Hildreth Institute in Commonwealth Beacon

Supplementing or supplanting? Surtax spending gets “complicated”

This article originally appeared in State Affairs and Commonwealth Beacon.

STATE HOUSE, BOSTON, JULY 2, 2025 - The Legislature this week agreed to use nearly $500 million in surtax revenue to deliver a major boost to K-12 school funding, a move that some see as fulfilling the voter-approved mission of the tax on high earners while others warn it strays from the original promise of funding new education and transportation initiatives.

The budget that lawmakers sent to Gov. Maura Healey’s desk Monday includes a $496 million expansion to the state’s Chapter 70 funding that provides education revenue for local school districts. The money is being drawn from revenue generated by the 4% surtax on annual income over $1 million, approved by voters in 2022 through a ballot question, also called the Fair Share Amendment.

That single line item (1596-2450) accounts for just more than 20% of the $2.4 billion in surtax spending lawmakers agreed to for the fiscal 2026 budget. It represents a shift in how that revenue is being used — and it has drawn mixed reactions even among the groups that campaigned for the surtax in the first place.

"This budget was crafted with concern over what is going on at the federal level," Massachusetts Teachers Association President Max Page said, referring to anticipated cuts from Congress and President Donald Trump’s administration. Though the union previously warned against using surtax funds to replace routine and recurring education spending, Page said this year’s context made the decision more understandable.

"But, importantly, we certainly would hope that this much to fulfill the SOA wouldn’t be a part of next year’s budget,” he said, referring to the 2019 Student Opportunity Act, which is phasing in more than $1.5 billion in additional funding for districts over seven years. "The way it’s been working, which we really approve of, is the regular budget funds the SOA investments, and we can do new investments like higher minimum aid, universal school meals, capital fund investments, through Fair Share."

The fiscal 2026 budget increases Chapter 70 funding by $460 million over the previous year, according to the Senate Ways and Means Committee — and funds that increase with surtax dollars. In addition to supporting the fifth year of SOA implementation, the $496 million line item for so-called SOA expansion also includes a sharp increase in minimum per-pupil aid, from $104 to $150.

In past budgets, similar increases to Chapter 70 were paid for through general state revenues. The shift this year raised red flags for those who view the surtax as a way to go above and beyond standard funding obligations.

"Voters overwhelmingly approved the Fair Share Amendment to enable new investments in public education and transportation — not to plug existing budget gaps," said Bahar Akman Imboden, director of the Hildreth Institute, a research center focused on equity in higher education. She said she was "disappointed" to see nearly $500 million "being used to backfill" K-12 spending.

Imboden warned that reallocating surtax revenue to cover existing commitments could undermine recent progress in spending surtax dollars on higher education, which has included making community colleges free and financial aid expansions. 

Those initiatives are continued in this budget, but she warned, "without corresponding investments in campus capacity, student supports, and infrastructure, the gains we’ve made in encouraging more Massachusetts students to pursue higher education will falter."

About 11% of the surtax revenue in the fiscal 2026 budget is allocated to higher education, according to the Hildreth Institute — a roughly $5 million decrease from the previous year. On average, higher education line items saw a 0.5% increase in the fiscal 2026 budget, the Institute noted.

In previous years, surtax funds have been used to launch major new programs like universal free school meals, fare-free Regional Transit Authorities and free community college for all Massachusetts residents. Those are continued in the fiscal 2026 budget. Groups who backed the surtax saw those programs as examples of using the money for "supplementing, not supplanting" existing spending on education and transportation through general revenue.

In the first budget cycle after the surtax passed, the MTA issued an analysis praising the Legislature’s approach.

"Importantly, Senate Ways and Means, the House and the governor use Fair Share Amendment revenue in the FY24 budget only for new programs and expenditures," the union wrote. "Regular annual increases for state programs, including a $595 million increase for Chapter 70 and more than $62 million for Special Education Circuit Breaker, are funded out of general state revenue – not Fair Share revenue."

This year’s decision breaks from that precedent. But a policy analyst from a think tank that backed the surtax campaign says the change was likely necessary in the face of economic uncertainty, tighter general revenues, and a difficult fiscal year for most school districts around the state.

"There are more new things you could do if you weren’t using so much of it for Chapter 70, so it’s hard to see in isolation. It’s complicated," said Colin Jones, deputy policy director at the Massachusetts Budget and Policy Center.

"But this year when we hear talk about things like the impact of the trade war, tariffs, the economy and the federal budget, they’re building flexibility with this maneuver to increase Fair Share to cover basically all of the Chapter 70 increase this year," he said. "That frees up general funds to do other stuff. And flexibility in this environment is pretty good."

The Raise Up Massachusetts coalition, which led the ballot campaign to pass the surtax, also defended the Legislature's approach.

"The Constitution doesn't allow specific appropriations in a ballot measure, so it gives the Legislature the ability to spend the money on the priorities that they choose, and we expect that those priorities may shift and evolve as time goes on," said Andrew Farnitano, a spokesperson for the coalition.

Farnitano pointed to the strength of surtax revenue collections as a sign the funding stream can be relied upon for major investments. 

"The intention of the amendment was to give the state the resources to make these decisions and have these conversations through the budget process, where we have the resources that are necessary," he said.

When asked about concerns over the volatility of surtax revenues — which depend on high-income earners  — Farnitano responded, "The evidence so far is showing that Fair Share revenues are very strong and can be counted upon."

Indeed, the Department of Revenue reported in May that it had collected nearly $2.6 billion from the surtax between July 1, 2024 and April 30, 2025 — exceeding the total for all of fiscal 2024 with two months of fiscal 2025 still to be counted. Secretary of Administration and Finance Matthew Gorzkowicz has said total fiscal 2025 surtax collections could approach $3 billion.

Meanwhile, general tax collections have plateaued.

From the House floor Monday, House Ways and Means Chair Aaron Michlewitz made the case for moving Chapter 70 obligations into the surtax category.

"This shift will further limit any potential exposure with general fund revenue while holding to our commitment to fully fund the fifth year of the Student Opportunity Act," he said. "This reduction in overall spending will better prepare the commonwealth for potential economic turmoil in the months ahead."

Senate Ways and Means Chair Michael Rodrigues' office also cited the unexpectedly high surtax receipts as a factor in the decision to expand its use. 

"In light of higher than initially estimated Fair Share collections, we felt comfortable increasing the conference amount to allow for transformative investments in education and transportation," said Rodrigues spokesperson Sean Fitzgerald.

Still, critics worry about setting a precedent that allows baseline education costs to be paid for with what was pitched to voters as a tool for innovation.

"While we understand FY2026 presents fiscal challenges, Massachusetts has one of the strongest rainy day funds in the country; reserves that exist precisely to help us sustain progress during hard times," Imboden said. "Now is the moment to honor the will of the voters and ensure that Fair Share dollars are used to move us forward, not simply to hold the line."

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07/02/2025