Baker Leans On Revenues, Spending Cuts To Balance Budget

With five months left in the 2015 fiscal year, Gov. Charlie Baker on Tuesday filed a corporate tax amnesty proposal and sought to slice $514 million in spending as part of a budget-balancing plan to address a $768 million deficit.

The plan also relies on $254 million in new revenue. Legislative approval is needed for the two-month corporate tax amnesty portion, proposed use of $179 million in revenue, and $103 million in cuts.

The proposed revenue includes the diversion of $131 million in capital gains taxes that would normally go into the rainy day fund, $18 million from the tax amnesty program, and $105 million in other revenue.

Baker's plan includes $150 million in executive branch spending reductions that the governor is making through use of his emergency "9C" powers to cut appropriations. The governor is using those powers to make 300 reductions that do not need legislative approval. Former Gov. Deval Patrick in November also made 9C cuts as part of an effort to restore balance to the $36.5 billion budget he signed in July.

Baker's budget chief, Kristen Lepore, said the 9C cuts are being meted out roughly across the board in state government.

The plan also calls for $53 million in requested cuts from the judiciary branch and constitutional and legislative officials — 1.79 percent of their fiscal 2015 budgets — and uses $108 million in unspent money, also known as "reversions."

During a State House press conference, Baker said his plan is in sync with his pledge not to raise taxes or cut local aid and also does not count on draining funds from the state's savings.

"Even with all of these adjustments that we're making and proposing here today, state spending year over year in fiscal '15 is going to go up about 7.7 percent," Baker said. "That is simply not sustainable over time, even in a great economy. We certainly have a good economy, many people would say a very good economy. As a result, state government needs to figure out how to spend within that construct."

Administration officials said most of the cuts are focused on administrative savings and programs not yet "off the ground," they will have a "minimum impact on core state services," Lepore said.

According to the list of 9C cuts, Baker is slashing $5 million for kindergarten expansion grants and $5 million in funding for substance abuse counselors, as well as $100,000 from the state Parole Board. The governor also is slicing funding for the Department of Revenue's child support enforcement division by nearly $5 million, and shaving $5.8 million in funding from the State Police.

Baker eliminated funding for the establishment of an office of the state climatologist. Gov. Patrick touted the inclusion of $200,000 for the office when he signed the fiscal 2015 budget in July, but had to cut $125,000 during his own 9C cuts in November.

The governor cut state parks and recreation funding by $839,684 to $40.3 million, on top of Patrick's $3.1 million cut in November.

A "chunk" of a proposed $40 million transportation spending cut comes through not filling job vacancies, according to Lepore.

Baker said his plan is in keeping with his belief that state government should "live within its means" like families and small businesses. Under his proposal, the governor's office will cut its own spending by 10 percent, Baker said.

Baker also plans to re-determine eligibility of individuals enrolled in the MassHealth insurance program and will hold back on spending state funds on services not covered by the federal government.

According to Baker, Massachusetts is required under federal law to make eligibility re-determinations and has not done so since the Health Connector website's "meltdown." The state will restart re-determinations at the end of February, Baker said.

Lepore said 60 percent of the nearly 300 line items slated for cuts will still be left with more funding than in their fiscal 2014 budget.

Many of the reductions to mental health line items, totaling roughly $11 million, are cuts in administrative costs and should not affect services, a Lepore spokesman said.

Lt. Gov. Karyn Polito, who joined Baker and Polito at the press conference, said Baker's plan holds harmless from cuts the Department of Children and Families and programs that serves homeless individuals.

Eileen McAnneny, president of the business-backed Massachusetts Taxpayers Foundation, said Baker's plan is "probably the most reasonable way to go forward."

Because the plan relies on one-time solutions, she said, a structural deficit looms in fiscal 2016, which starts in July. Baker's proposed fiscal year 2016 budget — his first as governor — is due by March 4.

McAnneny said the structural deficit is "sizable," though the exact amount is unclear.

The total budget gap for fiscal 2015 was pegged at $1 billion, with former Gov. Patrick's administration cutting the deficit by $252 million, according to a tally by the Baker camp.

Baker's original estimate of a $765 million deficit was revised on Tuesday to $768 million.

Baker said the state government hiring freeze instituted his first week in office and contractual freezes helped "in the short term." The hiring freeze saves $22 million, according to the Baker administration.

Other savings include $73 million from programs not started, including $37 million from an economic development bill; a $200,000 parking management study, a $2.3 million clean water planning and technical assistance program, and $600,000 from a water technology innovation program.

In his budget fix proposal, Baker also proposed using $131 million in capital gains taxes that would ordinarily fill the state's rainy day fund, along with a two-month corporate tax amnesty program.

Baker also needs legislative approval to draw on $30 million from the Commonwealth Care trust fund. According to a Lepore spokesman, the fund currently has a $50 million surplus and is funded through a variety of revenue streams, such as the cigarette tax, individual mandate penalties and employer assessments related to health care coverage.

Both House Speaker Robert DeLeo and Senate President Stanley Rosenberg expressed support for the capital gains move after a meeting with Baker in the governor's office on Monday.

After Baker's press conference on Tuesday, a spokesman for House Speaker Robert DeLeo said only that it would be reviewed by the House Ways and Means Committee. DeLeo has not named members to that committee and his spokesman did not respond to an inquiry about whether Baker's bill will have a public hearing.

Rosenberg said he needed time to look over the specifics. "We've got a framework and we're starting to understand the framework," Rosenberg said.

Rosenberg agreed with Baker's stance on saving the Department of Children and Families from the budget ax, saying the agency's budget has not recovered from cuts made during the recession.

Treasurer Deborah Goldberg, who spoke to the News Service before learning of the details of Baker's plans on Tuesday, was pleased that Baker's budget fix proposal does not draw down state reserves, and she said she understands the logic of diverting capital gains taxes from the rainy day fund to help close the deficit.

Goldberg had warned against using the rainy day fund to solve the mid-year problem, and she said Baker and she agree on the need to build up state reserves.

"Not raiding the rainy day fund is great. I am absolutely delighted with that, and I totally understand as a one-time fix we want to balance the budget so that we can move forward in a balanced budget situation where we are then moving funds into the rainy day going forward," Goldberg told the News Service Tuesday after a meeting with pension fund officials.

"I was saying we want to grow it over time. Well I know that the governor absolutely agrees with me on that," Goldberg said.

Andy Metzger and Mike Deehan contributed reporting



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