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BOSTON (State House News Service) - The new income surtax on wealthier households has helped drive up state spending on education and transportation in the last two years and worries about the state diverting new funds for other purposes have "so far proved to be unjustified," a new report said.
Opponents of the 4 percent tax on household income above $1 million say it's pushing capital out of the state and making Massachusetts less competitive from a business standpoint. But in its report, the Massachusetts Budget and Policy Center said the new levy "created a more equitable tax system" and the investments it has unleashed since fiscal year 2023 "are helping to advance racial equity in the budget."
Legislators and Gov. Maura Healey have so far used surtax revenue to make community college, school meals and regional transit authority rides free, while also investing in early education, K-12 education, public higher education, roads and bridges, and the MBTA.
The report described the investments to date as "transformational" and predicted surtax revenues in the future will be used to fix bridges, repair buildings at public universities, and annually finance $250 million in bonds to pay for transportation infrastructure improvements.
The report said $2.3 billion in surtax funds have been poured into education and transportation, with more than $1 billion in additional funding waiting to be allocated "in the coming months." It detailed how surtax revenues supplemented other state revenue sources to help Beacon Hill avoid minimal increases in education and transportation spending, or even reductions in transportation accounts.
Legislative leaders took a conservative approach when budgeting surtax funds in the early months of collecting the tax and haven't said when they'll take up a bill to appropriate surtax revenues that have been collected but not appropriated. Massachusetts voters approved the surtax in 2022 in the form of a constitutional amendment.
Last month, Gov. Maura Healey proposed a bill that redirects some surtax dollars to close a state budget gap. Overall fiscal 2024 tax receipts beat fiscal 2023's total by 4.2 percent, but the overage was due to the high-earner surtax, leaving a budget gap of $233 million. In a letter to lawmakers, Healey noted that after adjusting for the surtax, fiscal 2024 revenues came in $322 million below fiscal 2023.
In a supplemental budget, Healey wants to allocate $225 million in surtax revenue to support education and transportation initiatives, with money originally allocated from non-surtax sources then becoming available to close the budget gap.
The Legislature budgeted $1 billion in surtax revenues for fiscal 2024 but recent estimates show the state collected $2.2 billion from the new revenue source. Under current law, 15 percent of the overage will go to the Education and Transportation Reserve Fund, which the MassBudget report describes as a "rainy day fund" for surtax revenue spending. The other 85 percent of the overage is transferred to the Education and Transportation Innovation and Capital Fund, which can be used for one-time investments, the report said.
Written By Michael P. Norton/SHNS
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