Hidden Link

October 21, 2024

By Bruce Mohl

The constitutional amendment creating the millionaire tax was pretty vague about what could be done with the revenue it would generate. The law said the money would provide “the resources for quality public education and affordable public colleges and universities, and for the repair and maintenance of roads, bridges, and public transportation.”

Despite the wide latitude afforded by the language, a budget-balancing maneuver by Gov. Maura Healey using millionaire tax money is drawing criticism on Beacon Hill and shaping up as the first real test of what exactly voters intended for the money.

In crafting the budget for the fiscal year that ended June 30, State House budget officials mutually agreed the millionaire tax would generate $1 billion for transportation and education. Instead, the tax generated $2.2 billion, leaving the state with a $1.2 billion surplus of millionaire tax funds.

At the same time, regular state tax revenues came in lower than expected, leaving the budget with a $225 million shortfall. In a closeout spending bill intended to resolve any lingering budget issues, Healey took $225 million from the millionaire tax surplus and used it to help pay for education and transportation programs that previously had been paid for using a blend of regular and millionaire tax funds.  

By supplanting the regular funds with millionaire tax revenues, Healey planned to free up enough regular state tax revenues to bring the budget into balance.

The move raised eyebrows and eventually a letter of protest from a group of activists who felt Healey’s budget maneuver violated the intent of the millionaire tax constitutional amendment, which established a 4 percent surtax on any income over $1 million.

“We felt that this sets a bad precedent of finding accounts that have deficiencies using those Fair Share dollars to backfill or close the books or pay the bills on accounts that you’ve either overspent or underfunded. Potentially, that takes away from new investments going forward,” said Pete Wilson, the senior policy director of Transportation for Massachusetts, on The Codcast.

Wilson, who signed the letter of protest, used the term Fair Share to refer to the millionaire tax money, using the name of the coalition that led the campaign for the constitutional amendment.

Phineas Baxandall, like Wilson, is a big supporter of the millionaire tax. As policy director at the Massachusetts Budget and Policy Center, he did not sign on to the letter of protest but shared Wilson’s concerns.

“I was concerned about it because this is the first year of the Fair Share amendment rules that were set in the fiscal 2024 budget,” Baxandall said on The Codcast. “It’s a real good transparent system, as I was laying out earlier, but it needs to have a chance to roll out, to have a year to show that it can work and get established. I was troubled by seeing that maybe they were kind of messing with it even if  the principle of it, the law of it, all the dollars going to education transportation, were still OK. I’d still prefer a situation where this unambiguously is going [out] without tinkering at all with any of the rules.”

The House filed its closeout spending bill late last week, opting for a different approach from the governor. The House used surplus capital gains taxes, which normally would have gone into the state’s stabilization fund, to cover the budget deficit. The Senate hasn’t acted on the measure yet.

During the leadup to the vote on the millionaire tax, opponents raised concerns that the money would end up being mingled with other funds and not go, as promised, to support transportation and education projects. There was also a sense that the money would be used to fund new initiatives.

Baxandall said the law itself doesn’t say anything about “new” programs, but he said it was expected that the funds would be used for initiatives that wouldn’t happen otherwise. He outlined a “spectrum of newness,” ranging from free fares at regional transit authorities to free community college. “These are dreams that were only possible because of Fair Share,” he said.

He also said Massachusetts has used millionaire tax money to continue programs begun with federal funds during the pandemic. “We’ve done that in multiple instances only because we have the Fair Share funds to do it,” he said. “Now, does the fact that the federal money was paying for it before make it less new? I’d argue no. I’d say this is a new state commitment.”

But Baxandall acknowledged there are gray areas. For example, would it be acceptable to use millionaire tax money to support the MBTA’s operating budget, which has grown rapidly to support new and better service. “There are a lot of things that make this a very novel situation,” he said. “Is it new to have [the money go for]an operating budget? No. Where do you define the newness is a question I wish I had a ready answer for, but I think we’re still figuring this out.”

Wilson said the MBTA’s looming operating deficit is not a result of misappropriation of funds. He said it’s due to years of underfunding, the failure of ridership to rebound in the wake of Covid, and the need to step up repairs and hiring to build back service levels.

“Should you use Fair Share funds to solve the T’s operating deficit?” he asked. “I don’t think that’s out of bounds, but I don’t think that should be the only source.”