Specific and General Budget Policies
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 FY 2013 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 FY 2013.
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
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 other funds.
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
General Fiscal Policies of the Commonwealth
The following principles and
policies were used to guide the development of the FY 2013 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.
State agencies utilize the
accounting and payroll systems to ensure adequate audit controls are in place
for the purpose of reporting on the receipt and expenditure of tax dollars and
The presentation of the annual Statutory
Basis Financial Report, 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.
Since November 2011, the public
has been able to visit the state’s transparency website, “Open Checkbook”,
which is regularly updated with state payroll and expenditure data
In preparation of the annual
budget, a consensus revenue estimate for taxes must be agreed to by the
executive and legislative branches and will serve as the basis for building the
All revenue received by
departments will be deposited with the Treasurer and recorded in the accounting
system, ensuring the timely and transparent receipt of all state funding
The Cash Management Division of
the State Treasurer’s Office utilizes 958 operating accounts to track cash
collections and disbursements for the Commonwealth. The Division relies
primarily upon electronic receipt and disbursement systems. 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
The State Treasurer, in
conjunction with the Executive Office for Administration and Finance, is
required to submit quarterly cash flow projections for the current fiscal year
to the House and Senate Committees on Ways and Means on or before the last day
of August, November, February and May. The projections must 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 Executive Office for Administration
and Finance, is also required to develop quarterly and annual cash management
plans to address any gap identified by the cash flow projections and variance
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 process 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 bulk of state appropriations
must be “subsidiarized” in the central accounting system with total funding
budgeted and allocated for spending categories such as payroll, travel,
operational expenses, leases and information technology services.
Executive branch agencies are
restricted from transferring funds between spending categories without first
gaining the approval of the Executive Office for Administration and Finance.
Total cash allotments, or the
amount of total appropriations available for actual expenditure at any given
time, are subject to a published schedule by the Secretary of Administration
and Finance. A&F staff will consult state cash flow projections and agency
expenditure activity before approving any increased allotments beyond the
The Comptroller establishes
internal control policies and procedures in accordance with state finance law.
These policies require all departments to develop and maintain an 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 tax revenues that
exceed $1 B will be deposited into the Fund to better calibrate spending with
reliable revenue streams and to build a cushion against future economic and
fiscal uncertainty. In fiscal year 2013, an estimated $100 M will be deposited
in the Fund under this policy.
Any one-time tax or other revenues
collected as a result of a judgment or settlement of outstanding tax litigation
that exceeds $10 M will be segregated and deposited into the Stabilization
Fund, ensuring that this non-recurring revenue source is not relied on for
general budget needs. Thus far in FY 2012
(through December 2011), the Attorney General and Commissioner of Revenue have
certified $163.2 M for transfer to the Stabilization Fund on account of
settlements and judgments.
The Commonwealth conducts 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. The cap will be established
based on debt affordability, and annual growth in that cap will not exceed $125
million between FY 2012 and FY 2015.
A five-year capital investment
plan will be developed and update annually, and will 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 and to
pursue reforms that will reduce costs over the long term.
Other Post-Employment Benefits
To address the Commonwealth’s
retiree health care funding liability, reforms have been adopted that will
annually allocate a portion of the state’s tobacco master settlement revenue to
the State Retiree Benefits Trust Fund (SRBTF), the trust from which we pay for
retirees’ health costs. This portion of the tobacco settlement will increase
incrementally each year until 2022, when it will be fully dedicated to SRBTF.
In addition, included in Pension Reform legislation adopted in FY 2012, a new
Commission was established to study and propose recommendations to further address
the state’s unfunded liability.
Strategic Fiscal and Budgetary Policies
In developing the FY 2013 budget,
special attention was paid in the following areas:
Cost-containment in the state’s
various health care programs, including the costs for current and retired state
employees and health coverage for low-income and unemployed residents in the
Preservation of programs to ensure
residents can lead safe and healthy lives and find long-term employment in a
competitive global economy:
- Addressing youth and urban violence through
investments in our youth and communities
- Closing the achievement gap and protecting education
funding as a cornerstone of long-term economic growth and opportunity.
- Increasing job creation through investments that
enhance Massachusetts’ ability to compete for the jobs and businesses of
tomorrow, such as green technology and the life sciences, while ensuring a more
competitive environment for the state’s private employers in more traditional
- Ensuring the state’s most vulnerable populations,
particularly the disabled and those who have served our country, can continue
to receive assistance and life-changing services from the state where needed.
Adopt government reforms that
promote efficiency and sustainability of services and ensure state dollars are
stretched further in challenging fiscal times.
- Implementing technology improvements to support
innovative service delivery to improve services for the public at lower costs
- Pursuing shared service models across state government
more aggressively for the most-effective administration and operation of state
agencies and programs.
- Improving state purchasing and procurement processes
to leverage state buying power and drive further cost savings.
Identify additional recurring
revenues to support worthwhile programs while recognizing the state cannot
afford to maintain all programs and services that have been operated in the
Reduce the use of temporary or one-time resources to balance the budget.
Utilize long-term financial model
to set annual and multi-year budget targets with respect to expected revenues,
sustainable spending levels and appropriate annual use of non-recurring
resources in developing a balanced budget.
Performance Management, Accountability and Transparency
The FY 2012 budget established the
Office of Commonwealth Performance, Accountability and Transparency (CPAT) to
execute nation-leading strategies for improving performance and transparency,
maximizing federal grants, reducing fraud, waste and abuse and informing our
financial planning by using the latest economic and caseload forecasting tools.
Since it was inaugurated in June,
CPAT has had some notable successes in driving reform and innovation across
Performance Management -
establishing a collaborative relationship with the Collins Center at UMASS
Boston to develop strategies and dashboards for the Governor’s four strategic
priorities; initiating discussions with Secretariats to develop strategic plans
and put them in place by June 2012; and rolling out a comprehensive training
program on performance management for staff across state government.
Enhanced Coordination and Federal
Grants - leveraging experience in coordinating ARRA funds to secure and
maximize federal dollars and ensure compliance with federal requirements;
engaging Cabinet Secretaries to develop better cross-government coordination of
grant applications and rewards; utilizing the outcome measurement regime
required to comply with the federal Recovery Act for all grants secured in
state government; and commencing procurement of unified grants management
technology that will enable coordination to be achieved.
Transparency Website - launching
the State's Open Checkbook website in December, which details state spending,
including payrolls and pensions.
Program Integrity - making
permanent the Lt. Governor's task force on fraud, waste and abuse, and
coordinating efforts throughout government, including with other executive officers
such as the Auditor and Attorney General.
Economic Forecasting &
Analysis - appointing its Advisory Board and conducting its first meeting;
developing its forecasting approach and methodology; began working with high
impact service areas, such as MassHealth (Medicaid), to better model caseloads;
and linking historical data into a 5-year economic model.
Overview of Budget Funds
Government Fund Types account
for the general governmental activities of the Commonwealth and are organized
Funds are the primary operating funds
of the Commonwealth. They account for all budgeted governmental transactions. Typically,
the level of expenditures made annually 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. .
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
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
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
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 FY 2010,
this fund replaced the former Highway Fund as the principal source of
transportation related revenues and expenditures for the Commonwealth.
Tourism Fund, authorized in section 35J of Chapter 10 of
the General Laws, is funded with 35 % of the State's annual revenues received
from the hotel occupancy tax authorized in section 3 of Chapter 64G. In FY 2012,
Tourism Fund revenues are estimated to total $40.3 M. 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 FY 2013 proposal.
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
Stabilization Fund is a reserve to enhance the Commonwealth’s fiscal
stability. A later section describes the Stabilization Fund in more detail.
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
Temporary Holding Fund –The fund accounts 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.
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 Commonwealth Health
and Prevention Fund, established in House 2, will collect revenues
generated from the elimination of the existing sales tax exemptions on the
purchase of soda and candy. Monies appropriated from this fund will support
programs and services that augment the health and well-being of the citizens of
the Commonwealth. This policy initiative aims to encourage healthy lifestyle