April 11, 2007

MBPC’s Preliminary Analysis of the

House Ways and Means FY 2008 Budget
The budget proposal released by the House Ways and Means Committee today increases
unrestricted local aid for education by $220 million, which is $20 million more than the
Governor’s recommendation. It also provides greater funding for higher education than was
proposed by the Governor. In other areas, however, the budget provides less funding than the
amounts proposed in House One (the Governor’s budget proposal). Specifically, the House
Ways and Means proposal does not include the Governor’s public health initiatives to increase
the state’s investment in smoking prevention and to provide new vaccines to protect children
from rotavirus, meningococcal conjugate and human papilloma virus. The House Ways and
Means recommendation also does not provide the $33.6 million recommended by the Governor
to pay for new police officers, but it does maintain the $21.4 million appropriation for
community policing that House One did not fund.

Perhaps the most significant manner in which the House Ways and Means Committee budget
proposal differs from the Governor’s is that it does not include the Governor’s initiatives to
reform the corporate tax code to reduce tax avoidance. The cost of continuing to allow these
forms of tax avoidance would be approximately $300 million in FY 2008, and more in future
years.

The House Ways and Means budget does not make up for this forgone revenue with new taxes or
spending cuts. As a result, the budget contains a structural budget gap of over $300 million that
is filled by the use of reserve funds. The risk of this strategy is that when a budget is structurally
out of balance in one year, then balancing the budget in future years generally requires
significant spending cuts or new revenue.

During periods of economic expansion it is prudent for state governments to spend less than they
take in and to deposit the resulting surpluses into reserves so that basic services can be
maintained during future recessions. By operating with structural deficits when the economy is
not in recession, a state risks eating away at reserves that will likely be urgently needed during
the next recession. Not having adequate reserves when a recession begins can force policies that
are damaging to the people of the state and to the state economy.

This preliminary analysis of the House Ways and Means budget proposal will identify some of
the major items in this budget proposal that differ significantly from the current year budget and
from the Governor’s recommendations. MBPC will provide a more complete analysis in a
House Ways and Means Budget Monitor to be published next week.

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Aid to Cities and Towns

• The House Ways and Means Committee’s proposal for unrestricted local aid to cities and
towns equals the Governor’s proposal. The Committee and the Governor would increase
lottery aid to cities and towns by $15 million and hold additional assistance constant at the
FY 2007 level. Payment in Lieu of Taxes (PILOT) is proposed to be increased by $3 million
over FY 2007 levels. In total, the House Ways and Means Committee proposal, and that of
the Governor, would increase unrestricted local aid to cities and towns by $18 million or 1.4
percent.

• The House Ways and Means Committee proposes to fund local law enforcement assistance
grants, generally used for community policing, at $21.3 million. However, the House does
not include funding for the Municipal Police Grants program proposed by the Governor.
While the House Ways and Means Committee proposes funding for municipal policing at the
same level as FY 2007, the proposal is about $12 million below the amount proposed in the
Governor’s budget.

• Consistent with the Governor’s proposal, the House Ways and Means Committee would
transfer $643.7 million to the state’s school building assistance fund. This amounts to a $77
million increase over the amount transferred in FY 2007. This funding level is determined
by formula and monies are diverted from revenue rather than appropriated. This represents
valuable aid to cities and towns in maintaining their educational infrastructure, but it is not
unrestricted local aid.

K-12 Education

• The House Ways and Means proposal follows a joint legislative resolution reached with the
Senate on April 4th that would increase funding for Chapter 70 aid for K-12 education from
$3.505 billion in FY 2007 to $3.725 billion in FY 2008, an increase of $220 million or 6.3
percent. This proposal reflects $20 million more in education aid than was contained in
House One. However, the joint legislative resolution contains many differences in the
calculation of aid from House One. These are summarized as follows:

o First, the resolution increases foundation budgets by adding $50 for every limited
English proficient student and $25 for every low-income student. This is a
progressive measure that boosts the total foundation budget for districts serving high-
need students.
o Second, communities spending much less than the amount dictated by the formula are
required to increase their local contribution. This slightly increases the required local
contribution for those districts that are not yet contributing the target local amount to
their district’s foundation budget.
o Third, the House proposes to fund effort reduction for high-effort communities by
providing the additional state funds necessary to allow these communities to reduce
their local share by 25 percent of the remaining gap between their current local share
and their target local share. By funding 25 percent of the remaining gap in the second

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 year of the legislature’s proposed formula changes, 40 percent of the original gap will
be closed. This should keep the state on track to close the entire gap in five years.
o Fourth, downpayment assistance in the resolution is funded at 30 percent of the
original gap between communities’ current state aid and their target state aid once
they reach their target local effort. Unlike the Governor’s proposal, which gave
communities 47 percent of the amount dictated by the formula, the House proposal
provides the full amount dictated by the formula.
o Fifth, growth aid is funded using the same mechanisms as in House One; however, as
with downpayment aid, the House does not follow the Governor’s proposal of
funding only 47 percent of growth aid.
o Finally, both House One and the House Ways and Means Committee provide funding
to ensure that every district has a minimum aid increase of $50 per pupil.

• Among programs for K-12 education, the House Ways and Means Committee proposes
increasing kindergarten expansion grants and extended time learning grants by $3.6 million
and $3.0 million respectively. These increases are lower than those proposed in the
Governor’s budget which included a $12.2 million increase for kindergarten expansion and a
$6.5 million increase for extended learning time.

• The House Ways and Means Committee also proposes increasing funding for reimbursement
of school districts’ extraordinary special education costs. This amount is proposed to be
increased by $11 million or 5.3 percent.

Higher Education

• The House Ways and Means Committee would increase funding to the University of
Massachusetts system, the state colleges, and the state community colleges from about $893
million in FY 2007 ongoing appropriations to $926 million, an increase of 3.7 percent. The
University of Massachusetts system would see its funding increase from $450.9 million in
FY 2007 ongoing appropriations to $469 million in FY 2008. The House Ways and Means
Committee proposal increases funding for the higher education institutions by about $17
million more than the Governor’s budget proposal. While House One consolidated funding
for state colleges and community colleges into one line item for each system, the Ways and
Means Committee retains individual line items for each system.

• State funding for scholarships to Massachusetts college students would increase by $4.7
million or 5.2 percent under the House Ways and Means Committee’s budget proposal. This
is a difference with the Governor’s proposal, which level-funded state scholarship aid.

Public Health

• Total public health funding in the House Ways and Means budget is $515.5 million. This is
$31.5 million (six percent) less than recommended by the Governor, but $3.0 million more
than in Fiscal Year 2007. Funding for non-hospital public health programs is seven percent
less than the Governor’s recommendations, and hospital-based public health funding is two
percent less.

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• The House Ways and Means budget recommendation for public health programs, as in other
areas, does not follow the Governor’s proposal to consolidate funding for a variety of
programs. For example, rather than consolidating several services under the category of
“health promotion and disease prevention,” the House Committee on Ways and Means
continues the previous years’ practice of funding the several line items separately.
Accordingly, in these instances it is easier to compare the House Ways and Means budget
recommendation with Fiscal Year 2007 levels than it is to compare them individually to the
Governor’s recommendations.

• Specifically, highlights of the House Ways and Means budget include:

o $38.4 million for the universal immunization program. The Governor’s budget had
recommended $61.6 million for immunizations, including recommendations that the
Department of Public Health include rotavirus, meningococcal conjugate and human
papilloma virus in the vaccination regimen. Instead, the House Ways and Means budget
recommends that the Department study the efficacy of these vaccines. Funding in Fiscal
Year 2007 was $36.8 million.
o Level funding at $8.3 million for smoking prevention and control programs. The
Governor had recommended a major expansion in these public health activities, and had
recommended $16.3 million for smoking control and prevention – almost twice the level
recommended by House Ways and Means.
o Funding for substance abuse programs at $78.5 million, same as recommended by the
Governor. This is $8.2 less than Fiscal Year 2007 levels.
o $1.0 million for programs for treatment of compulsive gambling. This is 53 percent more
than the Governor’s recommendation, but is level funding when compared to Fiscal Year
2007.
o $3.8 million for community suicide prevention programs, a $2.5 million increase over
both the Governor’s recommendation and the Fiscal Year 2007 funding level.
o Most of the public health screening programs (for example, for osteoporosis, prostate
cancer, colorectal cancer, Hepatitis C, multiple sclerosis, renal disease, ovarian cancer
and diabetes) receive funding at the same level as in Fiscal Year 2007. Screening and
treatment for early breast cancer detection, however, is funded at $6.7 million, which is
almost $700,000 less than the FY 2007 level of just under $7.4 million.

Human Services

• The House Ways and Means Committee proposal does not adopt the Governor’s
recommendation of consolidating line items related to homelessness into two larger items,
instead maintaining distinct line items for various services to the homeless. Aggregating
these line items, the House is proposing $161.1 million in funding for programs that
primarily serve the homeless or those at-risk of becoming homeless. This is almost $8
million more than was provided in FY 2007 and about $1 million more than was proposed in
the Governor’s budget.

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• Funding for the state’s largest human services departments would increase relative to FY
2007 under the House Ways and Means proposal, but would remain relatively similar to the
amounts proposed in the Governor’s budget. The Department of Mental Health is funded at
$665 million in the House proposal, an increase of $18 million over FY 2007 and about the
same as the Governor’s proposal. Funding for the Department of Social Services is proposed
to increase by $25 million over FY 2007 in the House proposal, about $5 million more than
was proposed by the Governor. Finally, Department of Mental Retardation is proposed by
the House to be funded at $1,226 million, a $50 million increase over FY 2007 and about $10
million more than the Governor’s proposal.

• The House recommends funding the human services rate reserve, to boost the wages of the
state’s lowest paid human services workers, at $12 million, the same amount as was proposed
in the Governor’s budget and $16 million less than was provided in FY 2007.

Group Insurance Commission

• Like the Governor, the House Ways and Means Committee would create an off-budget fund
called the State Retiree Benefits Trust Fund, and would shift money from the General Fund
to this off-budget fund. It would be used to pre-fund future state employees’ health care costs
during retirement. The proposals to create the fund are a response to a change in accounting
rules, which mandate that state governments begin to measure their unfunded obligations for
future retiree health care benefits and consider options for financing them. While the new
rules do not require contributions to a savings account, the disclosure requirement creates an
incentive for governments to do so. A growing obligation in a government’s balance sheet,
with no plan to begin funding it, is damaging to its credit quality.

• For FY 2008, the Governor proposed a shift of $380.5 million from the General Fund to this
off-budget fund; the House Ways and Means Committee shifts $345.1 million. While the
House Ways and Means Committee proposes a smaller off-budget amount than the
Governor, their on-budget proposal is larger by $30.2 million. Overall, the Ways and Means
Committee’s proposal is $5.2 million less than the Governor’s proposal.

Medicaid/MassHealth and Other Health Programs

• Total appropriated Medicaid/MassHealth funding in the House Ways and Means budget
recommendation is $8.28 million. The Governor’s recommendation for appropriated funding
for these programs was $8.27 million. Whereas the Governor’s budget had recommended
consolidating various Medicaid/MassHealth accounts, the House Ways and Means budget
recommendation removes these consolidations. It is difficult to do a direct line item to line
item comparison for Medicaid/MassHealth funding.

• Also included in the House Ways and Means budget are:

o $50,000 more for enrollment and outreach grants, compared to the Governor’s
recommendation, for a total of $550,000. Funding for enrollment and outreach grants in
FY 2007, however, was $3.5 million.

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 o Like the Governor, the House Ways and Means budget brings “on-budget” a rate
supplement for nursing home providers that had previously been funded through the
Health Care Quality and Improvement Trust. The amount of this supplement remains at
$288.5 million.
o $15.2 million for the Children’s Medical Security Plan, the same amount as
recommended by the Governor.

• As in the Governor’s budget recommendation, the House Ways and Means budget includes a
total of $907.8 million in funding for health care programs from a variety of non-budgeted
special revenue trusts. This includes $28.0 million designated for “essential community
providers” and $251 million in supplemental payments for certain safety net health care
providers. The House Ways and Means budget also designates $160 million in payments
from both hospitals and surcharge payers, and $33.9 million transferred from the
Commonwealth Care Trust to help fund the Health Safety Net Care Pool.

Elder Affairs

• The House Ways and Means budget recommendations includes $226.4 million for programs
for elders, just slightly less than the funding recommended by the Governor, and slightly
more than in Fiscal Year 2007. The House Ways and Means budget did not follow the
Governor’s recommendation to consolidate the funding for elder home care services or
supportive housing. The House Ways and Means budget includes a total of $188.3 million
for home care, compared to $189.1 million recommended by the Governor, and $186.6
million in FY 2007. The House Ways and Means budget recommends a sixteen percent
increase in programs for supported housing for elders, for a total of $6.2 million. This is an
increase over both the Governor’s recommendation of $5.3 million, and the FY 2007 funding
of $5.8 million. Elder home care services, on the other hand,