- Budget Development
- Financial Statements
- Capital Budget
- Appropriation Recommendations
- Agency Information
- Operating Transfers
- Local Aid - Section 3
- Outside Sections
- Tax Expenditure Budget
Specific and General Budget Policies
Overview of State Finance
The state’s finance laws are outlined in Chapter 29 of the Massachusetts General Laws. (In August of 2012 the Governor signed legislation that constituted a significant re-write of Chapter 29 –Chapter 165 of the Acts of 2012- although most items related to the budget development process were left unchanged.) 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 2014 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 2014.
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 other funds. On December 4, 2012 the Governor, noting the requirements of section 9C, announced spending reductions and other necessary measures in order to ensure that FY 2013 budget remained in balance. This resulted after a $540 M budgetary shortfall was recognized, largely due to underperformance in state tax collections.
In other years, 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 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 other revenues.
- 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 budget.
- 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 sources.
- The Cash Management Division of the State Treasurer’s Office utilizes close to a thousand 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 borrowing.
- 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 reports. Legislation approved by the Governor on July 27, 2012 provides for monthly rather than quarterly distributions of local aid, beginning in fiscal 2014.
- 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 published schedule.
- 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 $1.023 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 2014 total capital gains receipts are projected to total $1.06 B, an estimated $37 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 2013 (through December 2012), the Attorney General and Commissioner of Revenue have certified $120 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.
- In addition, 5% of any capital gains in excess of the statutory threshold (see above) will be used to fund the Commonwealth’s unfunded pension liability.
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.
- In addition, 5% of any capital gains in excess of the statutory threshold (see above) will be used to fund the Commonwealth’s OPEB liability.
Strategic Fiscal and Budgetary Policies
In developing the FY 2014 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 Commonwealth.
- 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 sectors.
- 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 to taxpayers.
- 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 past.
- 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 July 2011, CPAT has had some notable successes in driving reform and innovation across state government:
- 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 publish them by January 2013; 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 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 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. .
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.
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 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.
The Massachusetts 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 2013, Tourism Fund revenues are estimated to total $44.9 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 2014 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:
- 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 Community College Fund, established in Chapter 194 of the Acts of 2012 (An Act Establishing Expanded Gaming in the Commonwealth), will collect 17 percent of any one-time gaming licensing funding paid to the Massachusetts Gaming Commission by Category 1 or Category 2 licensees. In FY 2014, this amount is calculated to total $29.8 M.
- The Manufacturing Fund, established in Chapter 194 of the Acts of 2012 (An Act Establishing Expanded Gaming in the Commonwealth), will collect 13 percent of any one-time gaming licensing funding paid to the Massachusetts Gaming Commission by Category 1 or Category 2 licensees. In FY 2014, this amount is calculated to total $22.75 M.
- The Local Aid Stabilization Fund, established in Chapter 194 of the Acts of 2012 (An Act Establishing Expanded Gaming in the Commonwealth), will collect 5 percent of any one-time gaming licensing funding paid to the Massachusetts Gaming Commission by Category 1 or Category 2 licensees. In FY 2014, this amount is calculated to total $8.75 M.
- The Local Capital Projects Fund, established in Chapter 194 of the Acts of 2012 (An Act Establishing Expanded Gaming in the Commonwealth), will collect 11 percent of any one-time gaming licensing funding paid to the Massachusetts Gaming Commission by Category 1 or Category 2 licensees. In FY 2014, this amount is calculated to total $19.25 M.
- The Public Infrastructure Fund, established in the Governor’s House 1 budget proposal, and effective on July 1, 2014 (the beginning of fiscal year 2015), will be credited with all the proceeds generated from the 4.5 percent state sales tax to fund public works to support transportation, the school building fund, and other infrastructure. The dedicated penny for the School Building Authority and MBTA will be preserved and given priority, with the second tranche of funds being dedicated to the Commonwealth Transportation Fund to fully support investments identified in MassDOT’s recently releasing financing plan “The Way Forward: A 21st Century Transportation Plan”, with any remaining amount dedicated for other new or ongoing non-transportation public infrastructure projects.
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