Mass. budget deal includes an unusual $800 million cushion amid 'economic uncertainty'

With the U.S. Senate grinding its way through the so-called "big, beautiful bill," state governments across the country could soon find out the full scale of budgetary impacts stemming from federal cuts to Medicaid and other programs.

And in Massachusetts, lawmakers quietly built themselves a roughly $800 million cushion.

The compromise $61 billion fiscal 2026 budget bill that the Legislature approved Monday leaves more than three-quarters of a billion dollars budgeted but not spent in the face of uncertainty about federal actions and broader economic trends, top legislative aides confirmed to the State House News Service.

Lawmakers did not draw attention to the sizable gap between the revenue forecast and projected spending in the updated budget, which negotiators filed Sunday afternoon. Press releases touting the budget made no mention of the roughly $800 million sum, and no representative or senator brought it up during Monday's House and Senate sessions.

The apparent first public reference to the maneuver came from the Massachusetts Taxpayers Foundation think tank, which in a report published Monday said the compromise spending plan included a "budget surplus of more than $800 million, which could mitigate negative tax revenue impacts in the future."

"It is unclear what the plan is for this significant balance, but it could be effectively a placeholder to mitigate the impact of future tax revenue declines," MTF wrote in its report.

Asked about MTF's findings, both House Speaker Ron Mariano's office and Senate Ways and Means Committee spokesperson Sean Fitzgerald confirmed that the business-backed organization's assessment is correct.

"This is one way that the final budget safeguards the state against economic uncertainty and will insulate residents from financial headwinds from the federal government or elsewhere," Fitzgerald said in a statement to the State House News Service.

Doug Howgate, MTF's president and a former Senate Ways and Means Committee budget director, said MTF's analysis found budgeted revenues in the plan are about $805 million higher than spending and pre-budget transfers.

Howgate said it's not uncommon for a state budget proposal to have more in revenue than in spending, sometimes around $100 million or $200 million, but added it's "unusual" to see such a large gap.

"What appears to be the magnitude here is more than you would typically see," he said in an interview. "My guess is it speaks to what we wrote about in our conference preview, which is trying to account for some of the uncertainty, volatility, and downside risk in the balance sheet by taking spending down while projected revenues are still in excess of that amount."

Budget-writers have spent months publicly fretting about the impacts that could stem from federal funding cuts, especially to Medicaid, which the U.S. Senate was debating Monday at the same time that state lawmakers agreed to a final spending plan.

MassHealth, which combines Medicaid and the Children's Health Insurance Program, is the single largest area of spending in the state budget, set for $22.1 billion in the plan lawmakers approved Monday.

"Any slight impact or slight reduction in federal support for Medicaid could have a material impact on the budget, and those are the facts that we will have to come to face if that action comes to fruition down in D.C.," Senate budget chief Michael Rodriges said.

The $61 billion budget that landed on Healey's desk would increase spending about $3.3 billion or 5.6% over the version Healey signed last summer, with significant increases for MassHealth, education and transportation.

Negotiators trimmed some of their early spending ideas. The final compromise bill carries a bottom line nearly half a billion dollars less than the House- and Senate-approved budgets, and about $1 billion less than the plan Healey rolled out in January, before the full scope of potential federal cuts became clear.

"To me, it's not common for the conference committee to reduce spending by $400 million or $500 million from the House or Senate version," Howgate said. "I think these things are related — a desire to tamp down spending a little bit while at the same time building in a level of insulation on the revenue."

The Legislature has long drawn criticism for operating in an opaque, top-down manner. After a chaotic end to the prior lawmaking term — and an overwhelming victory at the ballot box for Auditor Diana DiZoglio's attempt to audit the House and Senate — legislative leaders embraced a series of reforms they said would make their operations more transparent and accessible to the public.