- Budget Development
- Non-Tax Revenue Development
- Health Care Cost Containment
- Workforce Highlights
- Financial Statements
- Appropriation Recommendations
- Operating Transfers
- Local Aid - Section 3
- Outside Sections
- Tax Expenditure Budget
- Capital Budget
- Federal Stimulus
FY12 Budget Solutions
The Governor’s budget and language filed concurrently with the H.1 recommendation call for a number of reforms across state government. While the budget preserves many services and programs for the state’s most vulnerable populations, it recognizes that the state must fundamentally change the nature by which it operates in order to live with a changing fiscal reality.
Outlined in the discussion below are the measures taken proposed by the Governor to implement a balanced fiscal year 2012 financial plan. Furthermore, major areas of reform and efficiencies are listed, with an emphasis on what programs and services have been preserved next fiscal year.
|(dollars in millions)|
|Use of Stabilization Fund reserves (one-time):||200.0|
|Enhanced DOR Tax Enforcement:||61.5|
|New Revenue Initiatives:||88.8|
|Expanded Bottle Bill:||20.0|
|Sale of Assets:||15.0|
|Abandoned Property (one-time):||99.0|
|Expanded Federal Revenue through Medicaid Waiver:||78.0|
The table directly above identifies the additional revenue solutions proposed for fiscal year 2012. Further description of each is provided below.
Use of Stabilization Fund Reserves
The projected fiscal year 11 year-end balance of the Stabilization Fund is projected to total $769 million, assuming that nearly $100 million will be deposited into the Fund this year. The Governor’s fiscal year 2012 budget recommendations propose to utilize $200 million in resources from the state’s reserves to help to avoid further reductions to state programs beyond those that have already been required. With the $200 million transfers, the total fiscal year 2012 year-end balance will be $569 million (see chart below).
The Stabilization Fund reserves, when used to support ongoing state spending, must be considered as one-time resources; meaning that this revenue source will not be available for future use and the state will need to offset this loss with comparable new revenues or reductions in spending.
Enhance Tax Enforcement Initiatives
Over the course of the last several fiscal years, the Department of Revenue, like many other state agencies has sought creative solutions to generate additional revenue for the Commonwealth to sustain programs and services through increased enforcements of existing laws already on the books. In fiscal year 2011 the agency is generating an additional $24 million in tax revenues from targeted investments in its tax compliance activities. In fiscal year 2012 the agency proposes to build off that success through a modest investment of $1.2 million, allowing it to expand the number of employees directly performing tax examination, audit and appeals functions. This investment is projected to result in additional tax revenues to the Commonwealth of $61.5 million, primarily through increased assessments and settlements with taxpayers.
New Revenue Initiatives
The table identifies new revenue initiatives that are proposed for the fiscal year 2012 budget. In total these initiatives will generate an estimated $89 million in additional resources for the Commonwealth next year. All but one of the proposals will require legislative changes to the state’s existing tax laws to implement them. This language is provided in outside sections of the fiscal year 2012 House 1 recommendation or in legislation the Governor is filing concurrent with the budget.
|1||Enforcement of Room Occupancy Tax on Hotel Room Resellers||8,000,000|
|2||Enhanced Medical Support Compliance for Child Support Cases||9,900,000|
|3||Manage Life Sciences Tax Credit (administratively)||5,000,000|
|4||Delay FAS 109 Deductions||45,860,105|
|5||Fix Corporate Excise Sale Factor||20,000,000|
1. Enforcement of Room Occupancy Tax on Hotel Room Resellers
The proposed change would require an Internet room reseller to register with DOR and collect and remit the existing state and local room occupancy excise on the reseller’s mark-up. The hotels and motels in Massachusetts would continue to collect and remit tax on amounts they are actually paid, as is the current practice. The revenue impact from this proposal in fiscal year 2012 is $8 million with an August 1st effective date and $8.7 million for the state when fully annualized. This change is primarily technical, serving to clarify present law for collecting an existing tax from resellers as well as hotels.
2. Enhanced Medical Support Compliance for Child Support Cases
State law requires use of a federally mandated National Medical Support Notice. This notice instructs employers and health insurers to provide coverage for children and families pursuant to court orders. While many employers comply with the terms of the National Medical Support Notice, many do not, including failures to send health insurance cards to the custodial parent. This proposal amends the statute to make the penalties for failure to comply with an order for health care coverage consistent with the penalties for failure to withhold or remit child support payments. DOR estimates that increased employer compliance pursuant to this provision will enroll over 1,500 more children in private health care coverage, resulting in approximately $1.9 million in annual cost savings to the Commonwealth.
3. Management of Life Science Tax Credits
Without reducing statutory authorizations, the state would reduce fiscal year 2012 tax expenditures by limiting the actual tax credits that would be refunded or used by the Life Sciences Center in fiscal year 2012 to lower estimated tax payments by eligible corporations. This would generate $5 million in additional fiscal year 2012 revenues next year for the Commonwealth. Implementing these reductions demonstrates a continued effort to share sacrifice among all major priorities and initiatives including the efforts to continue to expand the life sciences sector in Massachusetts.
4. Delay the “FAS 109” Tax Reporting Deduction
The FAS 109 deduction allows publicly traded corporations subject to combined reporting under the 2008 corporate tax reform law to take a deduction of all or some of an amount that will offset the increase in the combined group's net deferred tax liability that would otherwise be shown on its book financial statements as a result of the move to combined reporting. "FAS 109” refers to the financial accounting standards bulletin that requires such corporations to report their deferred tax liabilities (or expected benefits, like credits) to shareholders.
The deduction is spread over seven years commencing in the corporation’s taxable year beginning in 2012. The FAS 109 law required corporations that were eligible for the deduction to file a statement with DOR stating the amount of the expected FAS 109 deduction that will be claimed. The responses indicated that total deductions would exceed $178 billion, and the total corporate excise revenue decrease to the Commonwealth that would result from corporations taking those deductions would exceed $535 million over a 7 year period 2012 – 2018 ($76 – 79 million per year).
The Governor’s House 1 recommendation delays the implementation of FAS 109 until fiscal year 2013, rather than allowing it to begin in fiscal year 2012. This will increase the amount of taxes collected by the state next year by nearly $46 million. Savings generated from the delay in the implementation of the FAS 109 deduction would be one-time in nature, since they are only proposed to be delayed until fiscal year 2013.
5. Amend Corporate Excise Factoring
This proposal will modernize the sales factor (one of 3 factors by which the MA corporate excise is apportioned among states) by sourcing it based on where services are delivered, rather than where they originate. This will mostly affect large, non-MA companies, e.g. telecom providers. The proposal will help some MA companies hurt by the present sourcing rule. Eleven states, including California, Georgia, Maryland, Maine and Wisconsin, have adopted sourcing generally consistent with the model that DOR is proposing -- i.e. generally sourcing to where services (or the benefit of services) are received.
While these proposals are advanced to increase revenue for the Commonwealth in fiscal year 2012 there are many other tax or related changes that were maintained or preserved next that will help thousands of businesses and families as the state’s economy continues to recover.
State Corporate Excise Rate
The fiscal year 2012 budget assumes that there will be no changes to the phase down of the corporate tax rate, scheduled in law to decline from 8.75 percent in tax year 2010 to 8.25 percent in 2011. Next fiscal year, the Department of Revenue estimates this will save 35,000 businesses statewide roughly $185.1 million from this change. In the midst of unprecedented fiscal challenges, it is important to continue to follow through with corporate tax reform and reducing costs for businesses. These changes will help to ensure that the state’s small businesses especially are well positioned to continue their economic recovery.
The state provides a number of deductions to taxpayers, whether individuals, families or corporations, totaling over $20 billion in fiscal year 2011 alone. These “expenditures” represent tax revenue the state would otherwise collect but has foregone by providing exemptions, deductions on taxes owed, or credits against annual taxes, for a variety of areas, including charitable deductions, the purchase of most food items, the interest paid on student loans, or the purchase of equipment for the use of high-tech research and development. Given the difficult fiscal challenges the state continues to face next year, the Secretary of Administration and Finance and the Department of Revenue evaluated whether any further changes could be considered for the state’s tax expenditures. At this time, these tax expenditures are preserved. Further information on each such tax expenditure is provided in a later section.
Leading up to the development of the fiscal year 2012 budget, the Executive Office of Administration procured a wide-ranging analysis of the current revenue-generating activities by a variety of state agencies, particularly around program integrity and federal revenue claiming. This effort has provide over 100 potential opportunities for the state to pursue to help generate additional federal revenue for the Commonwealth, or to reduce the state’s costs in administering a number of programs or benefits provided to residents. The fiscal year 2012 House 1 recommendation would generate $40 million in additional fiscal year 2012 revenues from these initiatives. The Governor’s budget would fund a $1 million appropriation to allow for necessary investments to fund revenue enhancement contracts that were not based on contingency-based fee proposals.
Sale of Assets
The House 1 proposal assumes the state can generate at least $15 million in additional revenue for the Commonwealth in fiscal year 2012 from the sale of state properties that have been identified by state agencies as underutilized. Additional legislation will be filed by the Governor in January 2011 to allow the state to expedite this process and ensure that it can achieve the assumed savings for next year.
Expand Bottle Deposit
The Massachusetts Bottle Bill, enacted in 1982, is designed to encourage consumers to return their empty soda and beer containers by means of a redeemable $0.05 deposit. The $0.05 refundable deposit is placed on all carbonated sodas, beer and malt beverages. Most bottle deposits are redeemed through two types of sites, redemption centers and large retail stores. Redemption centers are specialized small businesses that provide refunds for empty beverage containers before delivering them to bottlers/distributors. Large retailers often lease vending machines to manage redemptions by their customers. The leasing company delivers bottles to bottlers/distributors for payment, or may sell materials that are recyclable. Under 1989 reforms, bottlers/distributors must maintain a Deposit Transaction Fund for unclaimed deposits. These funds are transferred to the Department of Revenue each month and support government programs.
When the Bottle Bill was enacted in 1982, the beverages covered by the law were limited to carbonated soft drinks, mineral water, beer and other malt beverages. Since that time, the beverage market has changed with bottled water, fruit drinks, iced tea and sports drinks now being some of the most popular choices available. However, these non-carbonated beverages are not covered by the Bottle Bill, and often end up in landfills or along the side of the road.
By revising the definition of “beverages” in Massachusetts General Law, the Bottle Bill can be brought up to date. Consumers will be required to pay an additional $0.05 cents on water, flavored waters, iced teas, coffee based drinks and sports drinks. The Governor’s fiscal year 2012 budget assumes that by adopting these changes the state will collect at least $20 million in additional revenues next year, allowing for $6.5 million in investments in state recycling coordination and redemption efforts.
Quasi-Public Agency Contributions
The fiscal year 2011 budget relies on roughly $25 million in contributions to support state programs that would otherwise need to be funded from the state’s annual operating budget or eliminated. A number of the state’s quasi-public partners have agreed to again provide a role in helping to ensure that vital economic development programs related to tourism and business development as well as cultural facilities and higher education can be sustained in these challenging times. The table below outlines the quasi-public contributions made towards the fiscal year 2012 budget.
|Program Preserved||Quasi-Public Agency||Amount|
|Massachusetts Rental Voucher Program||Massachusetts Housing Authority||$8,400,000|
|Small Business Development Center||Growth Capital Corporation||$500,000|
|Wellness Promotion||Commonwealth Connector Authority||$2,500,000|
|Energy and Environmental Affairs Operations||Massachusetts Clean Energy Center||$1,000,000|
|Mass Cultural Council Grants||Massachusetts Development Finance Authority||$3,000,000|
|Office of Small Business||Growth Capital Corporation||$700,000|
|State Permitting Office||Growth Capital Corporation||$335,000|
|Tourism Promotion and Marketing||Massachusetts Convention Center Authority||$5,000,000|
|No Interest Loan Program / Scholarships||Mass Education Finance Authority||$1,000,000|
|Mass Broadband Operations||Mass Tech Collaborative||$275,000|
|International Trade and Investment Promotion||Mass Tech Collaborative / Mass Port Authority||$600,000|
|Soft Seconds Loan Program||Mass Housing Partnership||$2,000,000|
Treasurer-elect Steven Grossman has identified additional abandoned properties held currently by the Commonwealth that can be liquidated in the amount of $99 million in fiscal year 2012, above the ongoing annual state revenues estimated to total $89 million next year. These proceeds will be generated from the sale of mutual funds and other securities. The revenue provided from these sales is one-time solution that will not necessarily be available in future years. A further discussion of the state’s reliance on one-time resources is included later in this section.
Federal Waiver Reimbursement
The fiscal year 2012 budget assumes that the state will receive an additional $72 million in federal Medicaid reimbursements under the state’s waiver for the costs incurred by Designated State Health Programs at agencies such as the Department of Mental Health or the Department of Public Health. This revenue must be approved by the US Centers for Medicare and Medicaid Services (CMS), but reflects additional revenues that CMS has provided to Massachusetts in recognition of its sophisticated and wide-ranging programs that deliver health care services to patients served by a number of agencies.
With a modest use of one-time resources totaling $385 million next year, mostly stabilization funds, the fiscal year 2012 budget will have eliminated the state’s continued reliance for large portions of non-recurring sources to sustain ongoing expenditures. The proposed use of Stabilization Fund reserves is responsible, leaving a health projected balance of $570 million, while building on continued efforts to take volatile revenue sources, such as taxes on capital gains and one-time settlements with taxpayers, out of the general tax revenue stream and segregate them for the purposes of replenishing the Rainy Day fund. Continued efforts to control state spending will be required in future budget years, but the fiscal year 2012 financial plan well-positions the state to eliminate its structural deficit and prepare for future challenges in the years ahead.
|(dollars in millions)|
|Stabilization Fund Reserves||200|
|Delay FAS 109 Reporting||46|
|Abandoned Property Proceeds||99|
|Sale of Assets||15|
Fiscal Year 2012 Spending Highlights from Fiscal Year 2011
As noted in the previous section, after accounting for growth in tax collections and other non-tax resources, additional revenue initiatives, and the loss of one-time sources, the state must reduce spending by roughly $570 million on a net basis. This need to reduce spending is further exacerbated by spending increases that must be funded to support cost increases that cannot be avoided, such as the state’s payments to support debt service. After accounting for these increases (roughly $630 million), other state spending must be reduced by $1.2 billion across all state government.
|Government Area Name||FY2011
|Administration and Finance||2,856,900,429||2,586,458,005||(270,442,424)||-9.5%|
|Energy & Environmental Affairs||194,884,746||192,422,896||(2,461,850)||-1.3%|
|Health and Human Services||4,703,476,447||4,612,335,033||(91,141,414)||-1.9%|
|Housing & Economic Development||371,483,102||348,789,556||(22,693,546)||-6.1%|
|Labor & Workforce Development||73,778,467||35,446,086||(38,332,381)||-52.0%|
The table above shows funding changes in fiscal year 2012 in comparison to fiscal year 2011 (after adjusting for $397 million in additional non-operating spending for Education this year). The narrative provided lists the major highlights for next year. It is essential to note that almost no area of state government has been spared from reductions, from the judiciary to human services to state parks. The loss of revenue from fiscal year 2011 requires that additional spending measures be taken impacting hundreds of programs and services while requiring further reductions to the state’s workforce.
Reflecting government re-organizations outlined further below, there are substantial increases in the Public Safety and Independents budgets. These increases correspond to funding shifted from the Judicial branch each respectively to reflect reforms of the state’s Probation Department and the Committee on Public Counsel Services. After adjusting for these shifts and savings adopted in fiscal year 2012 for probation and indigent counsel services, the actual year on year spending changes are the following:
- Public Safety, -2.5 percent
- Judiciary, -8.5 percent
- Independents, 1.1 percent
Non-Executive Branch Agencies
|Dept. of Public Counsel Services||-||162,660,129||162,660,129||0.0%|
Agencies outside of the Executive branch including Constitutional Officers, the Judiciary, District Attorneys and Sheriffs, among others comprise $1.285 billion of the fiscal year 2012 budget recommendations. Some areas of note include –
- Judiciary –The Governor’s House 1 recommends that the Department of Probation move from the Judiciary to the Executive Office of Public Safety and Security. The funding amount being transferred is $97.5 million, which reflects that probation responsibilities for youths will remain within the state’s Trial Court Department. Coupled with $46 million in fiscal year savings from reforms in indigent counsel services (see below), the overall budget for the Judiciary is 8.5% below the fiscal year 2011 estimated spending. Most Judicial funding was reduced by 2 percent in fiscal year 2012. But the H.1 recommendation assumes that the state will be able save roughly $14 million next year through reforms proposed by the Governor to the state’s probations functions. These savings are reflected in the reduced Judicial spending amounts, increasing the percent reduction in fiscal year 12 spending.
- Committee for Public Counsel Services – House 1 proposes sweeping reforms to the manner in which the state provides constitutionally-required legal services to defendants determined to be unable to afford counsel. By shifting from the overwhelming reliance on private attorneys to a system that is fully operated under a new Department of Public Counsel Services state with staff attorneys, the Governor’s budget assumes that the state can save $46 million in fiscal year 2012. The House 1 recommendation also proposes to change the governance of the agency by requiring that the chief counsel of DPCS be appointed by the Governor and eliminating the existing CPCS board.
- Sheriffs – Fiscal year 2011 reflects the first full year that all sheriffs’ offices are funded as state departments through the annual operating budget. The fiscal year 2012 House 1 reduces funding for all state sheriffs by 2% below fiscal year 2011 estimated spending. It should be noted that the fiscal year 2011 spending levels reflect nearly $18 million in supplemental funding provided or proposed this fiscal year to the various state sheriffs’ offices.
- District Attorneys – The funding provided for the 14 district attorneys’ offices increases in fiscal year 2012 by 5 percent from fiscal year 2011 estimated spending. This increase is provided to address increase caseloads faced by each DA while supporting each DA’s efforts to reduce and prevent crime. The prosecution of crime is a core state service provided by the state and it is essential to fund this adequately.
- Other Constitutional Officers – With very limited exceptions the funding for the Constitutional offices (Attorney General, Treasurer, Auditor, Secretary of State) has been reduced by 2 percent below estimated fiscal year 2011 spending levels.
- Lottery – The state’s Lottery Commission oversees the state’s various lottery and gaming operations. The Commission generates over $800 million in annual revenue, which supports, in part, local aid distributions to the state’s cities and towns. Funding in fiscal year 2012 for Lottery operations is reduced by $1 million from fiscal year 2011 estimated spending levels.
- Legislature – The funding in fiscal year 2012 is 2 percent less than the estimated fiscal year 2011 estimated spending levels, after accounting for one-time investments in legislative redistricting needed in fiscal year 2011.
In order to fund the necessary improvements to the state’s transportation infrastructure as well as to make investments in our higher education system, housing, high-tech industries, and other job-creating projects, the state bonds capital spending and supports this borrowing with annual debt service costs on the operating budget.
State debt service spending in fiscal year 2012 totals $2.265 billion, an increase of 12.7 percent from fiscal year 2011 levels of $2.010 billion. The fiscal year 2011 budget assumed a one-time savings in annual debt service costs of $100 million from the restructuring of certain debt service payments. After accounting for this change, total debt service spending increased by 7.3 percent in fiscal year 2012.
Executive Branch Agencies
|Executive Branch Government Area||FY2011
|Administration and Finance||2,888,286,010||2,615,621,643||(272,664,367)||-9.4%|
|Energy and Environmental Affairs||194,884,746||192,422,896||(2,461,850)||-1.3%|
|Health and Human Services||4,703,476,447||4,612,335,033||(91,141,414)||-1.9%|
|Education (excl. aid for K-12 and Higher Ed.)||1,036,799,161||1,114,272,494||77,473,333||7.5%|
|Housing and Economic Development||371,483,102||348,789,556||(22,693,546)||-6.1%|
|Labor and Workforce Development||73,778,467||35,446,086||(38,332,381)||-52.0%|
|Public Safety and Security||939,772,260||1,014,444,706||74,672,446||7.9%|
|Transfers to Health Care and Other Funds||1,770,661,187||1,574,362,762||(196,298,425)||-11.1%|
Funding for Executive Branch Agencies for programs and services that fall within each of these government areas totals $11.875 billion for fiscal year 2012, which compares to $12.354 billion in FY11, a 3.9 percent reduction from fiscal year 2011 spending levels. Several factors contribute to the varying levels of increases and decreases among them:
- Executive Office of Education (EOE) – The budget recommendation for the Secretariat for Education (excluding Chapter 70 and aid to Higher Education campuses discussed below) increases by 7.4% above the fiscal year 2010 estimated spending. The fiscal year 2012 budget provides $80 million in additional funding from FY11 levels for reimbursements to cities and towns for costs in support of special education programs and services. Most other education programs were funded at the same levels provided in the fiscal year 2011 General Appropriations Act (GAA), particularly those that will support the Governor’s efforts to address the achievement gap among the state’s residents with respect to academic achievement and readiness for the jobs of tomorrow. A modest $3 million investment is made for the Secretary of Education to target funding to those programs and services that best position the state to leverage $250 million in federal Race to the Top education aid, provided over a four-year period, to find innovative solutions to improving the state’s education systems. In the face of difficult funding challenges, when many agencies must reduce spending below fiscal year 2011 levels, the House 1 proposal has avoided pulling back on key investments for educating the state’s residents.
- Executive Office of Health and Human Services (EOHHS) – Recognizing the importance of maintaining critical safety net programs and services, the Governor has limited budget reductions to EOHHS agencies and preserved, where possible, programs and services that support the state’s most vulnerable populations. Reductions have been avoided in services provided to veterans and have been largely limited in programs that serve the developmentally disabled. Furthermore, the fiscal year 2012 will not adopt broad-based reductions to cash assistance received by families in need nor does it pull back on critical investments to provide more cost-effective care for the disabled in community based settings. Not all reductions could be avoided; state human services agencies will need to reduce their current workforce which will affect the speed in which they can provide services. Furthermore, the state will need to explore ways to manage the operation of state hospital facilities more cost-effectively, and may need to close facilities to live at reduced funding levels.
- Executive Office of Public Safety and Security (EOPSS) – As mentioned earlier, a significant re-organization is being recommended which would transfer large portions of the Office the Commissioner of Probation from the Judiciary to the Executive Office of Public Safety as a new Department of Community Supervision. In addition, the Department of Correction (DOC) is committed to seeking changes and efficiencies through the Governor’s proposed Crime Package pending before the Legislature to achieve savings. Two DOC facilities will need to be closed and the proposed criminal sentencing legislation will help ensure that the state can reduce its overall inmate population in a smart and safe manner without major impacts on current overcrowding levels. Funding provided for the Massachusetts State Police is reduced in fiscal year 2012 from fiscal year 2011 levels, but these reductions can be mitigated, in part, through increased levels of trooper retirements. House 1 proposes the adoption of an annual surcharge on auto insurance policies, which can support critical police recruitment and training initiatives necessary to ensure public safety and adequate trooper levels. Wide-ranging reductions to core public safety functions, such as layoffs to existing state troopers or the closure of a large number of prison facilities, have been avoided in next year’s budget.
- Massachusetts Department of Transportation (MassDOT) – Fiscal year 2011 represents the first full year for the operation of the consolidated Department of Transportation, commonly known as MassDOT. The agency continues to leverage its new structure to seek efficiencies and savings in areas such as procurement and personnel spending. The fiscal year 2012 budget reduces the state operating budget contribution to MassDOT funding by $15 million from fiscal year 2011 levels. This will limit the ability in fiscal year 2012 of MassDOT to provide subsidies to regional transportation agencies as well as to support all planned capital projects and programs. The fiscal year 2012 budget will avoid reductions to staff in the Registry of Motor Vehicles that would create additional challenges to the agency to meet consumer demand for motor vehicle licensing, registration and other services.
- Executive Office of Energy and Environmental Affairs (EOEEA) – Fiscal year 2012 funding for EOEEA is approximately 1.3 percent below fiscal year 2011 estimated spending. This reflects a $6.25 million investment for increased efforts to promote recycling coordination across the state, which is funded through increased revenues generated by expanding the bottle deposits to include bottled water and sports drinks. After adjusting for this investment, total spending at EOEEA will be 4.6 percent less than fiscal year 2011 levels. To the best extent possible, core programs and services were preserved at the Department of Environmental Protection and the Department of Conservation and Recreation. However, each agency must seek consolidations and reorganizations as a way to operate at reduced funding levels. DEP will re-structure the manner in which it provides oversight of environmental regulations and will explore consolidating facilities and regional locations. The state and urban parks functions at DCR will be fully consolidated helping the agency to live at reduced funding levels in fiscal year 2012.
- Executive Office of Housing and Economic Development (EOHED) – Fiscal year 2011 funding is approximately 6.1% below fiscal year 2011 estimated spending, with the bulk of the savings coming from reforms proposed to the delivery system for homeless services. The Department of Housing and Community Development (DHCD) will strengthen the state’s family homelessness programs by limiting emergency shelter for families that truly need it while providing the remaining families at risk of homelessness with more appropriate and cost-effective housing alternatives. DHCD will leverage innovations that have already been adopted in concert with Lieutenant Governor Tim Murray’s Inter-Agency Council on Housing and Homelessness (ICHH) to target resources appropriately to the level of need. The remaining savings in fiscal year 2012 at EOHED will be achieve through the shifting of costs in support of economic development programs to funding contributions provided from quasi-public agencies with related missions.
- Executive Office of Labor and Workforce Development (EOLWD) – The total contribution from the state operating budget for EOLWD programs in fiscal year 2012 is reduced by 52 percent from the previous year. This reduction does not correspond to substantial elimination of state programs or services. Rather, the Governor’s fiscal year 2012 House 1 recommendation proposes legislation that will move all spending (estimated at $29 million in fiscal year 2011) from the Workforce Training Fund off-budget into a dedicated trust fund that is not subject to annual appropriation. All industry contributions to this fund will remain from year to year in the WTF, allowing for improved predictability and transparency of the use of these resources. The fiscal year 2012 budget does call for an increase to the funding provided for the Summer Jobs/YouthWorks program operated by the Commonwealth Corporation. In combination with additional supplemental funding filed by the Governor in January 2011, total funding for this program for the summer of 2011 will equal $8 million.
- Executive Office for Administration and Finance (ANF) – Spending for appropriations under ANF is reduced by 9.4 percent from fiscal year 2011 levels. Much of this reduction is attributed to the elimination of one-time collective bargaining reserves for negotiated agreements that have been ratified with state labor unions across the Executive branch, sheriffs’ offices and higher education campuses. Another main driver of reduced ANF spending is a $65 million reduction to the state’s unrestricted local contribution to cities and town. This reduction is partially offset by $10 million in investments to support efforts by municipalities to regionalize their services and seek additional cost savings measures through best practices. In addition, the Governor proposes to provide further relief to cities and towns by expanding the options at their disposal to control health care spending. Statewide, cities and towns are expected to save more than $110 million through seeking lower cost options to their existing employees’ health care plans, as well as from shifting retirees from locally-funded health care plans to those that are partially supported with Medicare contributions. Finally, state health care spending for employees’ coverage through the Group Insurance Commission (GIC) will be held to fiscal year 2011 levels. While this does not reflect a year-on-year reduction in projected spending, it is expected that the GIC will need to utilize aggressive cost-saving measures, including seeking lower cost provider networks for employees to access care.
- Transfers to Health Care and Other Funds – Fiscal year 2011 was the first year in which transfers to off-budget funds where shown in the budget as direct appropriations. In total, the state will spend $1.574 billion in fiscal year 2012 on transfers, primarily to the Commonwealth Care Trust Fund, the Medical Assistance Trust Fund, and the State Retiree Benefits Trust Fund. Total spending in fiscal year 2012 will be $196 million less than fiscal year 2011 levels, which is primarily related to the state’s reduced spending on payments to hospitals through the MATF as well as payments made this fiscal year that were originally authorized for fiscal year 2010. These payments are one-time in nature and are fully supported with federal revenues and do not reflect a reduction in programs and services.
School Aid for Public K-12 Education
|Executive Branch Government Area||FY2011
|Public Education School Aid (Chapter 70)||3,851,193,043||3,990,519,338||139,326,295||3.6%|
The fiscal year 2012 budget provides $3.991 billion in aid for public education (grades K-12) to local school districts, which represents a year-on-year increase in state-funded school aid of $139.8 million, or 3.6 percent greater than fiscal year 2011 state funding. It should be noted that in fiscal year 2011, local school districts received approximately $221 million in federal stimulus assistance ($21 million in ARRA State Fiscal Stabilization Funds and $200 million in EduJobs aid provided in August 2010). Even after accounting for the fact that fiscal year 2011 spending is roughly $121 million greater than the operating budget only contribution, the fiscal year 2012 recommended funding levels still reflects a total increase in aid to cities and towns in the face of challenging fiscal times.
The state’s contribution to quality education and opportunities for all of its residents is a core priority of the Patrick-Murray Administration. The fiscal year 2012 House 1 recommendation continues to build off of the state’s earlier commitments to preserve Chapter 70 investments in our K-12 education, a fundamental tool in addressing the achievement gap and ensuring that today’s students will be prepared to compete for the jobs of tomorrow.
Aid to Higher Education Campuses
|Executive Branch Government Area||FY2011
|Aid to Higher Education Campuses||835,187,294||823,033,934||(12,153,360)||-1.5%|
The state funding provided to the 29 universities and community colleges across the states will be reduced in fiscal year 2012 by 1.4 percent or $12.2 million. This reduction, however, reflects the fact that public universities, beginning in fiscal year 2012, will be able to “retain” all tuition payments collected from students from out of state that attend their campuses. In total state universities will be able to retain $19.6 million in additional revenue in fiscal year 2012 and the state appropriation was adjusted downward to reflect this change. In addition, the Department of Higher Education will oversee a new innovation reserve, funded at $7.5 million in fiscal year 2012, which will provide competitive grants to universities and community colleges to support their efforts to better streamline their operations and seek collective cost-saving efficiencies. The fiscal year 2012 funding does not restore over $70 million in ARRA-funded State Fiscal Stabilization Fund that were available to the campuses in fiscal year 2011 to support their operations.
MassHealth (Medicaid) Spending
|Executive Branch Government Area||FY2011
The Massachusetts Medicaid program (MassHealth) provides comprehensive health insurance to approximately 1.28 million low-income Massachusetts children, adults, seniors and people with disabilities. The Administration’s fiscal year 2012 budget includes $10.34 billion for the MassHealth program, essentially level funding from fiscal year 2011 estimated spending level of $10.24 billion, after accounting for the full-year costs of supplemental funding provided this year.
Like nearly every state in the union, the Massachusetts’ Medicaid program experienced exceptional growth, and related spending, during the economic downturn that began in 2008. Total Medicaid spending growth averaged 8.8 percent across all states in fiscal year 2010, and is expected spending to see a further 7.4 percent increase FY2011. Likewise, enrollment growth averaged 8.5 percent nationally and expected to reduce slightly to 6.1 percent this year.
Governor Patrick’s and Lieutenant Governor Murray’s fiscal year 2012 budget seeks to achieve ground-breaking progress in health care cost containment – with a vision for maintaining the Commonwealth’s historic coverage gains and high-quality care while making health care spending more affordable for the state and taxpayers. The Administration’s goal is to leverage the state’s immense purchasing power to be a force for rewarding models that provide cost-effective, high-quality coverage and care to those who rely on state health insurance and better coordinate government’s health care purchasing decisions. A further discussion in this narrative elaborates on the types of measures necessary in fiscal year 2012 to be taken to control the growth in MassHealth spending.
Reforming the Way the Government Does Business
The Governor’s House 1 budget, and concurrent legislation filed with the fiscal year 2012 recommendation, reflects the need for state government to change the way it does business. Adopted in the House 1 recommendation are a number of reforms and initiatives that will help state agencies perform core business more effectively while ensuring the state government programs and services are provided to residents in the most cost-effective manner. There will be necessary reductions required of agencies to live within the funding available to them in fiscal year 2012. However, the following reforms and initiatives described below can help to mitigate the impact of funding reductions as well as make sure every tax dollar is stretched to the fullest extent possible.
Criminal Justice Reform
Criminal justice reform is essential to both enhancing public safety and to the Commonwealth’s sound fiscal management. States across the country are re-examining sentencing and corrections policy to manage under constrained operating budgets, and Massachusetts cannot afford to be an exception. On an annul basis, the Commonwealth spends approximately $47,000 per offender.
The Governor proposes extensive reforms throughout the entire system that incorporate best practices and well-documented research in the field of criminal justice. This reform plan includes legislation that will toughen criminal sentences for repeat violent offenders while repealing mandatory minimum sentences for non-violent drug crimes. The proposal, when public safety permits, favors community supervision of criminal defendants and offenders, saving the Commonwealth tens of millions of dollars over the next ten years. This approach reduces recidivism, incarceration rates and sky-rocketing costs, while effectively transitioning inmates back to society.
As noted previously, unavoidable spending cuts within the Department of Correction's fiscal year 2012 budget will result in the closure of two prisons. Prison closures do not result in any inmate releases as inmates will be relocated to other prisons within the Department of Correction. The Governor’s sentencing reform legislation will help alleviate additional overcrowding that would otherwise result from prison facility closures. To allow the Department of Correction and Sheriff Departments to best operate under reduced budgets,
The Governor also seeks to restore confidence in both the Department of Probation and the Parole Board by consolidating both departments under a new executive branch agency, the Department of Re-entry and Community Supervision. This new agency will supervise all forms of community supervision from defendants in early pretrial stages of the criminal process to inmates released after incarceration. The Governor's H.1 budget reflects this consolidation by providing $114.7 million for the new department, which is proposed in legislation filed concurrent with the budget.
This budget also includes an overhaul of the Commonwealth’s system for providing criminal defense for indigent persons. This recommendation would shift funding currently provided for the Committee for Public Counsel Services (CPCS) under a new, independent agency titled the Department of Public Counsel Services. The chief counsel of the DPCS will be appointed by the Governor and will be authorized to fund indigent counsel services that are provided entirely by state staff attorneys, saving more than $45 million. Savings are generated from the elimination of a system that relies almost entirely on the use of private attorneys that bill for services by the hour.
Controlling Health Care Costs
The Patrick-Murray Administration is proposing an aggressive procurement reform strategy to help manage costs in all state health care programs (MassHealth, Group Insurance Commission, and the Commonwealth Connector Authority) which will serve to encourage members and state employees choose lower-cost settings and streamlining the purchase of health care plans and services throughout state and local government.
The Governor will file legislation that proposes new tools for cities and towns to help manage their own employees’ health care costs. These costs, incurred for both current and retired employees, reflects the biggest municipal budget buster. The Governor proposes a new local health insurance plan design process that will achieve real savings for cities and towns with meaningful labor participation in the process, and a requirement that all municipalities enroll their eligible retirees in Medicare, as this federal program covers a substantial portion of that population's health care costs.
Small businesses will also benefit from this proposal through updates launched by the Connector to its Commonwealth Choice program, which creates a streamlined, simplified process for small businesses and individuals to shop for unsubsidized, name-brand health insurance, saving them money by making it easier for them to understand their options and choose better-priced health plans. The Connector will also be eliminating a fee it currently charges small businesses to shop through Commonwealth Choice, and will receive $10 million in the budget to offer premium discounts for certain small businesses which purchase coverage through Commonwealth Choice and set up wellness programs for their employees. This will reduce premiums for qualifying small businesses by up to 5%.
Homeless Shelter Reform
Building off of the fiscal year 2010 reorganization of services provided to individuals and families that are homeless or at-risk of becoming so, the House 1 proposes to move forward with the Patrick-Murray Administration’s comprehensive strategy to reform emergency shelter and housing delivery systems for families. These changes will help advance our goal of ending homelessness in our Commonwealth by continuing to focus on moving families to housing first, while providing critical safety net services to stabilize families for long-term success. This proposal will also help address on-going budget challenges caused by dramatic caseload growth in recent years. In this next phase of reform proposals, we will implement measures that are effective and cost efficient, and will ensure a more streamlined and compassionate response for families facing homelessness.
The fiscal year 2012 budget continues the Patrick-Murray Administration’s unprecedented support for cities and towns. We have provided many tools for municipalities that are needed to mitigate reductions, generate savings and create efficiencies at the local level. Our approach includes a number of measures worth more than $160 million that will provide cities and towns with relief, reform and expanded opportunities to offset the tough funding decisions municipalities are facing.
New fiscal reality demands that we invest in and incentivize innovation among local governments to find new and more efficient ways to delivery local services. Modest investments are proposed to provide financial support for one-time or transition costs related to regionalization and other efficiency initiatives to improve the quality and efficiency of local government service delivery in ways that achieve cost savings. These efforts also include establishing a program to enhance performance management, accountability, and transparency for local governments. This incentive will be overseen by municipal officials and administration officials with the support of the Collins Center for Public Management at the University of Massachusetts Boston.
Enhanced Emergency Response
The budget establishes authority for the Governor to temporarily draw funds from the stabilization fund to cover the immediate emergency response costs incurred by natural disaster and other unanticipated events that are not eligible for federal reimbursement funds. As shown by the Greater Boston water main break on May 1, 2010, when emergencies strike agencies must scramble to funding disaster response and relief efforts. Depending on the stage in the fiscal year, agencies may need to seek emergency appropriations from the Legislature. This measure is necessary to help make sure agencies have access to immediate resources, where necessary, until the Legislature is able to provide additional funding.
Commonwealth Performance, Accountability and Transparency (CPAT)
This budget establishes a new office of Commonwealth Performance, Accountability and Transparency to promote greater accountability through performance management, enhanced transparency, ensuring access and opportunity and promoting greater program integrity. CPAT will implement the Commonwealth’s performance management program (MassGOALS) and work with other state agencies and quasi agencies to advance performance management statewide. The office will coordinate federal grants and implement the Federal Financial Accountability and Transparency Act (FFATA) which passed in September 2006, enhance budget forecasting and fully develop the Commonwealth’s transparency website.
This past year, the Lieutenant Governor chaired a Fraud, Waste and Abuse taskforce. One of the many recommendations that have come out of that effort is to ensure the Commonwealth develops stronger connections between the various oversight agencies like the State Auditor, the Attorney General, and the Inspector General with the various program integrity units that exist in the Executive Branch. CPAT will help coordinate these various activities and do everything we can to ensure program integrity throughout the Commonwealth.
Inter-Secretariat Budget Team (ISBT)
At the Governor’s request, the Executive Office for Administration and Finance (ANF) assembled an interagency workgroup on December 1st to review possible budget efficiencies, reforms and savings initiatives called the Inter-Secretariat Budget Team (ISBT). Below are highlighted the major savings initiatives that are adopted within the fiscal year 2012 budget. In general, the ISBT focused on savings that avoided direct service delivery disruption through greater efficiencies through additional agency tools.
The majority of executive branch agencies in the Commonwealth carry out administrative operations separately within a given department. Although the business or programmatic missions of such departments are understandably distinct and separate, tremendous opportunity exists to re-organize administrative operations across departments, consolidating and/or sharing “like” functions where possible. The House 1 budget seeks to increase administrative efficiencies and savings through: improving delivery of administrative services and simplify, streamline and standardize processes in all possible cases; ensuring we have the most efficient and cost effective administrative teams possible; standardizing purchasing policies, solicitation, and decision making processes to achieve best pricing options and improve quality of purchased goods and services; and, enabling secretariats to tailor their implementation strategy to reflect the attributes of their organization, while moving toward a common goal and common outcomes on a shared timeline. Incentives will be developed to recognize the successful and aggressive implementation of shared services by agencies.
According to a recent report from the Pew Center on the States, state governments purchase nearly $200 billion in goods and services annually, with Massachusetts purchasing as much as $5 billion annually. While various procurement reforms and vendor discounts have been implemented over the past several years, recent examples from the Department of Transportation (MassDOT) suggest that substantial savings can still be achieved through a more aggressive approach toward procurement reform, with a greater emphasis on cost. For the fiscal year 2012 budget, it estimated that $30 million could be saved by implementing the following general approach: placing a greater emphasis on aggregation of purchase through shared service; creating a Chief Procurement Officer within each Executive Office and a “Purchasing Cabinet” to develop more strategic aggregate purchasing opportunities; and, learning from the MassDOT experience, examine the state’s standard terms and conditions to determine where modifications can lead to substantially better cost outcomes.
Better Management of State Assets
As the Commonwealth continues to recover from the recession, it is imperative that our state agencies take a more proactive and strategic approach to how we manage our inventory of state-owned real property and leased facilities. As a concept, strategic asset management provides a foundation from which to monitor the Commonwealth’s real property holdings and lease agreements in order to optimize return on investment, value maximization, economies of scale and other efficiencies and benefits to the Commonwealth and its residents. By identifying under-utilized assets and piloting a new economic development / value maximization effort with MassDevelopment, substantial income can be generated in FY 2012
After a thorough review of state-owned real property holdings, ISBT identified and examined several land holding which could be considered surplus and disposed of during FY 2012. Specifically, ISBT identified more than 180 acres and approximately 8 structures as surplus, with a potential combined value of between $7.75 – 17.8 million.
Improving Coordination of Transportation Services
Several state agencies across state government purchase transportation services on behalf of state clients they serve, most notably the Executive Office for Health and Human Services (EOHHS) and MassDOT. The Governor’s House 1 proposal will establish an interagency Commission to examine opportunities for restructuring, improved coordination, enhanced federal revenue collection, streamlined eligibility criteria and other major reforms to the paratransit system. In parallel with this effort, EOHHS and the MBTA/MassDOT will be working to implement a new revenue collection effort that could generate additional federal funds for the General Fund.
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