Legislature faces budget squeeze

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People across the South Coast use state-funded services every day. 

They drive their kids to school. Then they head to a doctor’s appointment. To get there, they cross a bridge, and on their way back they pull over to let a fire engine pass. On the weekend, they take their kids to the library for reading time.

For the last few months, the Massachusetts Legislature has been building its annual budget: A massive bill, encompassing around $60 billion in spending, set to be finalized by July 1 — or at least that’s the plan. But amid threats of a recession and uncertain federal funding, this year’s budget debates are unprecedented.

Here’s what’s at stake, how the budget works, where the money comes from and what could happen if the economy dips further. 

What is the state budget?

The Fiscal Year 2026 budget will cover the costs of programs and services from July 1, 2025, to June 30, 2026. These include things like health care and education. 

These are big ticket items, but according to Sen. Mark Montigny, D-New Bedford, the budget means something different to every Massachusetts town. 

“Politics is local,” Montigny said. “In a lot of ways, the budget is personal. It’s like, in my community, right now, what are the burning things that people are talking about?”

Montigny, who has been a senator for over 30 years, chaired the Senate Ways and Means Committee — which handles the budget — from 1999 to 2003. In addition to funding health care and education statewide, Montigny said, the budget gives legislators a chance to do small things for their districts.

Rep. Antonio F. D. Cabral, D-New Bedford, said he often hears from local nonprofits, museums, arts organizations and community centers, asking that he advocate for funding for them, and he makes this a priority.

Sen. Michael Rodrigues, D-Westport, now chairs the Senate and Joint Committees on Ways and Means and is working on his sixth Senate’s budget proposal. As he sees it, it’s a balancing act, but this time feels different. 

“This is an unprecedented time,” Rodrigues said. “Throughout the first six budgets that I’ve written, we’ve always considered the federal government in Washington, D.C. as a friend and a partner. It’s almost as if they’re an enemy to the local taxpayers, and to the Commonwealth of Massachusetts throughout cities and towns, and they are intent on wreaking havoc.”

Rodrigues said he is also concerned about a possible recession as the economy takes a turn for the worse, but he’s hopeful the Legislature will finalize a budget by the July 1 deadline — which it has missed for the last 14 years — and adjust it as needed. 

Rep. Christopher Markey, D-New Bedford, said this year is uncertain, and so even at the hyperlocal level, he’s focusing on big programs, like health care. Federal funding generally makes up a quarter of the state budget, but with President Donald Trump in the White House slashing spending and clashing with Massachusetts, that money is at risk. 

MassHealth, the state’s Medicaid and Children’s Health Insurance Program, accounted for almost a third of the spending in the state budget last year, making it the biggest item in the bill. The federal government’s contribution generally covers about half of that cost. 

Markey is worried about how cuts to MassHealth would hurt the nonprofit Southcoast Health system that serves New Bedford. Most people it serves are on public pay programs like MassHealth, and Markey and his fellow South Coast legislators are concerned about where the system will get its funding without federal dollars. 

The second biggest budget item is education, which gives funding to cities and towns. Cabral said education funding is particularly important for mid-sized cities like New Bedford, which rely on the state more than other cities and towns. 

Local governments also get funding through Unrestricted General Government Aid — or UGGA — which is a big chunk of the state budget. That money goes towards the community’s total expenditures, which include public services like police and fire, libraries and parks. 

So far, the governor’s, House’s and Senate’s proposed budgets show no signs of slowing spending, and both invest heavily in education and transportation. Gov. Maura Healey and the chambers disagree on how much to spend on youth mental health programs.

Where does the state get all of this money?

Most of the funding for the state budget comes from tax revenue, which Massachusetts collects from its residents and businesses. Legislators are using current tax revenue to anticipate how much money they’ll have to fund the state for the next year. But experts are worried about a recession, which J.P. Morgan is projecting with a 60% probability, fueled by the Trump administration’s tariffs on foreign imports. 

Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University, sees a recession as a bigger concern than a possible loss of federal funding. He’s anticipating a big budget shortfall next fiscal year.

Income tax is one of the state’s primary sources of revenue. But during a recession, unemployment goes up, which means there’s less income from which to collect taxes. And when people stop earning, they also stop spending. So, the state collects less money from sales tax. 

The same goes for capital gains tax, which the state collects from people who gain in their stock portfolios, sell a business or make other money from capital assets. In a recession, the stock market goes down, and these types of transactions freeze up. So, the state collects less. 

Finally, the state also collects corporate tax; “sin taxes” on substances like alcohol, nicotine and marijuana; and on gasoline, to fund road and bridge work.

Rodrigues said the Senate is concerned about the direction the economy is heading in — particularly the impacts of inflation and tariffs and the stock market’s reaction to both. But he says senators are making calculations based on the information available now. 

Montigny, who described himself as a frugal person and an aggressive investor, said this is the wrong strategy. He is planning for a recession in the next year or two, and while he said he understands that you can’t just slash a state budget, as an “economics guy,” he said state budgets should not be increasing in this economy. 

For Markey, a loss in federal funding is a bigger concern than a recession. Massachusetts, he said, while not recession-proof, has a diverse economy and an educated workforce, which will help it survive.

“There’s certainly lots of pessimism out there,” Rodrigues said. “But again, we don’t react to rumors or innuendo. We build our budget based upon facts.”

This strategy applies to federal funding too. 

Helping MassHealth survive

The governor has the authority to unilaterally reduce state spending when tax revenue falls short — these are called 9C cuts. But, they primarily impact low-income areas, and could hit cities, towns and education hard. 

Markey is hoping it won’t come to 9C cuts. He hopes that the state can create a small enough budget for fiscal year 2026 that it can cope with some funding cuts — though the governor and House proposals are already larger than this year’s budget — and then make up the missing money later, with a supplemental budget. 

If it did come to 9C cuts, they could happen anywhere, but cities and towns are a likely victim. 

The two big pots of the state budget that go to cities and towns, UGGA and education funding, are large, even relative to the over $60 billion budget. This means cutting them makes a big difference. 

The last time significant 9C cuts hit Massachusetts towns was in 2008 and 2009, according to Adam Chapdelaine, executive director of the Massachusetts Municipal Association. He worked in Fall River at the time. There, the cuts hurt public safety.

Chapdelaine said that while local governments provide a variety of important services, the size of their public works, police and fire departments dwarf all other departments — that’s where most of the employees are.

If 9C cuts happen, “the likelihood is that a significant share of that would need to come from public works, police and fire,” Chapdelaine said. “Every town manager, every city manager, is going to have their own decisions to make.” 

Montigny said his years working on the budget made him think about cost, and while he’s not socially conservative, he said the experience made him “fiscally conservative.”

He said it’s hard to see important programs cut during the budget process. But 9C cuts are worse — he wants to avoid them.

“Say you’ve managed your budget for seven or eight months, and you have to find x number of hundreds of millions or billions to cut,” Montigny said. “It’s a hell of a lot more painful than if you take your medicine now, going into the budget process, where you have a full 12 months.”

Spending priorities

Healey filed a $62 billion budget proposal in January. It includes almost $2 billion in spending from the “millionaire’s tax” or “Fair Share” revenue — the additional tax on income over $1 million in Massachusetts. 

Including spending from “Fair Share” revenue, the budget increases by 3.5% compared to estimated spending in fiscal year 2025, slightly outpacing inflation.

On the South Coast, “Fair Share” funding has made a big difference in transportation, according to Jessica Troe, senior policy analyst at the Massachusetts Budget and Policy Center.

It provided funding for the Southeastern Regional Transit Authority to eliminate fares on its buses. The South Coast saw ridership increase 56% during the first five months of fiscal year 2025. Use of these regional services is expected to help the new South Coast commuter rail line, giving people a way to get to the train station. 

In the governor’s budget, “Fair Share” spending supports education and transportation, but eliminates increases to Transitional Aid to Families with Dependent Children, which provides assistance to pregnant women, families and caregivers. Funding for this program increased in the fiscal year 2024 budget, before Healey made 9C cuts to it in January 2024. 

At the time, Healey said she was cutting the program to the amount necessary to maintain current benefit levels, which have increased by an average of 30% since fiscal year 2021. The new cuts would bring the program back to 2022 funding levels, according to the Massachusetts Budget and Policy Center.

Cabral said he’s heard from constituents concerned about funding for mental health care, as Healey’s budget made “troublesome” cuts to youth mental health services. Healey’s changes would decrease Department of Mental Health caseworkers by 50%; reduce contracted adult and child, youth, and family services; and close the Pocasset Mental Health Center on Cape Cod.

State and DMH officials have said these cuts would allow for more funding to go to its over-capacity psychiatric hospitals, and are necessary for DMH to receive an overall 7% budget increase.

The House passed a $61.5 billion budget on April 30 for fiscal year 2026, with a 6% spending boost from this year’s budget. It included language prohibiting the Department of Mental Health from cutting caseworker levels beyond fiscal 2025 levels.

The House similarly invested in education and transportation, using “Fair Share” revenue for supplemental investments in both.

Its budget included $81 million in amendments. One measure would increase salaries of the eight governor’s councilors, many of whom work as attorneys while serving, from $36,025 to $50,000.

The Senate unveiled a budget proposal on Tuesday, proposing a 6.3% spending increase, which, while it’s the smallest yet, is still twice the rate of growth as last year. 

Like its counterparts, the Senate proposal focuses on increases to education funding, as well as focusing on health and human services programs. Rodrigues said 65% of the Senate’s budget growth was just from increases to MassHealth. The Senate Ways and Means budget also proposed that $500 million go to the Massachusetts Bay Transportation Authority, and that over $200 million more go to regional transit authorities. 

The Senate budget is up for debate starting May 20. Once the Senate passes its version of the budget, a conference committee of House and Senate members will reconcile the two proposals. Healey will review that budget and can issue line item vetoes and amendments. Lawmakers will, in turn, have the opportunity to override her vetoes by a two-thirds vote in each branch.

And then the Legislature will wait to see how their giant bill is impacted as the federal budget is finalized and new tax revenue numbers come rolling in. Legislative leaders have already warned that lawmakers may need to revisit spending in the fall.

The State House News Service contributed reporting for this story.

Abigail Pritchard is a graduate student in journalism at Boston University, covering state government for The Light as part of the Boston University Statehouse Program.