BOSTON—Reelection year budgeting got underway Wednesday when Gov. Maura Healey filed a $63.36 billion annual spending plan that would increase spending by 3.8% over the budget she signed last summer, while tax revenues are projected to grow 2.9% and federal aid is in doubt.

Healey’s fourth budget plan (H 2) comes amid a challenging atmosphere of eroding federal supports, sluggish growth in general purpose tax revenues and a taxpaying public that is battling daily cost-of-living concerns.

The governor focused on affordability in her State of the Commonwealth address and made affordability a key talking point around her budget plan as well. Her administration said it “invests in key programs that residents rely on to make their lives easier and more affordable” and the governor described it during a press conference as being “about making life easier and more affordable for Massachusetts residents and businesses.”

“At a time when budgets across the country are tight, this proposal maximizes our resources to deliver on what matters most while controlling spending, protecting taxpayer dollars and driving economic growth,” she said.

The $63.36 billion bottom line includes $60.114 billion in line item spending, $2.7 billion in spending supported by the state’s income surtax, and a nearly $550 million transfer to the Medical Assistance Trust Fund. Compared to the budget Healey signed last year, it represents an increase of about $2.32 billion or 3.8%.

Unrestricted local aid, Chapter 70 school aid and other education spending, health and human services (HHS) spending, and debt service together eat up about 80% of the bill. Just the combination of MassHealth ($22.7 billion gross, net state cost of $9.3 billion) and other HHS spending adds up to about half of the budget, officials said.

Administration and Finance Secretary Matthew Gorzkowicz said the administration’s goal in development of the budget was to limit the growth of accounts and seek efficiencies rather than have to eliminate programs. He said he expects health care costs to be the greatest challenge in managing the budget through fiscal 2027. In November, Senate President Karen Spilka said, “Our budget is really in trouble with health care.”

Lawmakers will now unpack details of her spending plan and check to see if it achieves Healey’s goals.

The governor’s budget was built on an estimate that Massachusetts will collect $44.9 billion in tax revenue, 2.9% more than is expected to come in this year, in fiscal 2027. Excluding surtax revenue, the agreement foresees $42.2 billion in tax revenue for fiscal 2027, an increase of 2.4% over the fiscal 2026 benchmark. 

But Healey’s team went beyond the tax revenue estimate agreed to with lawmakers and her budget assumes that the Legislature will adopt a bill she filed this month to delay implementation of some of federal tax law changes that could help taxpayers but hamper tax collections. That makes about $108 million in additional revenue available for the budget. The governor’s budget relies on roughly $1 billion in one-time revenue sources, officials said.

For 2.9% tax revenue growth to get the state to its $44.9 billion consensus target, fiscal 2026 collections would have to come in at least equal to expectations. A year ago, budget officials agreed on an overall fiscal 2026 consensus revenue estimate that anticipated a 4.8% increase above fiscal year 2025. Midway through fiscal 2026, tax revenues were up by about 1.9%.

Doug Howgate, president of the Massachusetts Taxpayers Foundation, said Massachusetts has been dealing for several years with “escalating spending pressures that are starting to kind of overmatch ongoing revenues,” and he sees Healey’s fiscal 2027 budget as a way to start wrestling those into line.

“I think that turning the ship of spending at 7-8%, which was the case three or four years ago, to 3%, which is what this increases spending over last year’s budget, that’s a challenge over time. And so I think we have seen progress there. I think what the real question is going to be is when we do start to see some of those federal impacts on Medicaid enrollment and things like that. If that happens, when the economy turns, it just ratchets up the pressure on the budget. You want to make sure we’re in a place we can adapt.”

The House and Senate will redraft Healey’s spending blueprint and debate their own versions, typically in April and May. Fiscal year 2027 begins July 1, but Massachusetts usually misses the annual budget deadline and is often one of the last state’s to have a full-year budget in place.

The administration on Wednesday also filed a bill to spend $1.153 billion of surplus surtax revenues from previous fiscal years, including $784.7 million for transportation and $358.3 million for education causes. While midyear spending might be more closely monitored as budget conditions tighten, a fiscal 2026 supplemental budget expected in the coming days will total $415 million, including $300 million for the Group Insurance Commission.

Anticipating that fiscal 2027 would be a tight budget year, Gorzkowicz and lawmakers took steps that freed up significant sums of cash to be put into general purpose use in this budget. And unlike the budget Healey signed into law last summer, this latest proposal does not include any stash of unallocated revenue, Gorzkowicz said.

The secretary and Ways and Means Committee chairmen agreed to assume $2.7 billion in surtax revenue from high earners will come in during fiscal 2027 and to spend the same amount. In past years, they have agreed to spend less from this revenue source than they expected to come in, but this year’s approach makes $300 million more in surtax revenue available for spending compared to the current budget.

And when Gorzkowicz filed the new three-year pension funding schedule that was due earlier this month, he put forward a plan that downshifts the pace at which the state funds its pension liability and frees up $277 million to spend in fiscal 2027 in the process.

Diving into the details

At a Massachusetts Municipal Association conference last week, Healey announced that her fiscal 2027 budget would dedicate $10.4 billion across local aid accounts, marking a $438.5 million, or 4.4%, increase over fiscal year 2026’s budget. That includes a 2.5% increase for unrestricted general government aid to cities and towns, well short of the MMA’s request for a 26.5% increase over fiscal 2026 levels.

For school aid, Healey’s budget fully funds the final year of the Student Opportunity Act with $7.6 billion in Chapter 70 aid. That represents a $242 million increase over fiscal 2026 and would guarantee a minimum per-pupil aid of $75 for all school districts, the administration said.

Rural school aid, which helps rural school districts address fixed costs, would receive $20 million under Healey’s proposal, up from the $8 million allocated in fiscal 2026. Healey is also seeking an additional $154.3 million to reimburse school districts for a portion of transportation costs. Additionally, Healey is proposing full funding for the Special Education Circuit Breaker, at $802.7 million. That would allow for the full phase-in of reimbursements for the costs of transporting out-of-district special education students, her office said.

Healey’s budget level-funds Commonwealth Cares for Children grants to child care providers at $475 million, $25 million for the administration’s literacy launch program (an increase of $5 million), and $5 million for childhood mental health support. 

Around health and human services, the administration is proposing to extend for another year the ConnectorCare pilot program that helps make health insurance more affordable for middle-class residents, and to increase the budget of the Executive Office of Aging and Independence by almost $92 million to just over $1 billion. It also would provide $3.35 billion for the Department of Developmental Services ($91.4 million increase), $1.32 billion for the Department of Mental Health ($4.1 million increase), and $1.08 billion for the Department of Public Health ($69.3 million increase).

On the housing front, Healey’s budget increases the Mass. Rental Voucher Program by $25 million (to $278.3 million), which the administration said would support more than 11,500 voucher holders. She also proposes $258.6 million for the emergency assistance family shelter program – less than both the $325 million she proposed a year ago and the $276.4 million that was signed into the current budget.

The housing section of the budget also includes $201.2 million for the Residential Assistance for Families in Transition program, which the administration said would mean average family benefits of $4,400 per year. Homeless individual shelters would get $114 million (enough to support 2,800 shelter beds) and the budget also proposes an extra $12 million specifically for winter beds.

The governor proposed funding the Massachusetts Emergency Food Assistance Program at $55 million (increase of $5 million) and also put forward a new tax credit worth up to $5,000 for Massachusetts farmers who donate excess food to food banks and pantries. There is $10 million for the Mass. Clean Energy Center, a new appropriation of $3.6 million for the Energy Facilities Siting Division at the Department of Public Utilities, and $141 million for the Department of Conservation and Recreation.

Healey also made a series of policy proposals alongside her budget. One would authorize the Department of Transportation to establish a speed camera enforcement program that would allow the state and municipalities to enforce posted speed limits in construction zones and school zones. She is also seeking to eliminate the practice in which certain unpaid debts lead to the non-renewal of a driver’s license, and to require that methods for canceling any subscription are are simple as the methods of signing up for that service.

On the more technical side of the governor’s outside sections, Healey is proposing to change the threshold at which revenue from capital gains taxes is considered “excess” and must flow to specific reserve accounts. 

The administration said a Stabilization Fund and Long-Term Liability Financing Task Force recently recommended “a one-time prospective adjustment to the threshold establishing the amount in capital gains tax collections available for spending” because it has fallen behind economic growth since it was established in 2011. 

The governor’s budget recommends adjusting the threshold to $2.25 billion, approximately $470 million higher than the original fiscal 2027 estimate. That means that about $470 million in capital gains revenue will be available to the budget before any must be transferred elsewhere. 

The administration said that, even after the shift, the governor’s budget would result in a $100 million transfer to the Stabilization Fund, $136 million for post-retiree benefits, and $20 million for the Disaster Relief and Resiliency Fund. If that happens, the Stabilization Fund is estimated to grow to a $8.24 billion by the end of fiscal 2027.

Budgeting in an election year

Healey’s Wednesday afternoon press conference featured the overtones expected in a reelection year. Rather than using the budget’s true all-in bottom line, the governor and her team consistently called the filing a $62.8 billion budget that represents just 1.1% spending growth compared to what they project to spend by the time fiscal 2026 is over.

The governor responded to a question about her administration’s selective totaling of spending in the budget by saying, “Again, my proposal is 1%…” And when Lt. Gov. Kim Driscoll held up a hard copy of the budget and said, “63 billion right here,” Healey was quick to retort, “62.8.”

The lower bottom line figure the administration uses does not include the transfer to the Medical Assistance Trust Fund.

Healey went hard after President Donald Trump in her press conference, faulting his administration and Congress for actions that made the development of the state’s fiscal 2027 budget harder. The governor’s framing of the budget development was in contrast to how the bureaucrats in the Executive Office of Administration and Finance described the challenges of federal changes during a briefing earlier in the day.

“In the past year, the president has taken a hatchet to federal funding and so many of our programs and services….In Massachusetts alone, that’s meant a $3.7 billion cut to our budget, to our funding,” Healey said. She added, “When we started this [budget] process, we were looking at a double-digit increase in spending, potentially. That’s what this was going to result in, in order to keep up with the cuts, in order to keep up with what we’ve seen around the country in terms of just escalating health care costs, we were looking at having to spend so much more money to try to just deal with what was happening. But, you know, I said to the team, we can’t let that happen.”

Some of the Republican candidates jockeying to challenge Healey in November’s election were quick to weigh in on the governor’s budget offering. Brian Shortsleeve, a former MBTA chief administrator, said he is concerned about the gap between Healey’s proposed spending increase and the smaller year-over-year increases in tax revenue so far this year. He also said he would “put taxpayers first” if he is elected governor.

“That starts with ending budget gimmicks, cutting taxes so jobs and investment come back, auditing every agency to root out waste, and cutting red tape so our economy can grow again,” he said, adding that he would “redirect $1 billion to unrestricted local aid so cities and towns can balance their budgets without hammering taxpayers.”

Mike Kennealy, the former Baker administration economic development and housing secretary, took issue with Healey’s spending increases, alleging a “pattern of high-cost government.”

“While Massachusetts families’ budgets shrink year after year, Governor Healey’s state budget continues to grow. That imbalance is unsustainable. Government is supposed to support its citizens, but in Governor Healey’s Massachusetts, citizens are treated as the ATM for an ever-expanding state bureaucracy,” he said.

If elected governor, Kennealy said he would “take the same disciplined approach to spending that I took in business, education, and state government: conduct a full audit of spending, identify waste, and implement real efficiencies.”

Republican Mike Minogue’s response to Healey’s budget filing focused more on the legislative audit that voters in 2024 authorized Auditor Diana DiZoglio to conduct and which the Legislature has resisted.

“Not another penny should be spent or another dollar taken from taxpayers until the audit is done. Without a completed audit, this budget comes with unanswered questions about waste, mismanagement, and priorities. Accountability isn’t a political talking point; it’s the basic responsibility of leadership,” Minogue said.