Governor Baker spending bill accounts for $2.94 billion in tax relief

By Colin A. Young

AUG. 31, 2022…..Gov. Charlie Baker on Wednesday filed a $1.6 billion supplemental budget to close the books on fiscal year 2022, proposing another $200 million in aid for the MBTA and setting aside more than $2.9 billion of the state’s surplus to be returned to taxpayers.

The bill (HD 5364) would still leave the Legislature with $1.5 billion of last budget year’s surplus to potentially put towards their own agreed-to tax relief efforts and other spending initiatives that remain bottled up in the stalled economic development bill talks, Baker said.

In its announcement of the supp budget, Baker’s office also said that the Department of Revenue on Wednesday had informed Auditor Suzanne Bump that it believes that $2.941 billion is required to be returned to taxpayers under Chapter 62F, the 1986 voter law that requires excess state tax collections be refunded. If the auditor certifies that amount by her Sept. 20 deadline, Baker’s office said the state will still have a fiscal year 2022 surplus of $2.3 billion — up from the administration estimate of $1.9 billion earlier this month.

“With tax revenues coming in far above budgeted amounts this year, the Commonwealth is well-positioned to deliver relief to taxpayers, while still making investments in key areas, like transportation, as we close the fiscal year,” Baker said. “Our administration is confident that with these high surplus revenues, there remains more than enough funding to support the tax relief, economic development and climate infrastructure proposals that are under consideration in the Legislature.”

Baker’s bill includes a section “setting aside the necessary amount of FY22 surplus to ensure that it is easily available as our administration implements the law and returns the exceeded allowable revenues to Commonwealth taxpayers as required by statute,” he told lawmakers in his filing letter. The section of the bill instructs the state comptroller to exclude “$2,941,499,730, or more or less as necessary” when calculating the consolidated net surplus and declares that the money “shall be treated as a reserved balance in the General Fund at the close of fiscal year 2022.”

Now that DOR has reported to Bump, the auditor has until the third Tuesday of September — Sept. 20 this year — to “independently determine” whether tax collections exceeded the allowable amount and then notify the executive branch, House and Senate of the amount of the overage. Republican candidate for auditor Anthony Amore on Wednesday called on Bump’s office to certify DOR’s figures sooner than that.

“There’s really no reason that it should take three weeks. I think she should certify it right away and I think that the Legislature should get to work immediately on returning this money directly to people,” he said. Amore added, “The reason to act quickly and send the money back is to ensure taxpayers receive the money they need to deal with inflation and the rising cost of just about everything.”

“We are also sending a signal that we are watching, the taxpayers are watching too. The entrenched powers on Beacon Hill need to know that they’re being watched, and we will shine a light on any attempt to circumvent the will of the voters,” he said.

Bump’s office told the News Service on Wednesday that it is currently analyzing fiscal year 2022 data and hopes to release its report and determination before Sept. 20.

Before the report is complete, the auditor’s team will take a number of steps including an assessment of DOR’s internal controls, a review of DOR’s accounting and reporting system to determine if transactions were accurately reported into the state’s broader accounting and reporting system, and running the calculations to determine Chapter 62F’s allowable state tax growth.

There remains an open question around how the nearly $3 billion in excess tax collections would be returned to taxpayers. The law itself says that excess revenue should be returned as “a credit equal to the total amount of such excess … applied to the then current personal income tax liability of all taxpayers on a proportional basis to the personal income tax liability incurred by all taxpayers in the immediately preceding taxable year.” That’s how it worked the only other time that Chapter 62F was triggered, in 1987.

But the Baker administration has been quietly working behind the scenes to change the regulations around Chapter 62F since this spring and the governor has repeatedly referred to the relief as refunds that people could expect “sometime between the end of November and the beginning of December,” which would line up with his final weeks in office but not line up with a credit applied to personal income tax liability.

Amore said Wednesday that the $2.941 billion figure DOR reported would work out to about $250 per taxpayer and that the credit method might have worked better in 1987 when the excess to be returned was just $29.22 million.

“I am adamant that the money should be returned directly as cash payments to the taxpayer,” he said.

The supp budget that Baker plans to file will include $1.622 billion in spending (at a net cost to the state of $840 million), and will include $200 million to help the T address the Federal Transit Administration’s safety directives and $10 million for the agency to establish a training academy. The almost $40 million school safety plan that Baker announced last week will also be included, as will $108 million for a COVID-19 cost reserve account and an outside section mandating the appointment of a guardian ad litem in every Juvenile Court proceeding in which a child is alleged to have been abused or neglected.

“The supplemental budget proposal will fund many important priorities including strengthening school infrastructure, making significant investments in transportation and providing more resources for individuals dealing with substance misuse issues,” Lt. Gov. Karyn Polito said.

Among the bill’s other policy sections is a “correction” to allow DOR to intercept sports wagering winnings for outstanding child support and tax debts as the agency already does with Lottery and casino winnings, authorization for the Department of Veterans’ Services to access the FBI national criminal database prior to hiring employees for the soldiers’ homes in Chelsea and Holyoke, and the creation of a trust fund to support the construction, development and capacity of new provider-operated community housing for people discharged from skilled nursing facilities and psychiatric, chronic and rehabilitation hospitals.

The governor’s office said that the closeout supp budget would not spend down the entire fiscal 2022 surplus and preserves $1.5 billion of it, “which in combination with $2.2 billion remaining in American Rescue Plan Act Funds, is sufficient to support the tax relief measures and other critical investments in the FORWARD/economic development bill pending with the Legislature.”

The Legislature will need to act on Baker’s budget bill during informal sessions, when opposition from any single member can slow a bill down or stop its progress entirely.

The supplemental budget is nearly certain to go first to the House Committee on Ways and Means. Chairman Aaron Michlewitz’s office said he was not available Wednesday to talk about Baker’s closeout supp and his proposal to set aside more than $2.9 billion for Chapter 62F, a law that House leadership has floated changing. Michlewitz’s office did not respond to a message asking about the chairman’s availability on Thursday.