January 28, 2004

ROMNEY UNVEILS $22.979 BILLION FISCAL YEAR 2005 SPENDING PLAN

Budget stays the course of reform, eliminates abuse and excess in pension system

Governor Mitt Romney today unveiled a $22.979 billion spending plan for Fiscal Year 2005 that continues on the course of reform he set last year and rids the state pension system of abusive practices and loopholes that benefit political insiders.

Romney proclaimed his budget balanced and said it contains no new taxes and avoids the use of reserves.

The Governor said a combination of stronger revenues over last year, the merger of the Turnpike Authority and reforms of the School Building Assistance (SBA) program make it possible to increase spending on education and health care.

Romney’s budget proposes to grow spending by five percent over projected Fiscal Year 2004 spending. This increase includes the assumption of Turnpike Authority operations. If Turnpike operations are factored out, actual budget growth mirrors the three to four percent anticipated expansion in the economy.

Focusing on an issue of growing concern, Romney said pension abuse erodes public confidence in government when it seems that a privileged few are taking advantage of the system.

“Over the past year, we have all become aware of loopholes that allow state workers to enrich themselves at the expense of the taxpayer,” Romney said. “We have an obligation to take care of our retirees, but no one should get a windfall.”

Romney said his pension reform will not affect the vast majority of public employees. “I want to make sure that all state employees – at every level – receive a pension benefit appropriate to their service,” he said.

Romney’s proposal, which will not affect current retirees, places a cap on the pension amount an employee can receive, basing it on the true reflection of the employee’s earnings over the course of public service rather than the three highest earning years. This measure only affects employees with unusual pension contributions – such as those who get a spike in salary at the very end of their careers in government. The majority of government employees are unaffected by the cap.

Other pension reforms in the budget:

Clarifies that perks, such as cars and housing allowances, do not get added to pension benefits;

Eliminates the “January 1” loophole that grants a year of pension credit to elected officials for a single day of service;

Places certain terminated employees and elected officials (under 55 with 20 or more years of service) on the same benefit calculation as other employees, eliminating the so-called “termination benefit;”

Puts economic fairness into “buy back” provisions by charging accrued market-rate interest over the buy back time period; and

Pro-rates pension benefits based on time spent in different positions, instead of the job grouping an employee is in on the day of retirement.

He noted that three recent early retirement packages passed by the Legislature added more than $2 billion to the unfunded pension liability, a massive cost shifting that eased pressure on the operating budget but pushed costs off to the retirement system.

“Our current system makes it too easy to implement changes that save us cash on the quick, but carry enormous financial costs in the future,” Romney said.

Romney’s budget also targets duplication and inefficiency. He renewed his call to merge the Massachusetts Turnpike Authority with the Highway Department for $20 million in annual savings and $190 million in one-time savings. He also proposed the abolition of the $1.8 million Inspector General’s Office and moving the Alcoholic Beverages Control Commission (ABCC) to the Executive Office of Public Safety so it can effectively carry out its law enforcement mission.

The Governor also unveiled plans to fold the Boston Municipal Court (BMC) into the rest of the District Court operations, saying it makes sense to combine the two departments in order to save $1 million by eliminating duplicative administration and oversight responsibilities.

Romney pointed out that savings from reform make it possible to pay for his Legacy of Learning education program, which includes free public college tuition for the top MCAS scorers, more money for low-performing school districts and an ambitious school building program.

It will also help finance a half-billion dollar expansion in Health and Human Services spending.

Other changes Romney proposed include increasing health care premiums state employees pay from 20 to 25 percent to bring them more in line with the private sector, as well as making workforce reforms and changes to the state’s construction laws.

“If all of us work together on the road of reform, we can build not only a more efficient government for the people of the Commonwealth, but a more effective one as well,” said Lieutenant Governor Kerry Healey.

Romney’s budget boosts spending on Health and Human Service programs by $523 million – or five percent – over last year, totaling $11.1 billion or nearly one-half of the entire state budget. He also hiked spending on MassHealth – the state’s Medicaid program – by eight percent to $6.7 billion, a $496 million increase over last year.

There are no eligibility changes to MassHealth and no one currently receiving MassHealth will lose coverage. The Governor also preserved the nearly $100 million drug insurance program for seniors known as Prescription Advantage.

Romney refocused the mission of the Emergency Aid to the Elderly, Disabled and Children (EAEDC) program, bringing its disability standards in line with the federal Supplemental Security Income (SSI). In keeping with this change, EAEDC will be renamed the Transitional Supplemental Security Income (TSSI), which reflects the original intent of the program.

Also, in anticipation of federal changes to the welfare law, Romney proposed strengthening the Commonwealth’s welfare rules now to avoid losing federal funding. Depending on which proposal is adopted by Congress and the Bush Administration, the number of able-bodied families required to work in Massachusetts could increase to 55 percent in 2005. The state’s current work participation is less than 10 percent.

In order to increase work participation among welfare recipients, Romney’s budget calls for increasing the work requirement for families with children between the ages of two and five from 20 to 24 hours per week and for families with school-aged children from 20 to 34 hours per week.

Higher education spending will increase by more than $70 million in the Governor’s budget – $34 million of it will fund the collective bargaining contracts in line with what was approved in the current fiscal year; $18 million will be distributed to the state and community college campuses through a new formula based on enrollment and costs; and the remaining $18 million will go to the University of Massachusetts.

This increase in higher education spending is in addition to the $12 million it will cost to pay for the first year cost of the new John and Abigail Adams Scholarship Program. Under the scholarship program, students whose MCAS scores put them in the top 25 percent of their class by the end of their junior year get free tuition for four years at the University of Massachusetts or at any of the state or community colleges.

The budget also proposes distributing $20 million in community policing funds through a rational formula based on crime rates and population and not on politics as has always been the case. Romney said that local police chiefs should have some flexibility on spending these community policing funds and so will rename the program the Local Law Enforcement Assistance (LLEAP) program.

The Governor’s budget can be viewed at www.mass.gov/budget.

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