On Wednesday January 27, Governor Charlie Baker outlined a $39.6 billion spending plan for the 2017 fiscal year, which begins July 1. Governor Baker’s budget includes a 3.5 percent increase in state spending, and reflects the ongoing reality that fixed costs required for MassHealth, pensions, debt service, and other expenses continue to account for large amounts of new state revenues. This limits the issue areas where policy leaders can spend new dollars without having to turn to new taxes or rainy day reserves.

Overall, Governor Baker’s FY17 budget anticipates an increase in spending by $1.37 billion. Nearly the entirety of that increase – 99 percent – is a result of non-negotiable items including a $424 million increase for MassHealth, $264 million for the MBTA, its pension program and related offsets, and $127 million for debt service.

In the area of discretionary spending, funding for K-12 education in the Governor’s budget has been the subject of much discussion.  Local education aid for cities and towns only increased by 1.6 percent, short of expected increases and below what some legislators feel is necessary.  Legislative leaders state that they expect to increase funding in this area in their budget proposals in April and May.

Some other highlights from Governor Baker’s proposed FY17 budget:

• $40 million increase for programs in support of substance abuse prevention;

• $30 million increase for the Department of Children and Families;

• $18.6 million for a redesigned full-day kindergarten grant program to assist communities in achieving tuition-free, full-day kindergarten; and

• $20 million for a modified charter school tuition reimbursement formula.

The Governor also filed companion Economic Development legislation that proposes to restore the state’s film tax credit to the program’s structure when signed into law in 2005. The changes would put a $7 million per project cap on the film credit and eliminate refundability for projects.  The bill also proposes to establish a single-factor corporate tax rate to be phased in over four years, targeted for all corporate taxpayers who do business in more than one state.