FACT CHECK: MassBudget Report Validates Fears About Income Surtax 

When passed on the ballot by voters in 2022, Massachusetts’ new income surtax law for households making over $1 million annually was intended to exclusively fund existing or new education and transportation initiatives.

Opponents of the new tax raised concerns about the measure’s provisions, including that it would allow state officials to “divert” income surtax revenue to other areas of spending, including filling budget gaps that are not part of new education or transportation programs.

A report by Massachusetts Budget and Policy Center (“MassBudget”) claims the new revenue from this income has boosted spending in these areas – and brushes off concerns about lawmakers diverting funds to other areas, calling them “unjustified.” 

A closer look at MassBudget’s own report and Massachusetts’ recent spending data shows these concerns are well-founded.

SPOILER: Our latest fact check finds that since the income surtax went into effect:

• MassBudget’s own charts show that non-surtax spending in education and transportation has stagnated or even declined;
• The concern that general fund dollars currently going to education and transportation won’t just be supplemented, but replaced, by surtax revenues is valid;
• Governor Healey has already proposed redirecting $225 million of income surtax revenue to close an existing gap in the state budget, as many critics warned might happen.

Let’s take a look.

FACT: The rising spending trend in education and transportation spending has stagnated, and even reversed, since the surtax went into effect.

MassBudget highlights that the increased income surtax revenue in these areas has contributed to higher overall spending. However, their own report shows that as surtax revenue has been added to these categories, non-surtax revenue spending in these areas has stagnated or even decreased. 

In education, MassBudget cites the state’s own budget projections that indicate the state’s non-surtax funding rate dedicated to education agencies leveled off in the last two budgets, FY 2024 and FY 2025. This claim means that under the new surtax, education funding growth would have stagnated based on spending growth in the years before the surtax.

Based on inflation-adjusted data from the Massachusetts’ Office of the Comptroller, the state averaged 1.8% spending growth annually for the Executive Office of Education from FY 2010 to FY 2022, prior to the surtax being enacted in November 2022. Inflation adjustments were made based on the Bureau of Labor Statistics Consumer Price Index for the Boston-Cambridge-Newton metropolitan area in July of each fiscal year.

MassBudget reports education spending from non-surtax dollars in FY 2023 would have been just 1%, and in FY 2024 would have been just 0.03% without surtax revenue dollars. This implication means that planned education spending slowed as new surtax revenues would have been funneled into the state’s education budget.

See MassBudget’s chart below:

In transportation, the discrepancy is even worse. MassBudget calculates non-surtax revenues for the Department of Transportation would have grown by just 1% from FY 2023 to FY 2024 and declined by 3% from FY 2024 and FY 2025. That’s a drastic departure from a 6% annual average growth rate in inflation-adjusted transportation spending from FY 2010 to FY 2022.

See MassBudget’s chart below:

These declines in education and transportation spending aren’t due to total spending slowdowns, either. In FY 2023 and FY 2024, Massachusetts Office of the Comptroller reports total inflation-adjusted state spending increased by 5% in FY 2023 and 10% in FY 2024.

As MassBudget’s own graphs show, the surtax revenue (referred to by MassBudget as “Fair Share” dollars per the original ballot measure title) has increased state education and transportation funding. However, its own charts admit that non-surtax revenue funding has stagnated or declined in these areas according to the most recent budget cycles, following a new injection of surtax funds.

Take a look at MassBudget’s graphs below:

This confirms what skeptics feared all along – that the general fund dollars currently going to education and transportation would not just be supplemented, but replaced, by surtax revenues. This trend leaves room for fears that general fund dollars previously going to education or transportation could be used elsewhere.

FACT: Governor Healey’s recent proposition gives further cause for concern over redirection of surtax revenue.

Opponents of the surtax were right to be concerned about potential diversion of surtax funds. Just a month ago, Governor Maura Healey proposed redirecting $225 million of the revenue generated by the surtax to close an existing gap in the state budget. 

Instead of creating new initiatives, Healy proposed using these funds for several existing programs that had also been funded with a mix of general fund and surtax fund revenues in FY 2024. This displacement of general fund revenues would “free up” previously dedicated dollars to address an FY 2024 budget deficit, according to Commonwealth Beacon.

Yet nearly 30 groups penned a letter urging state lawmakers to reject Governor Healey’s proposal. The letter claimed the proposal skirted the original intent of the income surtax law, and the $225 million in excess surtax revenue funds should go to “new investments in transportation…not to backfill accounts to balance the budget.”

The Massachusetts Teachers Association also criticized the Governor’s request, claiming the move “defies the will of the voters.”

Conclusion

We’ve already analyzed how MassBudget was wrong to downplay concerns over the rising number of people leaving Massachusetts. This time, even MassBudget’s own charts betray the group’s stance on the state’s surtax. Voters in Massachusetts approved the income surtax measure under the understanding that it would boost investment in public education and transportation. A brief review of recent budget data shows that may not be the case.

At a time when Massachusetts is already losing members of its talent pool and tax base, we should be working to address valid concerns about how the surtax is impacting state spending.