Many of the biggest eye-catchers in the deal would commit significant funds toward reducing or eliminating costs Massachusetts residents face, including another year of free school meals, tuition-free community college, no-charge rides on the state’s 15 regional transit authorities, and making permanent a pandemic-era Commonwealth Cares for Children (C3) grant program that launched with federal dollars.

Bay Staters would also gain access to online Lottery products, a House priority that previously failed to gain traction in the Senate. Revenue from those sales would be permanently earmarked to help cover costs of C3 grants.

“Third time’s the charm,” quipped House Ways and Means Committee Chair Aaron Michlewitz in an interview with the News Service.

One day after announcing a budget “agreement in principle,” Michlewitz and his Senate counterpart, Michael Rodrigues, filed the final accord with the House clerk’s office around 7:45 p.m. Thursday.

They told reporters afterward that the House and Senate would each take up the budget with a goal of shipping it to Healey Friday. No other major legislative action is planned until at least Monday, they said.

The compromise fiscal 2025 budget would increase spending about $1.97 billion, or 3.5 percent, over the fiscal 2024 spending plan Healey signed into law last summer.

It relies on $1.03 billion in one-time revenue to drive that increase, including a temporary — not permanent, as the Senate proposed — redirection of some gaming funds that would typically flow to specific purposes.

The budget would allow the state to cut back on how much money it saves by diverting up to $375 million in capital gains tax revenue above the allowable threshold, which automatically gets deposited into the state’s “rainy day” fund, if necessary to balance the books.

Budget Goes Big on Education

The Senate President Karen Spilka-backed initiative to make community college permanently free for all will cost the state $117.5 million, covering tuition and fees for students.

This last-dollar program expands on an initiative state officials passed last year to make community college free for residents over 25 years old without a previous college degree, dubbed “MassReconnect” by Healey. Lawmakers and Healey also made community college free for nursing students last year to plug a hole in the shortage affecting Massachusetts’ health care landscape.

“I’m the product of public higher education. And I believe that Massachusetts has, unfortunately, for too long, failed to fund public higher education at a level that it deserves and should be funded at,” Spilka said Thursday, adding that MassReconnect and the nurses program last year led to “an increase in enrollment in community college for the first time in over a decade. And it’s continuing to grow.”

In addition to funding community college for all, the budget deal includes stipends of up to $1,200 for books, supplies and other costs for community college students who make 125 percent or less of median income in the state. Pell-eligible students already eligible for a books stipend through state financial aid would also be eligible for a stipend for books supplies and costs of attendance, for a combined amount of up to $2,4000 per year.

Other higher education spending in the budget includes $80 million to expand financial aid programs for in-state students attending state universities through MASSGrant Plus, in addition to the $175.2 million for scholarships awarded through the General Fund and $2.5 million for so-called “persistence grants.”

“Persistence grants will go to low-income students who, if their laptop dies, in the past they may have dropped out of school, because they could not afford to replace their laptop. They will get some funds that will go to the schools, the schools know the students, and they will help disperse those funds to students to help keep them in school,” Spilka said.

The SUCCESS program, currently in place at Massachusetts’ 15 community colleges, funds wraparound services for students, including personalized coaching, academic support, on-campus leadership opportunities and resources for vulnerable students. The budget would inject $14.7 million into this program, and include another $14 million to expand the program to state universities.

“There are many factors to us being truly more competitive. I know that people refer to taxes, I think that’s one part. But when I talk to people, they don’t mention taxes or the tax rate. They talk about the high cost of college and public education. They talk about needing paid family medical leave and things that Massachusetts is leading the nation in. And this was one last piece for public higher education,” Spilka said.

Standalone Early Ed Bill Unlikely to Move in House

In her opening remarks for the 2023-2024 legislative session, Spilka outlined a “Student Opportunity Plan,” which she said would invest in education from pre-K through higher education.

The Senate passed a wide-ranging early education reform bill (S 2697) this spring, the spending within it totaling over $1.5 billion, funded through the budget. It’s the second time the chamber passed a bill of this type in three years, after passing it last session about three weeks before the end of formal lawmaking in July 2022.

The House hasn’t taken a vote of its own on the massive early education measure, but House Speaker Ron Mariano indicated last year that the struggling sector would be among his priorities this legislative session.

“This session, the full attention of the House will be directed at examining ways to further support our vital early education and care workforce,” Mariano said during his inaugural speech. “This workforce is made up largely of women and often women of color. As we work to build a system to provide affordable access to quality child care for Massachusetts families, I was proud of the work done last session to increase salaries and other key supports for EEC workers, and I’m confident that the Legislature can do more on this critical issue.”

Though it appears that the House will not vote on the actual policy-packed bill this session, leadership agreed to most of the proposed reforms and over $1.5 billion in early education and care spending through the budget.

“Instead of doing the Senate’s bill, we negotiated those final pieces within the budget itself,” Michlewitz said.

“Because we had taken on the C3 funding post-COVID, we felt it was more of a budgetary conversation since so much money was being put into this annually,” he added. “We felt it was more appropriate to iron out whatever differences we had through the budget process.”

A number of early childhood education spending initiatives made it into the final bill, including $475 million for the C3 program and dramatically expanding subsidies to cover the cost of early childhood care for middle-income families.

Michlewitz said the bill carves up 50.5 percent of that C3 funding for providers who serve “low-income and at-risk children.” The rest of the money will be distributed at the discretion of the state’s early education and care commissioner, save for 1 percent of the total pot, which will be available for larger, center-based programs.

The commissioner could grant a waiver to provide more funding to larger programs if they determine that’s in the best interest of the state, Michlewitz said.

A newly-established Early Education and Care Operational Grant Fund will be financed with revenue generated from online Lottery sales. The budget plans for $100 million to come into this fund to pay for C3. The rest of the $475 million price tag will be paid for by $175 million of newly-available surtax funds and $200 million from the High-Quality Early Education and Care Affordability Fund.

Current law limits subsidies to households whose incomes equal up to 50 percent of the state median income, or $73,000. The fiscal year 2025 budget would raise the eligibility threshold to 85 percent of the state median income, which is $124,000 for a family of four.

With the caveat that it is “subject to available funding” the Senate’s early education bill also called for the eligibility threshold to rise further to 125 percent of state median income, or $182,000 for a household of four.

Asked Thursday if they still planned to continue that growth, Spilka said “We’re hoping.”

Surtax Split Tilts More Toward Education

Lawmakers plan to spend $1.3 billion in revenue from the new voter-approved surtax on high earners in the annual budget. That money would fund another year of free school meals for all students, early education C3 grants, fare-free operations at RTAs, and an MBTA workforce “academy,” among other initiatives.

The budget steers 58.5 percent of the surtax spending toward education and 41.5 percent toward transportation, according to Michlewitz. That scale is tilted even more toward education than either the original House plan (which was split 53 percent for education and 47 percent for transportation) or Senate plan (57 percent education, 43 percent transportation).

Michlewitz attributed the shift to some of the high-profile education programs lawmakers have opted to fund in recent years, including C3 grants and universal school meals.

“I think we still have some work to do on the transportation side,” he said, adding that lawmakers will likely have “conversations” about focusing on transportation whenever they decide to spend additional surtax revenues that are not yet appropriated. “Some of that one-time discussion of funding is going to go to some capital gains on the transportation side.”

Through the first nine months of fiscal 2024, the state has collected about $1.8 billion in surtax revenue, roughly $800 million more than the Legislature and Healey planned to spend through that year’s budget. Most of the extra money will be deposited into a savings account, which lawmakers can use when they want. (Michlewitz said he’s not sure if top Democrats will move to tap into that account during the process of closing the state’s financial books this fall or wait until next year.)

Altogether, the fiscal 2025 budget would direct $447 million to the MBTA — a significant increase over the current spending plan — and $110 million toward the state’s 15 regional transit authorities. Michlewitz said $40 million of the RTA funding would allow those agencies to eliminate fares for riders, which would represent a major shift in transportation policy.

Another section of the budget aims to prevent so-called home equity theft, which refers to a municipality taking more of a property owner’s earned equity than is owed in unpaid taxes and other expenses.

Courts have deemed the practice unconstitutional. The Senate moved to implement a legislative fix through the budget, while the House instead approved a standalone bill. Negotiators decided to keep those Senate reforms in place, so the annual spending plan would remain the vehicle.

“Fluid” Financial Outlook After Revenue Stress

This year’s budget cycle proved complicated for Beacon Hill. Tax collections lagged behind projections for most of fiscal year 2024, prompting Healey in January to unilaterally slash $375 million in spending and downgrading the year-end revenue forecast.

Revenues then surged in April, but officials have cautioned that much of the increase is due to the surtax and capital gains revenue, and therefore not a direct impact on the annual state budget.

For now, experts in the House, Senate and Healey administration are sticking with a “consensus revenue” estimate of about $40.2 billion in tax collections for fiscal 2025.

“We’re still very cognizant of the fluid nature that we’ve been on over the last six months. I think we still need to be vigilant in terms of making sure that we’re not getting too far ahead of ourselves, taking it one step at a time,” Michlewitz said. “This budget is a step in a positive direction, showing that once again, over the last couple of years, we’ve had our bond rating increased, we’ve had our rainy day fund in the $8 billion range, we’ve been able to do tax cuts, we’ve been able to deal with the difficult migrant issue. We’ve had to do all that and still be able to afford things like universal school meals, like C3 grants, things that the federal government was paying for that we picked up as programming, knowing that it was too important for us to let go within our communities.”

The House and Senate could take the final votes to send the budget to Healey as soon as Friday, which would be 19 days into the fiscal year it covers. That’s not unusual: the last time Massachusetts had an annual budget in place on time was 14 years ago.

Among 46 states whose fiscal year began July 1, Massachusetts is the only one without an annual spending plan in place, according to data tracked by the National Conference of State Legislatures. Lawmakers and Healey previously agreed to an interim budget covering state expenses for about a month.