Legislature accelerates interim approach to budgeting

The House and Senate on Tuesday quickly passed a $16.53 billion interim budget to keep the government funded through October, a plan that would give the Legislature and Gov. Charlie Baker more time to understand the state's fuzzy but dire financial picture in the middle of the ongoing pandemic.

The House and Senate are in the final scheduled days of their formal legislative calendar for the two-year session, but as a result of COVID-19 impacts neither the House nor Senate have produced a full-year spending plan and will have to take the rare step of holding a special session later this year to take up a budget.

The Legislature and Gov. Charlie Baker agreed on a $5.25 billion one-month budget in June to keep state services funded through July, and Baker filed another $5.51 billion budget bill last week to cover spending through August.

The Legislature, however, responded Tuesday with an appropriations bill that would give them more time and remove the need to figure out immediately how and when to return for a special post-July 31 session to deal with a spending plan for the rest of fiscal 2021.

"Today, the Senate and House Committees on Ways and Means have agreed to a three-month interim budget that will provide near-term fiscal stability for our Commonwealth," House Ways and Means Chairman Aaron Michlewitz and Senate Ways and Meas Chairman Michael Rodrigues said in a joint statement.

House and Senate leaders are also expected to "imminently" announce an agreement with the Baker administration on a funding level for local aid for the full-year, according to Rodrigues and other officials. An agreement over local aid would be intended to give cities, towns and school districts predictability heading into the fall when the Massachusetts Municipal Association has said many cities and towns will probably have to revisit their budgets, depending on what actions the state and Congress take.

More than 100 towns went into the new fiscal year with temporary budgets that were authorized by the Division of Local Services, while others were able to hold socially-distant Town Meetings to get full-year budgets approved based on what information they had at the time.

"We are committed to finalizing a full-year budget that is fiscally responsible and responsive to the needs of our state, but key to developing that budget is further clarity around potential federal action, our economic recovery and continued trajectory of COVID-19," Michlewitz and Rodrigues, both Democrats, said.

Rodrigues later told the News Service that the bill essentially level funds state programs and services through October, financing state government at the lower of either the fiscal 2020 budget appropriation or Gov. Charlie Baker's budget proposal from January.

"It is what we figured out collectively is necessary to keep the lights on and the bills paid at a minimum over the next three months," he said.

Assuming Baker signs the bill, the Legislature and governor will have appropriated $21.78 billion to cover spending over the first four months of the fiscal year. At that rate of spending, the state's budget would balloon to over $65 billion, well above the $44.6 billion budget Baker filed in January. But budget officials said state spending is weighted toward the early part of the fiscal year, and would eventually slow down.

"Many expenses are front-end loaded, so you have to make an annual payment up front so it's always the first half of the fiscal year is much higher monthly costs than the second half of the fiscal year," Rodrigues said.

Administration and Finance Secretary Michael Heffernan has worked closely with House and Senate budget leaders since March to monitor state finances and the coronavirus's impact on tax revenue, and a spokesman for the administration said it would "carefully review" the interim budget once it reaches the governor's desk.

"The Administration appreciates the efforts of the Legislature to help ensure the continued delivery of essential government services with an interim spending plan during this period of economic uncertainty," said Patrick Marvin, spokesman for the Executive Office of Administration and Finance.

Massachusetts is one of eight states without a fiscal 2021 budget, according to the National Association of State Budget Officers (NASBO), but the organization said some states will full-year budgets are already planning to return for special sessions to adjust those plans in response to revenue declines.

Rodrigues, in remarks on the Senate floor, said it was "prudent and responsible" to wait longer before producing a full-year spending plan for fiscal 2021, which began on July 1.

"The COVID-19 pandemic has created extreme uncertainty for the states of our public health and economy," Rodrigues said.

The Westport Democrat said legislative leaders want "greater clarity" on whether Congress and the White House will deliver additional federal aid for state and local governments, as well as more information on the impacts of the state's reopening strategy on the economy and the trend of the virus moving into the fall.

"If we were to attempt to pass a full year budget without this critical information we would be forced to make challenging and painful decisions without knowing the full extent of our resources or the state of the crisis," Rodrigues said.

Eileen McAnneny, the president the Massachusetts Taxpayers Association, said she wasn't surprised to see the Legislature push off budgeting decisions until they have a better idea of what kind help Congress might provide.

"The fact that it's for three months indicates that they either think there will be uncertainty for quite a while or there are other considerations for when to schedule the special session," McAnneny said.

The spending bill passed on Tuesday expires on Oct. 31, meaning the Legislature will either have to return before the Nov. 3 general election, when relatively few will be facing serious challengers, or extend again.

"If they had done a four-month it might be more obvious what they were doing," McAnneny said.

"It's also my understanding that the Senate is preparing to have a revenue discussion around the time they finalize the budget," she said, adding, "Given the size of the potential shortfall there will probably have to be some combination of cuts, revenue increases and use of the rainy day fund."

McAnneny, in a follow-up conversation, stressed that it was not a certainty that the Senate would take up taxes later this year. Sen. Adam Hinds, the Senate chair of the Revenue Committee, has been leading that branch's exploration of tax reform this session.

Sen. Adam Hinds, the Senate chair of the Revenue Committee, has been leading that branch's exploration of tax reform this session.

"We have reengaged the Senate revenue working group with a new mandate to consider the current reality and to think through a plan to meet potential challenges, depending on federal action and where we stand with the economic recovery and where the pandemic is," Hinds said.

Hinds said the working group, which still plans to release long-term tax reform recommendations this year, will continue to meet through the fall and has "expanded what it's looking at and accelerating."

"At this point it's far too premature to know if, let alone when, action will be required," Hinds said.

Hinds took to social media after the interim budget was released and Tweeted that not only did it level fund unrestricted municipal aid and Chapter 70 school aid, but it included a $107 million increase in school funding for inflation. He later deleted the Tweet, and told the News Service, "I defer to the chairs of Ways and Means. The reality is, the details haven't been finalized."

Economists and fiscal analysts have projected that the $31.15 billion in state tax revenue that officials once predicted could wind up at least $6 billion lower because of the pandemic and the business closures enacted by government to control the virus's spread.

Baker and the Legislature have not yet updated that revenue projection, and the trajectory of the virus's infection rate will have a huge impact on whether the economy can spring back to life, or if a second surge forces more business slowdowns.

Waiting, however, doesn't come without its own downsides.

McAnneny said that if the state were to simply level fund government services for the year, it would shrink the projected $6 billion revenue gap by about $1.5 billion.

"The upside is they're not spending more than last year," McAnneny said. "The downside is they're potentially not making changes to realize fully annualized savings."

The budget bill approved by the Legislature prevents the Baker administration from seeking savings over the next three months "through reductions in eligibility standards or benefit levels as compared with items funded in the general appropriations act for fiscal year 2020."

The bill would also give Secretary Heffernan some flexibility to respond in the event Congress delivers on another relief package for the states.

"If federal programs, or other alternative funding sources, are available to supplant state funding for the same purposes, the secretary may reduce the state's portion of said funding in a manner commensurate with the additional federal revenue received for said purpose," the bill states.