basic health insurance program for low-income, legal immigrants who would not otherwise qualify for Medicaid under the new rules associated with federal welfare reform. We also propose spending additional funds on Adult Education, Job Search, and English-as-a-Second-Language programs, so that welfare recipients will have an opportunity to develop the tools they need to secure employment. In addition, we will continue to work with Food Bank operators to develop a $7 million food and nutrition program for at-risk families, thereby reducing the strain on low-income families caused by changes in the federally-funded Food Stamps program.

These proposals, combined with other initiatives in child care, child support enforcement, and social services, will make it possible for Massachusetts to continue to successfully implement the most comprehensive welfare reform law in the country under the new rubric of federal reform. We also propose carrying $100 million in available federal block grant funds forward into Fiscal Year 1999, ensuring that any upward drift in caseloads can be adequately funded and supported in future years without reducing services or benefits.

We also recommend a $2.5 million increase at the Department of Mental Health (DMH) to support the Administration's homeless mentally ill initiative, which has produced over 500 units of transitional and permanent housing for homeless mentally ill people over the past several years. In addition, we propose building on the Department of Mental Health and Division of Medical Assistance's joint purchasing initiative, which made it possible for DMH to reinvest $9 million worth of purchasing savings in new support services for DMH clients in Fiscal Year 1997, by including a retained revenue account at DMH that could generate another $5 to $6 million in federal revenue to support additional programs in Fiscal Year 1998.

We also propose to continue the significant progress we have made in recent years in child protection and juvenile justice. The Department of Social Services would receive more than $20 million in new funding under our House 1 proposal, much of which would be used to support the recommendations made by a joint working group we participated in with members of the Legislature this past year. The Department of Youth Services, which has done an outstanding job of working with criminal justice and law enforcement officials to reduce juvenile crime, would receive $8 million in new funds, mostly to support community and secure residential programming.

We also make recommendations on funding the first full year of Chapter 203, the landmark health care coverage expansion legislation passed by the Legislature in the summer of 1996. While we could not support the tax increase included in the Legislature's proposal last year, many of the program elements contained in the final bill were consistent with our previous proposals, and we look forward to working with the Legislature and the public to implement this critical program over the course of the next several years.

Finally, our work with the Special Commission on Uncompensated Care continues to progress, and we expect to be able to make a recommendation to the Legislature on how to address this issue during the month of January, 1997.

Education and Training

For the past several years, we have worked with the Legislature to ensure that the Commonwealth's landmark education reform law was fully funded. This bipartisan commitment has resulted in an unprecedented increase in state support for kindergarten through grade twelve education over the past four years. In fact, state support for kindergarten through grade twelve education has increased by over $1 billion since Fiscal Year 1993, and we recommend increasing the Commonwealth's contribution by another $278 million in House 1. As a result, every school district in Massachusetts will begin the next academic year with an adequate level of funding. In fact, more than 95% of school districts will be funded at levels that exceed 85%of calculated foundation budgets. We also have one of the lowest student-teacher ratios in the country, ranking eighth out of fifty in the latest surveys. This means money is no longer the key issue in most school districts in Massachusetts, and parents should expect their school systems to deliver and their children to succeed, no matter where they live.

Unfortunately, recent test scores indicate that Massachusetts schools still have a long way to go in terms of improving their product. Amazingly, almost half of our tenth graders are functionally illiterate, and less than 25% can communicate well and think critically. No wonder the recent discussion concerning the possible imposition of a GED exam on graduating high school seniors created such a ruckus.

Still, rigorous graduation exams will come soon enough. Math and science standards are finally in place, and English and history standards are currently under discussion. Accountability must be the watchword for the next several years, and we should all work to ensure that our schools perform up to our levels of expectation now that money is no longer an issue. We should also expect and demand that all students be able to pass some form of statewide test demonstrating a level of academic competency before being allowed to graduate; and we should insist that this test be in place by the end of the next academic year.

We also recommend increasing the number of charter schools from twenty-five to seventy-five, thereby giving those families that are interested in charter schools an opportunity to send their children to one. Charter schools are serving a very diverse population, and serving it very well. Parents are satisfied, and few children that leave a traditional public school for a charter school are returning. Virtually all of the existing schools have waiting lists, and parents and teachers in many parts of the state are anxious to have the opportunity to create charter schools in their communities. We should give them the chance.

In addition, we recommend creating a $6 million enrollment aid account, to help school districts manage unanticipated increases in their student populations. Under this proposal, enrollment aid would be used to provide one-time allocations to school districts that have higher than average enrollments and are already spending above their foundation levels. This would not become part of the base calculation for school districts, and would be re-determined the following year using the existing formulas.

It is also critically important for all of us to remember that education no longer ends with a high school diploma. In today's knowledge-intensive society, everyone is expected to continue to learn and to grow as long as they participate in the work force. To make sure that Massachusetts is prepared to support its knowledge-based economy over the course of the next decade, we propose a $9 million increase in state support for One-Stop Career Centers in House 1, and urge the Legislature to act favorably on this request.

One-Stop Career Centers are the future of publicly and privately-supported job training and worker-support programs, and it is essential that the Commonwealth continue to nurture this initiative. Massachusetts has already begun the painful process of converting its existing job training system, which is categorical and criteria-driven, into one that makes it possible for workers and employers to solve their problems in a single regional location. We propose to open nineteen centers in Fiscal Year 1998, which would be in addition to the seven centers we expect to have in place by the end of Fiscal Year 1997.

While concerns have been raised about transitional issues during a period of significant change, by proposing to provide $9 million in General Fund appropriations to support this initiative during this transitional period, we believe we have addressed the primary concerns that have been raised about this change in philosophy and service delivery. We look forward to working with the Legislature to ensure the continued success of this initiative in Fiscal Year 1998.

We also recommend establishing a $3,500 Job Training Tax Credit, which would make it possible for employers to credit 50% of the cost of training a new employee (or upgrading the skills and position of an existing employee), up to $3,500. This initiative, which would cost less than $5 million in Fiscal Year 1998, provides employers with a significant incentive to develop, enhance, or expand employee training programs, and supports our efforts to develop and retain a trained and educated workforce.

In addition, we recommend $3 million to support school-to-work initiatives. Only about 65% of high school graduates pursue a college degree, and it is important for the Commonwealth to work with its education and employer communities to support efforts to provide transition programs and on-the-job-training opportunities to all citizens, and not just to those seeking four-year degrees.

In public higher education, we support Higher Education Board Chairman Jim Carlin's call for fee reductions, and provide the funding necessary to offset those reductions with General Fund monies. We also support the 5% tuition reductions planned for the next school year. Additionally, our proposal would permit the campuses to retain their tuition revenues, and provide the Board of Higher Education with an $8 million performance improvement reserve.

Cities and Towns

House 1 recommends continuing our recent practice of reducing the State's draw on existing Lottery funds; and, in addition, directing all new growth in Lottery revenues to the Commonwealth's cities and towns. This is the third year in which we have requested additional state support for cities and towns using this technique. By the end of Fiscal Year 2000, our pledge to return all Lottery revenues to the Commonwealth's cities and towns can be a reality.

We also recommend supporting a fifth year of water and sewer rate relief. Under this program, the Commonwealth makes state funds available to offset the costs incurred by the Massachusetts Water Resources Authority (MWRA), and other local water and sewer authorities, thereby reducing the cost of water projects to ratepayers and local communities. Over the past four years, the Commonwealth has provided over $150 million in rate relief funds. We are recommending an additional $50 million in Fiscal Year 1998, which should reduce projected increases in MWRA rates by almost 3%.

As we have in recent years, we recommend a significant increase in School Building Assistance funding: a $24 million increase over Fiscal Year 1997 spending. This will fund forty-five new school building projects in Fiscal Year 1998.

Finally, we plan to work closely with the Legislature and with cities and towns to secure the abolition of county government. Most cities and towns have little or no interest in continuing to perpetuate county government, but nevertheless serve as one of the primary sources of county government funding. We believe local communities can work successfully with one another to put appropriate regional structures in place, and we plan to work closely with local governments to garner their support for legislation eliminating county government during this legislative session.

The recent financial fiasco in Middlesex County merely illustrates the obvious: county government has outlived its usefulness. The sooner we work to secure the dissolution of county government, the sooner we can begin moving forward to put appropriate regional structures in place.

Public Safety

In recent years, there has been a significant amount of discussion about coordinating and consolidating criminal justice and offender supervision functions within state government. In fact, we proposed consolidating probation and parole in a new Department of Criminal Justice in our Fiscal Year 1997 budget; and this past summer, a study authored by UCLA Professor Mark Kleiman, and published by MassINC made several similar recommendations. Many people believe the existing system is badly managed, wildly fragmented, and does a poor job of supervising offenders.

It is time to stop talking about these reforms, and to act on them. There are over 50,000 offenders currently being supervised by probation, two times the number of offenders either incarcerated or on parole, and there is ample evidence that the lack of a coordinated statewide approach to their management and supervision is a real problem. Simply transferring adult probation and juvenile probation to the Executive Branch, where each will be incorporated and coordinated with other offender monitoring and management programs, will do more to close the revolving door of criminal justice than anything else, and we hope the Legislature will work with us to enact these reforms this year.

We recommend $4 million in additional funding for the Commonwealth's District Attorneys, bringing statewide funding for their Offices up to almost $65 million. We propose almost $20 million in new funds to support the Judiciary, including $7 million for more Juvenile Court expansion.

We also recommend $5 million in additional state funds to purchase new cruisers for the State Police. Since Fiscal Year 1993, we have purchased over 1,600 new cruisers, and will add more than 425 more cruisers to the fleet during Fiscal Year 1997. House 1 proposes to purchase another 225 cruisers, completing an almost total turnover of the State's fleet over the past four years.

In addition, we recommend an expansion of $5 million for community policing. Community policing efforts throughout the Commonwealth, aided significantly by State funding, have helped to reduce crime rates in recent years. We also recommend $5 million in expansion funds to fight domestic violence. These funds are essential to efforts to stamp out this widespread problem.

Finally, we recommend enhancing and expanding fees for prisoners to assist in financing their costs of incarceration. This would include room and board fees for prisoners on work release, medical co-pays for health care services, recreation fees for use of certain facilities and apparatus, and probation and parole supervision fees. Overall, we believe these initiatives could generate as much as $3 million, but more importantly, they will send the message to inmates and other offenders that they also bear some of the responsibility for financing their cost of incarceration and supervision.

Environment

Over the past several years, the Commonwealth has embarked on an unprecedented land acquisition and preservation program, purchasing over 74,000 acres of open space. To ensure that this property, along with our existing assets, are appropriately maintained, we recommend $2.1 million in new funds to support the Department of Environmental Management's Second Century Fund.

We also recommend hiring ten new Environmental Police Officers, and assigning them to work with our Environmental Strike Force, and seek $1.5 million to finance a number of equipment purchases and upgrades to support the Department of Environmental Protection's Environmental Results Program.

In addition, we recommend $630,000 to support a new aquaculture program at the Department of Food and Agriculture, and we are also seeking $6 million for recycling initiatives, which represents a 45% increase over Fiscal Year 1997 spending.

The Math

House 1 calls for spending $18.224 billion in Fiscal Year 1998. This represents a $520 million increase over anticipated Fiscal Year 1997 spending, or an increase of just over 2.9%. The vast majority of the increase in spending supports education reform, the continuing phase-out of the Lottery Cap, and other initiatives that are designed to support cities and towns. Total state spending on state programs and services increases by less than 1% under this recommendation.

This is a balanced, forward-looking budget based on conservative assumptions concerning tax and departmental revenue. It funds a variety of important new initiatives for the people of Massachusetts while retaining a strong dose of fiscal restraint. It proposes a number of important and targeted tax cuts that need to be part of our economic development plan for the future, and provides significant support for several education and training initiatives.

Looking Ahead

This budget, more than any other that we have proposed, represents our first opportunity to look up from the shambles of the 1980s to the future represented by the next millennium. It is critical that we take the necessary steps now to prepare ourselves and our Commonwealth for the challenges associated with the turn of the century. We have a rich, diverse, and resilient economy; but we have witnessed first hand the devastation that can be brought on through poor fiscal oversight and by taking one's eye off the ball.

This Administration has no intention of getting too content with its existing track record. With the help of the Legislature and the people of the Commonwealth, we have made enormous progress on many fronts, but much remains to be done. Welfare reform is still in its crib, our competitive advantages are still precarious, our schools are still not as good as they must become, health care reform is just beginning, and we have a great deal of work to do to ensure that our workers have every opportunity to participate successfully in the economy of the next century.

We pledge to keep our eye on the ball, to maintain our long-standing commitment to fiscal stability and restraint, and to offer proposals and solutions that frame and shape a future that benefits all our citizens. We have made a pledge to the citizens of the Commonwealth to continue the progress that we have made in the past six years, and we intend to honor that pledge.



MAGNET

Executive Office for Administration & Finance
Budget Bureau
State House, Room 272
Boston, MA 02133
(617) 727-2081


Last updated on January 22, 1997

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