A Growing State Budget Doesn’t Mean a Reduced Cost of Living

As we gear up to file taxes for last year, Massachusetts lawmakers are already figuring out how they’ll spend our tax dollars for the next year.

Looking at fully-approved budgets since fiscal year 2010 (called the annual “General Appropriations Act”), Massachusetts’ total budgeted spending has grown 114 percent – from $26 billion in fiscal year (FY) 2010 to nearly $58 billion for the current fiscal year, FY2025. Next year’s budget isn’t finalized yet, but the Governor’s version currently proposes $62.07 billion in funding for FY2026 programs.

This growth is funded primarily by residents’ tax dollars and supports many critical programs that help the people of Massachusetts and make it a great place to live. But what kind of bang are Bay Staters getting for their budget buck?

Government Spending Outpaces Wage Growth, Doesn’t Reduce Cost of Living

In recent polling, MOA asked voters what they considered the most important priority for state lawmakers to address, and voters most-often said “reducing the cost of living.” But despite increased government spending, the budget isn’t curbing how expensive it is to live in Massachusetts.

Massachusetts budget growth is outpacing wage growth for residents. According to the latest quarterly data from the U.S. Bureau of Labor Statistics, average weekly wages in the Commonwealth grew 62 percent since 2010. That means the state’s budget has grown almost twice as much as residents’ household budgets have.

With the state budget outpacing wage growth, Massachusetts is in danger of spending money faster than it comes into the state coffers. Wage growth is just one component of estimating trends in taxable income, but if spending outpaces income, the state could soon be lacking in critical tax revenue. The state has already increased its reliance on one-time revenue and budget solves in recent years and policymakers are currently contemplating tax increases in order to balance next year’s budget. 

In addition, the Consumer Price Index (a widely-used metric for cost of living based on typical goods purchased by the average consumer, such as food, housing, goods and services, and utilities) has not been curbed by increasing Mass. government spending: local inflation (the best-available indicator for trends specific to Massachusetts) has grown nearly 42 percent since 2010.

Clearly, the state’s current spending strategy isn’t working for Massachusetts residents.

How Are Tax Dollars Being Spent?

Another concern is the growing tax burden on Massachusetts residents that is needed to support this ever-growing budget. In another MOA poll, 82 percent of voters said they already think their taxes are too high.

So where does the money go?

Since FY2010, the Massachusetts Department of Transportation (MassDOT) has seen a significant 1,482 percent increase in budgeted funding. This increase is largely driven by increased state funding for transportation from income surtax revenue and doesn’t include other significant sources of funding outside of the state’s operating budget (such as federal funding).  Yet, Massachusetts consistently ranks poorly for transportation infrastructure and traffic. The MOA Opportunity Report Card gave Massachusetts a “D+” in “transportation,” and Boston has some of the worst traffic in the world.

Massachusetts received its lowest grade, a “D,” on the Opportunity Report Card for “business dynamics,” and the Commonwealth unfortunately fell this past year from 15th to 38th place in CNBC’s annual ranking of the best states to do business in. On housing, Report Card data reveals Massachusetts also has the fifth-highest housing prices in the nation.

Conclusion

Massachusetts’ government spending supports many important programs that benefit the state’s residents and help make Massachusetts a great place to live. The Commonwealth boasts some of the best education and healthcare in the country – two areas where the state invests a significant amount of taxpayer dollars.

But budget growth that's doing little to help residents manage the cost of living – and saddling them with increasingly high taxes, with more proposed for the future – doesn't make sense. It could also mean the state doesn’t have the revenue available in the future to support the critical programs that residents rely on, especially if outmigration continues.

If budget growth continues in this way, while wage growth lags and cost of living skyrockets, Massachusetts is going to have to raise the funds to make up that difference. That could mean levying more taxes on its already strapped residents. This is a delicate balance though, as higher cost of living (including tax burdens) appears to be driving people to leave the state. On top of that, the new addition of the surtax on earnings over $1 million could be driving out a substantial share of Massachusetts’ tax base.

The questions for our policymakers are: how can the state best-use taxpayer funding in key areas – like economic development – that help protect residents from future cost-of-living spikes? And how can we rein in overall spending?

Increasing tax burdens on Massachusetts residents while failing to move the needle on bettering business environments and quality of life for individuals could lead to significant challenges in the future.