The Massachusetts Legislature will be cautious in assembling the state budget this year in the face of potential federal funding reductions that the Senate’s chief budget writer called an existential threat to the state economy.

Senator Michael Rodrigues, Chair of the Senate Committee on Ways and Means, told an AIM gathering this morning that fiscal discipline will be more important than ever in 2025 as the commonwealth faces the reality that some $400 billion in federal money is at risk. Among the threats are administrative efforts to limit funding from the National Institutes of Health and the proposed US House budget that calls for reductions in Medicaid.

Sen. Rodrigues ruled out using money from the state’s $8 billion rainy day fund to make up any shortfalls in federal money.

“We cannot backfill every federal cut. One by one we will decide what we can do and what we cannot do,” Sen. Rodrigues told an overflow crowd at an AIM Commonwealth Conversation in Boston.

He maintained that labor, business and government must work together to keep the economy strong and “move Massachusetts towards a better future during this incredibly turbulent time.”

Sen. Rodrigues, who became chair of the Ways and Means Committee in 2019, said the Legislature has passed responsible budgets in recent years while also making strategic investments in education, housing, transportation, economic development and workforce development. The state has been able to boost funding for education and transportation  in large measure because of higher-than-expected revenue from the income surtax.

The rapid economic growth and federal dollars that permitted the state budget to increase 8-10 percent annually in the post-COVID period will not boost the financial blueprint for Fiscal Year 2026, which begins July 1. The state budget begins in the House of Representatives, after which the Senate will develop its own version.

In a conversation with AIM Executive Vice President Stephanie Swanson, Sen. Rodrigues said his objective as chair of Ways and Means has been to reduce tax burdens, an objective that in 2023 took the form of a lowering of the short-term capital gains tax and reform of the estate tax. He noted, however, that his team is reviewing tax-code changes proposed by Gov. Maura Healey, including subjecting candy to the sales tax and imposing a new tax on prescription drugs.

But it is uncertainty about the role of the federal government hangs heavy above this year’s budget deliberations.

“The federal-state partnership is very much in jeopardy, posing an existential threat to our state. In fact, the recently proposed cuts to NIH funds represent an assault on the Massachusetts economy since the Commonwealth is the largest recipient of NIH funds per capita,” Sen. Rodrigues said.

“This action not only stifles innovation, but it would jeopardize medical research, blunt future scientific discoveries, and lead to the eventual loss of jobs in the “eds and meds” sector of our economy – whose overarching mission is to improve health outcomes and save lives.”