and the
Citizens Economic Research Foundation

Barbara's Column
May #3

State continues to spend
so it won't owe taxpayers a refund
by Barbara Anderson

The Salem News
Thursday, May 17, 2007

The state budget is the topic of the moment on Beacon Hill.

What are we going to do about the deficit? Or how are we going to spend the surplus? And which is it, anyhow?

Most of you know that the state budget year runs from July 1 through June 30 of the following year. When the new budget is signed by the governor, it must be balanced. The House, Senate and executive branch do their best to estimate revenues for the coming year so they don't overspend. Usually they estimate conservatively; then, when revenues come in higher than anticipated, they pass supplemental budgets during the year. If they overestimate, they run out of money and raise taxes to pay the bills.

The governor releases his version of the budget in January; the House usually in April; and the Senate in May or June. The two legislative branches work out their differences before July. By now Beacon Hill should know if there will be a deficit or a surplus for the year we are presently in, as they try to balance the budget for the 2008 fiscal year that begins this July.

It's hard for citizens to track the budget since one way to balance it is to move some spending items "off-budget" and compute them separately. But for the past 16 years, things seemed to be more or less in balance ,and no retroactive tax increases were necessary, as they had been during the last Dukakis budget years.

This year it's chaotic. This might be expected, since the executive branch is being completely reorganized. Previously, the Republican governor just turned over the keys to the corner office to the next Republican governor and life went on as usual.

Only this past January, Gov. Romney said he had turned over a billion-dollar surplus to the incoming Democratic administration; which his successor, Deval Patrick, insisted was a billion-dollar deficit for the coming fiscal year!

The state treasurer warned about a cash-flow shortage and the state borrowed money to address it. Then once he was sworn in, Patrick unaccountably restored $384 million in spending that Romney had previously vetoed, some of it for obvious pork, like a gazebo in Braintree.

This odd combination of announced deficit, emergency borrowing and increased spending, was followed by the new governor backing off his commitment to a property-tax cut, as he instead began campaigning for new local-option taxes and the "closing of business tax loopholes" in place of major increases in local aid for cities and towns.

In the midst of this effort, we learned of a crumbling infrastructure due to an ongoing deficit in the highway funds, about to be exacerbated by increasing Big Dig costs; not to mention the usual deficit in the public transportation budgets. We read about missing bodies in the medical examiners office, underfunded police labs, overcrowded jails, the ongoing public safety crisis in parts of Boston and various other crises. And of course, the new state health insurance project is going to cost taxpayers much more than "expected."

But the same people who were warning about the coming FY '08 deficit (Though the budget that hasn't yet been passed, so how could there be a deficit?), were now discussing the FY '07 surplus and how to spend it. The Legislature passed an $88-million supplemental budget which included funds for some important programs, but also $3.6 million in dairy farm subsidies.

Meanwhile, Gov. Patrick announces a new South Coast rail line. Then he proclaims that the state should become an investment capital firm with $1 billion in new state spending over the next 10 years and that it's time to lift the cap on state capital spending and borrow more.

Why should the state borrow more in order to subsidize the biotech community? Aren't there private investors around the world looking for viable investments?

Finally, Senate President Therese Murray wants to divert some of the state budget surplus to pay for this technology support AND new state housing.

Wait! What surplus? We have another surplus? Each year? House Speaker Sal DiMasi likes this idea, after more money goes into the state "rainy-day fund," already flush at over $2 billion.

Wait! Isn't it raining now?

I have a small clue as to what is going on, which I'll share with you:

The state Department of Revenue has announced that "tax collections surpassed the highest level recorded for the month of April," and year-to-date revenues are up 5.5 percent. This could trigger the legislative promise to eventually restore the 5 percent income tax rate and the charitable deduction mandated by voters on the 2000 ballot and frozen by the Legislature in 2002.

Last year, high revenues triggered the also-delayed increase in the personal exemption from state income taxes, and if the economy continues to do well, more promised tax cuts are due.

My theory is the governor and Legislature must head off demands for those tax cuts by talking about deficits, while still managing to spend so much that tax cuts won't be possible. Meanwhile, the traditional political game -- to spend on headline-worthy new projects while neglecting other vital state services and maintenance -- continues.

No wonder ordinary citizens are tuning out the budget debate.

Barbara Anderson is executive director of Citizens for Limited Taxation. Her column appears weekly in the Salem News and Eagle Tribune, and often in the Newburyport Times, Gloucester Times, and Lowell Sun; bi-weekly in the Tinytown Gazette; and occasionally in the Providence (RI) Journal and other newspapers.