Legislature’s budget prioritizes communities in challenging fiscal times

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From the Beacon, Summer 2017
 
After a spring and summer dominated by concern over disappointing state tax collections and a growing state budget deficit, state legislators overwhelmingly approved a pared-back $40.2 billion fiscal 2018 state budget. Very weak tax collections created a $440 million hole in the fiscal 2017 budget, and forced lawmakers to make a $650 million downward adjustment in their fiscal 2018 forecast.
 
While the Legislature’s budget enacts widespread reductions in state budget accounts, lawmakers made sure that their plan includes investments in key local aid accounts, including full funding of the $39.9 million increase in unrestricted municipal aid (UGGA), a $119 million increase in Chapter 70 school aid, and a $4 million increase in special education reimbursements.
 
The MMA worked very hard all year to advocate for local needs, and we are pleased to report that the Legislature’s local aid funding is $32.5 million higher than the budget filed by Gov. Charlie Baker in January, even though projected state revenue is lower.
 
Representatives and Senators are clearly protecting and prioritizing municipal and school aid. 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 legislators are giving to local aid and our communities. We applaud House Speaker Bob DeLeo, Senate President Stan Rosenberg, House Ways and Means Chair Brian Dempsey, Senate Ways and Means Chair Karen Spilka, the budget conference committee members, the members of the Ways and Means committees, and all legislators involved in the budget process.
 
In a victory for cities and towns, the Legislature’s fiscal 2018 budget plan provides the $1.06 billion for UGGA, a $39.9 million increase over current funding – the same increase proposed by Gov. Baker. Almost all of the UGGA funding comes from $985 million in expected Lottery proceeds and $65 million from the Plainridge gaming facility.
 
The full $39.9 million UGGA increase was a top priority for cities and towns, because municipalities have been counting on these funds to balance their budgets and maintain essential services for their residents.
 
With $4.75 billion for Chapter 70 aid, the Legislature’s budget includes a $119 million increase ($27.5 million higher than the $91.4 million increase in House 1), providing a minimum aid increase of at least $30 per student (compared to the $20-per-student amount in the governor’s budget). The Legislature’s budget continues to implement the target share provisions enacted in 2007, and builds on the proposal by the governor to start addressing shortfalls in the foundation budget framework. The Legislature’s budget increases foundation budget funding by adding more weight to the health insurance cost factor.
 
The Legislature’s 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 Legislature’s increase in Chapter 70 funding is certainly welcome progress. 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.
 
In another budget advancement for cities and towns, the Legislature’s budget would add $4 million to the Special Education Circuit Breaker program, providing $281 million. The governor’s budget proposed level-funding at $277 million. The $4 million increase is a step forward, although this is still short of full funding for a vital program that every city, town and school district relies on to fund state-mandated services. The MMA is asking the governor to sign this increase, and will work to achieve full funding during the year.
 
One area of serious concern is that the fiscal 2018 state 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 $54.6 million below what is necessary to fund the reimbursement formula that is written into state law. This shortfall will grow to approximately $76 million in fiscal 2018. This will lead to the continued and growing diversion of Chapter 70 funds away from municipally operated school districts, and place greater strain on the districts that serve 96 percent of public schoolchildren. Solving the charter school funding problem is a major priority for the MMA, and it must happen soon in order for our local school systems to thrive and meet the needs of students and families.
 
Compared to current fiscal 2017 appropriations, the Legislature’s fiscal 2018 budget increases Regional School Transportation Reimbursements by $1 million (up to $61.5 million), a very important account for small and rural communities. This is $1 million more than what was proposed in the administration’s budget. Most other local aid accounts are at or very near level funding.
 
Another important policy area that the MMA will continue to prioritize is the need to reform and close loopholes in the room occupancy excise tax, which currently allows many seasonal, vacation and daily rentals to sidestep their tax obligations. Progress on this issue will now focus on separate legislation that is being crafted by Rep. Aaron Michlewitz in the House.
 
The Senate budget had included language to close loopholes that allow the growing variety of transient and other short-term rentals to escape taxation, including rentals through Airbnb and other similar online companies and resellers. These are important steps to bring parity to the collection of lodging excise payments, and the MMA will continue to work hard for passage this year.
 
Looking at our long-term fiscal situation, it is clear that the below-inflation budget growth we are experiencing is not sustainable for either state or local government. If we want to grow our economy and move Massachusetts forward, we need much greater investment in education, transportation, environmental infrastructure, and core quality of life services. We are at the point where the state’s revenue capacity will need to expand to restore and increase these necessary investments. This is the reason why there is growing momentum behind the so-called “millionaire’s surtax,” the proposed ballot question to raise an estimated $1.9 billion to fund education and transportation needs.
 
Massachusetts is not alone; 33 states are reporting lower-than-expected tax collections this year, a sign that the national economic recovery is not following normal trends. Sales tax revenues are not meeting forecasts in most states because retailers are not increasing their prices at a normal pace. This is good for consumers, but has reduced sales tax receipts. New jobs are being created and employment is up, but these jobs are not high-wage, which means that the income tax base is below expectations. Also, the prospect of federal tax cuts has many companies and high-end taxpayers delaying the declaration of income now, as they try to hold off until tax rates are lower.
 
During past economic recoveries, Massachusetts experienced revenue growth of 5 to 6 percent. This has not materialized in the years after the Great Recession. Over the past few years, in an attempt to be generally cautious, state officials have set their budget planning based on growth of 3.5 to 4 percent. But real tax growth is in the 1.5 to 2.5 percent range. This has disrupted the budget process and forced very difficult choices.
 
Given today’s fiscal reality, as we look at the new fiscal 2018 state budget, it is important to recognize that Gov. Baker and members of the Legislature are making a concerted effort to address the state’s budget challenges without shifting the burden onto cities and towns, and are making targeted investments to help communities deliver on their mission to provide vital services that build our economy and improve people’s daily lives. We deeply appreciate this partnership.