The Charles River Regional Chamber joined nine chambers across the state last week in calling on Beacon Hill to slow the rate of state spending and use the tax code to make Massachusetts more competitive.

Together, our chambers represent more than 10,000 employers across Massachusetts. 

We’re hoping our letter (below) will help frame the 2025 budget-making process which is set to begin next week.

Nov. 20, 2023

Dear Governor Healey and Secretary Gorzkowicz,

The drastic increase in government spending over the past five years is a growing concern for our future competitiveness and may detrimentally impact the long-term fiscal health of Massachusetts.  As leaders of Chambers of Commerce from across the Commonwealth, the Network continues to prioritize public policies that will advance the competitiveness of our local businesses and workforce.  The Network appreciates the leadership of the Governor and Legislature for focusing on a strong and stable economic environment in recent legislative accomplishments. To enhance our competitiveness and ensure that residents and employers have a healthy business climate, starting with the FY25 budget, the Network urges legislators to exercise control in government spending while reprioritizing strong outcomes and increased efficiency.

State spending in Massachusetts, buoyed in large part by economic growth and tax revenues, grew at a breakneck speed over the last five fiscal years, dramatically outpacing inflation. Total general fund spending increased by 26.7 percent between FY 2018 and FY 2022; by contrast, the Boston area consumer price index (CPI) grew at just 14.7 percent over the same period.[1]  

The large gap between spending and CPI increases, even over a period with exceptionally high inflation, suggests that state spending is not limited to increased costs for employee salaries or goods and services. Instead, it is expanding each year and often on a large scale. Worth noting, even when accounting for the rapid pace of increases in health care spending – a significant share of which is reimbursed by the federal government – state spending still substantially outpaced inflation. This approach is not sustainable and not responsible.

These annual budget increases were sustained by a combination of significant state tax revenue growth and the largest federal funds transfer to states in history.  Both situations are exceptional and cannot continue indefinitely. Looking to the future, the Commonwealth must embrace the reality that recent fiscal years represent historical aberrations, and must reevaluate its spending limitations when building budgets, adopting legislation, and identifying fiscal priorities.

[1] State spending data is from the Statutory Basis Financial Report, FY 2018 and FY22, general fund spending only and excluding fund transfers. See pages 59 and 66, respectively. The Boston-Cambridge-Newton, MA-NH CPI-U is measured between July 2018 and July 2022 to reflect when spending was completed for each fiscal year. June measurements are not available for the Boston CPI measure.

The budget growth is particularly striking when looking at outcomes and the state’s recent performance in areas key to our continued growth and competitiveness. Massachusetts consistently is among the top-10 per capita state and local expenditures.[1] Yet the greater Boston area has some of the worst traffic congestion in the world, a failing public transit system, and ranks 43^rd in the nation for fiscal stability according to U.S. News.[2] Meanwhile, Massachusetts now ranks 46 in the country for its tax climate and 50^th in the country for its Unemployment Insurance System.

In tandem with serious gaps in spending and related outcomes, the state faces continued and renewed attacks on ensuring accountability for major areas of state spending.

Educating our future workforce is a key priority for the business community.  Massachusetts spends among the highest of any state per student – only four states spend more – but there are troubling efforts to obscure transparency and reduce accountability for that spending.[3] Legislation and a ballot initiative to eliminate the MCAS testing requirements that hold local school districts accountable for education outcomes will harm the effectiveness of the Student Opportunity Act and rob the Commonwealth of key data on the state’s strong education system.  We cannot allow continued increases in education spending to be coupled with reduced accountability and expect to compete in a 21st-century economy. 

The reluctance to track specific spending from the new income surtax and constant efforts to expand benefits and entitlements to important programs points to a budget approach that does not analyze the metrics and outcomes of our spending policies. Even those programs supported by the business community, like Paid Family Medical Leave, should not be expanded without the business community’s voice in analyzing the overall effectiveness and efficiency of the program.    

As you begin developing our FY25 state budget, we urge you to take a balanced approach and keep spending increases at no more than the rate of inflation. If the consensus revenue determines that tax and other revenues will allow for greater-than-inflation growth, then we strongly urge you to adopt the additional tax reforms that were proposed but not enacted this year.

Our tax policies relative to competitor states and high growth regions in this country are a competitive headwind for Massachusetts.  Since 2021, 25 states have cut individuals tax rates, 13 states have cut corporate tax rates, and 2 states have cut sales tax rates. Many others joined Massachusetts in updating their tax codes to improve their tax environment.

[4] Competitor states like North Carolina, Arizona, and New Hampshire moved forward with tax changes that benefit individuals and businesses alike. The Commonwealth must continue targeting outlier tax policies as other states make progress on tax policy.  Our ability to attract and retain our talented workforce, business expansions, and start-ups depend on us shedding the competitive complacency attitude and realizing that Massachusetts exceptionalism will not sustain us.

[2] US Census Bureau. 2000, updated annually. Annual Survey of State and Local Government Finances, 1977-2020. Compiled by the Urban-Brookings Tax Policy Center. Washington, DC: Urban-Brookings Tax Policy Center (2021). https://www.taxpolicycenter.org/statistics/state-and-local-general-expenditures-capita

[3] https://www.usnews.com/news/best-states/massachusetts

[4] U.S. Census, 2021 Annual Survey of School System Finances.

[5]https://taxfoundation.org/research/all/state/state-tax-reform-relief-2023/