BOSTON (SHNS) – As Gov. Charlie Baker drafts plans to draw major savings out of the state’s $13.7 billion MassHealth insurance program, state budget analysts say the new governor and Legislature must close a $1.5 billion gap between projected revenues and spending.
This year’s $36.5 billion state budget has so far relied on one-time revenues and midyear spending cuts to balance out, and the Massachusetts Taxpayers Foundation estimates a shortfall of $1.5 billion in fiscal 2016, which begins July 1, in order to cover growing fixed costs and to maintain existing government services.
“I said before there were about $1 billion in one-time revenue sources in the fiscal 2015 budget, the one we’re involved in now, so I think the 1.5 billion number is probably a reasonable estimate,” Baker told reporters Wednesday after addressing tech executives in Newton.
Though the governor did not elaborate on how he would address the structural budget problem, Baker did double down on his campaign promise not to raise broad-based taxes and signaled that MassHealth will be a target in the budget due to be filed next Wednesday.
“We are going to make some significant changes with respect to how the MassHealth program works going forward, because 13 percent growth in the MassHealth program is not only not sustainable for health and human services organizations, it’s not sustainable for all the other stuff state government needs to be able to do,” Baker said, listing education, economic development, and energy programs as demanding state resources.
According to the Massachusetts Medicaid Policy Institute, the MassHealth program in 2014 provided insurance coverage for 1.7 million low- and moderate-income and disabled children and adults, or 25 percent of the state population.
Lt. Gov. Karyn Polito declined to say whether Baker would take the so-called zero-based approach to building his annual budget proposal as opposed to the traditional method of building off current appropriations to maintain services.
“That’s their estimate and you’ll know very soon what we anticipate the gap to be. It is sizeable. There’s no question about it,” Polito told the News Service Wednesday afternoon. “It is a sizeable deficit going into fiscal year ’16 and we view this as really an 18-month slug just getting through the budgetary constraints that we have.”
The state budget problems have occurred amid a mostly healthy state economy and despite estimates putting 2014 job growth at the highest level since 2000. Administration and Finance Secretary Kristen Lepore and legislative leaders this year agreed on an estimated 4.8 percent growth in state tax collections in fiscal year 2016.
Governors and legislative leaders over the years have often failed to produce structurally balanced budgets – spending plans not dependent on one-time measures – leaning on one-time initiatives to support spending rather than trimming budgets further or boosting revenues.
This year’s state budget, for instance, features revenues from state reserves, tax amnesty programs, tax settlements and from a state building lease. The budget also spends capital gains tax dollars that had been earmarked to bolster the state’s rainy day fund.
In November, former Gov. Deval Patrick was forced to trim spending and then Baker and the Legislature cut spending further and took other actions to address a $768 million hole in the budget.
Baker’s first budget is due in a week, on Wednesday, March 4, and a spokesman for Lepore said MTF’s analysis of the shortfall is “in the ballpark.”
While noting the House had rejected Baker’s attempt to allow the administration to make MassHealth changes “unilaterally,” House Speaker Robert DeLeo indicated a willingness Wednesday to try to increase efficiency, referencing reforms made to clamp down on abuse of electronic benefit transfer cards for welfare recipients.
“Hey, I’m all for efficiency,” DeLeo told reporters. “If people are getting some kind of government service that they should not be getting for whatever reason – fraudulently or otherwise – sure, I’m for similar to EBT in terms of cutting it. But on the other hand I’d have to take each on an individual basis.”
DeLeo said Lepore had given him “a little bit of a warning on Monday that the news was going to be sobering. I didn’t know it was going to be quite that sobering, but obviously this is going to be a very, very difficult budget cycle.” Asked how the House would handle a $1.5 billion budget gap, DeLeo said, “I don’t know.”
The Baker administration does not plan to draw from state reserves to balance next year’s budget, said spokesman Brendan Moss, and Baker reiterated his aversion to tax increases.
“We’re not going to raise taxes during our term. I made that commitment to the voters when I ran,” Baker said.
While ruling out “broad-based” tax increases, the governor did say he would be open at some point to reforming the tax code.
“I do think in many cases the tax code is designed to favor those who have the most lobbyists and the most access to the people of influence and I think if we can make the system fairer that a good thing,” he said.
MTF President Eileen McAnneny said Baker’s preference to approach the budget without new revenues would mean “sizable spending cuts.”
MTF’s analysis relies on the belief that Baker will return corporate tax settlements over $10 million to the rainy day fund along with capital gains tax revenues over $1 billion. The combined effect of sequestering those revenues for state reserves would be a $463 million hit to the operating budget, according to MTF.
Capital gains revenues are on track to exceed this year’s original expectations by about $200 million, and if the Legislature had not put them to use in the operating budget the fiscal year 2015 operating budget deficit would have grown to $1.2 billion, according to MTF.
Other one-time revenues that have helped prop up the budget are the lease of the Saltonstall building, accounting for $90 million, an estimated $88 million infusion from tax amnesty programs for individuals and corporations, and about $100 million in reversions from managers seeking to limit spending throughout state government, according to MTF.
On the spending side, MassHealth, the biggest budget item, will grow by $850 million if it stays on its trajectory, according to MTF.
“We fully expect ’16 will also be a challenging year financially, but it’s one of those things that we simply have to get to the point where spending is growing at a rate that’s consistent with the growth in revenue,” Baker told the New England Council last week. “I mean this is kind of government 101, business 101, household finance management 101.”
While the governor has authority over most state spending once it’s authorized, the House and Senate generally rewrite governor’s budgets and Democrats in both chambers have the numbers to ensure their priorities are set into law with or without Baker’s approval.
MTF predicted “modest” revenue growth over the next decade. From fiscal year 2009 to fiscal year 2020 revenues will grow an average of 4.4 percent per year, down from 6.5 percent in the 2000s, 6.4 percent in the 1990s and 11 percent from the late 1970s to the late 1980s.
McAnneny said while income tax revenue is expected to see “healthy growth,” sales tax revenue has been “pretty flat, given a lot of sales over the Internet.”
The business-backed group did not include in its analysis cash management policies that push off spending into the following fiscal year.