FY 2014 Budget Recommendation

Annual Change in Budgetary Resources, FY 2013 vs. FY 2014
dollars in millions
Revenue Category FY 2013
Estimated
FY 2014
House 1
Annual
Change
Projected Base-Line Tax Collections (excluding one-time FAS 109 Delay in FY13): 21,450.0 22,334.0 884.0
Transfer of Capital Gains in Excess of Maximum for Budgetary Purposes to Rainy Day Fund: (100.0) (37.0) 63.0
Transfer for Annual Pension Contribution: (1,552.0) (1,630.0) (78.0)
Transfers of Tax Revenue to MBTA, SBA, and Workforce Training Fund: (1,490.7) (1,529.0) (38.3)
Federal Reimbursements: 8,158.4 8,611.8 453.4
Departmental Revenues: 3,348.2 3,417.8 69.6
Consolidated Transfers from Non-Budgeted Sources: 1,749.5 1,657.7 (91.9)
Prior Year Funds Used to Support Current Year Non-Recurring Budgetary Spending: 173.4 28.0 (145.4)
One-Time Sources for Recurring Costs (including Stabilization Fund withdrawal, eliminating Carry-Forward and FAS 109 Delay): 820.1 513.0 (307.1)
Other New Revenues Supporting the Budget:
Increased Tax Revenue (Includes Motor Fuel Taxes): - 791.0 791.0
Revenue Anticipation Notes:   400.0 400.0
Gaming Budgetary Revenues: - 83.0 83.0
Employer Responsibility Health Care Assessment: - 94.0 94.0
Modernize Bottle Redemption: - 24.0 24.0
Enhanced Tax Enforcement: - 27.0 27.0
Amazon Agreement and Expansion of Hotel Tax to Rental Units: - 29.0 29.0
CHANGE IN BUDGETARY RESOURCES (INCLUSIVE OF RESOURCES FOR THE PENSION CHANGE):     2,257.4
Additional Off-Budget One-Time Resources: 99.0 10.0 (89.0)
TOTAL CHANGE, FY 2013 vs FY2014     2,168.4

 

The tables provided above and immediately below outline the year-on-year changes in major revenue and spending categories. The following narrative summarizes the contributing factors to the annual changes adopted in the Governor’s House 1 budget recommendations. As shown in the table, total budgetary resources in FY 2014 are estimated to increase by $2.257 B from FY 2013 estimated levels. A corresponding increase in spending is recommended, and the FY 2014 Spending Summary section outlines the major changes adopted within these spending assumptions.

FY 2013 Estimated Spending vs. FY 2014 House 1 Recommendation
dollars
Spending Category FY 2013
Estimated
Spending
FY 2014
House 1
Annual
Change
Judiciary 777,777,825 808,468,103 30,690,277
District Attorneys 101,329,973 103,160,535 1,830,561
Sheriffs 512,994,922 522,315,138 9,320,216
Other Constitutional Offices 192,042,911 188,996,140 (3,046,771)
Lottery Division 89,113,321 90,892,716 1,779,395
Debt Service 2,368,477,959 2,429,552,869 61,074,910
Comptroller 60,942,945 58,543,692 (2,399,253)
Legislature 66,184,475 65,374,164 (810,311)
Administration and Finance 337,271,223 316,745,683 (20,525,540)
Group Insurance Commission 1,298,847,997 1,362,226,112 63,378,115
Energy and Environmental Affairs 203,037,066 224,010,561 20,973,495
Health and Human Services 4,917,578,099 5,120,637,514 203,059,415
MassHealth 10,859,431,334 12,277,879,935 1,418,448,601
Housing and Economic Development 470,602,829 458,695,973 (11,906,856)
Labor and Workforce Development 41,341,324 44,071,217 2,729,893
Higher Education Campuses 857,463,222 930,673,973 73,210,751
Executive Office of Education 1,169,147,840 1,463,022,636 293,874,796
K-12 Aid (Chapter 70) 4,173,783,011 4,397,257,332 223,474,321
Local Aid 916,760,490 956,760,490 40,000,000
Public Safety 969,837,771 1,007,278,097 37,440,326
Health Connector Authority 661,249,148 470,637,393 (190,611,755)
Transfers for Payments to Hospitals and Providers 751,914,223 485,449,470 (266,464,753)
Other Transfers to Non-Budgetary Funds 6,500,000 2,625,000 (3,875,000)
State Retiree Health Care 415,042,237 425,044,755 10,002,518
Life Sciences Innovation Investments - 25,000,000 25,000,000
Transportation 348,912,182 589,673,153 240,760,971
Total Appropriated Spending 32,567,584,328 34,824,992,653 2,257,408,325
State Pension Contribution 1,552,000,000 1,630,000,000 78,000,000
Total Spending Including Pensions 34,119,584,328 36,454,992,653 2,335,408,325

 

FY 2014 Budgetary Resources

FY 2014 Tax Consensus Change

As noted in a previous section, the FY 2014 tax consensus figure announced on January 15, 2013 jointly by the Secretary of Administration and Finance and the Chairs of the House and Senate Committees for Ways and Means totaled $22.334 B. After accounting for $46 M of the FY 2013 tax projection of $21.496 B coming from one-time resources generated by the delay of the FAS 109 deduction, the total baseline tax revenue growth before any tax law changes equals $884 M.

FY 2014 Capital Gains

The estimated FY 2014 tax receipts associated with capital gains totals $1.060 B, down from the FY 2013 assumption of $1.1 B. A contributing factor to this decrease is the anticipated shift that may occur in capital gains receipts from FY 2014 to FY 2013 resulting from increased federal taxes on capital gains effective January 1, 2013. This change was adopted under the New Year’s Day agreement reached by Congress to avoid most of the tax increase and spending reduction triggers under the so-called fiscal cliff. Given the volatile nature of capital gains receipts, the Governor and the Legislature worked to adopt a reform that restricts the amount of capital gains receipts that can be used for budgetary purposes in any given year. In FY 2013, that ceiling is $1 B, but grows to $1.023 B in FY 2014 (reflecting changes adopted in 2012 State Finance Reform legislation). Given that capital gains receipts as a component of the total tax estimate have decreased while the budgetary cap for capital gains increased in FY 2014, the effect increases total budgetary resources in FY 2014 by $63 M.

FY 2014 Pension Contributions

Typically, state pension costs are not appropriated within other annual state appropriations or “line-items”. Rather they are prescribed in other budget legislation or within the state budget’s “outside sections” that accompany the appropriations. Under a pension funding scheduled adopted in Section 46 of the state’s FY 2012 General Appropriations Act (GAA) –Chapter 68 of the Acts of 2011- the annual state contribution in FY 2014 for existing and future pension costs totals $1.630 B, an increase of $78 M from the FY 2013 contribution. While these costs are not appropriated directly in the Governor’s House 1 filing, they must be budgeted for, and the year-on-year increase has the effect of reducing budgetary resources in FY 2014 by $78 M from FY 2013.

FY 2014 Transfers of Tax Revenue

Under state law, specific amounts of the consensus revenue estimates are dedicated for annual transfers for dedicated purposes: the Massachusetts School Building Authority, the Massachusetts Bay Transportation Authority and the Workforce Training Fund. The first two receive an annual percentage of the state sales tax collections, while the third receives dedicated employer contributions to the Workforce Training Fund for grants to support incumbent worker training in the private sector. In total, the FY 2014 consensus forecast projects these transfers to equal $1.529 B, an increase of $38.3 M from the FY 2013 estimate of $1.490 B. Similar to pensions, this annual increase has the effect of reducing budgetary resources when comparing year-on-year changes.

FY 2014 Non-Tax Revenues

As described in an earlier section, the three major categories of state non-tax revenues are: federal reimbursements, departmental revenues and transfers from non-budgetary sources. Total non-tax revenues are forecast to grow in FY 2014 by $431 M, from $13.256 B in FY 2013 to $13.687 B in FY 2014. The major contributor to this increase is additional projected federal revenues ($453 M) largely associated with state MassHealth (Medicaid) expenditures. In addition to growth in Medicaid reimbursements resulting from increased Medicaid spending, the state will be eligible to receive an enhanced federal Medicaid matching fund percentage associated with the federal Affordable Care Act (ACA) that becomes effective on January 1, 2014. Department revenues are forecast to increase modestly by $69 M in FY 2014, or growth of 2 percent. Finally, increases in federal and departmental revenues are offset by a $91.9 M reduction in budgetary transfers. The decrease is attributable to the projected reduction in state fringe revenue in FY 2014 and one-time transfers from non-budgetary sources in FY 2013 that are budgeted to support one-time costs this year.

Prior Year Funds and Reserves

The FY 2013 budgetary resources currently include an estimated $173 M in reserves largely funded through prior-year appropriations extended into FY 2013 for one-time purposes. The Governor’s FY 2014 House 1 recommendation does not assume that unspent funds in FY 2013 will be made available in FY 2014, and therefore only projects a limited amount of reserves will be carried forward. The year-on-year impact is $145 M less in budgetary resources than FY 2013; however, these reductions are typically offset by like reductions in spending.

FY 2014 One-Time Sources

As noted earlier, total estimated FY 2013 one-time resources equal $919 M, which are listed above as $820 M of one-time sources for recurring costs and $99 M of additional off-budget one-time resources (largely from the use of surplus trust resources of the Health Connector and the Group Insurance Commission). These compare to total FY 2014 one-time resources of $555 M.

FYs 2013 and 2014 One-Time Resources
dollars in millions
  FY 2013
Revised
FY2014
House 1 *
Budgetary Resources:
FY12 Resources Used to Support Ongoing FY13 Costs: 36 -
Stabilization Resources: 550 400
Delay FAS 109 Deduction: 46 -
Suspend Statutory Carry-Forward: 107 -
Unclaimed Check Fund (non-recurring): 10 -
Federal Revenues (9C Announcement): 49  
One-Time Reductions: 10 -
Adjust DSTI Hospital Payments Fund: - 41
One-Time Gaming Funds Supporting Ongoing Costs:   32
Sale of Assets: - 32
Non-Budgetary Resources:
Trust Sweeps or Cost Shifts: 11 40
Group Insurance Trust Funds: 45 -
Quasi Public Contributions: 11 -
Commonwealth Care Reserves: 44 -
One-Time Shift of Health Care Costs to Gaming Funds:   10
TOTAL ONE TIME RESOURCES 919 555
*For discussion of the use of new proposed FY 2014 tax revenues supporting, please refer to the Long-Term Fiscal Policy section of this document.

 

Assumed one-time resources in FY 2014 include:

In total, the House 1 recommendation for FY 2014 relies on $364 M less in one-time resources than those budgeted for FY 2013. This amount, $550 M, is within the sustainable amounts projected within the Executive Office for Administration and Finance’s published long-term fiscal policy framework published originally in early 2012 and updated this month coinciding with the release of the FY 2014 budget.

Stabilization Fund

This bar graph presents the year-end stablizaion fund balances from fiscal year 2004 through fiscal year 2014. The amounts for fiscal year 2013 and fiscal year 2014 are projected by the Executive Office for Administration and Finance. At the close of fiscal year 2013 we project a closing balance $1.257 billion, while we expect to close fiscal year 2014 with a Fund balance of $1.035 billion. This would still leave Massachusetts with one of the largest fund balances in the nation.

The graph provided above shows the year-end Stabilization Fund balances over the period FY 2004-14. The projected balances for Fiscal Years 2013 and 2014 are shown. Currently, FY 2013 is assumed to close the year with $1.257 B in Stabilization Fund proceeds. This assumes a $550 M budgeted draw to the General Fund, which is partially offset by a net $90 M deposit of estimated capital gains revenues and at least $65 M in deposits of one-time tax and other settlements in excess of $10 M. Please note that the total amount of capital gains revenue restricted from being used for budgetary purposes equals $100M: 90 percent of this amount is dedicated to the Stabilization Fund, while 5 percent each is allocated to reducing the state’s pension and retiree health care liabilities.

In FY 2014, the projected Stabilization Fund balance totals $1.035 B. This reflects the assumed $400 M in proposed draws to the General Fund, partially offset by $33 M in capital gains-receipts deposited into the Fund, an estimated $125 M in one-time tax and other settlements in excess of $10 M deposited into the Fund, and the $20 M repayment from gaming licensing revenues associated with the 2011 Expanded Gaming Act provision that used $20 M of Stabilization Fund proceeds to fund the start-up costs for gaming oversight activities. The FY 2014 assumption of $125 M in one-time tax and other settlements in excess of $ 10 M, which must be deposited into the Stabilization Fund under a FY 2012 reform, is based on historical collections over the past six years in which the state averaged over $175 M annually in tax settlements in excess of $10 M.

The projected year-end balance at the close of FY 2014 will leave Massachusetts one of a handful of states with balances in excess of $1 B. It also reflects the continued effort of the Governor and Legislature to adopt fiscal policies that responsibly limit the use of volatile or unsustainable resources (such as capital gains receipts or large tax settlements) from general budgetary purposes. The Stabilization Fund has proven to be a critical tool over the past several fiscal years to help mitigate some of the impact of reduced tax collections resulting from the 2008-09 economic recession. It is important to continue policies that support a sufficient fund balance and ensure resources are available for the future as state continues to recover from an unprecedented fiscal collapse.

FY 2014 New Tax Revenues

The Patrick-Murray Administration proposes the following reforms to our tax system to raise $1.9 B on an annual basis:

  1. Reducing the sales tax from 6.25 percent to 4.5 percent and dedicating all proceeds to a fund for public works to support transportation, the school building fund, and other infrastructure.
  2. Increasing the income tax rate by 1 percentage point to 6.25 percent.
  3. Doubling the personal exemptions.
  4. Eliminating some complicated tax deductions that benefit select taxpayers.

Economic Competitiveness

The chart below compares the Massachusetts sales tax rate, current and proposed, to that of other states.  Our proposed rate reduction would bring Massachusetts from nearly the top to close to the bottom of state sales tax rates, a tax that is widely regarded to be the most regressive tax that states impose.  In Massachusetts, there are no such locally-imposed sales taxes.

Title: State Sales Tax Rate Comparison (2011) - Description: This graph compares Massachusetts' existing and proposed sales tax rates to other states' sales tax rates. It shows that the proposed rate reduction would bring Massachusetts from nearly the top to close to the bottom of state sales tax rates.

This proposal keeps Massachusetts competitive by ensuring that our total state and local effective tax rate as a percentage of personal income remains in the middle of the pack relative to our neighbor and competitor states, as shown below.

Title: Total State and Local Taxes as a percentage of Personal Income - Description: This graph compares Massachusetts' existing and proposed taxes as a percentage of personal income, and shows that Massachusetts remains in the middle of the pack relative to neighbor and competitor states.

The Patrick-Murray Administration’s tax reform proposal will raise $1.9 B on an annual basis.  In FY 2014, it is expected to increase revenues by $779 M as a result of the fact that the tax law changes would take effect in the middle of the fiscal year. In addition, the Governor’s proposal calls for indexing the state’s motor fuel tax to inflation, which will generate an additional $13 M in new budgetary revenues in FY 2014. The total projected new tax revenue in FY 2014 for budgetary purposes equals $791 M.

FY 2014 Revenue Anticipation Notes

In order to meet our existing and new investments in transportation, education, and innovation that ramp up over time, the Governor is proposing to allocate the new tax revenues among those purposes in the manner shown below.  This funding plan assumes that $400 M of the anticipated new tax revenue in FY 2015 and FY 2016 is borrowed to support investments in FY 2014, when the full-year revenue impact of the tax law changes will not be realized.

Title: Uses of New Tax Revenue by Fiscal Year - Description: This table shows the split of new tax revenue to existing and new Transportation, Education and Innovation investments from FY 2014 to FY 2018, with an additional snapshot of FY23.

FY 2014 Gaming Licensing Revenues

The Governor’s FY 2014 House 1 recommendation assumes an $83 M in budgetary revenues associated with the licensing of 3 gaming facilities (2 “Category 1” Licensees and 1 “Category 2” Licensee). Of this amount, just short of $32 M will be used to support on-going budgetary expenses and has therefore been listed among the $555 M in projected FY 2014 one-time resources for next year.

Under the current published calendar of the Massachusetts Gaming Commission (MGC) two Category 1 licenses and one Category 2 license will be awarded by June 30, 2014, making them available to support state programs and services in FY14. The minimum Category 1 license fee is $85 M, and a Category 2 license fee totals at least $25 M, generating at least $195 M in gaming licensing revenues in FY 2014. Under the existing laws (Chapter 194 of 2011) the first $20 M of any gaming licensing must repay the Stabilization Fund for the “start-up costs” for the MGC. This leaves $175 M in licensing revenues to be distributed via the prescribed allocation under Section 93 of Chapter 194. Of this amount, $83 M is projected to be available for state budgetary purposes.

Projected FY 2014 Gaming Licensing Receipts and Distributions
dollars in millions
Estimated Gaming Licensing Receipts: 195.0
Less $20 M for Repay Rainy Day Fund: (20.0)
Budgetary Fund Distributions:
Tourism Fund (1.5%) 2.7
Local Aid Stabilization Fund (5%) 8.8
Manufacturing Fund (13%) 22.8
Community College Fund (17%) 29.8
Local Capital Projects Fund (11%) 19.3
Non-Budgetary Fund Distributions:
Health Care Payment Reform Fund (23%) 40.3
Transportation and Infrastructure Development Fund (14.5%) 25.4
Community Mitigation Fund (10%) 17.5
Race Horse Development Fund (5%) 8.8
Total Distributions After Stabilization Fund Repayment: 175.0

 

The table above outlines the projected FY 2014 licensing revenues and distributions, per Chapter 194. It is important to note that Health Care Payment Reform Fund originally was required to be a budgetary fund (or subject to annual appropriation). However, the Governor has filed subsequent legislation to amend this requirement to clarify that the spending from the fund is not subject to annual appropriation but will be instead under the authority of the Health Policy Commission established in the 2012 Health Care Reform Act (Chapter 224). This proposal is reflected within the Governor’s House 1 recommendation.

FY 2014 Employer Responsibility Contribution

The transition of the Massachusetts health care system under ACA provided the Governor with the opportunity to reduce costs for businesses through the elimination of both the Fair Share Contribution and the Medical Security Program.  The Fair Share Contribution was established under the Commonwealth’s 2006 health care reform law and mandates that employers with 11 or more full-time equivalent employees (FTEs) make a “fair and reasonable” contribution toward the health care costs of their full-time workers, or pay a $295 per FTE assessment.  The ACA includes a similar policy for employers with over 50 employees, effective in 2014, that could result in double-penalties if the two policies were to coexist. The Commonwealth will discontinue the Fair Share Contribution policy, but employers continue to share in the responsibility for health reform in Massachusetts.  In order to ensure employers are contributing their share of maintaining quality, affordable health care for all residents, the legislation creates an “employer responsibility contribution” for employers which will, starting in 2014, help finance the cost of subsidized care for low-income state residents.  The funding, estimated to total $94 M in FY 2014, will be directed to the MassHealth and the subsidized plans offered under the Health Connector. 

Modernize Bottle Redemption in FY 2014

The Massachusetts Bottle Bill, enacted in 1982, is designed to encourage consumers to return their empty soda and beer containers by means of a redeemable $0.05 deposit.  The $0.05 refundable deposit is placed on all carbonated sodas, beer and malt beverages. Most bottle deposits are redeemed through two types of sites, redemption centers and large retail stores. When the Bottle Bill was enacted in 1982, the beverages covered by the law were limited to carbonated soft drinks, mineral water, beer and other malt beverages. Since that time, the beverage market has changed with bottled water, fruit drinks, iced tea and sports drinks now being some of the most popular choices available. However, these non-carbonated beverages are not covered by the Bottle Bill and often end up in landfills or along the side of the road.

By revising the definition of “beverages” in Massachusetts General Law, the Bottle Bill can be brought up to date. Consumers will be required to pay an additional $0.05 cents on water, flavored waters, iced teas, coffee based drinks and sports drinks. The amounts paid for deposits for expanded beverages will be returned to consumers if they return the empty bottles for recycling. The Governor’s FY 2014 budget assumes that by adopting these changes, the state will collect at least $24 M in additional revenues next year, allowing for $4 M in investments in state recycling coordination and redemption efforts. 

Enhanced Tax Enforcement

The Department of Revenue (DOR) will generate an estimated $27 M in additional state tax revenue in FY 2014 through its investments in software and processes that will perform advanced analytics to identify tax collection and audit opportunities involving the sophisticated use of historical data, data mining, and statistical probability. In addition, the Department is launching a new statutory audit process to conduct more meaningful audits of businesses organized in pass-through structures.

FY 2014 Amazon Agreement and Expansion of Hotel Tax to Rental Properties

On December 11, 2012 the Commissioner of DOR announced an agreement with the online retailer, Amazon.com, for it to begin collecting Massachusetts sales tax on purchases by state residents by next November. The Executive Office for Administration and Finance estimates that total resulting increased tax collections, including under the projected sales tax changes outlined above, will equal $26.2 M, roughly $4 M of which will be transferred to the Massachusetts School Building Authority.

Currently, properties such as rental vacation homes, corporate executive temporary apartments, time shares, and rented vacation condominiums are not subject to the state or local hotel/motel room occupancy excise.  Concurrent with the budget, the Governor filed legislation that would expand the state and local option tax base to include these so-called transient accommodations and eliminate the existing statutory exemption for small bed and breakfast establishments with three bedrooms or less.  This expansion of the existing room occupancy excise base could generate more than $3.8 M annually for the 176 municipalities (50 percent) that have opted to enact the local option room occupancy excise to date, and will benefit municipalities that choose to adopt the local option room occupancy excise in the future. State revenues would increase by an estimated $2.6 M in FY 2014 as a result of this change.

FY 2014 Spending Summary

FY 2014 Spending Growth

The Governor’s FY 2014 budget is balanced and fiscally responsible.  Total state FY 2014 spending is projected to be $34.825 B (or $36.455 B after including the annual pension contribution), a 6.93% increase from FY 2013 estimated spending.

State Budgetary Spending
Fiscal Years 2003-2014
dollars in millions
FY Amount % Growth
2003 21,936 n/a
2004 22,146 0.96%
2005 22,562 1.88%
2006 24,310 7.75%
2007 27,588 13.48%
2008 29,410 6.60%
2009 29,292 -0.40%
2010 29,047 -0.84%
2011 30,636 5.47%
2012 30,976 1.11%
2013 32,568 5.14%
2014 34,825 6.93%

 

In the fiscal years following the fiscal downturn of 2008-09 (which began in state FY 2009) total state spending growth has averaged 2.90 percent annual growth through FY 2014. This compares to 6.13 percent in average annual growth in the 5 years preceding FY 2009.

FY 2013 Estimated Spending vs. FY 2014 House 1 Recommendation
dollars
Spending Category FY 2013
Estimated
Spending
FY 2014
House 1
Annual
Change
Percent
Change
Judiciary 777,777,825 808,468,103 30,690,277 3.9%
District Attorneys 101,329,973 103,160,535 1,830,561 1.8%
Sheriffs 512,994,922 522,315,138 9,320,216 1.8%
Other Constitutional Offices 192,042,911 188,996,140 (3,046,771) -1.6%
Lottery Division 89,113,321 90,892,716 1,779,395 2.0%
Debt Service 2,368,477,959 2,429,552,869 61,074,910 2.6%
Comptroller 60,942,945 58,543,692 (2,399,253) -3.9%
Legislature 66,184,475 65,374,164 (810,311) -1.2%
Administration and Finance 337,271,223 316,745,683 (20,525,540) -6.1%
Group Insurance Commission 1,298,847,997 1,362,226,112 63,378,115 4.9%
Energy and Environmental Affairs 203,037,066 224,010,561 20,973,495 10.3%
Health and Human Services 4,917,578,099 5,120,637,514 203,059,415 4.1%
MassHealth 10,859,431,334 12,277,879,935 1,418,448,601 13.1%
Housing and Economic Development 470,602,829 458,695,973 (11,906,856) -2.5%
Labor and Workforce Development 41,341,324 44,071,217 2,729,893 6.6%
Higher Education Campuses 857,463,222 930,673,973 73,210,751 8.5%
Executive Office of Education 1,169,147,840 1,463,022,636 293,874,796 25.1%
K-12 Aid (Chapter 70) 4,173,783,011 4,397,257,332 223,474,321 5.4%
Local Aid 916,760,490 956,760,490 40,000,000 4.4%
Public Safety 969,837,771 1,007,278,097 37,440,326 3.9%
Health Connector Authority 661,249,148 470,637,393 (190,611,755) -28.8%
Transfers for Payments to Hospitals and Providers 751,914,223 485,449,470 (266,464,753) -35.4%
Other Transfers to Non-Budgetary Funds 6,500,000 2,625,000 (3,875,000) -59.6%
State Retiree Health Care 415,042,237 425,044,755 10,002,518 2.4%
Life Sciences Innovation Investments - 25,000,000 25,000,000 n/a
Transportation 348,912,182 589,673,153 240,760,971 69.0%
Total Appropriated Spending 32,567,584,328 34,824,992,653 2,257,408,325 6.9%
State Pension Contribution 1,552,000,000 1,630,000,000 78,000,000 5.0%
Total Spending Including Pensions 34,119,584,328 36,454,992,653 2,335,408,325 6.8%

 

Listed in the table above is a summary of the major spending categories of the state budget with FY 2013 estimated spending and FY 2014 House 1 recommended funding levels, as well as dollar and percent changes year-on-year. Description of major highlights and policy changes is provided below.

Non-Executive Branch Agencies

FY 2013 Estimated Spending vs. FY 2014 House 1 Recommendation
dollars
Spending Category FY 2013
Estimated
Spending
FY 2014
House 1
Annual
Change
Percent
Change
Judiciary 777,777,825 808,468,103 30,690,277 3.9%
District Attorneys 101,329,973 103,160,535 1,830,561 1.8%
Sheriffs 512,994,922 522,315,138 9,320,216 1.8%
Other Constitutional Offices 192,042,911 188,996,140 (3,046,771) -1.6%
Lottery Division 89,113,321 90,892,716 1,779,395 2.0%
Comptroller 60,942,945 58,543,692 (2,399,253) -3.9%
Legislature 66,184,475 65,374,164 (810,311) -1.2%
Total Appropriated Spending 1,800,386,373 1,837,750,489 37,364,116 2.1%

 

Agencies outside of the Executive branch include: the judicial agencies, such the Supreme Judicial Court, the Trial Courts, and the Committee for Public Counsel Services (CPCS); District Attorneys; State Sheriffs; Constitutional Officers; the Lottery Division; the State Comptroller and the Legislature, comprising of $1.838 B of the FY 2014 budget recommendations. Some areas of note include –

Debt Service

FY 2013 Estimated Spending vs. FY 2014 House 1 Recommendation
dollars
Spending Category FY 2013
Estimated
Spending
FY 2014
House 1
Annual
Change
Percent
Change
Debt Service 2,368,477,959 2,429,552,869 61,074,910 2.6%
Total Appropriated Spending 2,368,477,959 2,429,552,869 61,074,910 2.6%

 

In order to fund the necessary improvements to the state’s transportation infrastructure as well as to make investments in our higher education system, housing, high-tech industries, and other job-creating projects, the state borrows money through the issuance of bonds and pays the borrowing back with annual debt service appropriations in the operating budget.

State debt service spending in FY 2014 totals $2.429 B, an increase of 2.6% from FY 2013 levels of $2.368 B. Most debt service costs are funded from within the budget of the State Treasurer, who is responsible for the day-to-day oversight of all Commonwealth debt service and debt financing activities. In a limited number of cases, annual debt service payments are from appropriations within A&F. In collaborating with the Administration, the State Treasurer has been able to leverage the Commonwealth’s upgraded financial ratings, attractive borrowing environment and the state’s pro-active fiscal management to help reduce annual state debt service costs below originally-budgeted amounts. This occurred again most recently in FY 2013 when $55 M in debt service savings were identified to help support other budgetary shortfalls.

Executive Branch Agencies

FY 2013 Estimated Spending vs. FY 2014 House 1 Recommendation
dollars
Spending Category FY 2013
Estimated
Spending
FY 2014
House 1
Annual
Change
Percent
Change
Administration and Finance 337,271,223 316,745,683 (20,525,540) -6.1%
Group Insurance Commission 1,298,847,997 1,362,226,112 63,378,115 4.9%
Energy and Environmental Affairs 203,037,066 224,010,561 20,973,495 10.3%
Health and Human Services 4,917,578,099 5,120,637,514 203,059,415 4.1%
MassHealth 10,859,431,334 12,277,879,935 1,418,448,601 13.1%
Housing and Economic Development 470,602,829 458,695,973 (11,906,856) -2.5%
Labor and Workforce Development 41,341,324 44,071,217 2,729,893 6.6%
Higher Education Campuses 857,463,222 930,673,973 73,210,751 8.5%
Executive Office of Education 1,169,147,840 1,463,022,636 293,874,796 25.1%
K-12 Aid (Chapter 70) 4,173,783,011 4,397,257,332 223,474,321 5.4%
Local Aid 916,760,490 956,760,490 40,000,000 4.4%
Public Safety 969,837,771 1,007,278,097 37,440,326 3.9%
Health Connector Authority 661,249,148 470,637,393 (190,611,755) -28.8%
Transfers for Payments to Hospitals and Providers 751,914,223 485,449,470 (266,464,753) -35.4%
Other Transfers to Non-Budgetary Funds 6,500,000 2,625,000 (3,875,000) -59.6%
State Retiree Health Care 415,042,237 425,044,755 10,002,518 2.4%
Life Sciences Innovation Investments - 25,000,000 25,000,000 n/a
Transportation 348,912,182 589,673,153 240,760,971 69.0%
Total Appropriated Spending 28,398,719,996 30,557,689,295 2,158,969,299 7.6%

 

Direct funding for Executive Branch Agencies for programs and services or funding that falls within each of these government areas totals $30.557 B in FY 2014, which represents an increase of 7.6% from FY 2013 spending. Highlights of major funding changes in the Executive Branch include:

School Aid for Public K-12 Education (Chapter 70)

FY 2013 Estimated Spending vs. FY 2014 House 1 Recommendation
dollars
Spending Category FY 2013
Estimated
Spending
FY 2014
House 1
Annual
Change
Percent
Change
K-12 Aid (Chapter 70) 4,173,783,011 4,397,257,332 223,474,321 5.4%
Total Appropriated Spending 4,173,783,011 4,397,257,332 223,474,321 5.4%

 

Chapter 70 funding is the primary method by which the state finances local K-12 public education.  An increase of $223 M in Chapter 70 funding will bring this vital support for communities to an unprecedented $4.39 B.  This represents a $677 M (18 percent) increase in Chapter 70 funding from pre-recession levels.

This investment will finalize implementation of the 2007 Chapter 70 reforms while ensuring that all school districts receive increased funding of at least $25 per pupil.  The FY 2014 budget will fully fund all schools at foundation levels, and also begin to factor increased special education and pre-kindergarten costs into the calculation of the foundation budget.  This allocation of funds to Chapter 70 will increase equity and access among all school districts and is intended to allow local educational authorities the flexibility to fund initiatives most needed in their communities.  By providing flexibility at the local level, the FY 2014 budget allows schools to prioritize funding where it is needed most, whether in special education, MCAS support, literacy programming, or other programs.

Aid to Higher Education Campuses

FY 2013 Estimated Spending vs. FY 2014 House 1 Recommendation
dollars
Spending Category FY 2013
Estimated
Spending
FY 2014
House 1
Annual
Change
Percent
Change
Higher Education Campuses 857,463,222 930,673,973 73,210,751 8.5%
Total Appropriated Spending 857,463,222 930,673,973 73,210,751 8.5%

 

The FY 2014 budget increases state support to the University of Massachusetts, the state universities, and community colleges.  This collaboration between the Administration and the campuses creates a shared sense of responsibility to provide high-quality services to all students while maintaining affordability.  This increased funding, a total of $57.5 M in FY 2014 and reaching $240 M by FY 2017, will allow the campuses to maintain their delivery of educational and other services without requiring unaffordable increases to tuition and student fees. After including additional increases for collective bargaining costs increases, total campuses funding increases by $73.2 M in FY 2014 from previous year’s levels.

MassHealth (Medicaid) Spending

FY 2013 Estimated Spending vs. FY 2014 House 1 Recommendation
dollars
Spending Category FY 2013
Estimated
Spending
FY 2014
House 1
Annual
Change
Percent
Change
MassHealth 10,859,431,334 12,277,879,935 1,418,448,601 13.1%
Total Appropriated Spending 10,859,431,334 12,277,879,935 1,418,448,601 13.1%

 

The Massachusetts Medicaid program (MassHealth) provides comprehensive health insurance to approximately 1.38 million low-income Massachusetts children, adults, seniors and people with disabilities. This figure does not include the new MassHealth Expansion populations; with the Expansion population and projected growth in the base population, total MassHealth enrollment will be approximately 1.6 million. Many of these new MassHealth enrollees are not new to subsidized coverage but are currently enrolled in Commonwealth Care or the Medical Security Program.

Overall, MassHealth’s FY 2014 funding level of $12.3 B represents a 13.1 percent increase over FY 2013. Most of this increase, however, is driven by the ACA Expansion populations and coverage preservation under ACA (4.2 percent of increase), operational and hospital investments and dental benefit restoration (0.8 percent of increase), enrollment increases for currently-eligible members of 40,000 member months (2.6 percent of increase) and FY 2013 cash management strategies (2.9 percent of increase). When the annual growth rate is adjusted for these unavoidable costs, the resulting growth rate is 2.5 percent, which is lower than the state’s health care cost growth benchmark. In addition, there will be 105,000 members leaving the Health Connector and moving into MassHealth which will result in decreased spending at the Health Connector of $257 M gross/$128.5 M net over the 6-month period in FY 2014.

The Commonwealth has made significant investments in MassHealth in recent years and will continue to do so in FY 2014 in order to promote program innovation and lay the ground work for larger savings.

The Administration proposes policies that aim to maintain coverage for current populations who otherwise could be adversely affected by ACA implementation, and that support streamlining current programs to promote alignment, access and administrative simplification in a post-ACA coverage environment at minimal cost to the Commonwealth. These proposals include:

Group Insurance Commission

FY 2013 Estimated Spending vs. FY 2014 House 1 Recommendation
dollars
Spending Category FY 2013
Estimated
Spending
FY 2014
House 1
Annual
Change
Percent
Change
Group Insurance Commission 1,298,847,997 1,362,226,112 63,378,115 4.9%
State Retiree Health Care 415,042,237 425,044,755 10,002,518 2.4%
Total Appropriated Spending 1,713,890,234 1,787,270,867 73,380,633 4.3%

 

The Group Insurance Commission (GIC) provides high value health insurance and other benefits to Commonwealth and certain public authorities’ employees and retirees as well as their survivors and dependents. The GIC also provides health-only benefits to participating municipalities' employees and retirees and their survivors and dependents.

In FY 2013, the Group Insurance Commission (GIC) has focused on providing high quality health insurance coverage to its members while containing costs for the Commonwealth.  The GIC embarked on a major procurement of its health plans, utilizing innovative strategies to maintain coverage and quality of care while containing costs. To pursue this in a creative and thoughtful manner, the GIC devotes significant internal resources to successfully incentivize health plans to reduce costs over the long term. This includes implementing the principles of payment reform and incorporating changes resulting from national health care reform.

The GIC continues to work closely with its health plans to minimize rate increases.  The Commission held rate increases in FY 2013 to 1.4 percent and initiated a procurement that is estimated to save the Commonwealth $1.29 B through FY 2018. The GIC will accomplish this by reducing the average annual growth in spending from 6 percent to 2 percent in FY 2014, saving over $65 M and holding growth at or below 2 percent thereafter.

Health Connector Authority

FY 2013 Estimated Spending vs. FY 2014 House 1 Recommendation
dollars
Spending Category FY 2013
Estimated
Spending
FY 2014
House 1
Annual
Change
Percent
Change
Health Connector Authority 661,249,148 470,637,393 (190,611,755) -28.8%
Total Appropriated Spending 661,249,148 470,637,393 (190,611,755) -28.8%

 

The year-on-year reduction in the budgetary contributions to the Health Connector Authority reflects the FY 2014 implementation of the federal Affordable Care Act (ACA).

Under the ACA, the Health Connector will administer the Commonwealth’s health insurance Exchange. The Exchange will allow individuals and businesses to shop for health insurance coverage. The State Wrap, beginning January 1, 2014, will supplement federal subsidies available in the Exchange by providing premium assistance to individuals with incomes 133 percent to 300 percent FPL, as well as certain Aliens with Special Status (AWSS) with incomes 0 percent to 300 percent FPL who are ineligible for MassHealth. These combined federal and state subsidies are intended to make subsidized coverage for this population as affordable for them as it is today under Commonwealth Care. An estimated 150,031 members are expected to enroll from Commonwealth Care, MassHealth, MSP, and HSN. The cost of the State Wrap in the second half of FY2014 is estimated at $118.5 M. The cost of the current Commonwealth Care program in the first half of FY 2014 is $430 M.

The Centers for Medicare and Medicaid Services (CMS) has indicated that a 50 percent federal match will be available in FY 2014 for premium assistance payments for State Wrap members, with the exclusion of AWSS, making available an additional $21 M in available revenue. This revenue, combined with the enhanced federal financial participation (FFP) available through the ACA, will enable the restoration of full adult dental coverage for MassHealth members and for individuals with incomes below 133 percent FPL who are enrolled in the Health Connector with the State Wrap.

The Health Connector was recently one of the first six state exchange programs in the nation to be certified conditionally as a state-based health insurance exchange on the path to operating in compliance with the Affordable Care Act. The Health Connector will kick off its annual Seal of Approval process in early 2013 for coverage that will be available to individuals and small businesses starting January 1, 2014.  This year’s Seal of Approval is a major milestone for the Health Connector, as it will enhance its products and services to comply with the ACA and better serve small employers and individuals. 

Unrestricted General Government Aid

FY 2013 Estimated Spending vs. FY 2014 House 1 Recommendation
dollars
Spending Category FY 2013
Estimated
Spending
FY 2014
House 1
Annual
Change
Percent
Change
Local Aid 916,760,490 956,760,490 40,000,000 4.4%
Total Appropriated Spending 916,760,490 956,760,490 40,000,000 4.4%

 

Unrestricted General Government Aid (UGGA) and state payments in lieu of taxes (PILOT) aid make up unrestricted local government aid. In FY 2014 UGGA will be funded at $899 M, the same amount and same distribution provided for in the FY 2013 GAA (Current FY 2013 spending assumptions reflect the 1 percent reduction in local aid this year proposed in the Governor’s December 4 Fiscal Action Plan). PILOT aid is level funded in FY 2014 at $26.3 M.

An additional $31 M in local aid will be distributed to all municipalities through the new “Annual Formula Local Aid” program.  The existing allocation of local aid among the Commonwealth’s cities and towns (UGGA) is meant to maintain year-to-year consistency regardless of changes in a municipality’s circumstances and is no longer based on a rational funding formula.  Annual Formula Local Aid addresses these critical aspects of a rational local aid program:

Other Budgetary Transfers

FY 2013 Estimated Spending vs. FY 2014 House 1 Recommendation
dollars
Spending Category FY 2013
Estimated
Spending
FY 2014
House 1
Annual
Change
Percent
Change
Transfers for Payments to Hospitals and Providers 751,914,223 485,449,470 (266,464,753) -35.4%
Other Transfers to Non-Budgetary Funds 6,500,000 2,625,000 (3,875,000) -59.6%
Life Sciences Innovation Investments - 25,000,000 25,000,000 n/a
Total Appropriated Spending 758,414,223 513,074,470 (245,339,753) -32.3%

 

Other Budgetary transfers include payments to hospitals under the Delivery System Transformation Initiative Fund (DSTI) and the Medical Assistance Trust Fund (MATF). The DSTI program traditionally provides two payments per fiscal year to hospitals, but due to the timing of program requirements, only half of the FY 2014 obligation will be paid in this fiscal year. The first FY 2014 payment totals $105 M, funded with $94 M from the General Fund and $11 M through an Inter-Governmental Transfer (IGT) by Cambridge Health Alliance. The federal match for this payment is $52 M. The second DSTI payment will also total $105 M, with a $52 M federal match, and will be moved from FY 2014 to FY 2015. This change does not alter the timing of the payment, only the fiscal year in which it occurs. The FY 2014 budgeted transfer for MATF decreases by $172 M in FY 2014 simply to reflect the elimination of a one-time supplemental funding increase in FY 2013 to a group of hospital payments that had not yet received federal approval by the close of FY 2012.

Lastly, the Governor’s FY 2014 budget invests $25 M in the Massachusetts Life Sciences Center (MLSC), an increase of $10 M above FY 2013. This funding will enable MLSC to provide research grants and accelerator loans to researchers and early-stage companies, a direct investment in business expansion and job growth in this critical sector. The House 1 proposal represents the first time in five years that the 2008 life sciences initiative will be funded with a dedicated direct appropriation rather than potential year-end surplus.