By Sam Larson
Vice President, Government Affairs

The Ways and Means Committee of the Massachusetts Senate last week proposed a $57.9 billion state budget for Fiscal Year 2025. The blueprint contains no tax increases and does not draw from the Commonwealth’s $9 billion rainy day fund.

Revenue collections are predicted to be almost flat compared to the previous year. The Senate proposes to fund its 3.3% spending increase by using $1.5 billion in new one-time or recurring revenues and by re-directing money that would otherwise automatically be directed to savings accounts.

The budget for the current fiscal year represents a 7.1% increase over the previous year, indicating that the recent trend of significant year-over-year spending increases appears to be over.

Free community college for all and free rides on regional transit authorities are the key spending priorities in the Senate budget. Neither appear in the final House version of the budget.

April tax collections beat expectations by more than $1 billion or 19.5%. The result in the largest collection month for the state ended a streak of under-benchmark returns. Massachusetts is now $889 million ahead of projections for the current fiscal year to date. Most of the more-than-expected returns came from capital-gains taxes and the “Question 1” income surtax, both of which have dedicated spending requirements.

Here are the key takeaways from the Senate Ways and Means budget below:

Tax Policies 

• Tax Amnesty Program – The budget contains a one-time tax amnesty program that would create a two-month period for both individuals and corporate filers to submit old tax returns. The scope of the program and months when the program is available will be determined by the Commissioner of the Department of Revenue. The administration believes this program could generate roughly $75 million in revenue.
• Code Conformity – This section updates the state’s personal income tax laws to conform with the IRS code effective January 1, 2024.
• Consistent Filing Requirements – This section exempts low-income taxpayers who would not otherwise have to file a personal income tax return from the recently enacted “consistent filing requirement,” which requires married couples to file a joint return for state purposes in any year in which they file jointly at the federal level.
• Repeal Deduction of Interest from Savings in Massachusetts Banks – This section would repeal the deduction of interest from saving in banks in the commonwealth, effective for the taxable years beginning on January 1, 2024.
• Publications of Tax-Exempt Organizations – These sections repeal the sales-tax exemption for publications of tax-exempt organizations, effective 60 days after the passage of the budget.
• Septic Tank Tax Credit Clarification -The budget makes several technical amendments to the septic tank tax credit

Spending

• $6.9 billion in Chapter 70 Funding- This would fully fund year four of the six-year requirement set by the Student Opportunity Act;
• $1.5 billion for Early Education and Childcare – C3 Grants and expanded child-care subsidies for families;
• $2 billion-Higher Education, including $117.5 million in funding for tuition free community college;
• $1.3 billion- Unrestricted general government aid to cities and towns
• $20.33 billion for-MassHealth, the health-insurance program for low-income residents.

Outside Policy Sections

• Tuition-Free Community College – The Senate budget provides for free community college;
• Direct Negotiations for Rebates on Certain Drugs and Non-Drug Products – Allows the administration to negotiate directly with drug manufacturers;
• Excess Capital Gains Transfers – The Senate budget also mirrors the administration’s push to make up to $375 million in excess capital-gains tax revenue available for spending. Capital-gains revenue above a certain threshold is automatically deposited into savings, but some will be diverted to the general fund;
• Hospital and Payor Assessments -The budget adopts several suggested changes by the governor to the hospital assessment formula;
• Vaccine Purchase Fund -To support a universal purchase system for routine childhood immunization;
• MCI Concord – The administration plans to close the state prison MCI Concord and the budget enables the sale or lease of the land;
• Gender Identity on Records – Individuals may change the designated sex on their birth records.

A provision for an online lottery, which was included in the House budget, was not included in the Senate Ways and Means budget.

Question 1 Revenue/Spending

While the budget proposal would not impose new taxes, it allocates the roughly $1.3 billion in new revenue that the state anticipates collecting from the Question 1 income surtax proposal that voters adopted in 2022. This is a roughly $300 million increase over last year’s spending.

Notable Fair Share Education investments include:

• $170 million for universal school meals.
• $150 million for the Commonwealth Cares for Children (C3) grant program, which is matched with $325 million in funds from the General Fund and the High-Quality Early Education & Care Affordability Fund, for a total investment of $475 million.
• $117.5 million for free community college for all.
• $105 million to expand financial aid programs for in-state students attending state universities through MASSGrant Plus, which is in addition to the $175.2 million for scholarships funded through the General Fund.
• $80 million for childcare affordability, expanding access to income-eligible child care for families making 85% state median income.
• $65 million for Early Education and Care Provider Rates, including $20 million in new rates.
• $15 million for the Commonwealth Preschool Partnership Initiative, matching $17.5 million in funds from the General Fund, for a total of $32.5 million to support a pathway to universal pre-kindergarten expansion, including in Gateway Cities.
• $10 million for wraparound supports to boost Community College and State University student persistence, which is matched with the $18 million in SUCCESS funds from the General Fund, for a total of $28 million.
• $10 million for early literacy Initiatives.
• $7.5 million for school-based mental health supports and wraparound services.
• $5 million for early college and innovation pathways.

Notable Fair Share Transportation investments include:

• $250 million for the Commonwealth Transportation Fund (CTF), which will leverage additional borrowing capacity of the CTF and increase investments in transportation infrastructure by $1.1 billion over the next 5 years. This $250 million includes $127 million to double operating support for the MBTA, $63 million in debt service to leverage additional borrowing capacity and $60 million in operating support for MassDOT.
• $125 million for Roads and Bridges Supplemental Aid for cities and towns, including $62.5 million for local road project with extra weight given to rural projects.
• $120 million for Regional Transit Funding and Grants to support the work of the Regional Transit Authorities that serve the Commonwealth, which together with general fund spending funds RTAs at a record $214 million. Fair share funding includes $66 million in direct operating support for the Regional Transit Authorities, $40 million for systemwide implementation of fare-free transit service, $10 million to incentivize connections between regional transit routes and $4 million to support expanded mobility options for the elderly and people with disabilities.
• $24.5 million for commuter rail capital improvements.
• $23 million to support a low-income fare relief program at the MBTA.
• $15 million for municipal small bridges and culverts.
• $7.5 million for water transportation, funding operational assistance for ferry services.

Shelter Spending

The Senate, (like the House) makes $500 million available to cover costs associated with the states shelter system for homeless families. Some $175 million of which would come from a savings account known as the Transitional Escrow Fund. This would cover roughly half of what the Healey Administration estimates to spend on the system in FY 2025

The Senate will debate the budget during the week of May 20.

Please feel free to contact me at slarson@aimnet.org with questions.