Governor Deval Patrick's Budget Recommendation - House 2 Fiscal Year 2015

FY 2015 Budget Recommendation


Annual Change in Budgetary Resources
dollars in millions
  FY 2014
Estimated
FY 2015
House 2
Annual
Change
Budgetary Revenue:
Projected Baseline Tax Collections* 23,154.4 24,337.0 1,182.6
Transfer of Capital Gains in Excess of Statutory Maximum (37.0) (122.0) (85.0)
Transfer for Annual Pension Contribution (1,630.0) (1,793.0) (163.0)
Transfer for OPEB Liabilities** - (75.0) (75.0)
Transfers of Tax Revenue to MBTA, SBA and Workforce Training Fund (1,549.8) (1,605.0) (55.2)
Federal Reimbursements 8,595.0 9,522.0 927.0
Departmental Revenues 3,569.2 3,689.9 120.7
Transfers from Non-Budgeted Sources 1,844.0 1,744.5 (99.5)
Stabilization Fund Withdrawal 350.0 175.0 (175.0)
Prior Year Funds Used to Support Current Year Budgetary Spending 245.2 13.9 (231.3)
Delay of FAS 109 45.6 45.6 -
Other New Revenues Supporting the Budget:
Aligning Settlements with Capital Gains Stabilization Fund Policy*** - 203.5 203.5
Closing Tax Loopholes - 40.3 40.3
Taxing Candy and Soda to Support Public Health Programs - 57.0 57.0
Revenue from Category 2 Gaming Establishment Operation - 20.0 20.0
Modernize Bottle Redemption - 24.1 24.1
CHANGE IN BUDGETARY RESOURCES (INCLUSIVE OF RESOURCES FOR PENSIONS):     1,691.2
*FY 2014 tax figure reflects revised estimate after excluding FAS 109 delay, separately categorized below.
**In FY 2014, $50.6 M is dedicated to OPEB from debt service savings.
***In FY 2014, $184 M in settlements in excess of $10 M included in Projected Baseline Tax Collections.

 

The tables provided above and 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 2 budget recommendations. As shown in the table, total budgetary resources in FY 2015 are estimated to increase by $1.691 B from FY 2014 estimated levels. A corresponding increase in spending is recommended, and the FY 2015 Spending Summary section outlines the major changes adopted within these spending assumptions.

FY 2014 Budgetary Resources

FY 2015 Consensus Revenue

As noted in a previous section, the FY 2015 tax consensus figure announced on January 14, 2014 jointly by the Secretary of Administration and Finance and the Chairs of the House and Senate Committees for Ways and Means totaled $24.337 B. After accounting for $46 M of the FY 2014 tax projection ( now $22.230 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 $1.182 M.

FY 2015 Capital Gains

The estimated FY 2015 tax receipts associated with capital gains totals $1.17 B, up from the FY 2014 assumption of $1.06 B. 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 2014, that ceiling is $1.023 B, but growing to $1.048 B in FY 2015 (the threshold is subject to annual adjustment to reflect the average annual rate of growth in U. S. gross domestic product over the preceding five years).

FY 2015 Pension Contribution

The updated pension schedule, and the FY 2015 pension contribution associated with it, accounts for the full impact of the investment losses realized by the pension fund in 2008 as well as revised actuarial assumptions, most notably the adoption of a more conservative investment return assumption of 8.0%. After consultation with PERAC and the House and Senate, the Secretary for Administration and Finance established an updated funding schedule that requires a 10% increase in the FY 2015 pension contribution relative to 2014, with the new schedule specifying 10% increases also for 2016 and 2017 graduating down to 7% annual increases until the unfunded pension liability is fully funded by 2036.  This makes for a $163 M pension funding increase from FY 2014. Fully funding pensions by 2036 reflects an acceleration of the 2040 timetable currently required by law as recommended by state officials and budget watchdogs at the December 11, 2013 consensus revenue hearing.

FY 2015 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 2015 consensus forecast projects these transfers to equal $1.605 B, an increase of $55 M from the FY 2014 estimate of $1.550 B. Similar to pensions, this annual increase has the effect of reducing budgetary resources when comparing year-on-year changes.

FY 2015 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 2015 by $586 M, from $14.603 B in FY 2014 to $15.189 B in FY 2015. The major contributor to this increase is additional projected federal revenues ($716 M) largely associated with state MassHealth (Medicaid) expenditures. The state is eligible to receive an enhanced federal Medicaid matching fund percentage associated with the federal Affordable Care Act (ACA) that became effective on January 1, 2014. Departmental revenues are forecast to increase modestly by $120.7 M in FY 2014, or growth of 3.3%. Finally, increases in federal and departmental revenues are offset by a $274.5 M reduction in budgetary transfers. The decrease is attributable to a lower Stabilization Fund withdrawal (from $350 M in FY 2014 to $175 M in FY 2015) and other 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 2014 budgetary resources currently include an estimated $245.2 M in reserves largely funded through prior-year appropriations extended into FY 2014, mostly for one-time purposes. The Governor’s FY 2015 House 2 recommendation does not assume that unspent funds in FY 2014 will be made available in FY 2015, and therefore at this time only projects a limited amount of reserves will be carried forward. The year-on-year impact is $231.3 M less in budgetary resources than FY 2014; however, these reductions are typically offset by like reductions in spending.

FY 2015 One-Time Sources

As noted earlier, total estimated FY 2014 one-time resources equal $667 M, or $609.2 M after accounting for capital gains deposits into the Stabilization Fund.  These compare to total FY 2015 one-time resources of $334.4 M ($224.6 M net after accounting for Stabilization Fund deposits).

Fiscal Years 2014 and 2015 One-Time Resources
dollars in millions
  FY 2014
Revised*
FY 2015
House 2
% Change
Budgetary Resources:
FY 2013 Resources Used to Support Ongoing FY 2014 Costs 31.0    
Stabilization Fund Withdrawal 350.0 175.0  
Stabilization Fund Interest 5.8 10.7  
Delay FAS 109 Deduction 45.9 45.9  
Medicaid Payment Schedule Changes 41.0 13.0  
Gaming Licensing Funds Supporting Ongoing Costs 14.7 53.5  
Sale of Assets 30.0    
Procurement Savings 30.0    
OPEB funded through Debt Service Reversions 50.6    
Federal Revenues   32.3  
Non-Budgetary Resources:
Trust Fund Sweeps 61.0 4.0  
Quasi Public Contributions 7.0    
TOTAL ONE TIME RESOURCES 667.0 334.4 -50%
Less: Stabilization Fund Deposits (57.8) (109.8)  
NET ONE TIME RESOURCES 609.2 224.6 -63%
*Revised since the Governor signed the FY 2014 budget on July 12, 2013.

 

Assumed one-time resources in FY 2015 include:

  • $175 M in gross Stabilization Fund or “Rainy Day Fund” resources (a discussion of the rainy day fund follows in a later section). The Rainy Day Fund draw is $175 M less than the FY 2014 budgeted assumption of $350 M, and is projected to leave a balance of $1.201 B in the fund at the close of FY 2015.
  • $53.5 M in gaming licensing funds that were originally budgeted to be collected in FY 2014 (a further discussion of gaming licensing revenues is provided below).
  • $45.6 M from again delaying the implementation of a corporate tax expenditure, known as FAS 109.
  • $13 M (net) in reduced state budgetary resources resulting from the restructuring of state funding for payments to hospitals. This shift reflects the timeline of grant awards for the Infrastructure and Capacity Building program, which have been paid out in the subsequent fall (following fiscal year) since FY 2013.
  • $32.3 M from one-time federal revenue opportunities, including TANF Contingency Fund revenue ($31 M) and safety improvements at the Soldiers Homes ($1.7 M) which are eligible for federal matching revenue. 
  • $10.7 M of interest earned from the Stabilization Fund balance and redirected to the General Fund, consistent with prior fiscal years. 
  • $4 M from the transfer of surplus non-budgetary fund resources to the General Fund. An outside section is included within the Governor’s FY 2015 House 2 budget that authorizes the Secretary of Administration and Finance to close or sweep trust funds where he determines that such funds can be appropriately used to support the budget.

In total, the House 1 recommendation for FY 2014 relies on $333 M less in one-time resources than those budgeted for FY 2014, a reduction of 50%. This amount, $334 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 2015 budget.

Stabilization Fund

A vertical bar chart showing the fluctuations in the level of the Stabilization Fund Balance at the Fiscal Year End for FY 2006 through 2013, with projections for 2014 and 2015.
* Projected ending balances.

The table provided above shows the year-end Stabilization Fund balances over the period FY 2005-15. The projected balances for Fiscal Years 2014 and 2015 are shown. Currently, FY 2014 is assumed to close the year with $1.266 B in Stabilization Fund proceeds. This assumes a $350M budgeted transfer to the General Fund, which is partially offset by the deposit of estimated capital gains revenues 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.

In FY 2015, the projected Stabilization Fund balance totals $1.201 B. This reflects the assumed $175 M in proposed draws to the General Fund and partially offset by $122M in capital gains-receipts deposited into the Fund. Please note that, pursuant to state finance law, 5% of the amount deposited must then be transferred to the State Retiree Benefits Trust Fund and another 5% to the Commonwealth’s Pension Liability Fund.

The projected year-end balance at the close of FY 2015 will leave Massachusetts one of the highest reserve balances in the nation. 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 (i.e. capital gains receipts) 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 2015 New Tax Revenues

The Patrick Administration proposes the following changes to our tax system to enhance public health and close loopholes:

  1. Collecting sales tax on candy and soda purchases, and using the associated revenue to fund the Commonwealth Health and Prevention Fund, which will support public health programs
  2. Imposing the room occupancy tax on the mark-up that room resellers like online travel websites, as well as on transient rentals
  3. Applying the corporate tax rate to pass-through entities owned by insurance companies and security corporations

FY 2014 Gaming Licensing Revenues

The FY 2014 budget assumed $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, approximately $32 M was used to support on-going budgetary expenses and was listed among the $696 M in projected FY 2014 one-time resources at the time the Governor signed the budget into law.

The Massachusetts Gaming Commission (MGC) has published a plan that indicates that two Category 1 licenses and one Category 2 license will be awarded by June 30, 2014.  However, the Governor’s FY 2015 budget reflects the fact that while the FY 2014 budget assumed two Category 1 licenses and one Category 2 license awarded in FY 2014, some of the dates for award are very close to the end of the fiscal year.  Consistent with good fiscal planning, the budget assumes one Category 1 license fee in each of FY 2014 and FY 2015.  This spreads any fiscal risk associated with the timing of the award of these licenses and the collection of the associated fees. 

The minimum Category 1 license fee is $85 M, and a Category 2 license fee totals at least $25 M, generating at least $110 M in gaming licensing revenues in FY 2014 and $85 M in FY 2015. 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 and the Community Mitigation and Transportation Funds must be fully capitalized first. This leaves $47 M in licensing revenues to be distributed via the prescribed allocation under Section 93 of Chapter 194 in FY 2014. Of this amount, $29.65 M is projected to be available for state budgetary purposes. Though only $47 M of the $83 M in revenue is available in FY 2014, all $83 M of related expenditures will occur, consistent with the budgetary fund construct under state finance law. 

The remaining $53.5 M in budgeted revenue (associated with the $85 M in licensing revenue from the second Category 1 establishment) will move from FY 2014 to FY 2015.  In FY 2015, the General Fund will be reimbursed for those FY 2014 expenditures not supported by licensing revenue from second Category 1 license due to timing complexities.

Projected FY 2014 and FY 2015 Gaming Licensing Revenues and Distributions
dollars in millions
  FY 2014
Budget
Assumption
FY 2015 House 2 Update
  License 1
Category 2,
2 Category 1
FY14
License 1 Category 2,
1 Category 1
Reduction in FY14 Licensing Revenue FY15
1 Category 1 License
Two Year Total
Revenue $195.00 110   85 195
Stabilization Fund1 $20.00 20     20
Community Mitigation Fund1 $17.50 17.5   0 17.5
Transportation Fund1 $25.38 25.38   0 25.38
Local Capital Projects Fund 2 $19.25 6.87 -12.38 12.38 19.25
Manufacturing Fund 2 $22.75 8.11 -14.64 14.64 22.75
Community College Fund 2 $29.75 10.61 -19.14 19.14 29.75
Tourism Fund 2 $2.63 0.94 -1.69 1.69 2.63
Local Aid Stabilization Fund 2 $8.75 3.12 -5.63 5.63 8.75
Healthcare Payment Reform Fund 1 $40.25 14.35 -25.9 25.9 40.25
Race Horse Development Fund 1 $8.75 3.12 -5.63 5.63 8.75
Total $195.00 110 -85 85 195
1 non-budgetary fund
2 budgetary fund

 

The table above outlines the projected FY 2014 and FY 2015 licensing revenues and distributions, per Chapter 194.

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 2015 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. 

FY 2015 Spending Summary

FY 2015 Spending Growth

The Governor’s FY 2015 budget is balanced and fiscally responsible.  Total state FY 2015 spending is projected to be $36.373 B (or $38.166 B after including the annual pension contribution), a 4.88% increase from FY 2014 estimated spending.

State Budgetary Spending* - Fiscal Years 2004-2015
dollars in millions
FY Amount % Growth
2004 22,146 N/A
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 32,342 4.41%
2014 34,682 7.24%
2015 36,373 4.88%
*excludes revenue dedicated for pensions

 

In the fiscal years following the fiscal downturn of 2008-09 (which began in state FY 2009) total state spending growth has averaged 3.12% annual growth through FY 2015. This compares to 6.13% in average annual growth in the 5 years preceding FY 2009.

FY 2014 Estimated Spending vs. FY 2015 House 2
  FY 2014
Estimated Spending
FY 2015
House 2
Annual Change % Change
Judiciary $827,947,570 $850,979,460 $23,031,890 2.8%
Sheriffs $524,394,493 $552,958,291 $28,563,798 5.4%
District Attorneys $102,919,091 $104,353,574 $1,434,483 1.4%
Lottery Commission $90,967,942 $94,380,306 $3,412,364 3.8%
Comptroller $16,808,090 $14,014,338 $(2,793,752) -16.6%
Legislature $74,273,870 $66,681,647 $(7,592,223) -10.2%
Other Constitutional Offices $200,359,417 $202,717,233 $2,357,817 1.2%
Debt Service $2,432,654,868 $2,508,321,987 $75,667,119 3.1%
Administration and Finance $521,373,370 $363,925,764 $(157,447,606) -30.2%
Group Insurance Commission $1,785,369,676 $1,889,502,875 $104,133,199 7.3%
Energy and Environmental Affairs $220,511,930 $229,746,751 $9,234,820 4.2%
Health and Human Services $5,149,454,541 $5,447,621,991 $298,167,450 5.8%
MassHealth $12,120,786,014 $13,506,437,942 $1,385,651,928 11.4%
Housing and Economic Development $557,423,011 $478,112,312 $(79,310,700) -14.2%
Labor and Workforce Development $54,879,588 $47,854,348 $(7,025,240) -12.8%
Higher Education Campuses $960,654,740 $1,028,942,126 $68,287,386 7.1%
Executive Office of Education $1,248,171,947 $1,260,573,381 $12,401,434 1.0%
K-12 Aid (Chapter 70) $4,301,214,591 $4,400,696,186 $99,481,595 2.3%
Local Aid $948,650,293 $947,000,293 $(1,650,000) -0.2%
Public Safety $1,012,405,284 $1,013,906,187 $1,500,903 0.1%
Health Connector Authority $340,078,633 $- $(340,078,633) -100.0%
Transfers for Payments to Hospitals and Providers $661,474,470 $622,261,307 $(39,213,163) -5.9%
Other Transfers to Non-Budgetary Funds $2,625,000 $9,753,272 $7,128,272 271.6%
Transportation $591,753,731 $732,753,731 $141,000,000 23.8%
Total Appropriated Spending $34,747,152,159 $36,373,495,301 $1,626,343,141 4.7%
State Pension Contribution $1,630,000,000 $1,793,000,000 $163,000,000 10.0%
Total Spending Including Pensions $36,377,152,159 $38,166,495,301 $1,789,343,141 4.9%

 

Listed in the table above is a summary of the major spending categories of the state budget with FY 2014 estimated spending and FY 2015 House 2 budget levels, as well as dollar and percent changes year-on-year. Description of major highlights and policy changes are provided below.

Non-Executive Branch Agencies

FY 2014 Estimated Spending vs. FY 2015 House 2 - Non-Executive Branch Agencies
  FY 2014
Estimated Spending
FY 2015
House 2
Annual Change % Change
Judiciary $827,947,570 $850,979,460 $23,031,890 2.8%
Sheriffs $524,444,493 $552,958,291 $28,513,798 5.4%
District Attorneys $102,919,091 $104,353,574 $1,434,483 1.4%
Lottery Commission $90,967,942 $94,380,306 $3,412,364 3.8%
Comptroller $16,808,090 $14,014,338 $(2,793,752) -16.6%
Legislature $74,273,870 $66,681,647 $(7,592,223) -10.2%
Other Constitutional Offices $200,359,417 $202,717,233 $2,357,817 1.2%
Total Spending $1,837,720,473 $1,886,084,849 $48,364,377 2.6%

 

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 $1.914 B of the FY 2015 budget recommendations. Some areas of note include –

  • Judiciary – The Governor’s FY 2015 budget funds the full annualized cost of the judicial salary increase entitled to judges and clerks per the FY 2014 budget in addition to a small across the board increase for Judiciary.  The Governor’s budget also includes $2.7 M to support the development of eight regional specialty courts across the state.  In addition, the FY 2015 budget funds the main administrative accounts of CPCS at a 2% increase over their FY 2014 appropriation, while funding the CPCS caseload accounts at their agency requested level. The Governor’s budget also restores aid to the Massachusetts Legal Assistance Corporation in FY 2015 to $14 M, a $1 M increase over FY 2014.
  • Sheriffs – The Governor’s FY 2015 budget provides 1 percent increases for the main operating funding appropriations for state sheriffs’ offices. The Governor’s FY 2015 funding level assumes that supplemental funding will be provided for a number of sheriffs in FY 2014 to more closely align with sheriff facility costs needed for the full year.  Three sheriffs received an additional investment in the FY 2015 budget; Bristol, Middlesex and Hampden.  Bristol is receiving an investment of $4 M to fund the legislative initiative begun in FY 2013 to bring correctional officer salaries up to date with similar counties.  Middlesex is receiving a $2.2 M investment to offset one-time and ongoing costs associated with the operations of the expanded Middlesex House of Correction to accommodate the closure of the jail in the Cambridge Edward J Sullivan Courthouse.  Hampden is receiving a $1.9 M investment for the operations of the expanded Western Massachusetts Regional Women’s Correctional Center (WMRWCC), which is to be complete in April 2014.  Upon completion, the WMRWCC will house all women sentenced to a House of Correction or awaiting a trial in Hampden, Worcester, Hampshire, Franklin, and Berkshire County, which will take pressure off the crowded MCI Framingham Women’s Facility.
  • District Attorneys – Funding for District Attorneys’ main operational accounts is increased in FY 2015 by 2 percent from their FY 2014 appropriations, consistent with other independent and constitutional offices.
  • Other Constitutional Officers – With limited exceptions, the funding for the accounts of the Constitutional offices has been funded at 2 percent above FY 2014 appropriations. The Secretary of State’s elections accounts have been funded to their agency requested level in order to account for upcoming statewide elections in FY 2015.
  • Lottery – The state’s Lottery Commission oversees the state’s various lottery and gaming operations. The Commission generates over $1 B in annual state budgetary revenue, offset by the Lottery’s operating costs which total over $90 M. Funding in FY 2015 for Lottery includes an increase of $3 M for advertising.  The Commission estimates this investment will increase revenues by $10 M.
  • Governor – Funding for the Governor’s office is increased by 2 percent from their FY 2014 appropriation. The FY 2015 budget also provides the Governor’s office $250 K to cover the costs of the gubernatorial transition. Additionally, the Office of the Child Advocate is funded at $500 K, a 64 percent increase over their FY 2014 appropriation, in order to help state agencies provide and care for the Commonwealth’s young and at-risk children.
  • Legislature – The funding for the annual operations of the House, Senate and Joint Legislative activities in FY 2015 is increased by 2 percent from FY 2014 appropriations.

Debt Service

FY 2014 Estimated Spending vs. FY 2015 House 2 - Consolidated Debt Service
  FY 2014
Estimated Spending
FY 2015
House 2
Annual Change % Change
Debt Service $2,432,429,681 $2,508,321,987 $75,892,306 3.1%
Total Spending $2,432,429,681 $2,508,321,987 $75,892,306 3.1%

 

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 2015 totals $2.508 B, an increase of 3.1% from FY 2014 levels of $2.432 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.

Successful management of the state’s debt service has resulted in a Commonwealth credit rating of AA+ and Aa1 from Standard & Poor’s, Moody’s and Fitch, which is the highest credit standing in Massachusetts history.

Executive Branch Agencies

FY 2014 Estimated Spending vs. FY 2015 House 2 - Executive Branch Agencies
  FY 2014
Estimated Spending
FY 2015
House 2
Annual Change % Change
Administration and Finance $521,373,370 $363,925,764 $(157,447,606) -30.2%
Group Insurance Commission $1,365,008,263 $1,465,334,234 $100,325,971 7.3%
Energy and Environmental Affairs $220,511,930 $229,746,751 $9,234,820 4.2%
Health and Human Services $5,149,454,541 $5,447,621,991 $298,167,450 5.8%
MassHealth $12,120,786,014 $13,506,437,942 $1,385,651,928 11.4%
Housing and Economic Development $557,423,011 $478,112,312 $(79,310,700) -14.2%
Labor and Workforce Development $54,879,588 $47,854,348 $(7,025,240) -12.8%
Higher Education Campuses $960,654,740 $1,028,942,126 $68,287,386 7.1%
Executive Office of Education $1,248,171,947 $1,260,573,381 $12,401,434 1.0%
K-12 Aid (Chapter 70) $4,301,214,591 $4,400,696,186 $99,481,595 2.3%
Local Aid $948,650,293 $947,000,293 $(1,650,000) -0.2%
Public Safety $1,012,405,284 $1,013,906,187 $1,500,903 0.1%
Health Connector Authority $340,078,633 $- $(340,078,633) -100.0%
Transfers for Payments to Hospitals and Providers $661,474,470 $622,261,307 $(39,213,163) -5.9%
Other Transfers to Non-Budgetary Funds $2,625,000 $9,753,272 $7,128,272 271.6%
State Retiree Health Care $420,361,413 $424,168,641 $3,807,228 0.9%
Transportation $591,753,731 $732,753,731 $141,000,000 23.8%
Total Spending $30,476,826,819 $31,979,088,465 $1,502,261,645 4.9%

 

Direct funding for Executive Branch Agencies for programs and services or funding that falls within each of these government areas totals $31.979 B in FY 2015, which represents an increase of 4.9% from FY 2014 spending. Highlights of major funding changes in the Executive Branch include:

  • Executive Office of Education (EOE) – The FY 2015 budget for the Secretariat of Education will make significant investments in closing achievement gaps across the entire educational spectrum. These investments demonstrate a commitment to early education and care by both supporting and increasing access to high-quality child care programs, through:
    • $40.2 M to support children already served by the Department of Early Education and Care;
    • $15 M to increase access to high-quality early education programs for 1,700 qualified children from birth to age five;
    • $2.5 M to ensure that increased access is paired with providing high-quality early education environments for children and youth; and
    • $800 K to ensure children are enrolled in safe and supportive early education programs through additional oversight of child care centers.
    • This budget supports universal third grade literacy as an important predictor of future academic success, through increased educational opportunities for children ages four and five, by adding:
      • $3.1 M to increase and refocus kindergarten expansion grants to provide communities without full-day kindergarten classrooms, the ability to offer such classrooms;
      • $2 M to provide competitive start-up grants for school districts interested in establishing pre-kindergarten classrooms; and
      • $2 M to increase Chapter 70 to fully finance pre-kindergarten costs for school districts who offer pre-kindergarten classrooms.
    • The budget also prioritizes closing persistent achievement gaps is essential to ensuring all students have an opportunity to succeed by including:
      • $4.5 M to provide additional educational enrichment opportunities for high-need populations by providing targeted grants for middle schools in low-income school districts;
      • >
      • $3.1 M to increase the resources for schools interested in pursuing ways to improve student performance through the Innovation Schools initiative; and $1.25 M to support locally-designed and implemented initiatives in the Gateway Cities.
      • >

    Finally, the FY 2015 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 $68.4 M in FY 2015, will allow the campuses to maintain their delivery of educational and other services to develop our future leaders. The General Fund itself is actually funding an $87.5 M increased investment for the public college system, as it has picked up the costs of $20 M provided to the community colleges in one-time gaming funds in FY 2014.  This is on top of a $97 M increased investment in our public college system last year. 

  • Executive Office of Health and Human Services (EOHHS) – The non-health insurance portion of the EOHHS budget totals $6.1 B in FY 2015 (including non-budgetary transfers). Funding under EOHHS supports a wide range of services, including transitional assistance to families, services to persons with disabilities, care for veterans, public health and disease prevention activities, protection of children at risk of abuse or neglect and care for youthful offenders. Recognizing the importance of maintaining critical safety net programs and services, the Governor’s budget preserves funding within EOHHS for programs and services that protect the state’s most vulnerable residents. Projected caseload needs for critical safety net programs are fully supported in FY 2015 including substance abuse services, cash and nutritional assistance for low income families, early health screenings for children, suicide prevention services and domestic violence prevention treatment.

    The Governor’s FY 2015 budget is committed to protecting human service workers and the vulnerable populations they serve. This budget provides an investment of $163 M above FY 2014 to support human services and is committed to the full implementation of the Chapter 257 legislation to ensure fair and adequate payment rates for health care providers. In total, the FY 2015 budget supports $213 M for rates to providers implemented in FY 2014 or planned for FY 2015, as well as $7 M to continue the commitment to salary equity for human service workers not yet affected by rate reform.  In the face of the toughest economic times in a generation, the Governor is committed to protecting services for our most vulnerable residents and the workers committed to ensuring their care.

    To promote strong, safe communities for youth and families, the Governor’s FY 2015 budget also makes significant investments in positive youth development and youth violence prevention efforts as well as community supports for families. The budget includes:

    • $9.5 M for the Safe and Successful Youth Initiative (SSYI), which targets at-risk youth to prevent and interrupt community violence.
    • $7 M for the Administration’s landmark Juvenile Justice Pay for Success Initiative to prevent youth recidivism into our adult criminal justice system and paying only after results are achieved.
    • $9.2 M to support capacity building and operational improvements at the Department of Children and Families to better serve families
    • $15 M to implement “Raise the Age” legislation signed by the Governor in 2013 that changes juvenile jurisdiction laws to support the rehabilitation of young people through age 18
    • Full funding for FY14 investments in Family Resource Centers (FRC), improving community access to family and youth support services and ensuring there is no “wrong door” for a family in need. The FRC funding increase of $7.1 M will help these community-based centers address child abuse and neglect, juvenile delinquency, mental illness, poverty, substance abuse and other special needs. Family Resource Centers will serve children up to the age of 18 (up from 12 currently) and have a presence in every county by FY 2016. 
  • Executive Office of Public Safety and Security (EOPSS) – The Governor’s budget outlines a comprehensive framework for reentry of released inmates that focuses on reclassifying higher-security and lower-security custody inmates, as well as a collaborative “step-down” program that works with state Sheriffs to allow select inmates to complete their sentences at county-located Houses of Corrections and utilize educational, vocational, and life skill programs by investing an additional $2.1 M in reentry reform.  The Governor’s FY 2015 budget also funds projected cost increases by state agencies that provide an array of public safety services to the state’s residents, including but not limited to highway patrols and policing, corrections and inmate re-entry services. The Governor’s budget also makes a crucial down payment on the implementation of a new State Police cadet class, which will supplement the 150 newly commissioned officers expected to graduate from this current fiscal year’s class. The Chief Medical Examiner received $1 M investment in FY 2015 which will be leveraged to reduce caseload demands and better allocate personnel resources.
  • Massachusetts Department of Transportation (MassDOT) – In addition to the a capital investment of $12.4 B over 5 years, a $141 M increase is included in the Governor’s FY 2015 budget for MassDOT and the Massachusetts Bay Transportation Authority (MBTA) above the FY 2014 GAA level. This funding is consistent with the framework established by the 2013 Transportation Finance Bill. In FY 2015, this investment will:
    • Continue to eliminate the MBTA’s structural operating deficit, which prior to FY 2014 had been solved through the use of one-time, unsustainable funding sources;
    • Continue modest MBTA service enhancements including bus and subway service improvements; and
    • End the decades-old practice of using borrowed funds (bonds) to pay for personnel, which will allow millions in additional capital investment; and
    • Continue the practice established in FY 2014 of not funding Regional Transit Authorities (RTAs) in arrears.  Prior to FY 2014, RTA’s were funded by the Commonwealth in this manner, which required RTAs to take on addition short-term debt in order to fund annual operating costs.  The funding change, continued in FY 2015, will decrease costs to the taxpayers and customers.
  • Executive Office of Energy and Environmental Affairs (EOEEA) – FY 2015 funding for EOEEA funds anticipated cost increases for the executive office and the six agencies that make up the EOEEA Secretariat. The Governor’s FY 2015 budget expands the Bottle Bill to include a 5 cent deposit on non-carbonated beverage containers such as bottled water, juices and sports drinks and provides $4 M to the Department of Environmental Protection in order to increase recycling promotion and coordination efforts throughout the Commonwealth. The Governor proposes to invest $2 M in the operating budget to enhance the Commonwealth’s preparedness for climate change, in addition to $50 M in capital and trust resources already dedicated to this initiative.  Lastly, the Governor’s FY 2015 budget provides $920 K in new funding to the Department of Conservation and Recreation (DCR) to hire additional seasonal staff to ensure that the Commonwealth’s parks, pools, beaches and facilities are well-staffed and operated effectively.
  • Executive Office of Housing and Economic Development (EOHED) – FY 2015 funding for EOHED is approximately $79 M less than FY 2014 estimated spending, reflecting a decrease in projected spending on emergency services for homeless families in the Commonwealth. The decrease is due to the ending of the HomeBASE Rental Assistance Program ($38 M) and a reduction in funding for motels ($39 M). The Governor’s budget does increase funding for the EA Shelter Program by $64 M and level funds other housing benefit programs under the Department of Housing and Community Development (DHCD) to provide the most efficient and effective response to any housing emergency. The Governor’s budget also includes a provision to forward-fund the federal Low Income Home Energy Assistance Program (LIHEAP).
  • Executive Office of Labor and Workforce Development (EOLWD) –Compared to the FY 2014 estimated spending, funding at EOLWD is decreased by 6.9 percent in FY 2015. This is primarily due to the fact that there was $19 M in funding available in FY 2014 for the Summer Jobs for At-Risk Youth Program, $10 M of which was used to fund the program for the summer of 2013 and $9 M is dedicated to forward-funding the summer of 2014.  The FY 2015 budget increased investments proposed by the Governor for the Summer Jobs program by $3 M to $12 M, which subsidizes employment opportunities for low-income youth primarily during the 2015 summer.
  • Executive Office for Administration and Finance (A&F) – Annual funding levels under A&F can vary greatly from year-to-year since A&F typically houses reserve or other short-term appropriations that are not sustained annually. In FY 2015, $7 M in additional funding is provided to fund the continuation of the successful sinking fund that is supporting the nation-leading pay for performance social innovation funding initiatives. This will continue support for two initiatives that target lowering state costs while improving outcomes for youth offenders and unaccompanied adults who face chronic homelessness.

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

FY 2014 Estimated Spending vs. FY 2015 House 2 - K-12 (Chapter 70)
  FY 2014
Estimated Spending
FY 2015
House 2
Annual Change % Change
K-12 (Chapter 70) $4,301,214,591 $4,400,696,186 $99,481,595 2.3%
Total Spending $4,301,214,591 $4,400,696,186 $99,481,595 2.3%

 

Throughout his Administration, Governor Patrick has prioritized funding for Chapter 70 as the primary method by which the state finances local K-12 public education.  An increase of $100 M in Chapter 70 funding will bring this vital support for communities to an unprecedented $4.4 B. This level of funding represents a $1.1 B M, or 34% increase in Chapter 70 funding from the beginning of the Patrick Administration.

The FY 2015 Chapter 70 funding level makes significant progress in the phase-in of the education reforms that first began in FY 2007, fully funds all schools at foundation levels, ensures that all local educational authorities (LEA’s) will receive an increase of at least $25 per pupil and will uncap the number of pre-kindergarten students counted in a districts foundation enrollment. The FY 2015 distribution of Chapter 70 will increase equity and access among all school districts and is intended to allow LEA’s the flexibility to fund programs that are needed most in their districts, whether special education, MCAS support, literacy programming or other vital supports.

MassHealth (Medicaid) Spending

FY 2014 Estimated Spending vs. FY 2015 House 2 - MassHealth (Medicaid)
  FY 2014
Estimated Spending
FY 2015
House 2
Annual Change % Change
MassHealth (Medicaid) $12,120,786,014 $13,506,437,942 $1,385,651,928 11.4%
Total Spending $12,120,786,014 $13,506,437,942 $1,385,651,928 11.4%

 

MassHealth, the Commonwealth’s Medicaid program, provides health care to 1.6 M low-income children and families, low-income adults, disabled individuals and low-income elders across the Commonwealth. The FY 2014 budget supported the first six months of ACA implementation at MassHealth. The Governor’s FY 2015 budget supports the annualized costs of the ACA expansion population and ongoing enrollment.

The budget includes $1.7 B for the projected 345,000 members in the ACA expansion population, with the majority of this spending offset by federal revenue. The net gain to the Commonwealth for members previously in subsidized coverage is $350 M in additional federal revenue due to an increase in the Federal Medical Assistance Percentage (FMAP) for this population to 75% from the current 50%. The FY 2015 budget creates the Health Insurance Expansion Fund to ensure this additional federal revenue supports the expansion of health insurance to low-income residents of the Commonwealth.

The Governor’s FY 2015 budget for programmatic spending at MassHealth is $13.5 B ($6.3 B net of federal reimbursement), which is an 11.2% increase over FY 2014 estimated spending. MassHealth’s FY 2015 spending is only 4% higher than FY 2014 spending when excluding investments for provider and hospital rate increases and partial-year restoration of coverage for dentures in FY 2015, enrollment increases for the non-expansion population, the full-year costs of FY 2014 investments in hospital rates and annualized ACA costs.

The budget supports new investments in provider rates, such as 2% capitation rate increases for Managed Care Organizations (MCO), including those in the MassHealth CarePlus program, and 2% capitation rate increases for the Massachusetts Behavioral Health Partnership (MBHP). The budget also includes funding for 2% increases in base hospital rates and increases to fee-for-service provider rates, and restoration of coverage for dentures in the second half of the fiscal year.

Most of the investments from the FY 2014 budget are maintained in the Governor’s FY 2015 budget, including $67 M for increases to base hospital rates and alternative payment methodology (APM) participation, $33.6 M to restore coverage for fillings for adult members and $22 M for supplemental payments to specialty pediatric and rehabilitation hospitals. In addition to MassHealth’s programmatic appropriations, the budget includes $34.3 M to provide necessary resources for community support services and coordination to persons with Acquired Brain Injuries (ABI) who may have previously been residing in long-term care facilities.

Group Insurance Commission

FY 2014 Estimated Spending vs. FY 2015 House 2 - Group Insurance Commission
  FY 2014
Estimated Spending
FY 2015
House 2
Annual Change % Change
Group Insurance Commission $1,365,008,263 $1,465,334,234 $100,325,971 7.3%
State Retiree Health Care $420,361,413 $424,168,641 $3,807,228 0.9%
Total Spending $1,785,369,676 $1,889,502,875 $104,133,199 5.8%

 

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.

The GIC continues to work closely with its health plans to control costs and initiated a health plan procurement that is estimated to save the Commonwealth $1.29 B through FY 2018. Savings will be achieved by reducing the average annual growth in spending from 6% to 2% in FY 2015, saving over $75 M, and holding growth at or below 2% thereafter. Through the procurement, the GIC required plans to establish and share risk with a network of risk-bearing provider organizations (IRBOs) sufficient to cover 75% of GIC covered lives by FY 2016. The use of IRBOs promotes more efficient, high value health care delivery as envisioned by Chapter 224, the state’s landmark health care cost-containment legislation.

Through the success of municipal health care reform, the GIC has opened its doors to the cities and towns of the Commonwealth to participate in the Commission’s health insurance program.  Since the Administration proposed municipal health reform in January 2011, more than 260 municipalities and regional school districts came to agreements with employees, achieving premium savings totaling more than $237 M. Since then, 23 more cities, towns and school districts joined the GIC, 12 used the new reform’s expedited decision-making process and 11 joined as a result of negotiations inspired by the reform process. The GIC now has 49 cities, towns and school district members with more than 45,000 municipal subscribers.

Health Connector Authority

FY 2014 Estimated Spending vs. FY 2015 House 2 - Health Connector Authority
  FY 2014
Estimated Spending
FY 2015
House 2
Annual Change % Change
Health Connector Authority $340,078,633 $- $(340,078,633) -100.0%
Total Spending $340,078,633 $- $(340,078,633) -100.0%

 

The Health Connector, the Commonwealth’s health insurance Marketplace, offers affordable, high quality health insurance to the individual and small group health insurance market. Prior to the federal Affordable Care Act (ACA), the Health Connector administered the Commonwealth Care health plan for low-income individuals who were ineligible for MassHealth. The Patrick Administration is phasing out Commonwealth Care in FY 2014 in a manner which ensures continuous coverage for those transitioning into the ConnectorCare program.

Under the ACA, many individuals and families who shop for a health plan through the Marketplace are eligible for federal tax credits and state subsidies. Those with household incomes below 400% FPL (federal poverty level) may be eligible for federal Advanced Premium Tax Credits, while those below 300% FPL may additionally be eligible for state ConnectorCare subsidies to reduce consumer premiums and out-of-pocket expenses to levels consistent with the Commonwealth Care program. A monthly average of approximately 145,000 individuals with incomes up to 300% FPL are expected to be enrolled in the ConnectorCare program. Because FY 2015 is the first full fiscal year of subsidy implementation, the Governor’s FY 2015 budget has increased resources dedicated directly to the Commonwealth Care Trust Fund for the ConnectorCare program to $235 M. Further, the employer assessment that was previously used to help finance health insurance for the unemployed through the Medical Security Program (MSP) will now help to defray the cost of the ConnectorCare program.  The combination of federal resources, enhanced Employer Responsibility revenue, tobacco tax collections and other financing mechanisms deposited directly in the Connector’s trust fund mean that the agency requires no subsidy from the General Fund in FY 2015.

Unrestricted General Government Aid

FY 2014 Estimated Spending vs. FY 2015 House 2
Unrestricted General Government Aid
  FY 2014
Estimated Spending
FY 2015
House 2
Annual Change % Change
Local Aid (UGGA) $4,301,214,591 $4,400,696,186 $99,481,595 2.3%
Total Spending $4,301,214,591 $4,400,696,186 $99,481,595 2.3%

 

Unrestricted General Government Aid (UGGA) and state payments in lieu of taxes (PILOT) aid make up unrestricted local government aid. UGGA will be preserved at $920 M, after an increase in $21.3 M in FY 2014, the first increase in unrestricted local aid since FY 2008. PILOT aid is funded at $500 K less than FY 2014 at $26.3 M.

Other Budgetary Transfers

FY 2014 Estimated Spending vs. FY 2015 House 2- Other Budgetary Transfers
  FY 2014
Estimated Spending
FY 2015
House 2
Annual Change % Change
Transfers for Payments to Hospitals and Providers $661,474,470 $622,261,307 $(39,213,163) -5.9%
Other Transfers to Non-Budgetary Funds $2,625,000 $9,653,272 $7,028,272 267.7%
Total Spending $664,099,470 $631,914,579 $(32,184,891) -4.8%

 

Other budgetary transfers include payments to hospitals under the Delivery System Transformation Initiative Trust Fund (DSTI) and the Medical Assistance Trust Fund (MATF). Under the Governor’s FY 2015 budget the DSTI program will provide two payments to hospitals in FY 2015, the second federal fiscal year (FFY) 2014 payment and the first FFY 2015 payment. The payments total $235 M with the FFY 2015 payment receiving a 25% increase over FFY 2014, assuming sufficient budgetary resources. The increase will support additional hospital initiatives, consistent with MassHealth’s 1115 Demonstration Waiver renewal application. The federal reimbursement revenue for the FY 2015 payments is $118 M. The DSTI program is supported by a general fund transfer of $210 M. The Medical Assistance Trust Fund receives $412 M from the general fund to support $584 M in payments to safety net hospitals and providers with high Medicaid volume. The sharp decline from FY 2014 is due to FY 2014 including a large FY 2013 payment.

Lastly, the Governor’s FY 2015 budget invests $25 M in the Massachusetts Life Sciences Center (MLSC), an increase of $5.5 M above FY 2014, by dedicating FY 2014 surplus to support the Center. 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.


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