Governor signs final FY18 state budget after vetoes

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Gov. Charlie Baker yesterday signed a state revenue and spending plan for fiscal 2018 totaling $39.4 billion after vetoing $320 million in appropriations to account for a lower revenue forecast than the one used by the Legislature and to provide a reserve for underfunded accounts.
 
The governor sent back to the Legislature important sections related to the state’s MassHealth program, including the $200 million assessment on businesses that was included in the budget’s revenue plan. The governor supported the plan, but asked the Legislature to couple it with reforms to the program to give it long-term sustainability. The governor asked the Legislature to act on his reform and revenue plan within the next 60 days in order to avoid a $350 million budget shortfall.
 
The Legislature’s $40.2 billion budget, passed in both branches on July 7, had already reduced revenue assumptions and reworked spending authorizations for the new fiscal year to reflect faltering tax collections at the end of fiscal 2017 and growing doubts about the fiscal 2018 forecast. The Legislature had reduced the tax estimate by $650 million below what had been used by the governor in his recommendation and by the House and Senate in budget bills approved earlier in the year. In signing the budget, the governor noted that his projection reduced the forecast by an additional $99 million.
 
The Legislature’s budget had reduced proposed spending by $400 million and assumed $250 million in year-end appropriation reversions and available trust fund revenues to help balance the budget.
 
While the Legislature’s budget and the version signed by the governor both made widespread reductions in state accounts, the spending plan retains key investments in local aid.
 
The final budget protected $1.06 billion in funding for the main municipal aid account, an increase of $40 million, as had been recommended by the governor in January and included in both the House and Senate budget bills, which were approved in April and May, respectively. Unrestricted General Government Aid funding at this level was included in the preliminary Cherry Sheets posted by the Division of Local Services and used by cities and towns to prepare local budgets for the fiscal year that began on July 1.
 
UGGA is funded mainly from Lottery and other gaming revenues and is used locally to help pay for municipal services and to reduce reliance on the property tax.
 
The budget includes $4.75 billion to cover the basic provisions of the Chapter 70 school funding law, providing a minimum of $30 per student in new school aid and beginning to implement recommendations to update the Chapter 70 “foundation budget” spending standard. The overall Chapter 70 increase is $119 million.
 
“Representatives and senators and the governor were clearly protecting and prioritizing municipal and school aid,” said MMA Executive Director Geoff Beckwith. “In the context of a very tight budget year, this is a strong budget for cities and towns, and we deeply appreciate the support that the governor and legislators are giving to local aid and our communities.”
 
The revised revenue forecast reflects the slump in tax collections at the end of last year that left the state $440 million short of target as of the end of May. (Final year-end numbers were not yet available.) The original “consensus” revenue estimate that was adopted in January was based on expectations that collections for fiscal 2018 would grow by 3.9 percent.
 
Local accounts
The budget continues to implement the Chapter 70 target share provisions enacted in 2006, and builds on the proposal by the governor to start addressing shortfalls in the foundation budget framework. The budget increases foundation budget funding by adding more weight to the employee benefits (mainly health insurance) cost factor.
 
The budget includes $12.5 million in the Chapter 70 appropriation to hold school districts harmless from changes in the method of counting low-income students. This is similar to the Legislature’s handling of the problem in the fiscal 2017 budget.
 
“The increase in Chapter 70 funding is certainly welcome progress,” Beckwith said. “The MMA continues to give top priority to full funding for the Foundation Budget Review Commission’s recommendations, and over the long-term will work to build on this increase.”
 
The budget includes a $4 million increase for the Special Education Circuit Breaker program, providing $281 million. The increase is a step forward, but still short of full funding for a vital program that every city, town and school district relies on to fund state-mandated services.
 
The budget level-funds charter school reimbursements at $80.5 million, far below the amount necessary to fully fund the statutory formula that was originally established to offset a portion of the funding that communities are required to transfer to charter schools. The fiscal 2017 funding level is $55 million below what is necessary to fully fund the reimbursement formula that is written into state law. At level-funding, the shortfall will grow to an estimated $76 million in fiscal 2018.  Solving the charter school funding problem is a major priority for the MMA.
 
The budget increases Regional School Transportation Reimbursements – an important account for smaller and rural communities – by $1 million, to $62 million.
 
The budget level-funds PILOT payments at $27 million, adds modest amounts to library grant programs, level-funds METCO, and funds McKinney-Vento transportation reimbursements at $8.1 million, a reduction of $250,000.
 
Shannon Anti-Gang Grants are level-funded at $6 million.
 
Policy issues
The budget defers action on a number of revenue and policy issues, including reform to the room occupancy excise. Progress on this issue will now focus on separate legislation that is being crafted by Rep. Aaron Michlewitz.
 
The Senate’s budget plan had included language to close loopholes that allow the increasing variety of transient and other short-term rentals to escape taxation, including rentals through Airbnb and other online companies and resellers. These are important steps to bring parity to the collection of lodging excise payments, and the MMA will continue to call for passage this year.
 
The budget bill also did not include a provision that had been adopted by the Senate to increase the state match for the Community Preservation Act program.
 
In June, the governor signed a temporary budget for fiscal 2018 sent to him by the Legislature to keep state government running, as is regularly done when there is a delay in enactment of a final budget.