Budget Basics

The State Budget

The state budget is made up of four parts: Sections 1 and 1A, which involve revenue estimates, Sections 2, 2B and 2D, which involve appropriations, Section 3, which involves local aid, and Sections 4 and on, which involve "outside sections." The fiscal year begins on July 1st and ends on June 30th; the 2009 Fiscal Year for the Commonwealth began on July 1, 2008. The budget is initiated through the General Appropriation Act, but the Governor and Legislature can file and enact "Supplemental" Budgets through the course of the year. These Supplementals usually add to appropriations in the General Appropriation Act, but they can also subtract from existing appropriations, as the Governor is now proposing. The Governor also has the power under MGL ch. 29 §9C (the so-called "9C powers") to cut appropriations in the Executive branch of Government when the Governor believes that projected revenues will not meet expectations. These powers do not include making cuts in the Legislative or Judicial branches, or in the budgets of the "Constitutional" Officers (like the Attorney General, Treasurer and State Auditor). Those cuts could only be made in cooperation with the Legislature.

Sections of the General Appropriation Act

Section 1, 1A and 1B are estimates of the revenues that the Governor and the Legislature believe will be available to the Commonwealth. The estimates are not binding on the Governor or the Legislature but inform the expenditures that the State Government may make. (under Articles LXIII of the State Constitution, as amended by Article CVII, the State Budget is required to be "balanced" in the sense that total revenues and expenditures for any given fiscal year must. This is unlike the Federal government which, for better or worse, has no requirements relative to submitting balanced budgets, which has permitted the Federal government to run a substantial deficit.

Sections 2, 2B and 2D are the "meat" of the state budget: here is where the money gets approrpiated for specific uses. These uses are known as "line items" and are applied to specific agencies and functions within those agencies. So, for example, the line-item appropriating money for the Supreme Judicial Court in the current FY budget looks like this:

0320-0003. For the operation of the supreme judicial court,
     including salaries of the chief justice and the
     6 associate justices............................ $8,294,996

Appropriations are also subdivided into separate categories: those that are "direct" appropriations, which mostly come out of the "General Fund"This is the fund that receives revenues from the State Income Tax. ; those appropriations that are "chargebacks" (meaning that they are amounts that one agency can charge another for certain expenses); those appropriations that are funded largely through federal grants; those appropriations that are "retained revenue" (retained by agencies like the Division of Insurance, which never make it into the General Fund); and appropriations that are generated from trust fund accounts.

Section 3 is the "Local" aid granted by the state to the cities and town. It consists of "Chapter 70" aid (primarily intended to assist cities in towns in the funding of their school systems); "additional assistance," which provides "unrestricted general purpose aid to municipalities" (i.e., money that does not need to be spent on the school systems); money from the State Lottery; and this year, a supplement from the General Fund.

Section 4 and beyond are the "outside sections," which are essentially general law provisions that are designed to "implement" aspects of the annual budget. These are often small changes to the General Laws.

Supplemental and Capital Budgets

The Commonwealth does not only have the General Appropriation Act, it also enacts Supplemental Budgets and Capital Budgets. A Supplemental Budget includes items in accounts where the spending has run out before the fiscal year is complete. For example, the item which pays for snow plowing on state roads may run out in years, like last year, where the winter is particularly harsh and more snow than usual falls. In these cases, a Supplemental Budget is likely to be passed that includes refreshing depleted snow and ice removal accounts. The Commonwealth also passes Capital Budgets from time to time. These are used to fund capital projects, such as bridge and highway repair, or commuter rail parking facilities. Capital Budgets are not specific to a fiscal year; the funds are ordinarily expended over several years at a time.

Discretionary vs. Non-Discretionary Spending

Not all spending in the state budget is "discretionary," in the sense that the Governor or Legislators could simply decide not to spend the money. The best example of this is deb service. In the current fiscal year, the amount of money that Commonwealth has budgeted for debt from the General Appropriation Act is a little over $1.8 billion.

That is money that the Commonwealth has to spend. It is money that the Commonwealth has to repay the bondholders who have, in essence, loaned the Commonwealth money on its capitaal projects. It's a legal obligation. The other big and obvious legal obligation that the Commonwealth has it's too it's pension system.

Appropriated vs. Non-Appropriated Items

"Appropriated" items are those that have to be specifically authorized by the Legislature in order for the spending to take place. Non-appropriated items generally come out of trust funds, and it is the trust agreement that controls how money out of the fund is spent. The best example of this is state college tuition and fees: these are not "general revenue" for the Commonwealth, and revenues from tuition and fees are not deposited in the General Fund of the Commonwealth. These revenues are used exclusively to pay for the expenses of the state colleges and the University. The legislature has no control over how this money is spent. The boards of trustees of the various colleges and universities set tuition and fees.The state college system does get some additional appropriations to cover the difference between actual cost and the revenues they receive from students and their families. Another example is the Unemployment Insurance Trust Fund. The essential requirements for how this fund must work are set by the Federal Government, and the Federal Government also provides matching funds (see below) to contribute to the Fund. The State Legislature has no control over these funds and does not need to appropriate them in order for unemployed workers to receive benefits.

Federal Matching Funds

The Commonwealth also receives significant amount of matching funds from the Federal Government. These can either come in the form of federal grants or in the form of "matching" funds for certain programs. The two big programs that fall into the federal "matching" category are Medicaid and Unemployment Insurance. The way these programs work is that the Federal Government uses a "carrot" approach with the state governments. For example, they will say to the state government that they will contribute 50¢ on the dollar to the state government if the State enacts a medicaid program, and that medicaid program meets the requirements set forth by the Federal Congress. In essence, no state can turn down a deal like this. The Medicaid program alone costs the state over $2 billion dollars, half of which comes from the Federal Government. In addition, there is the enormous number of federal grants that the State receives. Most of these are made on a similar principle with Medicaid and Unemployment Insurance, which is to say that the Federal Government funds a portion of the activity and the state kicks in the other half. Out of the 1277 line-items in the FY 2009 General Appropriation Act, fully 426 of these were partially funded by federal grants.