Legislature passes FY 2007 budget

The budget recommended by the Conference Committee provides significant increases in local aid, including funding for education. This budget also funds the first year of the health reform law, and makes modest progress in restoring funding in other areas of the budget that had been cut deeply during the recession. Yet, compared to FY 2001, after adjusting for inflation, this budget provides 10 ten percent less in unrestricted local aid, 17 percent less funding for higher education, and 22 percent less funding for public health. In addition, the budget relies on a withdrawal of over $500 million from the state’s Rainy Day Fund – suggesting that the severe fiscal strains caused by the tax cuts of the 1990s will continue to be felt into FY 2007. While strong revenue growth could ultimately make the withdrawal from the Rainy Day Fund unnecessary, such growth is unlikely to be sufficient to restore the deep cuts to education, public health, local aid, and other basic public services.

Local Aid

• The Conference Committee provides $1.328 billion in appropriations for unrestricted local aid, which is $167.9 million or 14.5 percent higher than in FY 2006. However, after adjusting for inflation, this amount is still $152.9 million or 10 percent below its level in FY 2001.
• This budget removes the cap on lottery revenues to boost funding to cities and towns. Under the Conference Committee’s recommendation, funding for lottery distributions would rise from $761.4 million in FY 2006 to $920.0 million in FY 2007, a $158.7 million increase.
• The Conference Committee also provides $25.3 million for the Payments in Lieu of Taxes Program (PILOT). Both branches proposed increases in funding for this program, but the Senate’s level of funding was the higher of the two. The Conference Committee chooses the Senate’s $9.2 million increase over FY 2006.

K-12 Education

• Funding for Chapter 70 Aid to cities and towns totals $3.505 billion, which provides a $216.6 million increase compared to FY 2006. However, this amount is still lower than its level in 2002. After adjusting for inflation using the Consumer Price Index (CPI-U), the Conference Committee’s recommendation for Chapter 70 Aid is $153.8 million or four percent below where it was in FY 2002. Adjusting for inflation using instead the measure of inflation identified in Chapter 70 as the best estimate of education cost changes (the implicit price deflator for state government services), the FY 2007 level is close to $400 million below the FY 2002 amount.
• The Chapter 70 funding levels in this budget are based on a series of changes to the funding formula that had previously been proposed by the House and the Senate and were used in this budget, but not written into law. For an explanation of the meaning of the changes listed below, see Public School Funding in Massachusetts (available at this link ). The Conference Committee’s numbers reflect several changes: the consolidation of the foundation budget categories; overriding the inflation cap in the General Laws and paying for the full costs of inflation; increasing the foundation budget amounts for specific costs; creating new target local shares for each community and recalculating foundation aid accordingly (and providing “down payment aid” to get new aid to municipalities this year); providing growth aid; and phasing in a requirement that the state pay 17.5 percent of the foundation budget of every district, regardless of need.
• The Conference Committee appropriates $538.4 million for the Department of Education’s grant and reimbursements programs. The Committee adopted the House’s higher levels of funding for full-day kindergarten ($27.0 million in the House vs. $25 million in the Senate) and after school programs (the Senate did not fund this, while the House provided $1.0 million). On the other hand, the Conference Committee accepts the higher amounts proposed by the Senate for extended learning grants ($6.5 million in the Senate vs. $5.0 million in the House) and Adult Basic Education ($29.5 million vs. $29.3 million).

Higher Education

• Under this budget, appropriations for public higher education grow to $1.028 billion in FY 2007. After deducting one-time funding included in a recent supplement budget for FY 2006, the Conference Committee’s budget for higher education is $51.5 million or five percent higher than in FY 2006. The Conference Committee rejected the Senate’s plan to allow all campuses to retain tuition and fee revenues. The total budget for higher education in the Conference Report is $20.1 million less than was offered by the Senate, but $9.8 million higher than the House’s proposal.
• In addition to increasing funding for each of the higher education campuses, the Conference Committee provides additional funding for financial aid, as recommended by both the House and the Senate. The budget increases funding from $84.7 million in FY 2006 to $89.9 million in FY 2007, a $5.2 million or six percent boost.

Public Health

• The Conference Committee’s budget appropriates $473.4 million for public health funding, which is $6.8 million or 1.5 percent higher than in FY 2006. This budget increases funding over FY 2006 levels in several areas, including $2.1 million more for substance abuse

  services and a $1.8 million increase for the Sexual Assault Nurse Examiner Program.

• Despite the overall increase in funding for public health, there are areas still suffering deep cuts since the fiscal crisis. In inflation-adjusted terms: AIDS prevention and treatment funding is $22.8 million below FY 2001 levels; smoking cessation and prevention programs

  are $54.2 million (93 percent) below FY 2001 levels; and support for teen pregnancy prevention is $4.3 million below FY 2001 levels.

Human Services

• The Conference Committee includes $28.0 million in a reserve account will fund salary increases for low-wage workers employed by human service providers under contract with the Commonwealth. Both the House and the Senate included this budget account in their budget proposals for FY 2007.
• Under this budget, overall funding for the Department of Mental Retardation would rise to meet the growing cost of providing services in this area. The budget for the Department of Mental Retardation would increase from $1.137 billion in FY 2006 to $1.173 billion in FY 2007, a $35.4 million or three percent difference. This budget provides full funding for the Boulet settlement, which mandates that the state provide interim services to individuals on the waitlist for residential placements. The Conference Committee also includes $2.0 million in new funding to address rate disparities in residential contracts.
• The Conference Committee increases funding for the Department of Mental Health to correspond with expected increases in the costs for mental health services. Under this proposal, funding for this department would grow from $633.0 million to $646.3 million, a difference of roughly $13.0 million or two percent. Many of the increases in this department reflect the growing cost of providing services, and not new funding.
• This budget leaves in place the current regulations for Transitional Aid to Families with Dependent Children (TAFDC), the state’s main cash assistance program for low-income families. Although this budget maintains the current structure of this program, the state must modify the TAFDC program to meet federal standards (i.e., work participation rates).  Legislation that would restructure the TAFDC program to meet federal standards and safeguard vulnerable families is currently in conference.

Revenue

• The Conference C
  ommittee does not make any major changes in tax policy. Probably the most significant tax change it does propose is a commuter tax break that will allow people who use FastLane transponders and MBTA passes to deduct a portion of those costs from their incomes when calculating their state income tax liability.
• The budget withdraws $550 million from the Stabilization Fund to achieve balance. It is possible that revenue will grow faster than officially anticipated and this withdrawal will not ultimately be necessary. But to the degree that the budget does rely on the use of Stabilization Fund money, it is not structurally balanced. While talk of “budget surpluses” is often heard, it is important to recognize that the budget recommended by the Conference Committee shows a structural deficit, not a surplus. To achieve a surplus, FY 2007 revenue would have to exceed the Legislature’s projections by over half a billion dollars, which is possible.
  

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