SWMS Budget Overview:
TBG has been closely following first few months of the 2021-2022 Legislative Session and would like to take this opportunity to update you on the FY 2022 Budget process. TBG understands how complex the Budget process is and how the Budget process impacts our clients and their legislative priorities. We look forward to continuing to speaking to you all in the coming days and weeks about the FY22 Budget process and impacts it may have on your company, business or industry.
On May 11th, the SWMs Committee released their $47.6B FY 22 Budget proposal. The SWMS proposal increases state spending by $1.3 billion, or about 2.6 percent, above FY21 levels. The SWMS Budget proposal assumes that Massachusetts will collect $30.12 billion in taxes in fiscal 2022, the so-called "consensus revenue" figure on which the Legislature and Governor Baker agreed to base their FY22 budget proposals this past January.
Legislators filed over 900 amendments to the Senate Budget and debate on the proposed amendments began on Tuesday, May 25th. Over the course of a three-day Budget debate, the Senate added $63.7M additional spending to the final $47.7B Senate Budget proposal, putting the Senate’s final budget proposal on par with the budget proposal approved by the House last month.
The SWMS Budget proposal withdraws $1.55 billion from the Commonwealth’s rainy day stabilization fund which is $50 million less than proposed by Governor Baker and $325 million less than proposed by the House. This would leave the Commonwealth’s rainy day fund with a balance of $1.15B. The Senate was able to have a smaller withdrawal from the Commonwealth’s rainy day fund because it estimates $35 million increase in Federal Medical Assistance Percentage, or FMAP, reimbursements and accounts for an increase in projected lottery revenue and abandoned property returns.
Similar to the Governor and House Budget proposals, the SWMS Budget did not factor into their budget any of the $5.3B billion in discretionary spending that Massachusetts will receive from the American Rescue Plan nor does not call for any broad-based tax increases on individuals. The SWMS budget does propose a handful of new revenue sources, such as authorization of debit card lottery payments. Unlike the Governor’s Budget, it does not account for any revenue from Sports Wagering.
The House and Senate Ways and Means Committee reached an agreement on local aid funding prior to releasing their respective budgets. The deal would fund unrestricted government aid at $1.6B and include a $219.6M increase to Ch. 70 funding aid to school districts. This Ch. 70 agreement funds the 2019 landmark education funding reform bill, known as the Student Opportunity Act at 1/6th its total overall spending as opposed to the $197.7M or 1/7th proposal put included in the Governor’s Budget proposal. Due to the uncertainty of COVID, legislators were delayed by a year in implementing the SOA’s 7-year funding schedule and are hoping to make up for that delay in the FY22 Budget.
Apart from their bottom line, the House and Senate Budget proposal do include some significant policy differences. During Budget deliberations, the House unanimously voted to get rid of the current sunset clause on a controversial film tax credit program meant to incentivize film and television production in Massachusetts. The tax credit program is set to expire at the beginning of 2023. The Senate Budget proposal would keep the sunset clause but extend it to 2027 and increase the amount of filming or spending in Massachusetts required to qualify. The SWMS Budget proposal also reforms state and local taxes for pass-through entities such as LLCs and includes $16.3 million proposal that would convert a childcare and dependent tax deduction into a refundable credit for low-income families. The Senate also passed an amendment to increase fees for ride-hailing services such as Uber and Lyft that was not included in the House’s budget proposal.
Now that the Senate has finalized its respective FY22 Budget proposal, the House and Senate will appoint a Conference Committee to work out the differences between the proposals. The Conference Committee will consist of 3 members from the House and 3 members from the Senate. Each branch will appoint two members from the majority party and one representing the minority party. The House and Senate Ways and Means Chairs typically lead the negotiations. Once the Conferees reach a consensus between the budget proposals, they will release their final report to the entire Legislature for an up or down vote. The Budget is then sent to the Governor for action usually in July. The Governor has line item veto authority, but the Legislature can override Governor’s vetoes with a two-thirds vote from each branch.
Last year, COVID delayed the Budget process significantly; however, as tax revenue collections continue to improve and the economy re-opens, it is likely that Budget negotiators may be able to release the Final FY22 Budget on time, before the end of formal session on July 31st.