Present calm on Massachusetts budget front may be short lived
BOSTON - Despite collecting more than $200 million in unanticipated tax revenue since July 1, the state budget is precariously balanced due to budget veto overrides carried out by the Legislature, underfunded spending accounts and disagreement over Gov. Charlie Baker’s MassHealth savings proposal, according to a new mid-fiscal year analysis.
The fiscal 2018 budget is in “slightly better shape” than it has been in the last few years, according to the Massachusetts Taxpayers Foundation. Revenue estimates are holding up, and for the first time since fiscal 2014 were not downgraded after the first quarter. Baker has also not made unilateral spending cuts, as he has in recent years, although he threatened this year to take steps if lawmakers didn’t adopt his MassHealth reform proposal -- they didn’t. A Baker declaration in October that he’s putting earmarked spending on hold indefinitely has led to tension between the Corner Office and the Legislature.
Looking beyond the next election cycle, and to the budget picture awaiting whoever is elected governor in November 2018, the MTF brief says budget talks that will get underway a year from now could be “chaotic” due to the outcome of sales and income tax ballot questions, impacts of a federal tax reform package up for votes this week, and new revenue from casinos and legal marijuana. “Sizable revenue swings” are possible, depending on how things play out.
The business-backed MTF, over the years, has become known for its sobering assessments of budget conditions that elected officials often portray in mostly positive terms. Its assessment of the $39.4 billion fiscal 2018 budget sticks to that theme, outlining issues to watch for in the coming months.
• UNDERFUNDED ACCOUNTS - While noting a revenue surplus is not assured, MTF says that if one holds up the money will be needed to cover known spending needs not adequately funded in the budget signed by Baker in July. They include indigent legal defense costs, expected snow removal bills, and costs tied to family homelessness. Baker’s MassHealth reform plan, rejected over the summer by the Legislature, had been counted upon for $85 million in savings.
• REVENUE TRENDS - Tax collections tailed off in the second half of the most recent fiscal years, the January to June stretch that is approaching again. The MTF brief warns it would be “dangerous” and a “mistake” to assume the trend over the first five months of the fiscal year will hold through the remainder, with the state’s three largest collection months coming up -- January, April and June.
• ONE-TIME $$$ BUMP? - Tax reform at the federal level may spur the repatriation of money for federal tax purposes, which could be captured on estimated tax returns in the first half of 2018, according to MTF. If that occurs, there may be a “one-time bump” in corporate tax collections. Bloomberg reported Friday that the top tax rate that U.S. companies would pay on $3.1 trillion in earnings stockpiled overseas rose to 15.5 percent in the final version of the GOP tax bill, which is expected to be voted upon this week. Currently, Bloomberg said, companies can defer paying U.S. income taxes on foreign earnings at the corporate rate of 35 percent until they return, or repatriate them to the U.S., a provision has led companies to hold earnings overseas.
• WHAT ABOUT CHIP? - Democrats and Republicans in Washington say they support the Children’s Health Insurance Program (CHIP), but they haven’t agreed on a funding path for it since authorizations ran out at the end of September. Re-authorization is expected, although MTF says reimbursement rates could be reduced, creating a shortfall in Massachusetts of up to $50 million this fiscal year. The program pays more than 80 percent of the costs of insurance for 160,000 Bay State children and without re-authorization the state would lose $110 million this fiscal year and more than $250 million in fiscal 2019. U.S. Sen. Edward Markey plans to discuss the outlook for CHIP at a 10 a.m. Monday press conference at Boston Children’s Hospital, 300 Longwood Ave. in Boston.
• THE BUDGET ITSELF - If budget problems materialize in the second half of the fiscal year, there’s less wiggle room for solutions in part because Beacon Hill leaders in the spring and summer had to slash spending plans and revenue expectations when they realized tax revenues were not going to be sufficient to support fiscal 2018 budget bills. Spending in this year’s budget had to be whacked by hundreds of millions of dollars at the eleventh hour after tax revenue estimates were cut $733 million from the amounts used by the House and Senate in their April and May budget-writing exercises. When Baker signed the budget, he said it raised spending by just 1.7 percent, compared to projected tax revenue growth of 2.7 percent in fiscal 2018.
• CSR PAYMENTS - The $30 million that Gov. Charlie Baker used from the state’s Commonwealth Care Trust Fund to make up for the sudden cutting of insurance subsidies by President Donald Trump “will need to be made up elsewhere in the budget,” according to MTF. Trump this fall eliminated cost-sharing reduction payments to carriers that provide subsidized insurance through the Affordable Care Act. The Connector Authority raised rates for those affected by subsidy cuts and MTF called it “unlikely” that the state would continue to offset CSR payments in 2018.
The state’s newest financial disclosure documents feature an overwhelming level of uncertainty about federal health care policy and funding. Baker administration and state Treasury officials made particular note in their December disclosure of President Trump’s January executive order requiring federal agencies with authorities and responsibilities under the Affordable Care Act to “exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay” parts of the ACA that place “unwarranted economic and regulatory burdens” on states, individuals or health care providers.
“Ongoing efforts at the federal level to modify, repeal or otherwise change elements of the ACA may have a material adverse impact on the Commonwealth,” state officials wrote in the disclosure. “However, it is not possible to predict with any certainty at this time whether or when the ACA or any specific provision of the federal law or implementing regulations will be repealed, withdrawn, modified or replaced in any significant respect. Therefore, it is not possible to predict the corresponding impact that any such actions could have on the Commonwealth’s healthcare programs and expenditures.”
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