Gov. Healey announces budget cuts to cover $1 billion tax shortfall

The Healey administration on Monday unveiled $375 million in spending cuts to numerous social service programs to account for a growing tax shortfall.

The largest cut is to MassHealth fee-for-service payments — a reduction of $294 million. Programs like transitional aid to families with dependent children and a state supplement to Social Security income also will be impacted.

"The solutions that we're putting forth today are a balanced set," Administration and Finance Secretary Matthew Gorzkowicz told reporters Monday at the State House. "They were thoughtfully crafted with the aim of protecting programs and services."

The MassHealth cuts are said to largely reflect members using fewer services than originally budgeted in the state health plan for lower-income residents. The decrease proposed by Healey represents about a 9% savings on more than $3 billion in fee-for-service health payments.

According to the state's Executive Office of Health and Human Services, the MassHealth cuts will not affect member benefits or the rates paid to medical providers.

Across all categories — which also include funds related to transportation, housing and public safety — state officials say cuts are needed to make up for a $1 billion shortfall for fiscal year 2024. Tax collections have fallen short of expectations for six months straight.

One of the top 10 cuts on Healey's list is $6.2 million in a trust fund used to finance transportation projects. A spokesperson for the state Department of Transportation said the agency plans to manage the reduction "with no operational impacts."

Healey previously tried to ease fears of budget cuts, telling the State House News Service last month that "We're going to manage the situation."

But Gorzkowicz on Monday said December's 3.5% tax collection shortfall changed officials' thinking.

The administration plans to use $625 million of non-tax-related revenues to cover the remaining shortfall.

Gorzkowicz said broader economic factors are contributing to Massachusetts tax collections consistently falling short of projections.

"Look, the economy is growing, it's not growing as fast as we anticipated," he said. "And it's resulting in us making some mid-year adjustments which I think are both reasonable and expected."

But falling sales tax revenues are proving to be a drag on the state's finances.

"This is not what most states are experiencing," said Jared Walczak, vice president of state projects at the Washington, D.C.-based Tax Foundation. "Certainly there is a pullback from some of the sugar highs of the past few years, but sales tax revenues are fairly stable across the country."

Alan Clayton-Matthews, an associate professor emeritus at Northeastern University, said the dip in spending could be a result of several factors, including sluggish home sales — meaning fewer people are buying furniture and other items for new houses.

But he thinks the lull is likely temporary, as the economy remains solid: "I don't think this is reflecting an economy that's going into a recession. I think it's more reflective of just lower spending, at least temporarily, by people who have money."

Healey's tax relief plan, passed by the Legislature last year, could bring additional financial pressure to the state. It's projected to cost about $1 billion a year by fiscal 2027.

At the same time, the state is grappling with an emergency shelter funding crisis driven by a surge in migrants and unhoused families. Healey has proposed tapping a surplus fund to cover that program's roughly $915 million funding gap.

The administration will file the new plan for spending cuts with the Legislature on Monday, though no approval is needed.

Gorzkowicz said they'll begin implementing the spending cuts in the coming days.

WBUR's Priyanka Dayal McCluskey and Gabrielle Emanuel contributed reporting to this story.

This story was updated to clarify the reason for the MassHealth cuts, based on new information provided by the state.