- Budget Development
- Mass. Government Structure
- Overview of the Operating Budget Process
- Specific Budget Policies
- General Fiscal Policies
- FY09 Update
- FY10 Revenue Development
- Non-Tax Revenue Assumptions
- Expenditure Development
- FY10 Budget Challenge
- FY10 Budget Solutions
- Capital Gains
- Debt Service
- Capital Transfers Policy
- FTE Assumptions
- Health Care
- Massachusetts' Economic Overview
- Consensus Revenue Estimate
- Financial Statements
- Budget Recommendations
- H.1 Revisions
- Local Aid Overview
- Local Aid - Section 3
- Outside Sections
- Account Listing
- Capital Budget
- Tax Expenditure Budget
- Budget Downloads
- Navigation Guide
- Budget Glossary
- Related Legislation
- Site Map
Specific Budget Policies
This budget document provides the Governor's budget recommendations for the fiscal year beginning July 1, 2009 and ending June 30, 2010. The budget is balanced, with the projected revenues from taxes and other sources being sufficient to cover recommended expenses. The Commonwealth uses a statutory basis of accounting to define balance where actual revenues received within the fiscal year must meet or exceed actual expenditures.
The state's finance laws are contained in Chapter 29 of the Massachusetts General Laws. They require that the Governor file a balanced budget, that the House and Senate each produce a balanced budget, and that the final general appropriation act (GAA) be in balance. Any supplemental budget bill cannot impair the overall fiscal balance. One method of achieving balance may be through drawing from the Commonwealth's Stabilization Fund, also known as the Rainy Day Fund.
The budget may be amended through the filing of a supplemental budget request, which is submitted by the Governor to the House of Representatives. Supplemental budgets follow the same process as the overall budget, going first to the House Committee on Ways and Means, then to the House for approval, followed by the Senate Committee on Ways and Means and the full Senate. If there are differences between the House and Senate versions, a conference committee produces a final supplemental bill that is then enacted by both chambers and then sent to the Governor for approval. The Governor has the same line-item veto powers as with the general budget, where he is able to veto specific amounts from particular line items, entire line items, or entire provisions of language.
Prior to the Governor's submission of the budget, the Secretary of Administration and Finance and the House and Senate Committees on Ways and Means are required to agree on a "consensus tax revenue forecast" from which to build their spending projections. The consensus revenue process for fiscal year 2010 is discussed in more detail later in this section.
Generally, expenditures may not exceed the level of spending authorized for an appropriation account. However, the Commonwealth is statutorily required to pay debt service, regardless of whether such amounts are appropriated.
State finance law requires the Commonwealth to monitor revenues and expenditures during a fiscal year. For example, the Secretary of Administration and Finance is required to provide quarterly revenue estimates to the Governor and the Legislature, and the Comptroller publishes a quarterly report of planned and actual revenues. Department heads are required to notify the Secretary of Administration and Finance and the House and Senate Committees on Ways and Means of any anticipated decrease in estimated revenues for their departments from the federal government or other sources. Those same parties are also notified if a department projects that any appropriation will be insufficient to meet all expenditures required in the fiscal year by any law, rule, regulation or order not subject to administrative control.
If a revenue shortfall is identified, the Governor is required by section 9C of Chapter 29 to reduce agency appropriations or recommend a transfer from the Stabilization Fund. If additional revenues are available, the Governor may recommend a supplemental budget. At the end of the fiscal year, the Comptroller determines the statutory balance of the budgeted funds and transfers any excess funds to the Stabilization Fund.
General Fiscal Policies of the Commonwealth
The following principles and policies were used to guide the development of the fiscal year 2010 budget. Above all else, state finance law requires the Governor's budget and all later versions to be in balance; expenditures must not exceed available revenues. In addition, H.1 includes the following principles and goals:
Strategic Fiscal Policies
In developing the budget, special attention was paid to the following areas:
- Protect high-priority government functions
- Preserve social safety net to cushion impacts of economic downturn and meet new caseload pressures. Includes preserving state-subsidized health insurance programs expanded under the Commonwealth's historic health care reform law.
- Protect education funding to maximum extent possible as cornerstone of long-term economic growth.
- Mitigate impact on aid to cities and towns.
- Identify government reforms that promote efficiency and sustainability of services. Streamline government wherever possible.
- Identify additional recurring revenues to support worthwhile programs.
- Reduce reliance on volatile tax receipts like capital gains.
- Strike careful balance on the temporary use of one-time resources to balance the budget.
The Commonwealth enjoys robust reporting capabilities, supported by accounting and payroll systems that are used consistently throughout state agencies and from which data is updated to an information warehouse.
- State agencies will continue to utilize the accounting and payroll systems.
- The presentation of the annual Comprehensive Annual Financial Report and official bond statements will continue to adhere to full disclosure.
- Websites will continue to be published to present the annual budget in an interactive format.
- In preparation of the annual budget, a consensus revenue estimate for taxes, including a specified value for capital gains taxes, will be agreed upon between the executive and legislative branches which will serve as the basis for building the budget.
- All revenue received by departments will be deposited with the Treasurer and recorded in the Accounting system.
- The Cash Management Division of the State Treasurer's office accounts on a daily basis for cash received into over 600 separate accounts of the Department of Revenue and other Commonwealth agencies and departments.
- The State Treasurer, in conjunction with Comptroller and the Executive Office for Administration and Finance, monitors cash to maximize the Commonwealth's return on investment and minimize the use of borrowing.
- Formal cash flow projections for the then current fiscal year are submitted to the House and Senate Committees on Ways and Means on or before each August 31, November 30, February 28 and May 31. The projections include estimated sources and uses of cash, together with the assumptions from which such estimates were derived and identification of any cash flow gaps.
- The State Treasurer's office, in conjunction with the Comptroller and the Executive Office for Administration and Finance, develop quarterly and annual cash management plans to address any gap identified by the cash flow projections and variance reports.
- The State Treasurer's office oversees the issuance of short-term debt to meet cash flow needs, including the issuance of commercial paper
- The Comptroller is responsible for oversight of fiscal management functions, establishment of accounting policies and practices and publication of official financial reports.
- The Comptroller maintains the Massachusetts Management Accounting and Reporting System (MMARS), the centralized state accounting system that is used by all state agencies and departments but not independent state authorities. MMARS provides a ledger-based system of revenue and expenditure accounts enabling the Comptroller to control obligations and expenditures effectively and to ensure that appropriations are not exceeded during the course of the fiscal year.
- MMARS also tracks receivables, payables, fixed assets and other processes management.
- The Comptroller will annually review policies governing transactions in MMARS.
- The amount of all obligations under purchase orders, contracts and other commitments for the expenditures of moneys are required to be recorded as encumbrances. Once encumbered, these amounts are not available to support additional spending commitments.
- As a result of these encumbrances, agencies can use MMARS to determine at any given time the amount of their appropriations available for future commitments.
- The Comptroller establishes internal control policies and procedures in accordance with state finance law. These policies require all departments to develop and maintain and internal control plan. Agencies are required to adhere to such policies and procedures.
- All unaccounted-for variances, losses, shortages or thefts of funds or property must be reported to the State Auditor, who is authorized to investigate and recommend corrective action.
- The Commonwealth will aggressively seek to replenish the Commonwealth Stabilization Fund when able to do so.
- Capital gains revenues that exceed projections will be deposited into the Fund to better calibrate spending with reliable revenue streams, and build a cushion against future economic and fiscal uncertainty.
- The Commonwealth will conduct an annual debt affordability analysis to determine the affordable level for the administrative bond cap (determining annual borrowing levels).
- Required funding for debt service and other debt-like instruments will not exceed 8% of budgeted revenues.
- Bond-funded capital spending will be limited by an annual administrative bond cap. Annual growth in that cap will not exceed $125 million.
- An annual capital budget will be developed and focus on affordability, targeted investments in projects that maintain our existing infrastructure and/or promote economic growth, and transparency.
- The Commonwealth will continue to follow a pension funding schedule to address our unfunded liability.
Other Post-Employment Benefits
- The Commonwealth will continue to pursue adoption of a funding schedule to fully fund public employee retiree health care benefits.
- Overall measures of government performance will be tracked regularly through the MassGOALS initiative.
- The priorities developed during the MassGOALS discussions will be reflected in the Governor's budget.
Overview of Budget Funds
Government Fund Types account for the general governmental activities of the Commonwealth and are organized as follows:
Budgeted Funds are the primary operating funds of the Commonwealth. They account for all budgeted governmental transactions. The main budgeted funds include the General Fund, the Commonwealth Stabilization Fund, the Commonwealth Wellness Fund, and the Commonwealth Highway Fund, which are identified by the Comptroller as the operating funds of the Commonwealth.
Non-Budgeted Special Revenue Funds are established by law to account for specific revenue sources that have been segregated from the budgeted funds to support specific governmental activities such as federal grants, funds related to the tobacco settlement and the operations of the state lottery.
Capital Projects Funds account for financial resources used to acquire or construct major capital assets and to finance local capital projects. These resources are derived from proceeds of bonds and other obligations, which are generally received after related expenditures have been incurred, operating transfer authorized by the Legislature and federal reimbursements. Deficit balances in the Capital Projects Funds represent amounts to be financed.
Fiduciary Funds account for assets held by the Commonwealth in a trustee capacity (Trust Funds), or as an agent (Agency Funds) for individuals, private organizations, other governmental units, and/or other funds.
Expendable Trust Funds account for trusts whose principal and investment income may be expended for a designated purpose.
Nonexpendable Trust Funds account for trusts whose principal cannot be spent.
Post Employment Benefit Trust Fund account for the net assets available for plan benefits held in trust for State Employees' and Teachers' Retirement Systems and Other Post Employment Benefits (OPEB) for retirees.
Agency Funds account for assets the Commonwealth holds on behalf of others. Agency Funds are custodial in nature and do not involve measurement of operations.
Individual Budgeted Funds
Statutory balance is defined as a measure of the fiscal condition which includes current year budgeted revenues and expenditures plus any designated revenues from prior years, stabilization deposit and funds carried forward. It also includes any use of stabilization or any other non-budgeted reserves. A more general discussion of the funds is below:
The General Fund is the Commonwealth's primary governmental fund. All governmental activities not specifically directed to another fund are accounted for in the General Fund. As a result, most budgeted expenditures of the Executive secretariats, the Legislature, Constitutional offices, Judiciary, institutions of higher education and independent commissions are paid for from the General Fund. It similarly receives a significant portion of sales, individual income and corporate taxes, and the full amount of most other governmental taxes. It also receives federal reimbursement generated by the Commonwealth's Medicaid expenditures.
The Highway Fund accounts for highway user taxes including the gas tax and registry fees. The fund is used to finance highway maintenance and safety services and provide matching funds for federally sponsored highway projects as required. For fiscal year 2010, the Governor recommends restructuring the fund to ensure that all transportation-related revenues are directed to the Highway Fund, and that all funding for transportation-related expenses (including debt service on bonds issued for transportation purposes) are paid from this fund. This reform would provide the Commonwealth and the public with a more transparent and true accounting of our transportation revenues and expenses and the extent to which transportation expenses need to be subsidized by non-transportation-related General Fund receipts.
Infrastructure Fund (Sub-fund of the Highway Fund) details specific components of gas tax revenue and expenditures related to the Highway Fund segregated per instructions in section 2O of Chapter 29 of the General Laws. Currently funds received are pledged to bonds for transportation related capital improvements.
The Workforce Training Fund, authorized by section 2RR of Chapter 29 of the General Laws and administered by the Executive Office of Labor and Workforce Development, provides employers with matching grants of up to $1 million over two years to help train new and incumbent workers. It was established in July 1998, and is financed entirely by Massachusetts employers. In fiscal year 2008, the Fund was financed by an employer surcharge of .075% on employees' wages, paid concurrently with payments into the Unemployment Insurance Trust Fund. Annual state revenues from employer contributions total approximately $18 million, and the state appropriation for training grants is typically rolled forward into the next fiscal year to provide for the second year of each grant award.
The Massachusetts Tourism Fund, authorized in section 35J of Chapter 10 of the General Laws, is funded with 35 percent of the State's annual revenues received from the hotel occupancy tax authorized in section 3 of Chapter 64G. In fiscal year 2010, Tourism Fund revenues are estimated to total $41 million. The Fund's use is prescribed in Chapter 10, which includes a formula that assigns various funding levels for tourism promotion programs and activities, including the Massachusetts Office of Travel and Tourism, regional tourism promotion agencies, the Massachusetts Office of International Trade and Investment and the Cultural Facilities Fund. While funding for the purposes prescribed in the section are being made in this budget, the specific requirements of the fund have been suspended through an outside section for the last several years.
The Commonwealth Wellness Fund is being created to collect revenues generated from the elimination of the existing sales tax exemptions on the purchase of alcoholic beverages consumed off-premises, sweetened beverages and candy. This policy initiative aims to encourage healthy lifestyle choices. Monies appropriated from this fund will support programs and services that augment the health and well-being of the citizens of the Commonwealth.
The Commonwealth Stabilization Fund is a reserve to enhance the Commonwealth's fiscal stability. (A later section describes the Stabilization Fund in more detail.)
Administrative Control Funds account for the revenues generated by certain administrative functions of government, for which the Legislature has required that separate funds be established. These funds include:
- Temporary Holding Fund - As part of a larger reform, this fund is being eliminated and replaced by the Capital Gains Holding Fund described below. The fund was used to account for cumulative tax revenues during the fiscal year in excess of permissible tax revenues as defined in Section 6A of Chapter 62F of the General Laws. The fund balance is transferred annually to the Stabilization Fund only to the extent that stabilization funds are used to fund expenditures of the Commonwealth. Overall, any remaining balance is transferred to the General Fund.
- Intragovernmental Service Fund - Accounts for the charges of any state agency for services provided by another state agency, for example, charges levied by the Human Resources Division for workers' compensation costs.
- Bay State Competitiveness Investment Fund - to account for funds received as part of the calculation of the consolidated net surplus for fiscal year 2007 and available for appropriation in fiscal year 2008. This fund expired on June 30, 2008.
- Capital Gains Holding Fund - to account for capital gains tax revenues that exceed the amount determined to be available for the budget as stipulated in the annual consensus revenue estimate. Any balance in the fund at the end of the fiscal year will be transferred to the Stabilization Fund.
The Inland Fisheries and Game Fund accounts for revenues from license and permit fees for inland fishing, hunting, trapping, and sporting licenses and revenue-producing stamps or the sales of land, rights and properties, gifts, interest, and federal grant reimbursements. These revenues are used for developing, maintaining and operating the Division of Fisheries and Wildlife within the Department of Fish and Game.
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