2005 was a banner year for the Massachusetts High Technology Council, which led successful campaigns to preserve the state's two top military installations and to prevent a $200 million retroactive capital gains tax increase, among other important initiatives.

This fall the Council - and its affiliated Massachusetts Defense Technology Initiative (MassDTI) - celebrated one of its most significant victories in its 28-year history: the preservation of Hanscom Air Force Base and the Soldier Systems Center - Natick through the independent review of the Base Realignment and Closure Commission (BRACC). The preservation of Hanscom and Natick ensures that more than 33,000 technology-focused jobs will remain in Massachusetts and that both of these bases remain as critical engines for our state's premier defense technology cluster.

MassDTI's successful BRAC campaign was recognized by the Massachusetts Alliance for Economic Development (MAED) and received the Statewide Strategic Asset Economic Booster Award for its contribution to the state's economy. Council Director and Dynamics Research Chairman, President and CEO James Regan accepted the award for MassDTI at the November 23, 2005 gala, which featured a keynote address from MassDTI co-chair Governor Mitt Romney.

The Council's efforts to help fend off a significant retroactive tax increase that would have impacted 48,000 Massachusetts residents came to fruition on December 1, 2005, when Senate President Robert Travaglini and House Speaker Sal DiMasi announced the Legislature would accede to Governor Romney's plan to prevent a $200 million retroactive capital gains tax from taking effect later this year. On November 18, 2005, Council President Christopher Anderson participated in a State House press conference at which Governor Romney unveiled amendment language to set the effective date of January 1, 2003 for increasing the state's capital gains tax structure.

Governor Romney signed the bill into law on December 8, 2005, ending a three-year quagmire caused by the Legislature's massive 2002 tax increase package, which included a dismantling of the state's competitive capital gains tax phase-down law. In addition to preventing a $200 million retroactive tax increase, thousands of Massachusetts residents are now eligible for $275 million in rebates from gains realized in the second part of 2002. Under the Legislature's new plan, those rebates would be delivered over a four-year phase-in.

The Legislature's original effective date (May 1, 2002) for the capital gains tax increase was ruled unconstitutional by the Supreme Judicial Court earlier this year. Since the Massachusetts constitution prohibits taxpayers from being treated differently in the same tax year, the SJC instructed the Legislature to set the effective date of January 1, 2002 or January 1, 2003. To avoid having to provide refunds to taxpayers with capital gains incurred in the second half of 2002, the Legislature chose the earlier effective date and promised to hold harmless taxpayers with gains from the first part of the year. That too was struck down by the SJC.

In 2002, the Council warned that by increasing the capital gains tax the Legislature was creating a significant future tax burden once the economy began to rebound, despite claims by the Legislature that it was "only" a $240 million annual tax. In calculations run by the Council and reported by Boston Globe Columnist Steve Bailey, the state will net an additional $820 million in 2005 and $974 million in 2006 due to the higher capital gains tax rate. The unexpected capital gains tax windfall and a projected billion dollar annual surplus undermined any argument on Beacon Hill that the state could not afford to forgo any additional revenue.

The Council's aggressive media and lobbying campaign, coupled with an outcry from irate residents who were served notice of impending retroactive tax bills, forced the Legislature to act to prevent the increase from happening. Some in the Legislature, including members of the leadership team, had supported the retroactive tax increase using the fatuous argument that preventing a retroactive capital gains tax cut would only benefit wealthy residents.

Not that income should be a factor in matters as egregious as retroactive taxation, but for the dozen families who attended Romney's press conference - and the thousands of other low to moderate income families impacted by this mess - this retroactive tax hike would have spelled financial ruin. While the Legislature made the only fair decision in the end, the fact that they only acted after significant public pressure is a discouraging sign for Massachusetts taxpayers.

In the 2005 Council CEO Business Climate Survey, restoring a competitive capital gains structure came in as the highest ranked tax item for the fourth year in a row because of its positive impact on patient capital investment and competitive advantage for entrepreneurs. In 2006, we will look to reopen the debate on the state's capital gains tax structure and how we can make it more competitive for entrepreneurs and individual investors.

Beacon Hill's consensus top public policy priority, reforming the state's health care access and delivery system, remains stalled in a legislative conference committee as House and Senate leaders worked to reconcile differences between the branches' competing plans. Romney, Travaglini and DiMasi all said that approving a health care reform package before the end of 2005 was at the top of their respective agendas.

While all of the proposals work towards the noble goal of expanding access to health care for Massachusetts' uninsured residents, the House proposal would impose up to a seven percent payroll tax on the state's employers. This new employer tax was roundly opposed by the employer community. In a November 11, 2005 opinion editorial in the Boston Globe ("No New Taxes") Council President Christopher Anderson urged the Legislature to reject the employer tax. He cautioned state leaders to "be aware of the long-term impact on jobs when it attempts to solve a problem like health care. While there are nearly 500,000 uninsured residents in Massachusetts, virtually the same number of people are employed by the state's health care economy. We must avoid the zero-sum game created by bad policy that would add residents to the insurance rolls while simultaneously costing health care jobs."

While the Senate rejected the House's proposed payroll tax, this economic threat remains in play in the conference committee. The debate on health care occurs with a looming ballot question to create a Canadian-style universal health care system in next November's election. If the efforts on creating a better health care system get bogged down by politics, the advocates for socialized medicine may be able to create momentum for their ballot question. In fact, if the House payroll tax - very similar to the socialized medicine ballot question language - is rejected by the conference committee or Governor Romney, advocates may continue to push the matter at the polls. The Council supports both Governor Romney's version and the Senate's plan, which was originally filed by Senate President Travaglini.

In all three versions of the health reform legislation, the state would make easy-to-understand health care costs and quality information available on line. This is critical because currently consumers do not have ready access to such important information. In fact, Massachusetts residents spend much more time researching nutrition information than comparing cost and quality of health care providers, according to a survey by Harvard Pilgrim Health Care.

However, the competing plans differ on how the web site will be developed and managed. The Council has joined Harvard Pilgrim and other employer groups to call for some key structures for transparency to be included in the final compromise legislation:

The latest Unemployment Insurance Trust Fund Report of the Massachusetts Division of Unemployment Assistance shows that Massachusetts has maintained its dubious distinction of having the nation's most costly and uncompetitive UI system. At an average per employee cost of $671, Massachusetts is more than double the United States average of $315. Technology competitor states like North Carolina ($278), California ($402) and Georgia ($227) have much more competitive systems than Massachusetts. New Hampshire employers on average pay one-sixth of the UI costs of their neighbors in the Bay State.

These numbers reflect a clear competitive disadvantage for Massachusetts job creators. The uncompetitive nature of the state's UI system can be attributed mostly to its overly generous benefits and weak eligibility standards. While 48 states provide 26 weeks of benefits (and one provides 28) Massachusetts is alone in providing 30 weeks of benefits. In addition, to qualify for UI benefits Massachusetts residents only need 15 weeks of work, one of the lowest standards in the nation.

The Council supports Romney's UI reform bill (House Bill 604), which would create a system that requires 20 weeks of work to be eligible for benefits and reduces the weeks of benefits to the national standard of 26 weeks. The bill would also provide $250 million in annual rate relief for employers struggling under the weight of the highest UI costs in the nation.

The Council also helped push forward the debate on the next generation of education reform. On November 3, 2005, Council Founding Chairman and Analog Devices Chairman Ray Stata testified at the State House before the Joint Committee on Education on the need for K-12 education reform and an increased focus on generating the engineers and scientists Massachusetts needs to compete in the global economy. Stata and other technology CEOs will be very active on education efforts in 2006, and the Council will continue discussions begun with Committee chairs, Representative Patricia Haddad and Senator Robert Antonioni.

The Senate and House wish lists for the state's second economic stimulus bill are currently under review by a joint conference committee. The Council strongly supports the House's proposal to invest $10 million in the state Research Center Matching Fund at the John Adams Innovation Institute. This was the top Council priority and has proven to be by far the biggest success of the first Economic Stimulus package. With just over $11 million of the original funds committed, the state has landed more than $45 million in federal matching grants and private investment. This is a tremendous return on taxpayer funds and certainly warrants significant renewed investment by the state. This also helps meet another Council goal of boosting the University of Massachusetts to become a world-class public university system by helping it land significant federal research grants and foster closer relations with the technology community.

The Council also supports the House proposal to fund the STEM Pipeline at $15 million and opposes Senate language to create a new layer of burdensome bureaucracy to review the state's information technology procurement process.

Health Care Panel Discussion: How Technology is Influencing Health Care Costs and Shaping Your Business Environment
Thursday, January 19, 2006
7:45 a.m.-9:30 a.m.
The Burlington Marriott
Co-Sponsor: Harvard Pilgrim Health Care
Media Sponsor: Mass High Tech

Future Combat Systems Best of Industry Regional Conference
Monday, February 6, 2006
11:00 a.m.-7:00 p.m.
Textron Systems’ Wilmington Facility
Co-Sponsors: Dynamics Research, iRobot, and Textron

December 2005