The state’s finance laws are outlined 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) is in balance accordingly. Any supplemental budget bill that may accompany or follow a budget cannot impair the overall fiscal balance. Typically, surplus resources at the end of any given fiscal year will be deposited into the Commonwealth’s Stabilization Fund, also known as the Rainy Day Fund. Any further use of the Fund’s resources must be explicitly authorized in legislation.
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 reach agreement on a “consensus tax revenue forecast” from which to build their spending projections. The consensus revenue process for fiscal year 2012 is discussed in more detail later in this section. In addition to tax revenues, non-tax revenues are forecast within the Governor’s budget and factor into the total amount of resources that are available to the state to support its costs in fiscal year 2012.
The Governor’s budget recommendations for the fiscal year beginning July 1, 2011 and ending June 30, 2012 are included in the following budget document and companion Issues in Brief narrative. This submitted budget is balanced; the revenues projected to be received within the fiscal year under these recommendations are sufficient revenues to fund the expenditures proposed for fiscal year 2012. Supporting financial statements, provided in the following section, identify the major types of revenues to be collected next year and the level of expenditures they will support.
With virtually no exceptions, expenditures made by an agency within fiscal year 2012 cannot exceed the level of spending authorized for an appropriation account. In limited cases, such as debt service where the Commonwealth is statutorily required to pay debt service regardless of the amount of annual appropriations, state spending may not exceed what is proposed by the Governor and appropriated by Legislature.
State finance law requires the Commonwealth to monitor revenues and expenditures during a fiscal year. As such, 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.
The following principles and policies were used to guide the development of the fiscal year 2012 budget:
The Commonwealth possesses strong 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.
Other Post-Employment Benefits
Strategic Fiscal Policies
In developing the fiscal year 2012 budget, special attention was paid in the following areas:
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. Typically, the level of expenditures made annual from these fund sources is “subject to appropriation”, meaning that no payments can be made from these funds until they are explicitly authorized in the state budget. The main budgeted funds include the General Fund, the Commonwealth Stabilization Fund, the Massachusetts Tourism Fund, and the Commonwealth Transportation Fund, which are identified by the Comptroller as the operating funds of the Commonwealth. The Governor’s fiscal year 2012 proposal will shift the Workforce Training Fund from a budgeted fund to a non-budget special revenue fund.
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. Typically, these funds are available annually to one or more agencies for dedicated purposes, but do not require annual legislative approval for the use of the funding. Most funds are subject to annual reporting rules and all funds are subject to state accounting and audit practices.
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 short-term purpose. They typically are created administratively for a brief period to allow a state agency to collect one-time revenue and spend this funding for a dedicated purpose. For example, the Department of Public Health receives funding from private organizations from time to time to conduct research and studies on specific issues, and must collect and segregate funding dedicated for this purpose from all other funding sources.
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.
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 Commonwealth Transportation Fund accounts for road and highway use revenues, including the gas tax, registry fees and 0.385% of the sales tax. The fund is used to pay debt service associated with highway maintenance and construction projects and provides funding for the operation of the independent Massachusetts Department of Transportation (MassDOT). Established as part of the historic transportation reforms implemented in fiscal year 2010, this fund replaced the former Highway Fund as the principal source of transportation related revenues and expenditures for the Commonwealth.
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 2011, 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, the Cultural Facilities Fund, and the Massachusetts Convention Center Authority. 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 in the Governor’s fiscal year 2012 proposal.
The Marine Recreational Fisheries Development Fund accounts for all recreational saltwater fishing permit fees collected by the director of the division of marine fisheries. Fees collected in this fund shall be used for the development and administration of the recreational saltwater fishing permit program, to support science and conservation programs designed to improve recreational saltwater fishing and other recreational saltwater fishing improvement programs.
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:
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. Annual spending from this fund is subject to annual appropriation by the Legislature, and any unexpended funds remain in the Fund for future use for related purposes.
The Substance Abuse Prevention and Treatment Fund, established in the fiscal year 2011 General Appropriations Act, is funded with the proceeds from the fiscal year 2010 removal of the sales tax exemption from alcohol. The revenues were used for public health programs such as alcohol and tobacco addiction services, childhood health and nutrition services, and violence prevention. On November 2, 2010 the state’s voters adopted Question 1 which reinstated the exemption of retail sales of alcohol from the states 6.25 percent sales tax. Therefore the Substance Abuse Prevention and Treatment Fund no longer has a dedicated revenue stream to support these programs in fiscal year 2012. However, the Governor’s fiscal year 2012 budget recommendation will include funding for these programs through General Fund appropriations.
The Workforce Training Fund, authorized in 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 $250,000 or more to help train new and incumbent workers. It was established in July 1998, and financed entirely by Massachusetts employers. In fiscal year 2011 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 $19 million, and state appropriations for training grants are continually rolled forward into future fiscal years to provide for multiple-year grant awards. House 1 includes a reform to the funding structure of the Workforce Training Fund by funding the program through an “off-budget” trust fund. This change will be responsive to private employers concerns that annual WTF contributions have been diverted in the past from job training initiatives and used for broader budget purposes.