Overview

This Budget Monitor provides an analysis of the budget enacted by the Legislature, the Governor’s vetoes, and the additional changes he has recommended. Overall, this budget spends more than a billion dollars less than the budget enacted last July. It also represents a reduction of approximately $2.4 billion below the level that would be required to provide the same level of services as the Fiscal Year 2009 budget funded. (This number is larger than the simple difference between the two bottom lines because inflation has increased costs, and job losses associated with the recession have made more people eligible for safety net programs such as Medicaid and homeless services.) The primary challenge at each step of the FY 2010 budget process has been the growing budget deficit facing the state. By early May, declining revenue estimates had increased the FY 2010 budget gap to approximately $5 billion. The Legislature’s final budget uses a combination of strategies, including steep cuts, new taxes and temporary revenues to close the gap. The revenue section of this Monitor details each of the revenue components the Legislature uses to fill the budget gap, but the general strategies are:

• Cuts and savings: $2.2 billion
• American Recovery and Reinvestment Act (ARRA): $1.657 billion
• Additional tax revenue: $608.7 million
• Additional revenue from fees: $206.5 million
• Use of reserve funds: $339.5 million

The most prominent strategy used by the Legislature to confront the budget deficit was to cut services and implement cost-saving initiatives. Virtually every aspect of state services will be affected by the $2.408 billion in spending reductions (of which $2.2 billion goes to closing the budget gap).¹ Among the areas particularly hard hit by cuts are public health programs, education grants, MassHealth coverage, and unrestricted local aid to cities and towns.

The largest source of new revenue used to close the budget gap is federal stimulus money. The $1.657 billion is a combination of ARRA funds for education, Medicaid reimbursements, and funds to help pay for increased TANF caseloads. While some federal stimulus funds will continue to be available in FY 2011, the amount will be significantly less than is being used in FY 2010. The difference will have to be addressed by new revenue sources, use of available state reserves, or additional cuts in FY 2011 and beyond, unless the federal government provides additional state fiscal relief beyond that authorized in ARRA.²

New taxes and fees account for $815.2 million of the Legislature’s approach to closing the FY 2010 gap. The bulk of this new revenue ($562.7 million) is from a 1.25 percentage point sales tax increase and the elimination of the sales tax exemption on alcohol. These tax changes will actually generate $837.8 million in FY 2009; however, $275 million of the new tax revenue is dedicated to addressing fiscal problems at the Massachusetts Turnpike and MBTA, and does not directly address the budget gap. The remainder of the new revenue comes from changes to assessments for nursing homes, new taxes on satellite broadcast services, and other smaller tax and fee changes (see the Revenue section of this Budget Monitor for a complete discussion of tax and fee changes in the FY 2010 budget).

The use of state reserves fills $339.5 million of the budget gap in the Legislature’s budget. The largest source of this one-time revenue ($308.5 million) is due to withdrawals from and foregone deposits to the state Stabilization Fund. Additional revenues are drawn from funds dedicated to clean energy investment, smart housing growth and other policy areas. The Governor’s veto message and companion legislation reduces these transfers from smaller funds to only $9 million, as opposed to the $31 million included in the Legislature’s budget.

This Budget Monitor, organized by policy sections, details the major highlights of the budget passed by the Legislature, as well as the Governor’s subsequent vetoes and companion legislation. While the FY 2010 General Appropriations Act (GAA) is still subject to change due to veto overrides and related legislation, this document provides a comprehensive overview of how state programs and services will be affected by the current economic crisis.

In the FY 2010 GAA, the structure of some line items has been changed, making direct comparisons with FY 2009 spending difficult. For example, the FY 2010 GAA consolidates information technology appropriations into one IT line item for each Executive Office. In previous years, IT spending was spread across all line items that included an IT component. Therefore, in order to compare FY 2010 appropriation levels, this document accounts for the transfer of IT funds, making comparisons to FY 2009 more apt.

In addition, this document also reflects the transfer of homelessness programs from the Department of Transitional Assistance, within the Executive Office of Health and Human Services, to the Executive Office of Housing and Community Development. Because of this change, this Budget Monitor now includes discussion of homelessness in the budget within the Infrastructure, Housing and Economic Development section; all spending totals (for both FY 2009 and FY 2010) also reflect this change.

1. The total amount of cuts and savings do not go to closing the budget gap because cuts to the state Medicaid program reduce the amount of federal reimbursements received. Therefore, for the $305 million in Medicaid cuts made by the state, $187 million is lost in federal reimbursements, making the net savings $119 million.

2. In the case of ARRA funds used in FY 2010 to provide additional aid to public K-12 and higher education campuses, it is very possible that all funds will be expended prior to FY 2011. Already, in both FY 2009 and FY 2010, $735 million of the state’s estimated $994 million allotment has been designated for use. In addition, the Governor has already proposed using an additional $230 million in these funds in FY 2010 to replace state aid to school districts. While the final budget does not include that proposal, it would likely be implemented if FY 2010 revenues fall below current projections.