Economic experts advised state officials today to base budget growth next year on the assumption of an  economic slowdown -- advice that's proven off-target in each of the last few years.

In the past three years, state tax receipts have exceeded initial projections by a cumulative $2.3 billion....

"It's unrealistic to presume that we can continue to have everything," [President, Massachusetts Taxpayers Foundation Michael] Widmer said. The unprecedented economic boom means Bay Staters are "living in an unreal world which can't continue," he added....

Widmer said the governor's three-year phase-down of the 5.85 percent income tax rate to 5 percent is too much too soon.

State House News Service
Mar. 10, 2000 (below)

"Despite the recent large budget surpluses and exceptional revenue growth, this is a particularly volatile time for the state's finances," said MTF President Michael J. Widmer. "With the phasing in of the 1998 tax cuts and uncertainties about how long Massachusetts' extraordinary economic expansion will persist, the state is heading into a period of slower revenue growth. ...

"The large increase in tax collections in the first half of fiscal 1999 masks the fact that the impact of last year's $750 million tax cut will be primarily felt in the second half of 1999 and in 2000. ... "

Massachusetts Taxpayers Foundation
Jan. 19, 1999

Revenue Commissioner Frederick A. Laskey today announced that revenue collections for February 2000 totaled $865.3 million, up $113.5 million or 15.1 percent from last February. Year-to-date revenue collections totaled $9.59 billion, up $563.0 million or 6.2 percent above last year.

Department of Revenue
March 2, 2000

Finally, someone in the media has heard us! At long last, pronouncements and predictions by the "well-respected" and "highly-regarded" so-called Massachusetts Taxpayers Foundation are not being blindly absorbed, regurgitated, and endorsed as holy scripture from on high.

"Advice that's proven off-target in each of the last few years" is an understatement, but it's a good start: The MTF has been rewinding and replaying the same erroneous, misleading mantra seemingly forever now without challenge. It's about time someone called them on their abysmal track record.

Last night a good 60 or 70 of the key coordinators and top signature collectors for the "temporary" tax rollback petition drive showed up at the Hampton Inn in Natick, guests of Governor Paul Cellucci and his Tax Rollback Committee.

Barbara introduced the Governor, and Lt. Governor Jane Swift, with her story of how CLT only became involved after the governor read the Taxation Committee the riot act for "losing" his bill to roll back the "temporary" income tax rate. When he stood and angrily vowed before the committee to "lead a petition drive to roll it back despite the Legislature," Barbara had shouted "Bravo!" She explained that this was the defining moment when she and CLT realized -- after being hammered for six months by the teachers union signature challenge after our last drive -- that, yes, it could be done!

A good time was had by all, and the camaraderie heightened the resolve and enthusiasm of all who attended to push on through November and a victory on the ballot. With everyone's continued commitment, we will finally "Keep The Promise" the Legislature made 11-years ago yet still refuses to honor.

CFord-Sig2.gif (4854 bytes)

Chip Ford

Notes from the State House

The State House News Service yesterday reported:  "... After a swearing-in ceremony for new citizens, about 1,000 immigrants will lobby legislators, seeking support for citizen assistance programs..."

I hate to seem inhospitable, but didn't new citizens used to have a family celebration party, or maybe go back to work?

It was a busy whole 14-minute business day in the Massachusetts House of Reprehensibles yesterday, with them voting to give each other more pay raises! It must have been exhausting ... though profitable for them. We hope you didn't have to work more than 14 minutes yesterday, and don't have to return to work until Monday either, even if only "informally"!

State House News Service
Friday, March 10, 2000


CONVENES: The House convened at 11:05 with Rep. Edward Connolly (D-Everett) presiding.

RESOLUTIONS: Among resolutions adopted by voice vote was one, filed by Rep. Rushing, honoring the legacy of Mary Baker Eddy.

BOURNE: Without debate, the House engrossed S 1693 designating the William Dalton bridge in Bourne.

EDUCATION COMMITTEE: The question came on engrossing H 5003 granting pay raises to the House and Senate chairmen of the Education Committee. Rep. Marini and other Republicans offered an amendmen  adding a section raising the pay of the ranking Republican on the committee from $46,410 to $53,910 as of Jan. 3, 2001. The increase to $61,410 for the two chairpersons is retroactive to Jan. 12, 2000. By voice vote, the amendment was adopted and the bill was engrossed as amended.

EMS: By standing vote, the House attached an emergency preamble to H 1946 emergency medical services.

ADJOURNS: At 11:19 am, the House adjourned to meet next at 11 am Monday in an informal session.

And then state treasurer Shannon O'Brien yelped "Count Me In!" on the stampede to raid the newly-discovered slush fund:

The Commonwealth of Massachusetts
Department of the State Treasurer

Statement of Treasurer Shannon P. O'Brien regarding "An Act Establishing the Catastrophic Illness in Children Relief Fund."

Yesterday, I gave testimony before the Special Legislative Committee convened to look at the Big Dig finances. I conveyed to that Committee that there are intelligent and efficient ways to manage state resource  to the benefit of the people of the state. The bill being unveiled today is yet another example of this. This proposal is not only a smart and efficient use of existing resources, but it is compassionate as well. That is why I am pleased to be part of this announcement today.

This legislation provides the type of program that we in public service ought to be supporting. It provides a sensible approach to helping families that have to endure the emotional distress of a catastrophically ill child. If we can reduce this distress by relieving financial pressure, then we in government have helped a family in need. That is the kind of compassion that should be expected of us and that we in government should deliver.

I commend Senator Murray for taking a leadership role in establishing this Fund and for caring about families not only in her district, but all across the Commonwealth. I thank her for including me on th  Commission and as custodian of the Fund, and I look forward to working with her and all of the public officials here today to provide this important assistance to families in need.

State House News Service
Friday, March 10, 2000

DEBT QUESTIONS:  House Long-Term Debt Committee hears testimony from only one group -- the Massachusetts Taxpayers Foundation -- at an afternoon public hearing on the state's borrowing practices.

After the hearing, committee chairwoman Patricia Walrath (D-Stow) said a week's worth of testimony from agency heads has confirmed the committee's long-standing belief that while agencies have the operating funds they need, more money for building repairs and construction is sorely needed. Because the state operates under a self-imposed $1 billion borrowing limit, Walrath said her committee will continue focusing on ways to free up bond money for long-term projects. As a legacy of the state's last fiscal disaster, thousands of employees are paid for with borrowed money.

Moving those workers to the annual operating budget would free up funds sorely needed as the state struggles to pay for the Big Dig, Walrath said.

State House News Service
Friday, March 10, 2000

Consensus on the state economy and revenues:
Something's got to give

By Michael P. Norton

STATE HOUSE, BOSTON, MARCH 9, 2000 ... Economic experts advised state officials today to base budget growth next year on the assumption of an economic slowdown -- advice that's proven off-target in each of the last few years.

In the past three years, state tax receipts have exceeded initial projections by a cumulative $2.3 billion. The resulting surpluses have paid for tax cuts, public works projects and this year legislators and the Cellucci administration are eyeing the latest surplus to help pay for the $12.2 billion Central Artery project.

The consensus at today's annual revenue hearing in Gardner Auditorium was that something's got to give. A tight labor market, higher interest rates, and surging housing and energy prices are all working against the typ  of robust economic growth that has kept unemployment falling and productivity and wages rising. And the state's above-average stake in the suddenly lagging stock market is also a red flag, experts said today.

State revenue commissioner Frederick Laskey said tax revenues are up 6.2 percent this year and predicted receipts would increase 4.4 percent next year, an estimate with which the Massachusetts Taxpayers Foundation (MTF) agrees. MTF director Michael Widmer said the state has enacted $2.3 billion in tax cuts in the past few years while increasing spending 6-7 percent each year. That's no longer affordable, he said.

"It's unrealistic to presume that we can continue to have everything," Widmer said. The unprecedented economic boom means Bay Staters are "living in an unreal world which can't continue," he added.

While the overall economy is in a "very positive situation," Laskey warned of the "Greenspan factor." Federal Reserve Bank Chairman Alan Greenspan's warnings about inflation, economic imbalances and over-leveraged businesses are becoming "more and more regular and stronger and stronger," Laskey said.

Yet lawmakers have grown accustomed to surpluses and much of the talk today was focused on affixing a number to this year's estimated year-end pot of money. Laskey said the size of this year's surplus depends on spending and tax collections over the last four months of the fiscal year. The most common estimate is $500 million and Laskey, under questioning from Administration and Finance Secretary Andrew Natsios, said a $700 million surplus would require unprecedented short-term economic growth.

Widmer cited more uncertainty about the national economy and the stock market and the shortage of skilled workers as potential drags on the state's red-hot economy. "Clearly we're running out of people to fill jobs,   Widmer said. "And we are concerned very much about any falling off in the stock market."

Laskey offered to create a tracking system to chart the developing surplus throughout the spring. That information will provide guidance to Beacon Hill lawmakers trying to patch together a financing plan t  address the $1.4 billion hole in the Big Dig's budget.

When questioned by Natsios about MTF's belief that the state is in a "capital crisis," Widmer mentioned the Big Dig and the "resurgence" of a few budget buster accounts:

A quarter of the state's $20.8 billion budget is tied up in health care and experts are predicting sharp hikes in costs in that sector, Widmer said. State officials on Wednesday approved a 10-percent increase in state employees' insurance premiums.

Rising pension costs are an "open question" pending the outcome of ongoing studies.

There is also pressure to keep ramping up education spending substantially after seven years of investments under the 1993 education reform law.

Improvements to Route 128 and Route 3 South are still on the drawing boards, Widmer said. Higher education officials are discussing a substantial technology bond bill. Some of the state's courthouses are a "disgrace" and in desperate need of repairs, Widmer said. And the state still needs to find a way to fund between $6 billion and $7 billion in Weld-Cellucci-sponsored bond bills approved in the past few years that are not included in the administration's five-year capital spending plan, Widmer said.

The Cellucci administration recently reported that the state spent about $20 billion on capital projects in the 1990s, rebuilding vast amounts of the state's infrastructure.

Also today, Senate Ways and Means Committee Chairman Mark Montigny (D-New Bedford) challenged Cellucci's income tax cut plan and his calls against imposing a sales tax on Internet transactions. Montigny said that under "every scenario" offered to committee members last week during a meeting with Federal Reserve Bank of Boston officials, the state would deplete nearly $2 billion in rainy day reserves due to lost income tax revenues over several years.

Under the worst-case scenarios, Montigny said, the state budget, due to the tax cuts, would face "significant" deficits in 2004-05.

Natsios said the Federal Reserve's study is based on a "serious conceptual error" in that it presumes that surplus revenues spent in recent years were built into the annual state budget base. Robert Tannenwald, the Boston Fed's assistant vice president, said that while some of the projections are based on pessimistic data  the general conclusions are valid. Tannenwald said the Fed's observations were made to committee members who commonly call on Fed officials to offer insight into the underpinnings of the economy.

"These were crude analytical exercises to give committee members some of the rough tradeoffs that might surface under different scenarios," Tannenwald said. "The exercises suggest that if Commonwealth spending keeps growing at 4 percent a year plus inflation and the income tax is cut to 5 percent, it runs a serious risk of depleting its reserves and incurring deficits in a few years. Under most scenarios you can't keep spending like we have been and cut the income tax. Such a combination would cause red ink."

Tannenwald said there is a scenario under which the state could maintain its fiscal health and cut the income tax. "Only if the economy continued to sparkle would such a scenario afford the Commonwealth a modicum of fiscal comfort," he said. "To maintain a margin of fiscal comfort with the tax cut, the Commonwealth would have to really slow down spending a lot to keep an even fiscal keel."

Widmer said the governor's three-year phase-down of the 5.85 percent income tax rate to 5 percent is too much too soon. MTF instead wants to tie reductions in the income tax to inflation-adjusted growth in personal income. "We think that it should be returned to 5 percent," said Widmer. "The only thing we disagree with the administration on is how we get there."

Under the foundation's plan, the income tax would probably be reduced to 5 percent in four years under a booming economy and in six years if economic growth slowed, as is anticipated. The tax rate would cease to fall during a recession, according to the foundation's proposal, which will be released next week.

As for Internet sales, Montigny, noting he's bought discounted airline tickets online and made commission-free stock transactions over the Internet, said tax policy analysts must start thinking about revenues lost to tax-free e-tail sales. Calling e-tail a "revolution in distribution," Montigny said "we need to talk about it and how it affects overall revenues."

Laskey said Department of Revenue economic models don't account for e-tail sales. Under questioning from Montigny, Laskey declined to estimate the impact of e-tail on tax revenues. "I don't know how we could possibly calculate that," Laskey said. "We are in the midst of something that is new to all of us. Where it all leads is the question at hand. The difficult task you all face is to predict where it is going."

The revenue commissioner did offer his personal opinion of e-commerce's likely effect on traditional store-based retail. "I don't think that the local store is every going to be replaced," Laskey said. "I don't personally think you're going to see shopping malls closing down."

Sen. Henri Rauschenbach (R-Brewster), reading from a Clinton administration document, said it's way too early to decide whether to tax e-tail sales. Such sales, at between $7 billion and $15 billion a year, make up only about .5 percent of all retail sales, Rauschenbach said. The e-tail industry is still in its formative stages and there's not enough data available for policy makers to make good decisions, he said.

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