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Read MorePosted on July 8, 2015
A proposed $38.1 billion state budget to be debated today on Beacon Hill contains no broad-based tax increases and makes substantive public-transportation reforms sought by the business community.
Employers are disappointed, however, that the spending blueprint reverses an agreement reached between business and the Legislature as part of the 2008 “combined reporting” tax policy change. Repeal of the so-called FAS 109 deduction, which had been postponed as the state revenues declined during the recession, could harm capital-intensive national and global companies.
“AIM continues to review the final budget for Fiscal Year 2016, but the budget conference committee has generally maintained the kind of spending discipline that employers support,” said John Regan, Executive Vice President of Government Affairs.
“The proposal lays the groundwork for real changes at the MBTA, changes intended to prevent the widespread service breakdowns we saw this past winter.”
The committee budget increases spending by 3.5 percent, less than the predicted 4.8 percent consensus on revenue growth. Unrestricted local aid would rise by $34 million and local education aid by $111.2 million.
The MBTA reforms provide Governor Charlie Baker with many of the tools he is seeking to overhaul the transit agency. The budget would suspend for three years the onerous privatization vetting of the Pacheco Law, give the secretary of transportation the authority to hire an MBTA general manager, increase the size of the state Transportation Board and create a temporary fiscal and management control board for the T.
The budget contains other good news for employers as well:
Beacon Hill observers say the FAS 109 deduction is being repealed to pay for an increase in the earned income tax credit for low-income workers. The reversal sends a troubling signal to employers that previous agreements on major tax policy may be changed on a whim.
“It certainly does not help the commonwealth’s reputation for consistency on tax matters,” Regan said.
AIM and other business groups will recommend today that the governor veto the FAS 109 repeal.
The 2008 Combined Reporting tax law brought income from companies’ operations in other states into a unitary or “combined” Massachusetts return. The FAS 109 deduction was adopted to avoid penalizing companies after the fact for making capital investments. FAS 109 is an accounting standard that requires that financial statements reflect the tax consequences of all book/tax differences.
Fiscal Year 2016 began on July 1. If the Legislature approves the blueprint today, it goes to Governor Baker for his review. The Governor has 10 days to review the budget and take action – approve or veto the entire budget, veto or reduce specific line items, veto outside sections or submit changes as an amendment to the budget for further consideration by the Legislature.
The Legislature can override the governor’s vetoes with a two-thirds vote in each branch. The House must vote first to override any vetoes before they may be considered by the Senate.