Statement on Governor’s Proposal to Leverage Stabilization Funds to Secure Federal Grants

Statement by Massachusetts Budget and Policy Center Interim President Phineas Baxandall in response to today’s proposal by Governor Maura Healey to utilize interest from the Commonwealth’s $8 billion rainy day fund to secure federal grants and meet long-term capital needs. 

“This is a smart proposal that leverages the state’s strong rainy day fund to secure billions of federal grant dollars in the short-term and to address the Commonwealth’s long-term maintenance and capital needs.

In the next three years, this could make the difference in obtaining game-changing federal grants for things like high-speed rail across the state and electric charging infrastructure for the next generation. Over time the annual interest from the Stabilization Fund, currently about a quarter billion dollars, could be leveraged to build, repair, and update state assets. Unleashing these funds, for instance, could repair transportation and water infrastructure, reduce carbon emissions, improve climate resilience, update information technology, improve public housing, and meet other needs that help the Commonwealth serve its residents.

There are two reasons our rainy day fund has grown so much in recent years. One is the temporary surpluses created by federal pandemic spending. A second reason is that the Commonwealth makes deposits into the rainy day fund when capital gains collections exceed a certain threshold. Wealthy individuals earn more of their money from capital gains and income has become more concentrated in the hands of a wealthy few. As income becomes concentrated at the top, it is more likely to take the form of capital gains and get deposited into the rainy day fund.

The Governor’s proposal would make use of the interest from our rainy day fund without drawing down previously deposited savings from the state and without interrupting additional deposits to the fund from the Commonwealth’s annual budget. These savings would still be available to stabilize state spending in the event of future recessions or disasters.”

Read a MassBudget primer on capital funding from 2022 here.

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