House, Senate Negotiators Agree To $48.1 Billion Budget

A deal to raise tax collection estimates by more than $4.2 billion and spend nearly $48.1 billion in fiscal year 2022 came together Thursday with House and Senate lawmakers filing a compromise budget that would also make the state's controversial film tax credit permanent.

The budget deal, according to House and Senate officials, accounts for surging tax collections over the last six months that have far outpaced the projections agreed to by legislative leaders and the Baker administration at the start of the year.

The expectation of additional tax revenue was used by budget negotiators, in part, to create a $350 million trust fund that could be tapped in future years to help cover the cost of a $1.5 billion school funding reform law passed in 2019, known as the Student Opportunity Act.

The budget filed Thursday evening also reflects the decision of negotiators to cancel a planned draw on the state's reserves of at least $1.5 billion and proposes to make a supplemental deposit of $250 million into the state's pension system.

House Ways and Means Chairman Aaron Michlewitz and Senate Ways and Means Chairman Michael Rodrigues announced the compromise Thursday afternoon, and leaders in both branches hope to pass the budget on Friday and send it to Gov. Charlie Baker for his review.

Massachusetts is one of just four states in the country that started its fiscal year on July 1 and does not have an annual budget in place. Though the budget is already eight days late, the Legislature and Gov. Baker put in place a temporary budget totaling $5.4 billion to keep government operations funded through July.

The Legislature and Baker postponed implementation of the seven-year school funding reform law during the COVID-19 pandemic, but the new budget increases Chapter 70 school aid by $219.6 million in fiscal year 2022 to $5.5 billion. The spending puts the state back on track to meet the state's funding commitment over the next six years, and one budget official said the new trust fund would protect against future setbacks.

In addition to resolving disagreements over spending, leaders for the two branches came to an agreement that would permanently extend the state's tax credit for film production in Massachusetts, which supporters have defended as a job creator but critics have derided as too expensive.

The compromise plan calls for the January 2023 sunset of the tax credit to be cancelled, but would increase the eligibility threshold for a production company by requiring at least 75% of its filming budget to be spent or at least 75% of principal photography days to take place in Massachusetts.

The House had voted to simply eliminate the tax credit's expiration date, while the Senate proposed a four-year extension tied to an increase in the minimum number of filming days from 50%, a cap on eligible salaries at $1 million, and a ban on the transfer of credit.

The salary cap and transferability ban were not included in the final compromise.

The compromise budget also scrapped a Senate-backed plan to raise fees on Uber and Lyft rides to generate new money for the municipalities, the MBTA, regional transit authorities and other infrastructure needs.

The House has voted in favor of tiered increases in transportation network companies fees in the past, but they were vetoed by Gov. Baker and the branch did not include the fees as part of its budget proposal this year.

After fearing the worst at the start of the pandemic, legislative budget writers have largely avoided having to deal with the massive tax collection downturn forecast by economists at the start of the pandemic.

Instead, Democratic leaders have had the opposite challenge — how to allocate billions in unbudgeted revenues.

After agreeing in January to an estimate of $30.12 billion in taxes, Michlewitz and Rodrigues agreed in the budget filed Thursday to increase the tax revenue projections for fiscal 2022 to $34.35 billion, a whopping $4.23 billion increase.

The new projection reflects what House and Senate budget official described as an increase of $362 million, or about 1%, above preliminary tax estimates for fiscal 2021 of roughly $34 billion. The Department of Revenue has not yet released final tax revenue figures for fiscal 2021, but lawmakers are expecting a sizable surplus to spend after leaders verbally rejected Baker's call for a two-month sales tax holiday.

The new flexibility in the fiscal 2022 budget allowed negotiators to fund accounts across the board at the higher level of what was recommended by either the House or Senate, adding roughly $300 million in additional spending added to the $47.7 billion budgets passed by both branches this spring.

That step led to larger bottom lines for higher education, nursing homes, local health departments, mental health programs and early educator salaries.

The conference committee also agreed to boost funding for some accounts beyond what had been proposed previously, including an additional $17 million for the Workforce Competitive Trust Fund, $18 million for career-technical institutes, and $9.5 million for one-stop career centers.

House Speaker Ron Mariano's initiative to incentivize training for jobs in the offshore wind industry also got included with a boost from $10 million to $13 million, and a new cyber security consortium will work community colleges and state universities to create careers opportunities in cyber security.

Additionally, the compromise bill, according to officials, would cancel a planned withdrawal of at least $1.5 billion from the state's "rainy day" fund, and projects a deposit into the reserve account of more than $1.1 billion in capital gains taxes that would drive the balance of the emergency fund to $5.8 billion by the end of fiscal year 2022.

Other highlights of the compromise budget include one-time raises for sheriffs of about $20,000, the extension of an historic rehabilitation tax credit, a new tax credit for the hiring of disabled workers and the conversion of a child care tax deduction into a refundable credit that would allow more low-income families to qualify.

The final compromise also dropped a provision described in a letter last week by 40 House lawmakers as an "anti-worker" measure added to the Senate budget that would have reversed the state's law requiring triple damages in wage and hour lawsuits.