NE Budget Math: Two More Plus Four Equals All Six NE States with Budgets Passed

All six New England states have completed the initial step in their budget processes in this very difficult fiscal year.

In mid-June, we reported that Connecticut and Vermont had completed budgets in record time, followed by completions in Maine and New Hampshire. Now, Massachusetts and Rhode Island ...

Massachusetts Budget

To the consternation of labor leaders, Democratic lawmakers in Massachusetts, who have had long had the support of organized labor, initiated changes in negotiating the cost of health insurance in cities and towns. The plan reduces the leverage of local unions in the collective-bargaining process and gives management more say at the table. Municipal leaders urged the Legislature to address skyrocketing health care costs at the local level, which have been instrumental in layoffs and budget shortfalls.

Eleven days into FY12, which began on July 1, Gov. Deval Patrick signed a $30.6 billion spending plan, which was balanced with a series of spending cuts and $185 million from the state's rainy day fund. Facing an anticipated $2 billion gap in revenues and spending, Patrick and legislative leaders chose to cut local aid, higher education and Mass Health, as opposed to adding revenue-raising measures.

Among highlights, the Bay State budget:

• levies no new broad-based taxes
• cuts Mass Health, the state's Medicaid program by $800 million
• cuts funding in half for adult day-care programs
• cuts annual clothing allowance for needy children from $150 to $40
• cuts public higher education by approximately $70 million
• reduces education aid/Chapter 70 funding from $4.47 to $3.99 billion
• reduces local aid to cities and towns by $65 million (which can be restored if revenues continue to come in above projections for the remainder of FY 2011)
• provides a 3% increase to retired state employees on the first $12,000 in pension benefits
• revamps the state's public defender program by which will eliminate reliance on high-priced private attorneys

Restricting Collective Bargaining

The governor took steps to modify the health insurance reform passed by both branches of the Legislature for municipalities negotiating health insurance. The plan is expected to save cities and towns approximately $100 million in the first year. At the outset, labor officials were outraged and threatened to replace lawmakers who supported the plan. In the Commonwealth's financially strapped cities and towns, skyrocketing health insurance costs have been taking their toll on local services and school budgets which in many instances resulted in the loss of public safety and teaching jobs. The plan passed by the House and Senate leaders provides local officials with greater leverage in controlling local health insurance costs.

To assuage the concerns of labor, Patrick proposed amendments to the Legislature's plan, including:

• setting aside 5% of the savings to create a mitigation fund to address issues associated with changing the design/plan and the effect of such changes on retirees and low-income workers.

• establishing a threshold for unilateral decisions made relative to transferring subscribers into the Group Insurance Commission (GIC) , the government entity that provides health insurance for state employees, retirees, housing authorities and some municipalities. A municipality would have to demonstrate a 5% savings above what can be achieved by the current plan in a city, town. A city or town that transfers into the GIC would lose control over setting rates for local health insurance and would have to make a three-year commitment, as well as paying administrative fees.

• deleting a Senate section that would have required many cities and towns to increase contributions for retirees and replaces it with a two-year grace period for communities that implement a change in plan/design.

• clarifying the language regarding plan/design features which cannot exceed what is available in a plan under the GIC. Labor expressed concerns that municipalities could strip employees of basic coverage offered in health plans such as mental health services.

K-12 Education

Funding for school districts will be reduced by $82 million, which reflects in part, the loss of $221 million in federal stimulus dollars.

According to the Massachusetts Teachers Association, K-12 grant programs will see funds increase for:

• Special Education Circuit Breaker Program by $80 million with total funding of $213 million for FY12
• Regional School Transportation by $3 million over FY11 with total funding of $43.5 million for FY12
• Massachusetts Comprehensive Assessment System (MCAS) by $5 million with total funding of $9.5 million.

Full-day Kindergarten, Expanded Learning Time and the METCO program were all funded at 2011 levels.

Higher Education

The public higher education system will be funded at the FY11 state appropriation level. A total of $61.5 million in federal stimulus funds used in FY11 will not be available in FY12.

The University of Massachusetts approved a 7.5 % increase in student fees which will, according to University officials, help close a gap of $54 million. Of the $54 million shortfall, $38 million can be attributed to the loss of federal stimulus funds. Students will pay $800 more in fees. Retiring President Jack Wilson said that at least 30% of the fee revenue would be used for financial aid programs. In academic year 2011-12, and undergraduate students who are state residents will pay an average of $11,838 in tuition and mandatory fees.

Rhode Island Budget

Lawmakers worked with newly elected Gov. Lincoln Chafee to put together a spending plan that includes cuts in benefits for state workers, increases sales tax revenues and increases the cost of health care for many enrolled in the state's Medicaid program.

The Rhode Island General Assembly and Chafee approved a $7.7 billion budget one day before the beginning of the new fiscal year. The budget eliminated a $186 million shortfall created by the absence of stimulus funding. The budget also cuts $100 million in state spending.

At the beginning of the budget process, the state faced a $331 million shortfall, which prompted Chafee to propose a reduction of the state's sales tax from 7% to 6%, while adding a lengthy list of items currently not taxed. Legislators balked at the governor's recommendations. In the meantime, revised revenue forecasts essentially cut the shortfall to $186 million.

Among highlights in the Rhode Island budget:

• Additional revenue will be raised by taxing non-prescription drugs, software and video downloads, smartphone applications and sightseeing tours which will have a 7% sales tax added Oct. 1. This is expected to generate approximately $17 million in new revenue.
• Families enrolled in Rite Care, the state's Medicaid Program, who are above the poverty level with annual incomes of $33,000, will pay higher monthly premiums. Premiums will rise from $61 to $91 per month.
• School construction projects will be sidelined for three years.
• Automatic pay increases for state workers based on years of service will cease.
• Longevity payments for state workers will be eliminated when current contracts run out.
• A referendum on the 2012 ballot will ask voters to approve table games like poker, blackjack and roulette at the Twin River slot parlor.

K–12 Education

K-12 education will receive $17 million in additional dollars, which essentially endorses the new education funding formula.

Higher Education

Chafee proposed an additional $10 million in state funding for the state's higher education system but the General Assembly slashed the $10 million to $4 million in increased funding. Rhode Island currently provides 15% of the funding for the state system and ranks near the bottom nationally in state appropriations to higher education. Officials at URI, Rhode Island College and the Community College of Rhode Island will need time to assess the impact of the final budget. CCRI was hardest hit in the budget and will be faced with reducing $5.6 million in operating expenses.

Legislators will return in October for a special session to take up pension reform.

Carolyn Morwick is a consultant at NEBHE and former director of the Caucus of New England State Legislatures.