Mass. legislature sends Healey bill spending $1.3 billion from taxes on wealthy

If Gov. Maura Healey puts her signature on the bill the Legislature sent her Wednesday, Massachusetts will inject more than $1.3 billion into transportation and education causes thanks to a revenue source that's been called into question over the last week.

With just a tiny handful of opponents, the House and Senate passed a compromise plan announced Monday to spend down surplus revenue generated in fiscal year 2024 by the state's surtax on household income in excess of about $1 million. The House enacted the bill on a 148-4 vote, with Republican Reps. John Gaskey of Carver, Alyson Sullivan-Almeida of Abington and Kenneth Sweezey of Duxbury joined in their opposition by Democrat Rep. Colleen Garry of Dracut. The Senate's 40-0 vote sent the bill to Healey's desk around 5:10 p.m.

"Here we are. Another week means another budget," Senate Ways and Means Chairman Michael Rodrigues of Westport said before the Senate gaveled in to consider two separate supplemental budget bills Wednesday.

The bill now on Healey's desk was the product of about three weeks of conference committee talks after each branch passed its own plan this spring. The agreement that lead negotiators described as a genuine compromise includes $716 million for transportation and $593.5 million for education. Surtax revenues are limited to those two uses under the 2022 constitutional amendment that put the 4% surtax in place.

In the first full year of surtax collections, fiscal 2024, Massachusetts collected $2.46 billion. The Legislature and governor were conservative in budgeting for surtax spending, and House Ways and Means Chairman Aaron Michlewitz said "that astonishing number exceeded everyone's expectations and left the commonwealth with $1.3 billion in surplus funds to spend" even after depositing $250 million into a reserve account.

"The uses of these one-time surplus of funds are a unique opportunity for us to better strengthen the commonwealth in numerous ways," Michlewitz said as he asked reps to vote for the conference report Wednesday. "By further improving our educational and transportation sectors, we will build off the work we have done in the last few budget cycles with judicious use of the fair share funds."

While the surtax revenue has given Beacon Hill Democrats an extra resource at a time when elevated spending appetites and federal pullbacks are colliding, it has also been blamed for driving wealthy households out of Massachusetts and contributing to a difficult business environment here. Healey last week said she would not oppose an effort to pare back the surtax (she later said she does not support repealing it) and Michlewitz said earlier this week that he also wants to see more data before taking a position on a hypothetical repeal.

The Department of Revenue reported last month that it had collected just less than $2.6 billion from the surtax between July 1, 2024 and April 30, 2025, surpassing fiscal 2024's total in just 10 months of fiscal 2025. May and June collections are expected to add to this year's total, and Administration and Finance Secretary Matthew Gorzkowicz has said he now thinks total fiscal 2025 surtax collections "could be closer to $3 billion."

When they built the fiscal 2025 budget, the administration and legislative leaders agreed to spend $1.3 billion in surtax revenue this year. If Gorzkowicz's estimate proves correct, the Legislature could have as much as $1.7 billion to spend in a similar surplus supplemental budget next year. Michlewitz acknowledged Wednesday that the surtax is "expected to run a large surplus again in FY 25."

When she was asked last week at a Boston Globe event whether she would support an effort to pare back or overturn the surtax, Healey didn't take a firm position.

"Well, the millionaire's tax, you know, came by way of a constitutional amendment, essentially. So it takes a little bit of doing and a fair amount of time, some years, to deal with that. What I have said is that I thought it was important for me, out of the gate, to cut taxes, which I did. And I'm continuing to look at ways to lower costs, including what other tax reforms are necessary," she said, according to a complete video of her remarks made available Tuesday. "I want Massachusetts to be a place where people are attracted to come and grow and make money and succeed and do well. So I think we need to be open to that. I think we need to be open to looking at what we need to do within our existing tax regime that will make us more conducive to that."

Of the $716 million in the conference committee bill for transportation, $535 million or just shy of 75% would go towards improvements and transportation infrastructure upgrades across the MBTA system that mostly serves Greater Boston. That includes $300 million to replenish the T's budget reserve account, $175 million in workforce and safety funding to pay for implementation of Federal Transit Administration recommendations, $40 million for physical infrastructure upgrades, and $20 million for the T's low-income fare relief program.

It also includes $103 million in transportation-related aid to cities and towns. Among that total is $80 million for supplemental Chapter 90 aid ($40 million of which is earmarked to help small and rural communities), $16.4 million to address problems with municipally owned small bridges and culverts, and $7 million for the improvement and maintenance of unpaved roads.

Reps. Sweezey and Sullivan-Almeida said they voted against the bill Wednesday because it includes language that requires towns subject to the MBTA Communities Act zoning law to comply with that in order to access those supplemental Chapter 90 dollars.

"As of today, three of my five towns: Marshfield, Halifax, and Hanson, are being penalized for standing by their local planning boards and residents. The conference committee claims it wants to support our communities, yet it is holding critical transportation funds hostage. That is simply not acceptable," Sweezey said.

Sullivan-Almeida said she was prepared to support the conference committee report "after seeing the Senate's version of the bill (S.2514), which restored key funding for roads and education" until she noticed the language about MBTA Communities Act compliance.

"Our vote today is not a vote against our schools or our transportation system — it's a vote against coercion and fiscal manipulation. We stand by our towns," she said.

The last line of the line item dealing with supplemental Chapter 90 funds declares that "funds from this item shall not be expended to municipalities not in compliance with the multi-family zoning requirement established in section 3A of chapter 40A of the General Laws as determined by the executive office of housing and livable communities."

There is also $73 million in the bill targeted for regional transit initiatives. That figure includes $25 million for capital improvements at regional transit authorities, $25 million for workforce recruitment and retention efforts at RTAs, $13 million for ferry infrastructure improvements, and $10 million for "on-demand micro-transit shuttles and Last Mile grants fostering an innovative multimodal transit system."

The bill includes $25 million for Quincy for a downtown parking garage "to help facilitate patient access to the planned development of a new medical facility." Another $5 million would be funneled into "transportation improvements" surrounding the 2026 World Cup, with seven matches planned at Gillette Stadium in Foxborough about a year from now.

Of the $593.5 million included for education, "the majority of that, $240.8 million, will go towards special education circuit breaker reimbursements for our school districts for FY 25 and FY 26 costs, helping the state meet the 75% reimbursement rate set out in the Student Opportunity Act," Michlewitz said.

It also includes $100 million for career technical education capital grants, $45 million for workforce, affordability and quality improvement initiatives in the early education sector, $25 million for "high dosage tutoring" to support literacy among students in grades K-3, $10 million to reduce the waitlist for English language learners, and $10 million to support a Holocaust museum in Boston.

There's also $115 million for public higher education deferred maintenance costs, including $10 million to modernize labs at community colleges.

In total, the conference committee bill appropriates $1.39 billion, with almost all of it coming from fiscal 2023 or fiscal 2024 surtax surpluses and much smaller portions of one-time spending stemming from the Student Opportunity Act Investment Fund and the Transitional Escrow Fund, officials said.