01.27.10 - GOVERNOR SET TO UNVEIL NEW $28.2M BUDGET PLAN

January 27, 2010

Dear Colleague,

As reported by State House News, Gov. Deval Patrick will file a budget Wednesday that calls for over $1 billion more in spending than the state is on track to lay out this year, a $28.2 billion operating plan that draws heavily on federal assistance, imposes deep cuts on human service programs and scales back business tax credits, sources briefed on the plan said Tuesday.

Citing an economic collapse that has already forced roughly $9 billion in budget corrections, Patrick will propose to revoke sales tax exemptions for cigars and smokeless tobacco products, senior Massachusetts Democrats said.

Patrick's spending blueprint, the last general appropriations bill he is scheduled to file before a November election whose other contestants have consistently derided him for fiscal mismanagement, relies on roughly $1.4 billion in federal stimulus funding and below $1 billion in cuts, according to two sources briefed on the proposal who spoke anonymously because they did not want to break with the administration.

The sources said both the film and life science industries, recipients of the highest-profile tax breaks in recent years, would take hits under Patrick's bid to recoup revenues sacrificed in efforts to draw investments here.

The governor's intentions to pull back on tax credits will likely add to one of the hottest topics on Beacon Hill: how to leverage state policies, the tax code foremost among them, to pull down the current 9.4 percent unemployment rate.

After raising taxes and fees by about $1 billion to prop up this year's, the state is still confronting a structural deficit near $3 billion for fiscal 2011, which begins July 1. Patrick's budget will head first to the House, then to the Senate, a probable conference committee, and then back to him for likely vetoes. The process may take about five months.

Patrick also plans to file a supplemental budget Wednesday adding to the current fiscal year's $27.04 billion bottom line and addressing shortfalls in budgets for agencies dealing with rising caseloads, two sources said.

Patrick and top lawmakers have agreed to base their fiscal 2011 budgets on assumed 3.2 percent growth in tax revenues. State revenues have topped an annual estimate, which was lowered in October, for three straight months, bringing year-to-date receipts $230 million above the new mark through December. Mid-month data released last week showed the state taking in $881 million, $20 million more than the same mid-January period of a year ago.

While beating revised estimates, tax collections through mid-January, just past the halfway mark for the fiscal year, have declined $327 million from fiscal 2009, during which state tax receipts reflected the economic recession.

The courts system, other agencies outside the governor's direct control including other constitutional offices, and Executive Branch agencies across all secretariats all share in the blood, the sources said.

MassHealth would suffer some reductions, but increase overall due to built-in health care growth that helps draw federal funding.

Patrick has already vowed to bulwark education expenditures by not reducing state aid to any districts and calling for increases in some.

Smokeless tobacco - sometimes known as "chew" or "dip" - cigars, and loose tobacco were shielded from the state's 2008 tax hike of $1, to $2.51, on cigarettes. Anti-tobacco advocates said last year that including the other tobacco products could net between $10 million and $13 million.

The governor's budget includes a good-government provision calling for the state to pare back its chronic reliance on volatile capital gains taxes, but which likely would not go into effect next fiscal year. Patrick wants to deposit capital gains revenues above $1 billion in the state's severely depleted Rainy Day Fund.

The fiscal 2011 spending plan marks the maiden outing for Patrick budget chief Jay Gonzalez, who took over the Administration and Finance office from Leslie Kirwan last fall.

Patrick aides declined comment

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