UNDERSTANDING NET STATE COSTS
Spending in the state budget can be thought of in two ways. The “total cost” is the total amount spent each year, including the spending from all the types of revenue. This total spending is also sometimes referred to as “gross” spending. “Net state cost,” on the other hand, includes only the share of the total paid for by general state revenues—that is, taking the total budget amount and subtract totals from federal reimbursements or fees and assessments.
Types of Revenue
General state revenues are state tax dollars and other state revenues such as lottery proceeds or money withdrawn from the state’s Stabilization—or “Rainy Day”—Fund. The FY 2016 budget includes approximately $27.1 billion in tax revenues and $2.1 billion in other state revenues. The combination of these two sources of revenue is the net state budget, or approximately $29.2 billion in FY 2016.
Second to taxes, federal revenue is the second most significant revenue source supporting the state budget. Federal revenue includes Medicaid reimbursements, as well as federal support for the Transitional Assistance to Needy Families programs, for child care, for other social services, and more. The FY 2016 budget includes a total of close to $10.8 billion in federal revenue, of which more than 80 percent ($8.9 billion) will come to the state as reimbursement for spending on MassHealth and related health programs.
Fees and assessments include licensing fees, fines, state park admission fees, motor vehicle registration fees, and many more. There are close to 800 individual fees, assessments, and similar revenues that come in to the state treasury, mostly to help finance the cost of the activities that generate the fees. To support the MassHealth program, there are assessments on some health care providers, premiums paid by some MassHealth members, and rebates received from pharmaceutical companies. The FY 2016 budget estimates that the state will generate more than $3.2 billion in fees and assessments, of which more than $1.0 billion will be generated to support MassHealth and other health reform programs.
Calculating Net State Cost
In calculating net state costs we use our best judgment to identify which revenues correctly support which spending. We show these calculations at only the budget category level.
For example, to calculate the net state cost of the state’s education spending, we identify the state’s federal and departmental revenues that are credited to the departments connected to that budgetary spending, such as the revenues that come to the Dept. of Early Education and Care, to the Dept. of Elementary and Secondary Education, to the state colleges and universities, and similar. We then subtract the amount of those revenues from the total “gross” education budget to arrive at the “net” education budget.
Interpreting Net State Cost Figures
Use caution when interpreting net budget numbers. Particularly in the state’s health care programs, there may be large appropriations made in one fiscal year, but the revenues to reimburse the state for that spending may be reflected in the revenue totals for a different fiscal year. Net numbers are best considered as trends over time.
There have also been years—usually during a recession—when the federal government has provided the state with additional federal revenues to boost the state’s economy. During those years of enhanced federal revenue (FY 2004, FY2009-2011) the state’s net spending will drop significantly but temporarily.