Details of Governor’s Higher Ed and Tax Proposals

Thanks, as always to the Massachusetts Budget and Policy Center, for their quick and concise analysis:

Higher Education

The Governor’s Fiscal Year (FY) 2014 proposal for higher education makes steady progress in reversing many of the cuts accumulated over the last thirteen years. State funding for higher education was cut $451.5 million between FY 2001 and FY 2013; therefore, the Governor’s proposed $197.0 million increase would help reverse a significant portion of this cut. When analyzing the Governor’s plan in the context of more recent years, however, higher education funding would come back in line with pre-recession levels after more than five years of funding declines.

Most state funding for public higher education goes directly to campuses. Specifically, the Governor proposes funding:

  • The UMass System at $493.1 million, an increase of $37.8 million over FY 2013.  This funding moves Massachusetts closer towards the goal of a 50/50 split between state support and student payments in the UMass System, but still represents a 10 percent reduction from pre-recession levels. Currently, state support covers about 43.6 percent of education-related costs at UMass campuses.
  • Community Colleges at $242.6 million, an increase of $32.2 million over FY 2013. Of this increase, $20.0 million would be distributed across campuses using a new performance-based funding formula approved last year. The $32.2 million increase for FY 2014 would cover about half of the Community College funding lost since FY 2001.
  • State Universities at $226.5 million, an increase of $30.9 million over FY 2013. Of this increase, $12.5 million would fund a new program to help State Universities advance the goals of the Vision Project. Even with this increase, State Universities would still receive $16.9 million less than were slated to receive at the beginning of FY 2009.

In addition to campus appropriations, the state funds several programs that support higher education statewide. Of note, the Governor proposes:

  • More than doubling funds for the State Scholarship Program, increasing it from $87.6 million to $199.6 million for FY 2014. Additionally, the Governor earmarks $149.3 million of this total for the MASSGrant program, which provides need-based financial assistance to Massachusetts undergraduates who enroll in any approved public or independent college, university, school of nursing or any other institution of higher education. Furthermore, if this proposal passes, the State Scholarship Program would be the only higher education-related program to see a significant increase from FY 2001 ($65.4 million, adjusted for inflation).
  • Dedicating $3.0 million of new funding for the Completion Incentive Grant Fund program, which provides incentive grants of up to $2,000 annually to low-income students for persisting and completing their degree or certificate program of study over a maximum of four years.



Tax Revenue

The Fiscal Year 2014 consensus tax revenue figure agreed to by the Administration, the House and the Senate is $22.334 billion, an amount 3.9 percent above the revised FY 2013 revenue estimate of $21.496 billion. The Governor, however, has proposed a package of changes to the Commonwealth’s tax laws that would raise additional revenue in FY 2014 and beyond. If enacted—and when fully implemented – the Administration estimates the proposed changes would produce a net annual gain of $1.9 billion. If enacted as part of the current FY 2014 budget process, the changes would take effect only part way through the fiscal year and thus total revenue gains in FY 2014 would be less than the estimated $1.9 billion annualized total. The Governor’s budget documents state that the administration expects the tax package to deliver $791 million in additional tax revenue in FY 2014.

The Governor, however, suggests ramping up FY 2014 investments in education and transportation more quickly than the increased FY 2014 tax collections ($791 million) alone would allow. In order to put more of the expected $1.9 billion in new annualized tax dollars to work starting in FY 2014, the Governor proposes pulling forward into FY 2014 some of the additional revenue that will be raised through his tax package in FY 2015 and FY 2016. The Governor’s budget pulls $275 million from FY 2015 revenues and $125 million from FY 2016 revenues into FY 2014 (this “pull” is achieved through borrowing against the anticipated revenue that will be generated in these future years). The result, according to the Governor’s budget documents, is that the tax package would make available about $1.2 billion in additional funds in FY 2014, $1.6 billion in FY 2015, $1.8 billion in FY 2016, and the full $1.9 billion in fiscal years thereafter.

The Governor’s tax package—having been modified slightly since its original release last week – now includes the following proposals (for a discussion of the likely impacts of various tax changes on households of different income levels, please see this MassBudget factsheet:

  • Increasing the income tax rate from 5.25 percent to 6.25 percent (raises $2.6 billion a year)
  • Doubling the personal exemption amount from $4,400 to $8,800 for a single filer and from $8,800 to $17,600 for married filers (reduces taxes by $1.1 billion a year)
  • Reducing the sales tax rate from 6.25 percent to 4.5 percent (reduces taxes by $1.4 billion a year)
  • Applying the sales tax to the purchase and installation of custom-modified computer software (raises $265 million per year)
  • Eliminating dozens of special tax breaks that reduce personal income taxes for eligible filers (raises $1.1 billion a year)
  • Eliminating a number of special tax breaks for businesses and clarifying the corporate tax code to prevent certain kinds of tax avoidance (raises $194 million per year)
  • Indexing the Motor Fuels Tax to inflation, which would prevent the further erosion of collections from this source. [For a more detailed discussion of new revenues available specifically for transportation funding, please see the section on Transportation in this report.]
  • Eliminating the sales tax exemption for soda and candy (raises $53 million a year)
  • Increasing the cigarette tax by $1 per pack, thus raising the tax to $3.51 per pack (raises $150 million a year).
  • Updating of tobacco tax laws in order to equalize tax rates on cigars and “smokeless” tobacco products with the tax rate applied to tobacco sold in the form of cigarettes (raises $16 million a year). (Smokeless tobacco products include items such as chewing tobacco, snuff, and nicotine-containing breath mints and lozenges.)
  • Capping the revenue lost through the Film Tax Credit at $40 million (raises $40 million a year)

As shown in his FY 2014 budget documents, the Governor relies on tax revenues totaling $23.182 billion. This indicates that he is counting on an additional $848 million in tax revenues above the consensus revenue amount, a total that is $57 million higher than the $791 million the administration is expecting the Governor’s tax package will deliver in FY 2014. It appears that this additional $57 million in tax revenue will come from the following sources:

  • $27 million from enhanced tax enforcement by the Department of Revenue, using special software and processes to identify promising collection and audit opportunities.
  • $26.2 million from the agreement the Administration reached with for the online retailer to collect sales taxes from its sales to Massachusetts customers
  • $2.6 million from the eliminating the exemption from the room occupancy excise tax for certain types of short term room rentals (such as B&Bs, rental vacation homes, and corporate executive temporary apartments