STATE HOUSE, BOSTON, JULY 3, 2008.....The House voted 133-19 and the Senate 29-5 to approve a $28.22 billion state budget that assumes federal approval of $600 million in state health care requests, spends hundreds of millions of dollars from planned tax increases and the state's rainy day stabilization fund, and boosts scores of budget accounts that lawmakers described as critical priorities.

As the Legislature was putting finishing touches on the spending bill, Gov. Deval Patrick announced, with a holiday-eve press release, that he had signed a corporate tax bill that authors say will pull in $482 million in new tax revenues next year, while committing the state to corporate rate relief that could benefit as many as 20,000 companies. Patrick said the law closed "unintended" tax code gaps exploited by mostly large, out-of-state firms.

The bottom line represents a 5.2 percent increase over the $26.8 billion budget approved last July for fiscal 2008. It comes amidst a tide of dire news about the future of the state, national and global economies and represents the latest in a long string of state budgets balanced only with considerable one-time revenue fixes.

House Republicans called the spending increase "unsustainable" and speculated further tax increases may be pushed in the coming year to support spending and that spending levels might spur voters to abolish the income tax at the ballot in November. They urged Patrick to strongly consider line item vetoes to curb spending plans.

Budget writers described the major investment areas as local aid, education, public safety and health care and said the state must make investments in its people and programs despite the soft economic climate. "What some of us may characterize as expenses," said Rep. Marie St. Fleur (D-Dorchester), "many of the people of the Commonwealth have told us that they are worthy investments."

The budget is also balanced with $508 million in rainy day-related revenues, including a $310 million withdrawal from the state stabilization fund, $107 million that will be spent instead of being transferred into the fund, and $91 million in fund interest that will be spent this fiscal year.

Republicans cautioned midyear spending cuts could result if revenues slow, based on the spending levels prescribed in the budget. A tremendous uncertainty in the spending column is the result of Medicaid assistance negotiations with the federal government. If the Bush administration and state cannot agree on a figure and Washington pulls funding support, a "tsunami" could ensue, said Senate Ways and Means vice chair Stephen Brewer.

Senate Assistant Minority Leader Richard Tisei called for the Upper Chamber to reject the conference report and send negotiators back into deliberations to reduce the bottom line. Recalling the budget disaster of the late 1980s, when spending outpaced revenues so significantly that then-Gov. Michael Dukakis had to make drastic midyear cuts, Tisei said, "We are again on the wrong track."

The final budget includes a House plan to grant about 250,000 retirees, including teachers and other state workers, cost of living increases to push their pensions up an average of $120 per year, according to union estimates. The budget maintains a plan opposed by Treasurer Tim Cahill to push off by three years the deadline to fully fund the pension system, a prospect the Pioneer Institute has said could cost an additional $8 billion between now and 2026. Cahill warned that the state bond rating could be jeopardized by extending the debt repayment schedule out further.

Republican Party officials blasted the spending increase. In a statement, MassGOP Executive Director Rob Willington said, "Beacon Hill Democrats are addicted to spending, period. They spend too much and then they tax and borrow too much, to pay for their wasteful spending. This budget, which is coming three days late already, contains enough pork in it to make BLTs for the whole commonwealth."