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2 days ago
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Beacon Hill's budget-balancing act just got trickier: An expert explains
As Massachusetts lawmakers wade into negotiations to iron out a fiscal 2026 budget agreement, budget season in Washington, D.C. creates a massively uncertain economic landscape. Analyzing that data, understanding proposals and putting recommendations out for a path ahead is the focus of Doug Howgate and his team at the Massachusetts Taxpayers Foundation. As president of the business-backed public policy research organization, Howgate provides key input that helps guide the state's fiscal and economic future. The group recently released its annual House and Senate budget analyses, along with other reports pertaining to the changing federal outlook and its potential impact on resources and spending in Massachusetts. 'So many of these challenging things are going to be made in connection to resource decisions,' Howgate said in an interview at his downtown Boston office. 'How do we make sure that those conversations are coordinated across the branches of government in a way that makes sense for how we determine how to use our scarce resources?' In a recent conversation with State House News Service, Howgate talked about what's ahead for House-Senate budget negotiations and how lawmakers might adjust to the shifting fiscal realities of the Trump administration. This interview has been edited and condensed for clarity and length. Q: Have you been surprised by anything in particular this budget season? A: I don't think anything within the governor's budget, House budget or Senate budget has been overly surprising. I think what's been surprising is the context in which those budgets are being developed. We knew from the election in November that there were going to be changes, but with any of those things, it's hard to assess exactly what's going to happen. I think the uncertainty related to federal policy, related to things like Medicaid or taxes, that was probably something we knew we were going to have to be tracking. Especially in April, with things like the initial tariff announcements, there began to be more of a feeling that things economically may be more volatile or uncertain than we expected. Q: You believe the best budget approach for the Legislature is to follow its usual budget timeline, then reassess before sending a final product to the governor. Why? A: It didn't make sense to make adjustments in April, and then to make another adjustment in May, and then to reassess in June. When you think about the factors in play, one of those big factors is state revenue collections. We know now what April collections are, and especially in terms of what they mean for the budget and for surtax revenue, for capital gains revenue — it gives you more of a sense of some of those moving parts at the state level. A lot of the uncertainty continues to be federal policy related to things like Medicaid, or other places where federal spending directly impacts state spending. We still don't know everything, but I believe firmly that we're in a better position to assess risks and potential outcomes now than we were two months ago. It's really that balance of putting in place a strong fiscal plan on the governor's desk, but also not trying to react to every change in the moment and increasing some of the chaos if you make several adjustments throughout that process. Q: How do fluctuations and uncertainties in the stock market and capital gains revenue play a role here, and how can lawmakers best respond? A: What the economy looks like at one point in time, and then what it looks like 12 months from now — they look like two different things. The benefit of the uncertainty with the Trump administration is we're probably more attuned to that reality now than we normally are. We do have in place mechanisms to try to mitigate some [revenue source volatility]. At the same time, if the economy goes haywire, that will have a huge and direct impact on the state budget. April revenues were quite strong in Massachusetts. So much of that activity — surtax collections, capital gains — is reflective of where the stock market was over the last 12 months, not where it's going. We need to disentangle that. Another important thing for budget makers to note is that a sustained economic downturn is the biggest fiscal risk the state budget faces in any given year. Given that we've probably seen greater uncertainty now than we've seen in the last several years, we need to make sure we're putting in place a spending plan that creates options for the state to respond to an economic downturn, not just the implications of various federal policy changes. A: Over the past decade or so, adjusting revenues based on new information became something that was not uncommon. Before the pandemic, you had a couple of years where revenues really disappointed compared to initial projections, so in June, it was required that the overall revenue threshold was reduced. During the pandemic, we saw the House, Senate and administration work pretty well together to adjust both their revenue baselines to make sure they were accommodating for this huge unknown. And then you had the flip side in FY22 and even FY23, where we had this unexpected surge in tax collections and it became apparent that the revenue numbers built were just not operative anymore. We have a bit of muscle memory there, using analysis from the administration and groups like ours to make thoughtful adjustments. You also have seen, in the past, exercises where the governor's veto authority comes more into play, and I'm sure that's something that the Healey-Driscoll administration will be monitoring. My guess is that the focus will be to coordinate action in June to make sure that all three branches are working together to craft a budget with a sensible revenue forecast. A: Generally, from a fiscal and a resource standpoint, they take a pretty similar approach. You're talking about two budgets that both spend about $500 to $570 [million] less than the governor's budget proposal and that didn't adopt a number of the revenue-raising proposals that the governor put forward. Obviously there are differences. One thing that jumps out is you've got two different approaches on the governor's transportation finance proposal. The House largely adheres to what the governor proposed. The Senate differs in things like multi-year support for the MBTA. It moves more money into other areas of the transportation sector. What will be interesting when we see these two things reconciled is, because of this overarching context of needing to reassess revenue assumptions based on what's happened since January, you could see them start from that standpoint of, 'Okay, what do we think we have to work with for resources?' And then, 'How do our different spending proposals plug into that new reality?' Q: There are concerns about the about the 6% spending bump over the FY25 annual budget, especially in an uncertain context. Is that worth concern? A: Getting overarching spending growth in line with long-term revenue growth has got to be a high priority for everyone. That's something that really, starting with the pandemic, we've had some challenges with — increasing demands on the system, significant revenue growth for a time period, and building in cost pressures that are hard to steer the ship on from one day to the next. Managing long-term spending obligations is going to be challenging. These are programs that impact millions of Massachusetts residents. One of the things we see in this budget are proposals to look at the personal care attendant program within MassHealth to say, how do we make some longer-term reforms in the program that are going to bend the cost curve there going forward? I think we need to be honest with ourselves, that making a change from day-to-day is not always easy, is not always appropriate. But how do we make sure, as we're putting together the fiscal 2026 budget, we're also doing it with a view towards managing costs in 2027 and beyond? That's even more important, I think, when we look at all the federal uncertainty. Q: The House budget puts a pause on decisions surrounding vocational school admissions policies. The Board of Education already approved a path forward. What could this say about the Legislature's role in shaping that conversation? A: I think the Board of Elementary and Secondary Education certainly has a role in setting regs, though the effectiveness of those regs is only going to be as successful as their ability to also build consensus within the Legislature and the rest of the administration. Any one of those entities can really undo work or press pause on moving forward. I think it speaks to two things. One, we do need to take a new look at how we make sure that our process for equitably ensuring access to vocational schools works in the current world. And [two], we need to do it in a way where the administration and the Legislature, and all the stakeholders, feel like they've had an opportunity to make their voices heard. We just need to make sure, at the end of that process, that the ability of students in Massachusetts who can use that vocational opportunity to achieve economic opportunity and build a career that is right for them, not get lost in the shuffle. A process that has that consensus across the board — the Legislature is probably going to have to be a part of it, no matter what. Q: What are your thoughts on the Senate's move to lower prescription drug costs in its budget? A: The Senate's been remarkably consistent in terms of advancing pretty aggressive proposals [related to] drug cost limitation and things like that. We had major compromise drug cost legislation signed into law at the end of [2024]. What's happening with the implementation of that bill? Are we moving forward with this stuff that is in law, that we had broad consensus on, and making sure we're doing that as impactful a way as possible? That should take priority over starting new reforms before the initial reforms have gone into effect. We are [also] seeing a number of health care and drug and life sciences issues coming into play at the same time, whether it's in terms of ongoing strains on the health care system, cost pressures for premium payers, cost pressures for the state — at the same time, financial pressures on providers and uncertainty with federal Medicaid, and the critical role that the health care sector and the life sciences sector play for Massachusetts residents and a broader economy. One larger concern I would have is, how do we make sure we're not adding too much to that unknown policy mix that we have to adapt to and react to? Q: You've referenced proposed cuts to Medicaid multiple times. What's on your mind there? A: This is one of the reasons why we felt like it was so important to not make premature adjustments to the spending framework back in April and May. While we don't know exactly where the federal budget is going to go, we've got more clarity in at least where the [U.S.] House wants to go. Those proposals would significantly negatively impact the state's Medicaid population and the Medicaid program in the budget. That said, they are not as immediate or as significant as some of the proposals we originally saw. To me, this is a bit of a commercial for, 'We want to be proactive and we want to be decisive, but we also want to make sure we have as much information as we can have before we make a decision.' The Medicaid proposals, as they're formulated right now, won't have an FY26 impact on the state budget or the state program. A lot of the big adjustments we see are in FY27 through FY29, which doesn't mean they're not very important -- they are, but that timeline really matters. As we think about the proposals in there, whether it's work requirements or other things like that, it's important to also differentiate between what's going to reduce the amount of federal resources available to the state budget associated with spending requirements, and what is likely to reduce enrollment in the state's Medicaid program, which will have a big knock-on effect on the health care sector and things like our health safety net. The budget impact in the near term is less clear cut than, say, just a reduction in the federal Medicaid reimbursement. That's why knowing what they're actually proposing and the timeline is so critically important. Q: Has there ever been a situation, in your memory, where the state has had to accommodate a similarly massive gap? A: Over the last 15 years, the thing that probably gives us the best kind of experience for this is actually sustained economic downturns during the Great Recession, where we saw billions of [dollars of] loss in state tax revenue, and at that time, a lot of discussion and action on Medicaid service reductions and things like that. That's where we've seen a lot of the debates on Medicaid policy that maybe policymakers could draw upon. To me, there's a more important lesson there, which is what is included in the bill working its way through Congress right now is important, but what is equally and potentially even more important for the Medicaid program, let alone for the state budget, is: are we prepared to withstand a potential economic downturn as well? Because that can force decisions within a program like Medicaid just as fast or faster than Medicaid policy proposals being discussed in D.C. Q: What do you view as the potential fiscal and economic costs of Trump administration research funding and immigration policies in Massachusetts? A: You can't quantify to the dollar what the impact of a specific kind of policy direction is, necessarily. When we talk about the impacts of the Trump administration, one of the things we talk about is the impact of what we would call 'process uncertainty' — of not actually knowing what the policy is, how it's going to change, what you need to react to. That creates paralysis in the system, makes people reluctant to act, impacts decisions from higher ed institutions about admittance or about how they're going to spend their money. It certainly impacts state or nonprofit or private sector actors, as well. Irrespective of where those policies land, the uncertainty that it comes with has a huge cost. At the same time, you think about the work that we [and others] have done about Massachusetts competitiveness, our challenges sustaining a growing labor force. One of the biggest ways we've been able to address that in recent years has been through immigration. Any time you're talking about policies that are going to dampen immigration going forward, that has a profound impact on Massachusetts's ability to grow its economy and its labor force. Read the original article on MassLive.
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4 days ago
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Expert: Economic downturn could trump impacts of GOP changes
BOSTON (SHNS) – Massachusetts could face billions in lost federal revenue and heightened economic risk under the second Trump administration, a budget expert warned lawmakers Thursday, but he emphasized that a broad economic downturn could deal the hardest blow. Testifying before the House Committee on Federal Funding, Policy and Accountability, Doug Howgate, president of the Massachusetts Taxpayers Foundation, laid out the scale of the state's dependence on federal money: about $25 billion each year. That includes about $14.4 billion in Medicaid funds, as well as transportation and water infrastructure funding, and billions more in federal grants administered through state agencies. 'One in every $4 you just voted to spend in the FY26 operating budget is directly from the federal government,' Howgate told lawmakers. 'To contextualize that, that's about one and a half times what we get from the sales tax — it's like ten times what we get from the Lottery. So just to put your mind around how much that matters, it's a big element of the state budget, second only on the revenue side to the income tax.' As has been previously reported, President Donald Trump has targeted or promised to come down on areas that Massachusetts, specifically, has a vested stake in — such as higher education and research funding where the Bay State has a nationally competitive advantage. In other cases, like Medicaid spending reductions, the president and Republican-led Congress's policies are likely to affect every state. Trump and Republicans in Congress say their shift in national policy will put the country on a prosperous path but the view from many at the State House, where Democrats rule, is far different. The U.S. House voted last week to cut the health insurance program by nearly $700 billion — which state officials have warned could put Massachusetts in jeopardy of losing more than $1 billion annually, with 250,000 residents at risk of losing coverage between MassHealth and subsidized policies at the Health Connector. Yet even with these policy dangers, Howgate warned that a possible economic downturn could hit the state budget even harder. 'A major change in the global economy, especially a downturn, can have a far greater impact, certainly on public finances, but also on any of the programs we're talking about, than a specific federal policy action,' he said. Howgate compared potential cuts to Medicaid revenue to the state revenue losses during the Great Recession. 'If you take the revenue loss of 2009 during the Great Recession and you just prorate that forward as state revenues have grown, that's a one-year revenue loss of $6 billion, and those revenue losses persisted for several years,' he said. 'The order of magnitude of a global recession usually far outstrips any of the specific policy things we're talking about.' Lawmakers pressed Howgate for insight into how the state could shore up revenue if both federal cuts and a downturn hit at once. 'If they succeed in cutting these programs, apart from reallocating part of the budget, there is a need for revenue, and I'm curious to what MTF's view is on ways we can raise revenue if those things do happen' said Rep. Erika Uyterhoeven of Somerville, pointing to the impact on Head Start, food assistance and Medicaid in her district, all of which the Trump administration has threatened to cut. Howgate responded by pointing to lessons from past crises. 'When we look at the last two economic downturns — the 2001 downturn and the 2008 downturn — what did we see from a state budget standpoint? You saw use of reserves, you saw increases in taxes, and you saw major cuts,' he said. Clarifying that it wasn't the official stance of MTF, Howgate added, 'If there was a major economic recession in Massachusetts that lasts years, those are the three things you're going to see on the table.' The state's $8 billion stabilization fund has dramatically grown over the last five years. Legislative leaders have been reluctant to tap into it even during the COVID-19 pandemic. Howgate advised the Legislature to focus on three strategies: closely track federal budget and tax legislation, prepare for the potential scale of an economic slowdown, and identify which state programs and sectors are most critical to protect. 'There's going to be so many demands on things that the federal government does that the state doesn't do, that making sure we're staying true to the core goals of what government does, I think, has to be front and center,' Howgate said. He also urged the state to play to its strengths — particularly higher education and research — which are under federal scrutiny but remain key to Massachusetts' economy. Finally, Howgate underscored that if Massachusetts is to weather this storm effectively, it will require coordinated planning among the House, Senate and administration. 'We can't be moving in three different directions,' he said. 'At the end of the day, so many of these are going to boil down to resource decisions.' The Senate has its own response effort to the second Trump administration, which they've dubbed Response 2025. The two branches appear to have procedural differences that are slowing down that work of that committee. Quentin Palfrey, Gov. Maura Healey's director of federal funding, also testified about ripple effects Massachusetts could face — including changes in how the state and municipalities apply for and administer federal funds. Rep. Mark Sylvia Palfrey of Fairhaven asked Palfrey if his office is actively tracking any changes to the federal application process for grants. 'Just to use as an example, if a municipality or county applies for a federal grant, and it's for infrastructure, and due to either an executive order from the federal government or some other policy edit, they're being directed to no longer refer to climate change as a justification for that infrastructure? Are you tracking any of those developments as part of your office?' 'The answer is absolutely yes,' Palfrey responded. '… It's a little bit of a difficult challenge, where, on the one hand, we want to be in close communication with our partners … and at the same time, we have to be very clear about the limitations that the state budget has to absorb some of these costs.' Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Yahoo
04-04-2025
- Business
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Expert offers tips for budgeting on 'roller coaster ride'
BOSTON (SHNS) – One of the economic experts most often relied upon by Beacon Hill's budget managers recommended Thursday that the Legislature and administration develop a strategy to digest and respond to federal government shifts, and to do so in a way that relates closely to the ongoing state budget process. Massachusetts Taxpayers Foundation President Doug Howgate said he thinks it's still too early to be thinking about potential changes revenue assumptions being used to build the roughly $62 billion state budget for fiscal year 2026, which starts July 1. But he urged lawmakers at a hearing of the Joint Committee on Ways and Means to work with Gov. Maura Healey's team to coordinate a state response to the flurry of changes President Donald Trump has made or says he will make, many of which could significantly affect state spending plans. 'So much has happened. We don't know what the impacts are going to be, and we don't know what's going to happen. And so how does the state respond to that when we know that the resources available to us — whether it's financial resources, time, process — they're all limited, right? It's critically important that we create, I think, an approach across the administration, House and Senate, that allows us to collect information, assess options and coordinate a response,' he said. 'And I think it's critically important that as that exercise obviously takes into account how we listen to our communities, constituents, fellow members, but it also needs to reside pretty closely to budget decisions. At the end of the day, so much of what is going to be coming down the pike related to whatever the feds do or don't do, whatever happens to the economy, is going to be intertwined with the budget.' Trump has moved quickly in his second term to reshape the federal government and its budget, making or planning steps that could force Massachusetts officials to rethink the state's plans. Two weeks before House Democrats are due to release their rewrite of Healey's budget (H 1), there'ss significant uncertainty around the future of Medicaid funding and other federal programs that are critical to the state budget. Medicaid reimbursements account for the majority of the $16 billion of federal dollars baked into the governor's budget. Senate Ways and Means Chairman Sen. Michael Rodrigues, who gets about a month longer than House chairman Rep. Aaron Michlewitz before he needs to unveil his committee's proposal for fiscal 2026, asked Howgate during a hearing on spending surplus surtax revenues whether he and Michlewitz should 'be reconsidering what we had proposed for FY '26 given the actions of the president.' Rodrigues, Michlewitz and Administration and Finance Secretary Matthew Gorzkowicz agreed in January to build the fiscal 2026 budget on a $43.614 billion consensus revenue estimate, including $2.4 billion expected from the state's surtax on high earners. Howgate said his answer would be 'a provisional no' given where the state is in its budget development. 'The question is, if you were to make different assumptions now, what would that be based on? And would they be better than the assumptions you'll make in May or June once you see some of those numbers? And my gut is the answer to that is probably no,' he explained. 'Now, setting correct expectations for folks that this stuff may not be written in pen right now, and we may need to make some serious adjustments — just as both chairs made in 2020, when I think you took the appropriate action in terms of adjusting the budget, adjusting the timeline, in light of circumstances. We're not in that world right now, but folks need to know that when stuff changes, we have to adapt as well. I think that needs to be out there, but I don't know that you would have better information to make informed adjustments right now compared to a little later in the process.' Responding to broad questions about Trump's economic policy from House Vice Chair Rep. Ann-Margaret Ferrante, Howgate detailed what he's watching for from D.C. He said he expects to know what the federal budget will look like and the fate of tax cut extensions by July, but that it will be harder for the state to anticipate or plan for administrative changes or shifts in economic conditions. 'You can only kind of plan for the information you have. And so that's why I do think, as you think about the actions that the House, Senate, [and] administration are taking, keying in on the Congressional budget process and the tax cuts extension, along with what's going on in the stock market and what's going on with the economy, those are the three things we can best track day to day to day, because I think we're gonna have to hedge quite a bit for federal policy uncertainty that's going to continue to be, I'm sure, quite a roller coaster ride for the next three plus years.' Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Boston Globe
14-02-2025
- Business
- Boston Globe
Mass. economic groups press state Legislature to prioritize affordability, competitiveness
The state budget Keeping the state's spending increase at a sustainable level — ideally 3 to 4 percent — should be a priority for legislators, said Doug Howgate, president of the Massachusetts Taxpayers Foundation, a business-backed watchdog group. Advertisement Governor Maura Healey's $62 billion budget plan, released last month, includes a spending increase of 7.4 percent from the budget she signed for fiscal 2025. Her administration has sought to frame the increase as smaller, saying it would hike spending by 2.6 percent, but that doesn't include nearly $2 billion in so-called millionaires tax revenue she is proposing the state spend. Get Starting Point A guide through the most important stories of the morning, delivered Monday through Friday. Enter Email Sign Up 'Last year, I think one of the real strengths of the budget was that it did endeavor to keep those costs at sustainable levels,' Howgate said. 'I think we see how challenging that is this year, but I think that that remains really important for long-term fiscal health.' Healey's budget proposal includes funding for transportation, housing, education, and child care. Howgate said that between the main budget proposal and supplemental budget, the hundreds of millions promised to the MBTA could eliminate 90 percent of its operating deficit in the next three years. This structure provides some stability in the transportation system's funding for the next few years, and Howgate said he hopes it won't change with the budget now in the legislature's hands. Taxes Brooke Thomson, president and CEO of Associated Industries of Massachusetts, said that although Advertisement 'We certainly don't think there's any need for new tax increases, and we want to utilize the revenue that's out there in a responsible manner,' Thomson said. Healey's proposals divvy up surplus funds from the Fair Share Amendment, often referred to as the millionaires tax, which raises state income tax on income above $1 million. The proposals split the funds evenly between transportation and education, which Howgate said the Massachusetts Taxpayers Foundation supports. On the education side, Howgate said legislators should ensure surplus millionaire's tax revenue is used to cover one-time costs, not operating expenses, as the revenue is volatile year-to-year. Jon Hurst, president of the Retailers Association of Massachusetts, said he hopes the state will cut property and payroll taxes, which are also costly for small businesses. Some expressed concern about how the state will navigate uncertainty, hoping the state Legislature is prepared in case federal funding dwindles under President Trump. 'Uncertainty is always something that creates a lot of concern in the business community,' Thomson said. If federal funding shrinks, the state may need to find additional revenue sources. Phineas Baxandall, MassBudget policy director, said this could include implementing measures to prevent multibillion dollar corporations from using offshore tax havens to avoid paying taxes in Massachusetts, which he said could add 'hundreds of millions' to the state budget, or drawing from the state's rainy day fund. 'If we do have a federally brought out rainy day,' he said, 'then we think it's appropriate to tap the rainy day fund towards addressing some of those shortcomings.' Regulations Hurst said one of his top policy priorities is tackling state mandates that make health insurance disproportionately pricey for small businesses. Large employers operating under federal law can offer employees lower-cost health insurance in accordance with the Affordable Care Act, he said. Meanwhile, small businesses are largely beholden to state mandates requiring health plans that are more all encompassing and therefore more expensive. Advertisement Hurst said some providers have pushed legislators to make state programs like Medicaid cover specialty treatments and new high-cost drugs, which leads to more people using them. Providers can then demand higher reimbursements, he said, leading insurers to raise premiums. 'Beacon Hill has listened to the specialty doctors, specialty providers, and big pharma far more than they have [listened to] small businesses, and it's created unaffordable medical inflation with no choices,' he said. 'The employee of the small businesses are locked in. They're mandated. They don't have the choice that a large employer does to buy down and follow the ACA as opposed to state mandates.' Policy priorities Paul Craney, spokesperson and board member at Massachusetts Fiscal Alliance, worries high costs cause residents and business to leave Massachusetts. Craney said he expects MassFiscal, a conservative nonprofit, to be 'playing defense' on multiple fronts this legislative session. He said the group will oppose any exorbitant spending to cover the state's right to shelter law or support the offshore wind industry, for instance. 'There's nothing that's getting proposed that's going to make our state much better than what has been the last two years,' he said. 'So we're just trying to stop bad policies from getting passed into law, because they continue to just look at the bad policies and want to double down on them.' Advertisement Associated Industries of Massachusetts is pushing for alternative standards to replace the MCAS, the exams Massachusetts voters removed as a graduation requirement via ballot measure in November that many Healey's proposed budget, supported by revenue from the Fair Share Amendment, would continue funding the Commonwealth Cares for Children program, which transitioned from pandemic relief money to state support last year, along with free community college and free school meals. Massachusetts Budget and Policy Advocacy Director Chelsea Sedani said she hopes the Legislature builds upon victories like free community college with more support for community colleges and state universities to help them accommodate the additional students enrolling since its implementation. She also has her eye on progress toward one of her organization's 'long game' goals: baby bonds for children in the state's welfare and foster care systems — essentially, a savings-bond-like investment opened at birth that accumulates value over time for the child to access when they turn 18. Legislators 'We really see baby bonds as a way to address the racial wealth gap, to provide subsidized savings for children who wouldn't otherwise have the ability to accumulate wealth,' Sedani said. Stella Tannenbaum can be reached at
