- Budget Development
- Non-Tax Revenue Development
- Health Care Cost Containment
- Workforce Highlights
- Financial Statements
- Appropriation Recommendations
- Operating Transfers
- Local Aid - Section 3
- Outside Sections
- Tax Expenditure Budget
- Capital Budget
- Federal Stimulus
FY11 Current Year Update
Fiscal Year 2011 Update
When the Governor signed the fiscal year 2011 budget into law on June 30, 2010, the budget totaled $29.432 million in spending, an estimated 1.4 percent increase from fiscal year 2010 (including state pension costs this amount totaled $30.873 billion). The Governor also vetoed approximately $457 million in spending from the budget, accounting for the $372 million in budgeted federal revenues that had not yet been approved by the US Congress and the picture remained unclear whether federal action could be relied upon. The Legislature overrode approximately $15 million of the Governor’s vetoes, increasing total fiscal year 2011 GAA spending to $29.448 billion. At the time the Governor signed the budget he indicated that state agencies, at their current funding levels in the GAA, would need to implement a number of spending reductions within state programs and personnel in order to manage to their available funding.
It is important to note that the fiscal year 2011 budget relied on $2.0 billion of one-time resources, provided mainly from federal stimulus resources (outlined in the table below).
|(dollars in millions)|
|Loss of One-Timers:||2,016.9|
|Federal Stimulus (ARRA):||1,552.1|
|State Fiscal Stabilization Fund||96.0|
|Enhanced FMAP Revenue||1,244.4|
|Other One-Time Sources:||464.8|
|Special Disabilities Workload||160.0|
|Special Education (IDEA)||101.3|
|Debt Service Restructuring||100.0|
|Quasi Public Contributions||25.0|
|Trust Sweeps (incl. Springfield)||58.5|
|Other One-Time Solutions||20.0|
Because of the these one-time resources, the state was spending an additional $397 million outside of its fiscal year 2011 operating budget to support costs that would traditionally be supported through budgeted resources. These items include $101 million in financial reimbursements to school districts for special education costs, $200 million in EduJobs funding provided to school districts for K-12 costs and $96 million in funding for K-12 aid and higher education from the ARRA-funded State Fiscal Stabilization Fund. For comparisons between fiscal year 2011 and fiscal year 2012 spending later in this document, these items are included in order to provide a fuller comparison of the changes in spending between the two fiscal years.
|(dollars in millions)|
|State Fiscal Stabilization Fund:||96.0|
|Special Education Reimbursements:||101.0|
In August 2010, the US Congress adopted the “Keep Our Educators Working Act of 2010”, commonly known as EduJobs. This legislation provided approximately $449 million in additional federal reimbursements to the state for fiscal year 2011 by extending enhanced Medicaid reimbursements for an additional six month period. In addition, the federal legislation made $204 million in funding available to the state’s public school systems in order to support their efforts to retain or hire teachers and other critical education personnel. This latter funding allowed the state to increase funding to school districts across the state by $200 million ($4 million was retained by the state to administer the funding and related functions) above initial fiscal year 2011 levels and shift approximately $50 million in federal stimulus aid that had originally been budgeted for K-12 aid to the state’s public higher education campuses.
The $449 million in additional Medicaid revenue was provided by the US Congress to ensure states could mitigate some of the planned reductions in employees and cuts to programs and services. Since the funding was subject to appropriation, the Governor and the Legislature worked to development a supplemental budget bill that could address some of the most pressing funding deficiencies, such as in the state’s Department of Corrections, low-income health care programs such as MassHealth and emergency family homeless services. In addition, the Legislature and the Governor agreed to forego the use of $195 million in state reserves in fiscal year, allowing these to be used in future years when federal stimulus aid would no longer be available to the Commonwealth. Chapter 359 was signed by the Governor on October 15, which appropriated $713 million ($294 million of which was provided to make additional hospital payments with corresponding federal revenues). Chapter 359 spending was offset by $216 million in additional revenues, primarily from increased federal Medicaid reimbursements.
A further supplemental appropriation bill was adopted by the Legislature and signed into law on January 4, which provided an additional $333 million ($179 million after accounting for offsetting federal reimbursements). The bulk of this funding was to support increased caseload demand and utilization of the state’s low-income health care programs and other safety net services.
In addition to supplemental budgets already signed into law, the Executive Office for Administration and Finance (ANF) projects additional funding exposures for safety net and unanticipated events that may require additional funding through the remainder of fiscal year 2011. These funding exposures total $242 million. ANF will continue to assess over the course of the year those cases where these exposures may require additional funding, and will seek supplemental funding from the Legislature where it is deemed absolutely necessary.
After accounting for these changes, the table below outlines the total estimated spending for fiscal year 2011.
|(dollars in millions)|
|Supplemental Budget - Chapter 359 of 2010||713|
|Supplemental Budget - Chapter 409 of 2010||333|
|Potential Exposures (not yet appropriated)||242|
|Projected FY2011 Surpluses||(129)|
|FY2011 Estimated Spending||30,720|
|FY2011 GAA - % Change from FY2010 Spending||1.4%|
|FY2011 Estimated Spending - % Change from FY2010||5.8%|
Fiscal Year 2011 Tax Revenue Update
The original consensus tax revenue estimate adopted in the fiscal year GAA totaled $19.050 billion. After accounting for $48 million in tax initiatives adopted for fiscal year 2011 and the “sales tax holiday” signed into law by the Governor in July 2010, the revised consensus figure was $19.078 billion, or 2.9 percent more than was collected in fiscal year 2010.
|(dollars in millions)|
|Fiscal Year 2010 Collections:||18,544|
|Fiscal Year 2011 Consensus:||19,078|
Since July 2010, Massachusetts tax revenue has been performing above the monthly estimates. The increase has been experienced across all major tax categories as well as one-time tax collections from settlements with taxpayers that were not assumed in the original fiscal year 2011 forecast. The Department of Revenue (DOR) and ANF closely monitor the state revenue collections over the fiscal year and consult regularly with nationally-recognized revenue forecasters in order to assess any trends or other factors compared to the consensus forecast. Through December 2010 total tax collections equal $755 million above the year-to-date estimates, or 4.0 percent growth above the $19.078 billion consensus figure. Consequently, on January 18 the Secretary of ANF revised the fiscal year 2011 tax revenue estimate to $19.784 billion.
|(dollars in millions)|
|Original FY11 Consensus:||19,078|
|Revised FY11 Consensus:||19,784|
On November 2, 2010 the state’s voters adopted Question 1 which re-instated the exemption of retail sales of alcohol from the state’s 6.25 percent sales tax. DOR estimates that the fiscal year 2011 impact from this change will be the loss of tax revenues totaling $46 million, annualizing to $110 million in fiscal year 2012. This revenue loss has been incorporated into the updated revenue projections for each fiscal year.
Fiscal Year 2011 Non-Tax Revenue Update
A major adjustment that should be noted in fiscal year 2011 is that ANF is no longer assuming $160 million in federal revenues related to the Special Disabilities Workload. This revenue source corresponds to federal revenues that the state is owed to offset expenditures for services provided by the state to disabled persons who were determined to be Medicare-eligible persons. The state had assumed that Congress would authorize this reimbursement this fiscal year. While ANF and the Executive Office of Health and Human Services continue to actively press the federal government for this reimbursement –which is owed to dozens of other states, as well- ANF believes it is fiscally prudent at this time to remove the funding as a budgeted resource for the fiscal year 2011 budget.
Fiscal Year 2012 Tax Revenues
Tax revenues comprise nearly 62% of all revenues (including new revenues proposed in the H.1 recommendations) used to support the Commonwealth's operating budget. Each year the Administration and the House and Senate consult with economists and other groups to gather information and analysis on the condition of the U.S. and Massachusetts economies. They use that information to project state tax revenue for use in the state budget. The following is a general description of the consensus revenue process.
FY12 Consensus Tax Revenue
Estimate of $20.525 (in $ Billions)
General Information Regarding Consensus Revenue
The consensus revenue process is required under M.G.L. c.29, s.5B and states that on or before January 15 the Secretary for Administration and Finance shall meet with the House and Senate Committees on Ways and Means and shall jointly develop a consensus tax revenue forecast for the budget for the next fiscal year, which shall be agreed to by the Secretary and the House and Senate. The law requires that the consensus revenue estimate be placed before the General Court in the form of a joint House and Senate Resolution for full consideration.
On December 14, 2010 the Secretary for Administration and Finance and the House and Senate Committees on Ways and Means held a public hearing in Boston and heard testimony from the Massachusetts Department of Revenue (DOR), the Massachusetts Taxpayers Foundation and the Beacon Hill Institute, and economists from the University of Massachusetts-Boston and Northeastern University. The three branches subsequently agreed upon a fiscal year 2012 tax revenue estimate of $20.525 billion, consistent with testimony presented at the hearing.
As part of the statutorily required consensus revenue process, the Secretary, House and Senate also agree on the amount of tax revenues that will need to be transferred to support the State's Pension Fund, the School Building Authority and the MBTA (Massachusetts Bay Transportation Authority). For fiscal year 2012, these transfers are estimated to total $2.936 billion and will be directed to the following funds:
- School Modernization and Reconstruction Trust Fund = $ 678.1 million
- MBTA State and Local Contribution Fund = $ 779.6 million
- Pension Reserves Investment Trust Fund = $ 1.478 billion
Basis for the Fiscal Year 2012 Consensus Revenue Forecast
Fiscal year 2011 tax revenues are estimated to be $19.784 billion, representing an actual increase of 6.7% and a baseline increase of 5.5% from fiscal year 2010 collections (the baseline calculation adjusts for the impact of tax law and processing changes, so it is a better indicator of underlying economic activity). Through December 2010, fiscal year 2011 year-to-date tax revenues were up 10.1% actual and 7.5% baseline, and were $755 million above the year-to-date benchmark based on the GAA fiscal year 2011 estimate of $19.078 billion (including the impacts of the Economic Development Bill and the Sales Tax Holiday in August 2010). It is expected that as the economy continues to recover, tax collections for the remainder of fiscal year 2011 will increase by $357.5 million, or 3.6% actual, and $378.9 million, or 3.9% baseline, from the same period in fiscal year 2010.
The fiscal year 2012 consensus tax revenue estimate is $20.525 billion, representing revenue growth of 3.7% actual and 5.3% baseline from the fiscal year 2011 revised estimate of $19.784 billion. The fiscal year 2012 estimate assumes that the national and state economies will continue a moderate recovery throughout the fiscal year. In developing the consensus estimate, the Commonwealth relies on economic forecasts from Moody’s Economy.com, Global Insight, and the New England Economic Partnership (NEEP). The economic forecasts upon which the consensus revenue estimate is based are as follows:
- The national economy started to recover from the Great Recession in the second half of 2009, but the recovery has slowed down recently. After strong growth in the fourth quarter of 2009 (5.0%, annual rate) and the first quarter of 2010 (3.7%, annual rate), the growth in real GDP slowed down in the second (1.7%, annual rate) and third quarter of 2010 (2.5%, annual rate), and is expected to remain slow until the second half of 2011. Real GDP growth for the full fiscal year 2011 is projected to be 2.5%~2.6% compared to growth of -2.8% in fiscal year 2009 and 0.7% in fiscal year 2010. In fiscal year 2012, real GDP growth is projected to range from 2.6% to 3.5%;
- Massachusetts employment is expected to increase by 1.0% to 1.2% over the remainder of fiscal year 2011, and by 1.0% to 1.2% for fiscal year 2011 as a whole. For fiscal year 2012, Massachusetts employment is expected to change by 0.5% to 1.2%;
- Massachusetts personal income (excluding capital gains) is expected to grow by 2.9% to 3.0% over the remainder of fiscal year 2011 and 2.8% to 2.9% for fiscal year 2011 as a whole. For fiscal year 2012, Massachusetts personal income is projected to grow by 3.5% to 5.0%;
- Massachusetts wages and salaries are projected to increase by 2.3% to 3.2% for the remainder of fiscal year 2011 and 2.2% to 2.9% for the year as a whole. For fiscal year 2012, the growth in Massachusetts wages and salaries is projected to range from 4.4% to 5.2%;
- Massachusetts retail sales growth is expected to range from 4.5% to 5.0% over the remainder of fiscal year 2011 and 4.2% to 4.9% for the fiscal year as a whole. For fiscal year 2012, Massachusetts retail sales are projected to grow by 5.0% to 5.5%;
- Corporate profits at the national level are expected to increase by 4.9% to 5.8% over the remainder of fiscal year 2011, and by 10.4% to 12.4% for the fiscal year as whole (there are no forecasts for state corporate profits). For fiscal year 2012, growth in corporate profits is projected to range from 1.1% to 5.8%;
In addition to the economic forecasts described above, the consensus revenue estimate takes into account forecasts for capital gains realizations and taxes. The consensus agreement capital gains forecast is based on the following considerations:
- Preliminary tax year 2009 data indicates that Massachusetts capital gains realizations decreased by approximately 43.3% in tax year 2009, to $8.4 billion. Fiscal year 2010 taxes on those capital gains realizations totaled approximately $497 million, a decrease of approximately $27 million, or 5.1%, from fiscal year 2009 (taxes on tax year 2009 capital gains realizations were paid mostly in fiscal year 2010).
- The stock market, as measured by the average of the S&P 500 over the entire year, rose by 20.5% in calendar year 2010 (which largely determines fiscal year 2011 capital gains taxes), and is expected to increase by 5.2%-9.7% in calendar year 2011 (which largely determines fiscal year 2012 capital gains taxes). Massachusetts capital gains realizations are projected to increase by 17.4% in calendar year 2010 and increase by 16.4% in calendar year 2011.
The charts below show the national and state economic forecasts presented at the December 14, 2010 consensus revenue hearing as well as the consensus estimate assumption for capital gains realizations and taxes, all of which were taken into consideration in developing the fiscal year 2012 consensus revenue estimate.
Based on these economic projections and actual tax collections through December 2010, fiscal year 2012 tax collections are projected to grow by $741 million, or 3.7% actual and 5.3% baseline from fiscal year 2011 tax collections, with income tax collections growing by 6.0% actual and baseline, sales tax growing by 3.7% actual and 4.6% baseline, and corporate/business taxes declining by 4.7% actual and increasing by 5.9% baseline, as shown in the table below.
|Tax Type||% Actual
|Memo: Capital Gains Taxes||15.5%||15.5%||744||100|
The chart below shows historical trends in actual and baseline tax revenue growth.
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