By Matt Murphy
STATE HOUSE NEWS SERVICE
STATE HOUSE — The Supreme Judicial Court on Monday answered the “money bill” question hanging over state budget deliberations in favor of the Senate, but that chamber’s major tax reform proposals still face significant hurdles if they’re to reach the governor’s desk.
The court’s advisory opinion, while a short-term political victory for Senate President Stanley Rosenberg, immediately shifts the focus to private conference committee negotiations between the House and Senate over a roughly $38.1 billion state budget for fiscal 2016.
House Speaker Robert DeLeo as recently as last week said that regardless of the court’s opinion, he considers a repeal of the income tax rollback schedule to be a tax increase, something he swore off when budget planning began earlier this year.
But on Monday, after the opinion was announced, the speaker stopped short of drawing a line in the sand.
“Obviously I support the position of the House. Beyond that, a whole host of other things are part of the budget and therefore part of conference and I’d have to leave it at that,” he told reporters after meeting with Rosenberg and Gov. Charlie Baker.
The House requested an advisory opinion from the SJC in late May after the Senate attached a series of tax reforms to its version of the budget, including a new excise tax on flavored cigars and a plan to increase the earned income tax credit and personal tax exemptions.
To pay for the $140 million tax plan, the Senate voted to halt the gradual rollback of the state’s income tax to 5 percent. The income tax is currently 5.15 percent, but is expected to decrease to 5.1 percent in January if certain economic triggers are hit. It could fall further in 2017 and potentially hit the 5 percent mark in 2018.
The House expressed its “grave doubts” as to whether the Senate had the authority to attach tax law changes to the budget, citing the origination clause in the Constitution that requires “money bills” to originate in the House.
The court, in its opinion signed by all seven justices, found that the House’s decision in its version of the budget to delay the implementation of a business tax deduction, known as FAS 109, opened the door for the Senate to propose additional tax policy changes. The delay, the justices wrote, increases the amount of revenue the state can expect to collect in fiscal 2016.
Because the business tax deduction delay made the House budget bill a “money bill,” the justices said they did not “express a view” on whether the expansion of a land conservation tax credit would have also made the House budget a “money bill.”
The idea of expanding the earned income tax credit to benefit families at the lower end of the income ladder remains popular among Democrats and Republicans on Beacon Hill, though there is widespread disagreement over how to pay for such a program.
Both DeLeo and Baker opposed the Senate’s proposal to freeze the income tax rate, but DeLeo also disagrees with Baker’s proposal to pay for an EITC expansion by phasing out the state’s film tax credit to encourage movie productions in Massachusetts.
Rosenberg said that under the Senate’s proposal residents would get the same $140 million tax cut that an income tax rollback would provide in fiscal 2016, only the benefits would be shifted from wealthier citizens to middle and low-income families.
“Everybody cares about the working people of Massachusetts. I know they do. The governor campaigned on an increase in the EITC. The question of how you fund it is the question on the table,” he said.
Asked if he was open to another way to pay for his tax cuts apart from freezing the income tax, Rosenberg said, “I want to see an EITC and an increase in tax cuts for the average working people by the time we finish this.”
Baker said he supported “all the way” the Senate’s push to expand the EITC, but favors his recommendation to repeal the film tax credit to help pay for the cuts.
“I think the people of Massachusetts voted to lower the income tax to 5 percent and it’s about time we lowered the income tax to 5 percent,” Baker said, later dodging an attempt by a reporter to get him to take the next rhetorical step of declaring his opposition to the Senate plan.
The timing of the justices issuing their opinion pleased budget negotiators, who now have clarity on what’s in play more than two weeks before the start of the fiscal year.
House Ways and Means Chairman Brian Dempsey said the conference committee has been active in budget talks, including multiple meetings and staff conversations, leading up to the opinion and had “contemplated the decision going either way.”
Though the opinion now gives Senate negotiators a few extra bargaining chips, Dempsey said it “remains to be seen” whether the deal can be reached before July 1, but said he’s “always optimistic.”
Senate Minority Leader Bruce Tarr opposed the Senate’s tax plan, but backed the body’s interpretation that it had a right to consider tax policy.
Tarr said he was disappointed that the court decided against “fully” exploring whether a section in the constitution, Article 63, “exclusively governs” the budget, as well as whether tax decreases make legislation a “money bill.” He noted Senate GOP efforts in the past to debate tax decreases have been ruled out of order.
House Minority Leader Brad Jones, who supported the House’s effort to challenge the Senate’s actions on the budget, said the ruling gives clarity for moving forward. Mentioning the justices’ opinion on the FAS 109 deduction delay, he noted that the Senate under previous leadership might have missed opportunities in recent years to take up tax policy in the budget.
“Obviously it creates a whole set of issues that need to be resolved by the conference committee,” Jones told the News Service. “I think it gives more weight to the viewpoint around here that the budget process could take longer than it has in recent years. Not ever, but at least in recent years.”
Sen. Michael Rodrigues, a Westport Democrat who sponsored one of the Senate tax amendments, said the clarity provided by the justices of the SJC will allow budget negotiators to engage in a back-and-forth without “any shadow or cloud hanging over it.”
“I am confident that both House and Senate conferees are going to enter into adult negotiations and compromises, and we’ll get some victories on our side, and the House will get some victories on their side,” Rodrigues said.
DeLeo joked after the opinion came out that reporters would now be watching closely each year to see if the House continues to delay the start of the FAS 109 business deduction, which has never been implemented, now that it’s been made clear that it triggers money bill status.
Rodrigues said the FAS-109 was a tax deduction the state included to woo large multinational corporations, and he hopes the state will finally be able to implement it at some point.
“I think it’s something that eventually we would want to see implemented. It was part of a very complicated corporate tax bill that we passed, but right now we feel it’s a very expensive tax benefit that only applies to very few multinational corporations,” Rodrigues said.
Gintautas Dumcius and Andy Metzger contributed reporting.