Each year the leaders of the Massachusetts House and Senate Ways and Means Committees meet with the Administration and Finance Secretary to come up with their assumption of how much state revenues will increase in the coming year. From this they base their fiscal year budget plans.
The three budget leaders, with input from outside economists, also come up with the Potential Gross State Product (PGSP), which is the long-run average growth rate of the commonwealth’s economy, excluding fluctuations due to the business cycle. The PGSP is important because the Health Policy Commission uses it to set the state’s healthcare cost growth benchmark.
Last week outgoing House Ways & Means Chairman Jeffrey Sanchez, Acting Senate Chair Joan Lovely, and Administration and Finance Secretary Michael Heffernan set the revenue assumption at 2.7% and the PGSP at 3.6%.
Chapter 224, which created the cost growth benchmark concept, mandates that for calendar years 2018 to 2022, the benchmark must be the PGSP minus 0.5% – or in this case 3.1%. The HPC, however, can vote to modify the benchmark between 3.1% and 3.6%. The HPC usually sets the benchmark in March.