State closes FY11 with surplus; bill would add to ‘rainy day’ fund

It may be just a respite from troubles to come, but fiscal 2011 was a good year for state finances, as tax collections grew by $1.96 billion (nearly 11 percent) over fiscal 2010, leaving the state with an estimated year-end surplus of $460 million.

A final budget bill filed by the governor on Aug. 25 to close out the year would place $300 million of the year-end surplus in the state’s “rainy day” fund, bringing the balance to just over $1 billion. The stabilization fund totaled $2.3 billion in fiscal 2007 before the onset of a lengthy recession, and state policy-makers would like to bolster the account in advance of any new budget shocks that may come from the economy or federal budget actions.

The governor’s bill includes $10 million to help cities and towns in the central and western parts of the state with the cost of recovery from tornadoes that struck on June 1. The bill also includes $6.2 million for the delayed second installment of payments to local governments in nine counties to help cover the cost of the severe ice storm of December 2008. Any state assistance for costs associated with Hurricane Irene would likely be included in a fiscal 2012 supplemental budget later in the year.

Separate from the supplemental budget bill, cities and towns are expected to receive $65 million in one-time municipal aid payments sometime in October to restore all of the cut to the Unrestricted General Government Aid account in the fiscal 2012 state budget act approved in June. Section 198 in the budget act provides that half of any unspent balances in state budget accounts at the end of fiscal 2011 be used to fund a supplemental municipal aid payment.

The accounting for a fiscal year normally takes three months or more to complete after the year ends on July 1.

The supplemental budget bill includes a number of proposed law changes, including one opposed by the MMA that would effectively overturn a 2010 Supreme Judicial Court decision and allow “evergreen” clauses in public-sector collective bargaining agreements.

The Legislature has not yet taken action on the governor’s budget bill.

Over the course of fiscal 2011, as tax collections consistently exceeded projections for the year, the Legislature approved more than $1.5 billion in supplemental spending, mainly for MassHealth and other state “safety net” programs facing higher-than-expected caseloads due to economic conditions. (MassHealth is the state’s $10.4 billion health services program for low- and mid-income residents.) After accounting for reimbursements, primarily from the federal Medicaid program, the state’s share of this additional spending is estimated at $661 million.

If the growth in state collections continues to exceed inflation-based benchmarks through November, it would trigger an automatic reduction in the state income tax rate from 5.3 percent to 5.25 percent, beginning on Jan. 1, 2012. The Department of Revenue has estimated the impact of this rate cut at $54 million for fiscal 2012 and $114 million next year.