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