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A First Look:
The Governor's FY 2013 Budget

January 25, 2012

See our Full Budget Monitor

As the title suggests, this document was merely a "First Look" at the Governor's 2013 budget proposal. In the days that followed, we put together a more complete and comprehensive Budget Monitor which shows how the Governor's proposals would affect each major area of state government, from heath care and education to public safety and the environment--including information on tax revenues. We encourage you to use that document instead.

Overview

Faced with long-term structural budget deficits and the lingering effects of the national economic crisis,1 the Governor proposes to balance the budget largely through cuts and other savings. This is on top of the $3 billion in cuts and savings which have been enacted over the last four years—including deep cuts in local aid, education, health care, human services and public safety.2 While in some areas there are additional clear cuts, many programs that are "level-funded" in this budget—meaning that they are funded at the same dollar amount in FY 2013 as FY 2012—are actually being cut relative to inflation.

The Governor's Proposal includes very modest revenue initiatives, including an increase in the cigarette tax and the end of the sales tax exemption for candy and soda. It also makes use of one-time resources, primarily from the state's Stabilization Fund (the "rainy day fund").

This "First Look" describes these proposals—and others—as part of an overview of major changes and key programs in the Governor's budget proposal. When our Budget Monitor is released, early next week, it will provide a comprehensive analysis of the budget as a whole.

Early Education and Care

The Governor proposes spending $434.7 million for child care subsidies in FY 2013, a decrease of $8.1 million from FY 2012 levels. And, as he has for the last three years, the Governor once again calls for consolidating funding for child care subsidies from three line items to one. Included in this consolidation is the TANF Related Child Care line item for families that are current TAFDC recipients, the Supportive Child Care line item for families with active Department of Children and Families cases, and the Low-Income Child Care line item for low-income families that are not current or recent TAFDC recipients.

Higher Education

The Governor's budget proposes significant changes to the state's community college system, offering an additional $10.4 million in funds (to a total of $218.6 million) while demanding a new level of coordination. The Governor calls for community colleges to focus more specifically on job training, and to coordinate their course offerings with the needs of local employers. It also centralizes budget and leadership control over community colleges within the Board of Higher Education.

Additionally, the Governor funds UMass campuses at $418.0 million and State Universities at $191.6 million, the same amount as both of their FY 2012 appropriations.3 It is important to note, however, that the Governor's budget also includes $43.5 million in separate collective bargaining accounts that relate to labor costs at each of the campuses. So, in total, UMass campuses, State Universities, and Community Colleges stand to receive greater financial resources from the Governor's proposal than they did in FY 2012. These amounts have not been built into numbers reported in this "First Look" but will be included in future Budget Monitors and MassBudget totals.

The Governor proposes $87.5 million for the State Scholarship Program, very close to level funding from FY 2012. Nominal level funding is tantamount to a cut since no inflation adjustment would have been made to keep up with rising costs.

K-12 Education

The Governor's FY 2013 proposal allots $4.14 billion for Chapter 70 education aid to local and regional school districts, an increase of $145.2 million (3.6 percent) from FY 2012 funding levels. This increase is consistent with the formula outlined in the state law, using updated enrollment, inflation, and municipal revenue growth factor measures.

If we include Education Jobs Fund revenue, then the change from FY 2012 to FY 2013 looks rather different. The Education Jobs Fund is a federal stimulus program that provided money to Massachusetts schools for use in FY 2011, FY 2012, and the first quarter of FY 2013—money that was distributed through the Chapter 70 formula. Of a total $200.5 million grant amount for these three years, $66.6 million was used in FY 2011 and $116.7 million has been claimed for FY 2012, leaving a projected $17.2 million for use during the first quarter of FY 2013. Incorporating this revenue into our FY 2012 and FY 2013 estimates of K-12 Education spending, the Governor's FY 2013 proposal represents an increase of $45.7 million over the FY 2012 budget, rather than $145.2 million.

Additionally, the Governor's budget proposes to fund:

  • Five new education grant programs designed for supporting districts in Gateway Cities, totaling $10.0 million
  • The Special Education Circuit Breaker program at $213.2 million, level funding from FY 2012
  • Regional School Transportation at $43.5 million, level funding from FY 2012
  • Kindergarten Expansion Grants at $25.9 million, an increase of $3.0 million from FY 2012 levels

Environment

As in his past budgets, the Governor's FY 2013 budget recommends expanding the current bottle bill to include juice, water and coffee drinks. It estimates that these expansions could raise an additional $22.5 million, $5.2 million of which would be used to improve recycling and redemption around the state. This would represent a substantial increase in funding, given that in FY 2012 $275,000 was used to fund redemption centers around the state while recycling centers received no funding.

MassHealth (Medicaid) & Health Reform

Forecasts of health spending growth suggest that total spending on MassHealth, Commonwealth Care, and other programs would need to rise by approximately $1 billion in FY 2013 in order to maintain current services. The budget assumes, however, that new cost savings strategies (in addition to those implemented in FY 2012)—such as rate restructuring and utilization management—will yield approximately $545 million in MassHealth program savings below the FY 2013 current services cost.

At the same time, the budget also includes funding for new initiatives that are intended to promote more efficient delivery of care and other health system changes that will yield savings in future years. In particular, the budget sets aside $187 million in a new Delivery Systems Transformation Initiatives Trust Fund—in accordance with recently renewed Medicaid waiver—for incentive payments to a group of seven hospitals that serve low-income patients. An additional $20 million will be allocated for a similar purpose at a broader group of hospitals. The funding will support activities that facilitate the development of new payment and health delivery systems, such as improvement of care transitions, better management of chronic care, and communications systems that can support medical homes.

The budget also accounts for the re-enrollment of a group of legal immigrants into the Commonwealth Care subsidized health insurance program (CommCare). This population was denied access to CommCare. At that time a new program, Bridge—with more limited benefits—was created to serve a portion of this population. A recent state Supreme Judicial Court decision found that excluding these legal immigrants from CommCare is unconstitutional. That decision required the reinstatement in the regular CommCare program of the category of legal immigrants who had been excluded in 2009. The administration estimates that the additional FY 2013 cost of covering this group will be $130 million, and plans to fund it primarily with new revenue gained from a 50 cent increase in the tobacco tax and a one-time carry-over of unused funds from previous years. The administration also estimates that it can realize about $105 million in CommCare savings in FY 2013 by holding flat the capitation rates it pays to managed care organizations that provide coverage to enrollees. Accordingly, the budget includes a slight decrease in the annual transfer from the General Fund to the Commonwealth Care Trust Fund.

Public Health

To support public health, the Governor proposes to eliminate the current sales tax exemption for soda and candy—and to use the new revenue to fund health promotion programs. The $51 million in new revenue from this initiative will mainly go to avoid further cuts in existing public health programs and to pay for increases for a few programs, such as substance abuse and smoking cessation programs.

Overall, public health programs receive essentially level funding in the FY 2013 budget, and remain well below their pre-recession totals.

Children, Youth & Families

The Governor's budget devotes $3.0 million to reorganize and streamline the delivery of services for the Commonwealth's most vulnerable children, with a particular emphasis on improving the coordination of data and information among agencies.

Transitional Assistance

There is little change in the funding available for Transitional Assistance, apart from a slight decrease in funding for the TAFDC grant account (which appears to be due to a projected decrease in caseload.) The Governor does call for consolidating the state's supplement to the federal Supplemental Security Income (SSI) program—combining funding from the Mass. Commission for the Blind with funding for this SSI supplement under the auspices of Transitional Assistance.

Housing

The Governor's Fiscal Year (FY) 2013 budget changes how the state provides shelter and housing to low-income homeless families. It shifts funding away from shelter and other services provided through the Emergency Assistance (EA) program and dedicates more state resources for affordable housing.

Some of these changes include:

  • Cutting $18.4 million from the Emergency Assistance (EA) program (from $118.8 in FY 2012 million to $100.4 million in FY 2013). This reflects a change in the structure of the program, which is providing shelter and services to a smaller number of people.

    The FY 2012 General Appropriations Act (GAA) reorganized how shelter and services are provided to homeless families by shifting funding away from the Emergency Assistance (EA) program and into a new, short term housing assistance program called Home Base. The Governor's FY 2013 budget proposes additional changes to EA. Currently, most low-income families living at or below 115 percent of poverty, who previously received shelter through EA are now eligible to get help from Home Base to secure permanent housing. EA is generally limited to families who have lost housing due to domestic violence, fire or other natural disaster or whose head of household is under 21. If, however, families are unable to find housing immediately through Home Base they are currently allowed to receive temporary shelter through EA. In his FY 2013 budget for EA, the Governor proposes providing shelter for a maximum of 8 months, serving only a limited population of homeless families similar to those in current law, and no longer allowing families who cannot find permanent housing through Home Base to stay in EA shelters.

  • Increasing funding for Home Base, the short term housing assistance program, by $25.4 million above FY 2012
  • Increasing funding for the Massachusetts Rental Voucher Program (MRVP) by $10.0 million above the amount appropriated in FY 2012
  • Providing $8.8 million for the Residential Assistance for Families in Transition (RAFT). During FY 2010, the federal stimulus bill provided temporary funding for a rapid rehousing program that was similar to RAFT—and so the state shifted its funds elsewhere. Now that the federal funds have run out, the Governor recommends restoring funding for RAFT.
  • Increasing funding for public housing authorities by $4 million above the FY 2012 current budget to $66.5 million. According to documents accompanying the Governor's budget, he will also institute rules to streamline the management of local housing authorities and create a commission to provide additional recommendations for improvement.

Local Aid

The Governor's FY 2013 proposal for Unrestricted General Government Aid (UGGA) mirrors the plan adopted in FY 2012. UGGA will be funded at the same baseline level of $834.0 million. And, in a maneuver that is similar to last year, any surplus in the general fund at the end of the current year will serve as a supplement (up to $65.0 million). In FY 2012, that supplement was sufficient to fund the full $65.0 million amount, and it is quite possible that the same would be true in FY 2013, bringing total UGGA back up to $899 million (equal to the final amount spent in both FY 2012 and FY 2011)

It should be noted that even if UGGA is funded at the full $899.0 million level in FY 2013, this is still well below the historical level. Between FY 2008 and FY 2012, general local aid has been cut 36 percent (inflation-adjusted). By not adjusting for inflation in FY 2013, the Governor's proposal not only maintains that cut, it deepens it.4

Revenue

The Governor's FY 2013 budget documents report a total of $260 million in new revenue initiatives. Of these, $214 million are described as ongoing (in other words, they will provide an ongoing revenue stream beyond FY 2013), while $46 million are "one time" (i.e., available only in FY 2013).

The ongoing revenues include:

  • Permitting and licensing fee increases ($11 million)
  • Enhanced tax enforcement at the Department of Revenue ($22 million)
  • New application of the existing bottle-redemption fee to bottled waters and sports drinks ($22 million)
  • Elimination of the sales tax exemption for candy and soda ($61.5 million)
  • An increase in the cigarette tax ($62.5 million)
  • Updating of tobacco tax laws ($10.4 million)
  • Reforms in the rules governing taxation of various business entities ($24 million).

The $46 million in one-time tax-related revenues would come from postponing (for another year) a provision (known as FAS 109) in the Commonwealth's 2008 package of reforms to the corporate tax code.

Not all of the $214 million in ongoing revenues will be available for use in the General Fund. Some $73 million of the new ongoing revenue (from cigarette and tobacco tax increases) will be dedicated to health care expenditures through the Commonwealth Care Trust Fund. And another $51.5 million (from a portion of the candy and soda tax revenues) will be dedicated to a new Health and Prevention Trust Fund, while the remaining $10 million from the new candy and soda sales taxes would be transferred to non-budgetary entities such as the School Building Authority.

In addition to the items discussed above, the Governor's budget relies on $400 million in one-time funding from the state's Stabilization Fund (the "rainy day fund"). The Governor's budget, however, also makes a required $100 million deposit into the Stabilization Fund (the estimated amount of FY2013 capital gains revenues in excess of $1 billion) for a net reduction of $300 million in the Stabilization Fund's balance.


1See our FY 2013 Budget Preview.

2See our FISCAL FALLOUT: The Great Recession, Policy Choices, & State Budget Cuts, Fiscal Years 2009-2012.

3Starting in FY 2012, all campuses of public higher education began retaining tuition payments from out-of-state students, rather than remitting that revenue back to the state. MassBudget generally adjusts upwards the campus allocations by these projected amounts so that one can compare reasonably the levels or resources available at an individual campus to previous years when this tuition was remitted to the state. Since projected tuition retention amounts are not yet available for FY 2013, campus appropriations reported in this "First Look" only compare direct state appropriations for FY 2012 and FY 2013.

4For more information on the history of general local aid, see MassBudget's recent: Demystifying General Local Aid in Massachusetts.