Scoop: Massachusetts considered using health care subsidy funds in case of shortfall
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Baker administration officials considered using money from a $225 million fund meant to cover health care costs for low-income people to plug a budget hole in the event that the state would have faced a deficit because of a 1986 law that triggered automatic tax refunds.
Driving the news: Documents obtained by Axios through a records request and reviewed by more than two state budget experts indicate the administration explored the scenario in mid-June as they considered what to do if they faced a nine-figure budget deficit.
The big picture: Massachusetts had a historic surplus of $5.3 billion at the end of fiscal 2022, and officials didn't have to use the health care subsidy to pay the bills. Baker administration officials say they were never concerned about a potential deficit, and that they routinely monitor how spending bills, fluctuating tax revenue totals and other factors affect finances.
Yes, but: The records indicate that if state budget officials did have trouble avoiding a budget shortfall, they would have considered diverting the funds — typically dedicated to health care costs for the state's poorest residents — to plug any deficit.
Meanwhile, few others on Beacon Hill seemed to realize until weeks later that a decades-old tax refund law was coming into play, requiring the state to return nearly $3 billion of the surplus to taxpayers.
- Evan Horowitz, executive director of Tufts University's Center for State Policy Analysis, who reviewed these documents for Axios, says budget analysts faced a complex "accounting game" before June 30 because of the automatic tax refunds.
- “They were playing a game that nobody else even realized was being played or was necessary,” he said.
What they're saying: “I'm really disappointed that there was consideration of sweeping a trust fund specifically to pay for health care for low- and moderate-income people to balance the budget, especially in a time of both really great need coming out of COVID and more surplus revenues than we've seen in years,” Rep. Christine Barber (D) told Axios in an interview.
The other side: The Baker administration declined to make Secretary Michael Heffernan or other Administration & Finance officials available for an interview, but reiterated that they were never concerned about a budget shortfall.
- “As is standard practice for any responsible organization managing a large and complicated budget, A&F routinely prepares forecasts that account for a wide range of possible scenarios, in order to be prepared should unexpected developments occur,” an A&F spokesperson said in a statement to Axios.
- “This scenario was one of many used for internal discussion purposes from several months ago, before the full revenue picture was known, and included some of the most cautious assumptions that could be made at the time.”
Context: In late July, Democrats were also clashing with Gov. Charlie Baker over the ConnectorCare program.
- Top Democrats wanted a pilot program to expand eligibility for ConnectorCare to middle-income residents who struggled with health care costs but didn't qualify for the subsidies. Baker opposed the expansion and ultimately vetoed it.
- In a letter dated June 30, Heffernan notified top Democrats that the state was considering diverting the health care subsidies fund to the general fund, prompting lawmakers to pass legislation to block the transfer.
While the ConnectorCare fund remained in place, Democrats faced a bigger problem: An economic development package with proposed tax rebates the state presumably couldn't afford.
- “The triggering of this piece for the first time in 35 years — to the amount that it was triggered of $3 billion with less than a week to go in the formal legislative session — certainly made us want to take a cautious approach,” House Ways and Means chairman Aaron Michlewitz said in an interview with Axios.
Flashback: The 1986 law requires that Massachusetts return money to taxpayers when the state collects a certain amount of extra tax revenue.
- The law was triggered once in 1987, when the state owed $29.2 million to taxpayers.
- Few realized the law might have been triggered until a July 27 Commonwealth Magazine story, days before the end of formal sessions.
What's next: The state owes $2.9 billion in taxpayer refunds, the state auditor said in her letter certifying the revenue surplus on Sept. 15.
- The refunds typically get applied as a credit on taxpayers' 2022 tax returns, but Baker says the refunds will go out in November, roughly a month before he leaves office.