A run through the budget jungle

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run through the jungle

There were some protesters outside the press conference where Baker discussed his FY2016 budget proposal this afternoon.  But the fact is there is not much to protest here.

This budget is characterized by lots of programs level funded.  I understand that some advocates want much more funding for their specific program of interest, but the pain, to the extent that there is any, is spread across all areas of government.  And it is worth remembering that the budget is increasing by $1.1 billion dollars, or 3 percent, to $38 billion total.

Notwithstanding that growth in the budget, the administration still needs some big moves to make revenues match up with spending.  Going into the budgeting process, the estimated shortfall in revenues was $1.5 billion.

Given level funding for many programs, the governor is depending on 5 key moves to balance the budget.

The first is to grow the economy and not slow it down with additional taxes and fees.  The consensus around revenues is that they will keep growing at over 4.8 percent.  The revenue growth rate allows for Baker to lessen that $1.5 billion structural deficit by hundreds of millions of dollars.

The second is to bring one-time revenues of $300 million in capital gains taxes redirected from the Rainy Day Fund and $100 million in other actions.

The third is seeking savings of $125 million by having state employees who receive the health insurance through the state’s Group Insurance Commission move from paying 20 to 25 percent of their health care premiums, and also to have them pay higher co-pays.

The fourth is to reform the state’s MassHealth (Medicaid) program.  Without reform, the growth trend will continue to do what Speaker DeLeo described in his speech before the  Greater Boston Chamber of Commerce earlier this week – that is, grow by 50 percent over a half decade.  That’s unsustainable growth in the program, and the administration is seeking to save $761 million through two actions:

  • With the failure of the ACA implementation in Massachusetts over 2 years, we put 300,000+ lives onto temporary Medicaid without paying attention to their eligibility. Today 1.2 million are receiving Medicaid benefits, and the federal government (which pays for basically half of the Medicaid bill) has called for Massachusetts and a handful of other states to go back and check the eligibility of recipients.  Baker is confident that he can save around $400 million through a review of eligibility.
  • There is the often heard refrain that we can identify over $300 million in other savings in the program through reforms and innovation. Many governors have relied on this talking point, and we have not yet seen the governor’s proposals.  TBD to be sure, but I would expect at least part of the proposal to lean on expanding the role of limited network providers in serving MassHealth enrollees.

 

The fifth is to address burgeoning payroll costs by convincing 4,500 executive branch employees who are over 55 years of age and have more than 20 years of experience working for the state to take an early retirement (with benefit enhancements). The immediate impact is savings but the long-term impacts are questionable. The administration says it will pay for pension costs from the start, but there are lots of questions.  Net savings $178 million.

The revenue growth estimate is reasonable, and the one-time revenues and the change in what state employees pay toward their health care premiums are likely persuasive proposals to the House and Senate.  Also, the redetermination of MassHealth enrollees’ eligibility is doable.  The bigger questions concern MassHealth reforms (again, hard to comment without details) and early retirement plan (ERIP).  As regards the ERIP proposal, legislators have seen such proposals before and have not been terribly supportive.  I agree.  Here are some questions: Will the positions be rehired?  What is the impact on the state’s pension liabilities?  And why not factor in attrition to deal with the “unsustainable size of the state workforce” issue?  After all, the last time we looked at attrition of state employees, we noticed an average of 1,000 to 1,400 employees leaving the state workforce annually.  Why not take a four or six year view of the problem and address it through attrition?  (That’s not to mention the brain drain possible in specific agencies that could occur.)

Finally, it is worth noting that this first budget starts to trace out Baker’s values and priorities.  At the press conference Baker noted that he is looking to do more on his priorities as the year progresses, for example, on urban issues such as Brownfields redevelopment and enterprise zones.  But in this budget there is good commitment to supporting families and the working poor.

  • Baker’s call to undo the targeted tax credit program that favors the film industry and that provides anemic job growth (most of which benefits out-of-staters) is a good way to help defray the cost of an expansion of the earned income tax credit to 30 percent of the federal credit. That will put hundreds of dollars in the pockets of working parents in need.  Once it is fully implemented, the total cost of that tax break for families will be around $150 million, and the savings to the state by terminating the film tax credit will be about $80 million.
  • The Department of Children and Families gets a strong increase of $40 million, to over $900 million. That money includes $30 million extra to support general operations and $11 million for supportive child care.  It’s worth mentioning that this comes in addition to $35 million requested from the legislature in the emergency 2015 budget measure that was just adopted.
  • Families and breadwinners don’t face more tax hikes.
  • The budget includes $20 million for a new homelessness prevention program called “End Family Homelessness Reserve Fund.” With 5,000 families in Massachusetts currently live in emergency shelters, hotels and motels, the program is meant to intervene when families are at risk of becoming homeless. This funding is in addition to another $44 million Baker is seeking for emergency shelters.

 

I would expect these budget moves to advance with the exception of the film tax credit, which probably should be amended/decreased but termination of the program may meet with opposition from Speaker DeLeo, a longtime supporter.  In the Senate, there may be greater receptivity to the change as the biggest supporter of the film tax credit there was the former Senate President Therese Murray.

For a budget that is closing a $1.5 billion deficit, there is recognition that municipalities have taken it on the chin for too long as the state used reductions in municipal aid to close state budget gaps.  The budget increases local unrestricted aid and also school aid, by $34 million and $105 million, respectively.  The METCO account which saw a $1 million cut in the emergency 2015 budget measure goes back up to its previous level (this affects the program and local budgets for receiving districts).

Baker noted in his press conference that he included a “placeholder” for additional funds for the MBTA of $64 million.  (Overall, transportation funding rises by $110 million.)  I believe there may be openness to help the T with unexpected costs associated with snow removal, but there is likely to be skepticism of additional T funding unless the Baker special panel comes up with a clear and tough plan to turn around the Authority.

Follow me on twitter at @jimstergios, visit Pioneer’s website, or check out our education posts at the Rock The Schoolhouse blog.

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