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Fiscal Responsibility – A Vision for Effective, Limited Government

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Fiscal Responsibility: A Vision for Effective, Limited Government

Fiscal Responsibility—A Vision for Effective, Limited Government lays out a data-driven roadmap to rein in unsustainable Massachusetts state spending, restore fiscal discipline, and strengthen local aid through practical reforms that could save taxpayers $1.1–$1.8 billion annually while protecting essential services and economic competitiveness. 

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Fiscal Responsibility: A Vision for Effective, Limited Government

Between 2010 and 2025, Massachusetts’ state budget grew, in nominal terms, from $32.3 billion to $61 billion (see figure 6). Adjusting all figures to 2025 dollars to remove inflation, the state budget increased by 28.2 percent; by contrast, median Massachusetts household income (MHI) rose just 13.2 percent. In practical terms, this means that state spending grew at more than twice the annual rate of household income, with the gap widening over time. MHI accurately reflects the financial reality of typical households, and relative to budget growth its gains have been modest. The 2015–2020 stretch stands out as the only period in which households got a breather, as MHI increased 12.6 percent compared with budget growth of just 4.4 percent. As a result, the state now demands significantly more from taxpayers while delivering proportionally less in areas such as local aid, housing, and regulatory responsiveness.

Figure 6. MHI vs MA State Budget, 2010-25 [1]

The takeaway is that Massachusetts’ state budget grew by more than twice the growth in median household income from 2010 to 2025. The imbalance raises serious questions about the state’s long-term sustainability; that is, state spending is rising far faster than the economic capacity of the households that support it. Figure 7 shows the variance graphically.

Figure 7. Cumulative Growth: MHI vs MA State Budget, 2010-25 (2025$)

Growth in the state workforce and payroll have far outpaced both population growth and the economic reality of most residents. As of August 2025, Massachusetts employed 133,800 state workers. That’s a 4.4 percent increase over the past five years, or 5,600 new positions, despite only a modest increase in services.

According to CTHRU, the Massachusetts comptroller’s data dashboard, there has been a rise in full-time equivalents from 85,000 in 2021 to almost 91,000 in 2024. There were more than 90,000 full-time State employees in 2024, with another 31,000 working part time. Base pay alone totaled $9.3 billion in 2024, and total compensation—including overtime, buybacks, and add-ons—reached $10.26 billion. That’s a 28 percent jump since 2019, and a staggering 58 percent increase since 2014.

Much of the growth is happening in a web of quasi-public authorities and off-budget entities that operate with little oversight and scant transparency, consuming public dollars without public accountability.

This fiscal sprawl is not just expensive—it’s a sign of systemic dysfunction. The state clings to outdated laws like the Pacheco Law that block competition, mandate union-only service delivery, and shut out private firms that could deliver better results at lower cost. Public construction contracts sometimes exclude over 80 percent of the construction workforce, especially small, minority-, and immigrant-owned firms. Meanwhile, municipalities face rising responsibilities with stagnant state support. Local governments are burdened by complex permitting rules, delayed approvals, and rigid mandates that stifle development and economic growth.

Massachusetts isn’t leading—it’s stuck. Stuck in outdated structures. Stuck in unsustainable spending. And stuck in a mindset that refuses to learn from states that are building smarter, faster, and more affordably.

Our vision for an effective Massachusetts government includes strategic attrition to responsibly reduce the state workforce, a comprehensive review of quasi-public entities and off-budget authorities, a repeal or overhaul of the Pacheco Law to restore competitive service delivery, an end to union-only project labor agreements on public construction, means-testing programs to generously support those who need it, ensuring the integrity of major benefits and support programs, and rebalancing fiscal policy to strengthen local governments and frontline services.

Taken together, the reforms outlined in this section could conservatively yield more than $1 billion per year in recurring savings, with near-term (year 1 and 2) savings of around $1.1 billion and by year 4 savings of $1.8 billion (see Figure 8). These figures rely on modest, evidence-based assumptions—often at the low end of observed savings in other states—and exclude one-time savings and broader economic effects such as faster permitting, increased competition, and improved service delivery. The estimates reflect partial implementation and are intended to illustrate the order of magnitude of achievable savings, not to serve as a formal budget projection.

Figure 8. Illustrative Annual Savings from Fiscal Reform Agenda (Conservative Estimates)

Note: Estimates reflect conservative assumptions, recurring savings only, and partial implementation. Figures exclude one-time savings, avoided future cost growth, and broader economic impacts.

Massachusetts doesn’t need to spend more; it needs to spend smarter, govern better, and get out of the way when others can do the job more effectively. Now is the time to rein in the sprawl, reset priorities, and put results ahead of bureaucracy.

Six Commonsense Reforms to Improve Government Efficiency

Reduce Agency Payroll Through Strategic Attrition

Massachusetts continues to expand its public payroll despite advances in automation and major shifts in service delivery. According to the Comptroller’s CTHRU website, the Commonwealth spent $10.6 billion on payroll in 2024—up from $6.3 billion in 2014, yet core responsibilities like local aid remained underfunded. According to the Federal Reserve Bank of St. Louis, as of August 2025, the state employed approximately 133,800 full and part-time workers[2]. The state’s comptroller reported that in 2024, there were 90,758 full-time employees.[3]

Annual attrition is significant—in the last two quarters of FY25, about 2,000 people terminated employment in executive branch departments alone.[4] Employees leave state service each year through retirement, resignation, or other separations. A focused reform effort could redirect this natural turnover. Rather than filling all vacated positions, the state should reduce total headcount by about 1 percent per year—approximately 910 full-time positions – with special emphasis on low-priority roles and those in the bottom 1 percent of performance. Such a minuscule impact on positions should be feasible not only because of expected attrition, but also because of the advent of new tools and technologies, including AI.

According to CTHRU, 2025 compensation data show the average salary for full-time state workers is $83,483. Fringe benefit costs—including health care, pensions, and payroll taxes—run about 38.5 percent of total compensation, or roughly 62.6 percent of base salary, or $52,260 per employee. This brings total annual compensation to about $135,743 per employee. Eliminating 910 positions annually could therefore yield $124 million in savings per year, totaling close to $500 million in four years, before retiree health care is factored in.

This approach requires maximum managerial flexibility. Cabinet secretaries must be empowered to eliminate outdated or duplicative positions, address underperformance, and reinvest in modernization, partnerships, and essential services. Frontline roles in child protection, public safety, and essential services should be exempt to maintain critical functions.[5]

Recommendation: Reduce state agency headcount by 1 percent annually (≈900 positions/year) through strategic attrition and performance-based elimination. Prioritize low-performing and nonessential roles, maintain secretariat-level flexibility, and reallocate savings toward frontline services, modernization, and local aid.

Increase Transparency for Massachusetts’ Hidden Government

Massachusetts’ sprawling network of authorities, quasi-public entities, and independent boards and commissions represents a parallel government operating with minimal transparency and virtually no centralized oversight. While cabinet-level executive agencies face regular audits and reporting requirements, these non-executive bodies often operate in the shadows, despite commanding billions in public funds and employing thousands.

There are over 700 boards and commissions in Massachusetts, many with unclear missions, duplicative roles, or minimal public engagement. While most are advisory or regulatory and do not control significant spending, their rulemaking authority can carry substantial weight—shaping licensing regimes, professional standards, and policy enforcement without meaningful scrutiny. The sheer volume makes accountability difficult, and there is currently no comprehensive registry available to the public.

The larger fiscal concern lies with the quasi-public authorities and government-sponsored corporations. According to Massachusetts Open Checkbook, 18 of these state authorities report over $1.1 billion in payroll costs, employing 11,511 staff with an average salary of $69,400. This includes major entities like the MBTA, Massport, MassHousing, and MassDevelopment. However, this figure represents only a fraction of the true quasi-public landscape. Some authorities remain outside transparency portals like the state’s CTHRU and Pioneer’s Mass Data Labs, leaving their payrolls, debt loads and governance practices hidden from public view. A 2018 Massachusetts Public Interest Research Group study documented 42 quasi-public agencies with combined annual revenues of $8.76 billion, underscoring the vast fiscal footprint of this “second government.”

This lack of transparency is not just a matter of principle—it carries real risks. Without baseline data, lawmakers and taxpayers cannot assess the efficiency, financial stability, or continued relevance of many of these entities. As Massachusetts faces significant fiscal pressures and urgent housing and infrastructure needs, public funds must be directed where they are most effective.[6]

Recommendation: Within the first 12 months of a new gubernatorial term, conduct a comprehensive and public review of all non-executive state entities—including authorities, boards, commissions, quasi-public agencies, and government-sponsored corporations. The review should:

• Establish a full registry including mission, legal status, staffing levels, budgets, payroll, and debt obligations.
• Require annual standardized financial and performance reporting via CTHRU
• Identify entities for potential consolidation, downsizing, or sunset based on public value and financial necessity.
• Evaluate the governance structure of each entity to ensure appropriate public oversight and accountability.

This effort must be led by the Executive Office for Administration and Finance, in coordination with the Office of the State Auditor and the Legislature. A dedicated transparency unit should be tasked with maintaining and updating the registry annually.

Reform the Pacheco Law to Expand Competitive Bidding

Massachusetts’ Pacheco Law, enacted in 1993, imposes some of the nation’s strictest limits on public-private contracting. It requires the state auditor to conduct an analysis of any proposed privatization of public services valued over $500,000 that compares the cost and quality of the proposal what the cost and quality would be were public employees to deliver the service “in the most cost-efficient manner.” In practice, this has created an almost insurmountable barrier to outsourcing, regardless of the quality or savings a private vendor might offer. The auditor has sweeping discretion, with no formal framework for transparent, objective analysis. 

As a result, the law has blocked competitive bids that could save the Commonwealth hundreds of millions of dollars, particularly in areas like fleet management, facilities maintenance, IT infrastructure, and transit operations. The MBTA alone could have saved over $450 million in recent years but was prevented from doing so due to the Pacheco Law. Unlike nearly every other state, Massachusetts effectively mandates in-house, union-only service delivery—even where competition would improve quality and reduce costs.[7]

Recommendation: Taxpayers deserve a government that delivers the best value for taxpayer dollars, and Massachusetts should no longer be an outlier by blocking that possibility:

• Repeal or substantially reform the Pacheco Law to restore competition, fiscal discipline, and service innovation.
• If repeal is not legislatively possible, the law should be amended to replace the current opaque, discretionary review with a standards-based, transparent process. One model would be to establish a bipartisan commission composed of representatives from the State Auditor’s Office, the Comptroller, Executive Office for Administration and Finance, independent procurement experts, and public-interest stakeholders. This body would evaluate proposed contracts based on public criteria, ensure compliance with prevailing wage laws, and screen for conflicts of interest. Competitive contracting should be permitted with any qualified provider—union or non-union—so long as transparency, accountability, and performance benchmarks are maintained.

Restore Open Competition in Public Construction

Massachusetts sometimes requires project labor agreements (PLAs) on public construction projects—agreements that mandate hiring all jobsite labor from union halls. These rules prevent more than 80 percent of the state’s construction workforce—those who choose not to join a union—from participating. These include many small, minority, women, and immigrant-owned businesses. Research from Pioneer Institute and others has shown that PLAs reduce the number of bidders on public projects, drive up costs by 10–20 percent, and limit workforce diversity. At a time when the state faces soaring infrastructure needs and workforce shortages, excluding such a large segment of qualified contractors undermines economic opportunity, public value, and the equitable use of taxpayer dollars.[8]

Recommendation: Prohibit PLAs on public construction projects to foster an open, competitive bidding environment. All qualified contractors—union and non-union—should be allowed to bid and perform work on equal footing, without government-imposed labor preferences. Such reform would not alter prevailing wage laws or safety standards; rather, it would ensure that the state maximizes value for public investments and includes underrepresented firms in its procurement processes. Promoting open competition is essential to delivering timely, cost-effective infrastructure while expanding access to economic opportunity.

Means-test Universal Free School Meals

Massachusetts began funding universal free breakfast and lunch for all public school students in the 2022–2023 school year, converting a program that had operated under temporary federal pandemic waivers into a permanent state entitlement. The program now carries an annual state cost of approximately $170–$180 million, layered on top of existing federal reimbursements.[9]

Under federal law, schools already receive reimbursement through the National School Lunch Program (NSLP) and School Breakfast Program (SBP) for meals served to students from low-income households, defined as those with family income at or below 185 percent of the federal poverty level. In Massachusetts, however, the adoption of universal free meals—and the state’s expanded use of direct certification—has weakened traditional free- and reduced-price lunch (FRPL) data as an income proxy. As a result, Commonwealth funds now subsidize meals for all students, including those from middle- and higher-income households who would not otherwise qualify for federal assistance under income-based eligibility criteria.[10]

In the 2022–2023 school year, Massachusetts enrolled approximately 915,000 public school students, based on the state’s official October 1 enrollment snapshot.[11] Federal eligibility for free or reduced-price meals is defined as household income at or below 185 percent of the federal poverty level. However, Massachusetts’s adoption of universal free meals—and its expanded reliance on direct certification—now obscures precise counts of income-eligible students.

Historical DESE data indicate that roughly one-third of Massachusetts public school students fall within federal eligibility thresholds in recent years, implying that hundreds of thousands of students receiving free meals would not otherwise qualify under income-based criteria. Because direct certification captures only students matched to programs such as SNAP or TANF, these figures should be treated as approximate and likely undercounts rather than precise totals.[12]

A more targeted approach—such as providing free meals to students from households earning up to 200 percent of the federal poverty level, with sliding-scale support between 200 and 300 percent of FPL—would preserve access for families with genuine financial need while substantially reducing subsidies for higher-income households. Based on current enrollment and spending levels, a means-tested model could conservatively yield $90–$125 million in annual state savings, depending on participation rates and administrative design.[13] Additional district-level analysis of income distributions, participation patterns, and administrative costs would be required to refine these estimates and ensure feasibility.

Recommendations

• Adopt income-based eligibility: full subsidy up to 200 percent FPL, a linear taper through 300 percent FPL, and no subsidy above that threshold.
• Maintain streamlined verification by leveraging existing income- and direct-certification systems to minimize administrative burden.
• Publish annual participation, reimbursement, and eligibility data to improve transparency and guide program adjustments.

Means-test Free Community College

Massachusetts now spends over $117.5 million annually to provide universal free community college tuition and fees through MassEducate, funded largely by Fair Share revenue.[14] Federal Pell Grants already cover most tuition and fees for many low-income students, meaning state dollars increasingly subsidize middle- and higher-income enrollees who would attend without assistance.[15] This creates substantial deadweight cost and limits resources for programs that improve completion and workforce outcomes. A targeted structure—full support up to 200 percent FPL, sliding-scale support from 200–300 percent FPL, and no subsidy above 300 percent FPL—would preserve access for students with financial need while reducing annual state spending.

Additional research on the income distribution of community college students is needed, but current indicators — including the fact that nearly half receive Pell funding — suggest a substantial share would qualify under a need-based model.[16] Redirecting savings to advising, pathways reform, and employer-aligned programs would increase impact.

Recommendations

• Replace universal free tuition with a means-tested, last-dollar model: full subsidy up to 200 percent FPL, linear taper to 300 percent FPL, none above 300 percent FPL.
• Maintain strong support for Pell-eligible and adult-learner populations.
• Require colleges to report completion, transfer, and workforce outcomes tied to state subsidy.
• Redirect savings to academic advising, remediation reform, and employer-aligned credentials.

AI-Enabled Integrity & Cost Control to Reduce State Spending 

Across Massachusetts government, some of the largest and fastest-growing spending categories—cash benefits, health and pension programs, and procurement—share a common structural problem: high transaction volume, complex eligibility or pricing rules, fragmented data systems, and weak pre-payment controls. Research across social and commercial payment systems indicates that 5–15 percent of spending can be lost annually to administrative breakdowns, delayed verification, pricing errors, and fraud when integrity controls are applied primarily after funds are disbursed.[17]

Research shows that delayed integrity controls allow 5–15 percent of spending to be lost annually to errors and fraud.

Advances in artificial intelligence (AI) and analytics now allow governments to embed integrity directly into workflows—verifying identity, eligibility, pricing, and compliance before payments are issued; flagging anomalies in real time; and prioritizing human review where risk is highest.[18] Applied conservatively across unemployment insurance, procurement, and major benefits programs, AI-enabled integrity controls could generate $350 million in near-term annual savings, rising to roughly $750 million within four years—and more than $1.4 billion annually once fully implemented.

Methodological assumptions

• Conservative anchor: We assume the lowest end of potential savings—5%
• Near term (Years 1-2): We assume savings reach 25% of the 5% target—1.25%
• By Year 4: We assume savings reach 50% of the 5% target: 2.5%

AI-Enabled Integrity Controls for Unemployment Benefits

Unemployment insurance (UI) is one of the Commonwealth’s largest direct cash-transfer systems, paying out billions of dollars annually and requiring rapid disbursement during economic downturns. That speed—combined with reliance on self-reported earnings, lagging employer data, and interstate claims—creates acute integrity risks. Federal data show Massachusetts with an improper UI payment rate of 22.9 percent, among the highest in the nation, driven largely by identity fraud, misreported earnings, and delayed eligibility updates.[19]

These improper payments—driven largely by identity fraud, misreported earnings, and delays in updating eligibility information[20]—directly weaken the UI trust fund, imposing substantial, recurring costs on both the Commonwealth and the employers who finance the system through higher contribution rates.[21]

In a typical non-recession year, Massachusetts pays approximately $2–$2.5 billion in UI benefits.[22] Federal benchmarks suggest that $200–$500 million of these payments may be improper each year.[23] AI-enabled identity verification, earnings validation, and continuous eligibility monitoring would allow the Commonwealth to stop overpayments before they are issued. Anchoring to a conservative 5 percent integrity gain across the program, AI-enabled controls could ultimately reduce UI costs by roughly $110 million annually, with approximately $30 million achievable in the near term and about $55 million within four years—while preserving timely access to benefits for eligible workers.

Recommendations

• Deploy AI-based identity and earnings verification to detect cross-state duplicate claims, identity theft, and unreported wages prior to payment.
• Implement continuous eligibility monitoring using real-time wage, tax, and new-hire data to reduce overpayments caused by reporting delays.
• Use predictive analytics to prioritize investigations, focusing staff resources on high-risk claims rather than broad manual reviews.
• Preserve full human review, appeal rights, and due-process protections for all adverse determinations.
• Publicly report reductions in improper payments and trust-fund impacts to guide ongoing refinement.

AI-Enabled Procurement to Improve Pricing & Compliance

Procurement losses arise primarily from price dispersion, contract leakage, inconsistent enforcement of negotiated terms, and limited visibility into post-award performance. Massachusetts procurement systems remain labor-intensive and siloed across agencies, increasing purchase prices, slowing cycle times, and allowing overbilling and underutilization of contracts to persist undetected.

In FY2023, Massachusetts spent more than $6.8 billion on goods, services, and construction.[24] While not all spending falls under centralized procurement rules, the vast majority of high-dollar contracts do. Experience in large-scale purchasing systems shows that embedding integrity controls before invoices are paid—rather than relying on audits after the fact—can reduce costs by several percentage points annually.[25]

Applied to Massachusetts procurement, a conservative 5 percent integrity gain would generate up to $340 million in recurring annual savings, with roughly $85 million achievable in the near term and approximately $170 million within four years, excluding implementation costs.[26] These savings would come from improved pricing discipline, reduced overbilling, faster purchasing cycles, and stronger enforcement of negotiated terms.

Recommendations

• Use AI tools to support RFP drafting and bid evaluation, improving consistency, clarity, and competitive pricing.
• Implement AI-based spend analysis and contract monitoring to benchmark prices, flag anomalous invoices, and enforce pricing terms.
• Improve utilization of negotiated contracts by identifying off-contract purchasing and pricing deviations in real time.
• Maintain clear human decision authority, with explicit requirements for auditability, transparency, data security, and bias safeguards.
• Measure and publicly report procurement savings, compliance outcomes, and cycle times annually.

AI-Enabled Integrity Improvements in Major Benefits Programs

Beyond unemployment insurance, Massachusetts administers large, ongoing benefits programs—most notably MassHealth (Medicaid and CHIP) and public retirement systems—that involve complex eligibility rules, long-term payment streams, and frequent status changes. These programs face integrity risks from eligibility drift, episodic claims behavior, outdated records, and limited cross-agency verification.

MassHealth is the largest single program in the state budget. In FY2025, gross MassHealth spending was projected at approximately $20.3 billion, with a net state cost of roughly $10.2 billion after federal reimbursements.[27] Public pension systems similarly involve large, recurring payments governed by beneficiary status changes and cost-of-living adjustments.[28] In programs of this scale, even modest integrity failures translate into large fiscal losses.

Applying the low end of the 5–15 percent loss range, a 5 percent integrity gain would yield approximately $1.0 billion annually in MassHealth alone, with roughly $250 million achievable in the near term and about $500 million within four years, and additional savings potential across pension and other benefit programs.[29]

Recommendations

• Deploy AI-enabled eligibility verification and claims anomaly detection for MassHealth, with human review of flagged cases.
• Integrate benefits data across tax, health, and administrative systems to reduce duplicate payments and eligibility mismatches.
• Use AI-based risk scoring to prioritize audits and compliance actions where recovery and deterrence are most likely.
• Publish annual reporting on improper payment rates, integrity savings, and program performance.

A Reliable Partner to Local Governments

Massachusetts needs to realign the relationship between state and local government to reflect fiscal reality, public expectations, and common sense. Most public services—schools, roads, police, fire, water, sanitation—are delivered not by Beacon Hill but by cities and towns. Yet over the past decade, total state spending has grown by 51 percent, nearly four times the rate of non-education local aid, which has  lagged well behind inflation.

This imbalance has weakened the ability of cities and towns to meet core responsibilities and left many residents feeling that they are paying more but getting less. Resetting the balance begins with the recognition that economic opportunity, housing access, and quality of life depend on strong, well-equipped local governments.

To restore equilibrium, Massachusetts must pursue three concrete reforms. First, it should significantly increase non-education local aid, tying it to growth in state tax revenues. Second, the Commonwealth should adopt a state–municipal partnership model that aligns policies and funding with local economic development goals—supporting permitting reform, infrastructure investment, and targeted workforce initiatives. Third, the state should reduce its own administrative sprawl through strategic attrition and other efficiency reforms described in this volume in order to allocate resources to our municipal governments.

Real reform requires more than slogans. It means rethinking the structure of state government so it serves—not overshadows—local governments and the people they serve. That begins by restoring fiscal discipline at the state level and ensuring that delivery of essential services is grounded in local knowledge, accountability, and flexibility.

Increase Non-Education Local Aid to Strengthen Municipal Services

Unrestricted General Government Aid (UGGA)—the Commonwealth’s primary source of flexible state aid for cities and towns—rose from just shy of $1.1 billion in FY2018 to just over $1.3 billion in FY2025, an increase of approximately 23.3 percent over that period.[30] Over the same span, overall state spending grew far more rapidly. With the enacted FY2026 General Appropriations Act projected at nearly $62.0 billion, the state budget is approximately 54 percent larger than in FY2018, reflecting a substantial expansion in state government spending.[31] 

This imbalance has practical consequences. Most of the public services residents interact with—police and fire protection, road maintenance, snow removal, building inspections, and elder services—are delivered by municipalities, not the state. When unrestricted local aid fails to keep pace with overall budget growth, cities and towns are pushed to rely more heavily on property taxes and fees, worsening affordability pressures for residents and businesses. Multiple fiscal analyses have documented this growing gap between state revenue growth and local aid trends.[32] Realigning UGGA growth with the growth of the state budget is essential to sustaining core local services, restoring fiscal balance, and ensuring municipalities are partners in supporting economic opportunity. 

Recommendations

• Over time, align unrestricted general government aid with state revenue growth.
• In the immediate term, tie annual increases in non-education local aid to the rate of growth in state tax revenues, ensuring cities and towns share in the Commonwealth’s economic progress.
• Include performance incentives for municipalities that demonstrate fiscal discipline—by keeping administrative costs in check or investing in regional service-sharing, housing growth and business permitting.