After Cutting Tax Relief, Legislature Sends $3.8B Bill to Baker

Massachusetts Lawmakers sent a large and long-overdue closeout budget and economic development bill to Gov. Charlie Baker's desk Thursday, winning support for the scaled-down measure from Republicans who agreed to the new spending while lamenting the death of tax relief top Democrats long promised.

A day after negotiators announced a resolution to their months-long impasse, both branches gave final approval to the nearly $3.8 billion bill that will deploy money remaining from an enormous tax surplus on health care needs, affordable housing, MBTA safety improvements and other needs while also allowing the comptroller to close the state's books for fiscal year 2022.

Legislative leaders opted to weave the closeout components, which typically feature in a standalone budget bill, into an updated version of the economic development bill that cleared both branches unanimously in July.

Any objection from a single representative or senator could have halted the progress of the bill (H 5374) because lawmakers punted the measure into the election-season stretch of informal sessions, but the bill sailed through easily over the course of the day.

The House accepted the bill with no commentary delivered in the chamber, and the Senate followed suit after its top Republican said he was displeased with the demise of previously approved tax relief measures but was unwilling to hold up the billions of dollars of spending designed to support Bay Staters and employers in need.

"At this important point, when one member could stop this process from moving forward, we will not jeopardize those important priorities," Tarr said in a speech on the Senate floor. "Too often, we see sometimes obstruction of someone else's agenda because someone isn't able to get all of their agenda. This is a time that requires statespersonship on behalf of all of us, so we will not stand in the way of helping all of those that need our help that will be the beneficiaries of some of the important appropriations in this bill. But what we will do is insist on a commitment to this IOU."

The House and Senate dropped from the bill $500 million in one-time tax rebates that Democrats had said would help middle-income families deal with inflation and rising costs, and authorization for another roughly $500 million annually in estate tax reforms and permanent tax breaks for renters, seniors, caregivers and others.

Democrats said they opted against keeping those measures due to "financial uncertainty in the year ahead" and the costs of nearly $3 billion in checks that started flowing out to taxpayers this week, as required under the 1986 voter-approved law setting a cap on allowable tax revenues. They pledged to return to the topic of tax relief next year, when a new governor will be in office.

Underscoring the tension between party leaders and Republicans who hold elected office on Beacon Hill, MassGOP Chair Jim Lyons took a far more critical tone, calling the bill a "progressive grab bag stuffed with handouts."

"They removed the tax cuts from the original package, and the reason they did that, according to their own words, is that they're uncertain about economic conditions moving forward," Lyons said in a statement. "Yet somehow that isn't stopping them from spending a whopping $3.7 billion of the taxpayers' money."

Lyons, a former representative, said approving the bill in an informal session -- the only kind of session legislative rules allow at this point in the calendar -- is "a slap in the face to the voters." He did not criticize House or Senate Republicans for not attempting to slow the bill down or block its passage.

House Minority Leader Brad Jones called the lack of tax reform in the bill after months of negotiations "disappointing," particularly because both branches had agreed to the idea unanimously this summer before Democrats became aware the state owed nearly $3 billion back to taxpayers under Chapter 62F.

"The 62F money is great, but it's not permanent," Jones told the News Service. "People need it with everything going up across the board and winter and cold weather coming upon us, but that's not permanent."

The bill approved Thursday combines spending measures that passed both branches unanimously in the earlier drafts of the economic development bill with some additions that neither the House nor Senate had previously debated or brought forward for a vote.

Its bottom line of nearly $3.8 billion uses $500 million in federal American Rescue Plan Act (ARPA) funds, less than half as much as both branches approved using in July, and exhausts the rest of the massive tax surplus the state collected in the fiscal year that ended June 30.

Spending highlights include $350 million in aid for hospitals experiencing pandemic-influenced financial strain, $225 million for human service rate increases, $195 million for nursing facilities and rest homes, $540 million for clean energy and climate resilience programs, $409.5 million for affordable housing, and $112 million to help the MBTA make federally mandated safety fixes, according to a Senate summary.

"We absolutely are looking forward to working toward more permanent relief after we provide this $3 billion of relief in this particular vehicle, more permanent relief in years going forward," Senate Ways and Means Committee Chair Michael Rodrigues said during debate at a pre-election session that most lawmakers did not attend. "I look forward to once again working with [Tarr], working with his caucus, working with every member here in the Senate as we draft and craft permanent tax relief going forward."

Baker, who proposed a similar package of tax relief in January, did not make clear Thursday whether he would try to revive any of those measures by returning the bill with an amendment, saying he needs first to "read it and talk about it and figure it out."

He voiced disappointment in the death-for-now of the tax measures, particularly with revenues continuing to surge through the first few months of fiscal year 2023.

"I feel bad for renters, I feel really bad for all those low-income taxpayers of Massachusetts who don't pay federal taxes, and there are a lot of people who have dependent care issues, some of which relate to the pandemic and some of which are just life," Baker told reporters after a State House event on Thursday. "The House and Senate basically reached an agreement on that, and I'm sorry it didn't make it through to the finals because with the cost of everything being what it is right now, that would've been a real benefit to a lot of those folks going forward."

"I hope they come back and do it next year, but that's a year lost and a year's worth of 6 percent increases on practically everything that people wouldn't have gotten the benefit of the tax relief for," he added.

Like he did during debate in May on the state's annual budget, Tarr took to the Senate floor with a bundle of props including burlap sacks and a hefty tome of state law. At one point, he unfurled a sheet of paper with the letters "IOU" emblazoned on it as a reference to the lack of permanent tax breaks in the bill.

The failure to reform the Massachusetts estate tax particularly stung Massachusetts Taxpayers Foundation President Eileen McAnneny, who said the Bay State is an "outlier" in how it imposes that levy.

"It's a missed opportunity and I hope they will revisit this in the new year," McAnneny said. She added, "A lot of people care about this. Our demographics, we tend to be an older state, so this is relevant for a large subset of taxpayers and the fact it came so close and didn't make it over the finish line may concern them."

Other items of note missed the cut for the final version as well, like giving cities and towns the option of allowing happy hours again, Baker's school safety initiative, and authorization for online Lottery sales.

The happy hour local option, which originated in the Senate, would have given municipalities a way to move away from the 38-year-old state ban on discounted drink promotions. Baker was no fan of the idea and said in September that he would "most likely" veto happy hour language if it reached his desk. At this late stage of the two-year legislative session, legislative rules disallow roll call votes to override a gubernatorial veto.

The supplemental budget that Baker filed in late August, which was melded into the economic development conference committee report, called for about $40 million for a school safety program that the governor had announced a few weeks earlier.

House Ways and Means Chairman Aaron Michlewitz said Wednesday that the package of matching grants for security and communications upgrades in K-12 schools and public higher education campuses, safety and multi-hazard emergency planning grant funding for child care providers, and more was not included in the final package.

The final economic development bill leaves out the House's authorization for the Mass. Lottery to sell its products over the internet. Citing increased competition for gambling dollars from casinos, daily fantasy sports and sports betting, Treasurer Deborah Goldberg has been asking for that power for years.

Also absent from the final economic development bill is any increase in the cap on the Housing Development Incentive Program, which has been set at $10 million since 2014. The House and Senate each adopted slightly different language to accomplish the same program expansion and the mayors of 24 Gateway Cities wrote to House and Senate leaders Monday to urge them to pick either approach for the final bill. HDIP expansion provisions were similarly approved by both branches but left out of the economic development bill that passed in January 2021.

Another item that was included in the original House and Senate bills but did not survive conference talks is a reauthorization for the brownfields tax credit, a key program to environmental mitigation and development efforts. Advocates said the tax credit program is set to expire in 2024.