Massachusetts puts FY 2014 budget increases toward Education and Transportation

From FY 2012 to FY 2013, Massachusetts had a very minor increase its overall state budget. That was not the case for Governor Deval Patrick’s budget for fiscal year 2014. The recommended budget is comprised of an increase of 10.26% or approximately $5.8 billion. This is quite a significant budget expansion, but when we consider the commonwealth’s top priorities coupled with the increasing costs of health care, the rise seems fitting. Massachusetts also launched the MassResults initiative which will improve the government by making it more open, efficient and accountable. MassResults establishes a safeguard around the various goals of increase school performance, improve health care effectiveness, increase job growth and update infrastructure.

Table 1: Total Fiscal Year Budget

The departments that saw the most dramatic shifts of increased spending were the Department of Transportation, which added just over $2 billion in spending (240% increase), Health and Human Services put a request for $1.5 billion in increases (10% increase), Elementary and Secondary Education raised its budget by $376 million (7% increase) and Higher Education with $1 billion (39% increase). There was also a decrease in spending in several departments including the District Attorneys dropped $103 million (99% decrease), Health Services by $645 million (25% decrease) and Labor Regulation and Relations cut $93 million (80% decrease).

Table 2: Total Fiscal Year IT Line Items Budget

When taking a deeper dive into the commonwealth’s Information Technology (IT) budget, there is a considerable drop in IT spending across the board. Beginning in FY 2011, Massachusetts began increasing its IT budget from $336 million to $415 million in FY 2012 and to $518 million in FY 2013. From FY 2010 to FY 2011, there was also a significant decline in spending, followed by a two year rise. This could also occur moving into FY 2015. The table above depicts the drop in FY 2014 to $460 million (11% decrease). The Massachusetts Information Technology Division increased its budget ever so slightly, by $1.6 million, but spending on IT in other areas saw share declines. Some of the large departmental decreases were the Department of Health and Human Services decreased by 19%, Health Services by 29% and Public Safety by 28%. With such a large reduction in IT spending, there were not many areas that saw IT spending growth, but the Department of Transportation added $3 million (56% increase) and the Office of Education will see an additional $6 million (45% increase).

Table 3: Total Fiscal Year Budgets by Vertical

A quick glance at the Massachusetts budget by vertical, there is additional evidence that the Governor’s priorities for the year are in line with the spending. The health care vertical has an overall increase of approximately $1 billion with some of the related agencies seeing large increases, while others have decreased budgets. The end result is an additional $1 billion in health care spending. Education (Higher and PK-12) have a combined $1.6 billion increase, which fits in directly with Gov. Patrick’s education initiatives.

Finally, the Transportation vertical saw the largest increase at over $2 billion. In prior years, FY 2012 and FY 2013, transportation spending never even reached $1 billion, and this year it is at $2.9 billion. A couple large initiatives within transportation are the expansion of the Boston South Station ($22 million) and continued funding for the commercial driver license information system ($2.3 million). One final area of note is the Justice/Public Safety vertical. This area saw a small dip of $150 million, but overall, public safety spending has been fairly consistent over the past three years.

Analyst’s Take:
The substantial increase in Massachsuetts’ budget for FY 2014 signifies an ongoing interest in putting increased tax revenues and other monies back into the commonwealth. Massachusetts seeks to strengthen job growth both from the top (infrastructure) and the bottom (education system). Education spending at both the university and pk-12 shows a commitment to education for the next generation and the jobs they will be able to take in the future. Massachusetts’ unemployment rate is toward the best in the country, but in order to improve, the advancement of the education of its workforce, economic development programs and infrastructure projects will increase job growth even more.

While it may seem like a contradiction to increase health care spending while at the same time promoting health care improvements and effectiveness, Massachusetts is seeking to increase the availability of affordable health care. In order to accomplish this, the commonwealth invested in new IT infrastructure (Health Insurance Exchange/Integrated Eligibility System – HIX-IES) which will ensure that citizens can find coverage to which they qualify. The overall spending on health care increased by $2 billion, mainly due to enrollment growth and the results of the recession. With the high level of care provided in the commonwealth, the growth in health care spending is more modest than it could have been with the savings of $1.6 billion over FY 2012 and 2013.

Vendors should begin to look at the education sector as an area which will likely continue to see more growth in IT, as it has seen a steady increase since FY 2012, an even sharper growth in Higher Education. As Massachusetts looks to improve its government and make it more efficient and transparent, it is likely that the decreases in IT spending in FY 2014 could be met by increases in FY 2015. Those vendors in the public safety market may be concerned by the slight decline in spending in that area, but Massachusetts has always been at the forefront of innovation and the use of technology as it related to public safety. The commonwealth continues to seek more consolidation of its public safety answering points (PSAPs) and therefore spending in software and hardware in that area could increase in the coming years. Despite the overall decline in IT spending, the commonwealth still will be spending over $460 million, more than it had in FY 2012 and FY 2011, so there is reason to believe that more spending will occur in the future.
 

Recommendations:

• The education sector is a key area for vendors to consider this year and moving forward.
• Justice/Public Safety remains steady, not a significant rise or fall in spending that should have vendors worried.
• Health Care costs rose sharply, however, costs may have been higher without savings of $1.6 billion over FY 2012 and 2013.
• Transportation and infrastructure projects will be a key source of business for AEC vendors.