CLT Update
Tuesday, July 17, 2001
Speaker Finneran plots to raid Tax
Reduction Fund, again
Look out Charlie Brown! Lucy's about to yank the football
away again! The Beacon Hill pols are again trying to move the goalpost further back to prevent an automatic tax-cut
touchdown.
The state's "rainy day" fund is about to top out again (at
$1.8 billion) and spill over into the Tax Reduction Fund, my gosh! It's time for our "representatives" to do the expected:
raise the cap again and prevent the automatic tax cut, of course.
Heaven forbid, they can't go giving taxpayers back any
of our over-payment, even if they promised, now can they?
It sure is tough hitting a moving target -- and they're now
scheming to move it up to $2.3 billion.
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|
Chip Ford |
The rush is on because the fiscal 2001 surplus of $550 million threatens to exceed the statutory
$1.8 billion cap on the Stabilization Fund, which would trigger an automatic tax cut through a
one-time increase in the personal exemption, via the Tax Reduction Fund.
The law allows surplus revenues to be spent unfettered through August of the next fiscal year,
but on Sept. 1, excess revenues become a "statutory surplus." Once that happens, 40 percent of the
surplus is required to go into the governor's capital account, and 60 percent goes into the
Stabilization Fund.
In this case, if none of the surplus was spent between now and the end of August, approximately
$330 million would go into the Stabilization Fund, which has less than $100 million worth of leeway
between the current balance and the $1.8 billion cap.
Speaker's Rainy Day Plan Raises Surplus,
Savings and Tax Cut Questions
State House News Service
Mon., Jul. 16, 2001
"They've consistently tried to keep money away from
the taxpayers by raising this cap. It's a pattern of taxpayer abuse."
Chip Faulkner
CLT Associate Director
"You can't keep moving the goalpost and calling the
game fair. We already have one of largest rainy-day funds in the country. When is it enough?"
Chip Ford
CLT Director of Operations
History of "Rainy Day" Stabilization Fund Increases
1986: Stabilization and Tax Reduction
Funds are created; Stabilization Fund can hold up to 5 percent of total
state revenues before additional revenues flow over into Tax Reduction
Fund (TRF). When sufficient funds are amassed in TRF, a one-time
increase in the personal exemption is provided in the following tax
year.
1997: Stabilization Fund cap is
increased from 5 percent of total state tax revenues to 5 percent of budgeted
revenues.
1998: Stabilization Fund cap is
increased from 5 percent of budgeted revenues to 7.5 percent of budgeted
revenues.
2001: House Speaker Finneran yesterday proposed to
again increase Stabilization Fund cap from 7.5 percent of budgeted revenues to 10 percent of budgeted
revenues.
Associated Press
Monday, July 17, 2001
Finneran offers new plan for the state's rainy day fund
By Steve Leblanc
BOSTON (AP) When the "Massachusetts miracle" collapsed in the
late 1980s, one reason the state was forced to raise taxes, tighten services and borrow money was the lack of a
"rainy day" fund.
Since then, the state has poured hundreds of millions of
dollars into the so-called stabilization fund to help Massachusetts weather another economic downturn.
Now House Speaker Thomas Finneran wants to put even more
money into the fund and make it harder for lawmakers to dip into it when times get tight.
By law, the fund is capped at 7.5 percent of the state
budget, or about $1.8 billion. The fund is already at $1.7 billion and could max out sometime this year.
Finneran says that's not enough. He wants to cap the fund at
10 percent of the state budget or $2.2 to $2.3 billion.
"We remain in a period of great economic volatility,"
Finneran said.
Finneran's plan would also make it harder for lawmakers to
appropriate money from the fund by requiring a two-thirds vote, instead of a simple majority.
He said the fund should only be tapped under "very severe
circumstances."
Critics say raising the cap on the rainy day fund is another
way for lawmakers to hold on to surplus money instead of returning it to taxpayers.
By law, once the rainy day fund is full, surplus dollars
should flow into a tax reduction fund and be returned to taxpayers through personal tax exemptions.
Finneran said taxpayers will understand the need for a
heftier rainy day fund, given the state's experience in the late 1980s.
"Virtually every taxpayer would applaud this kind of fiscal
discipline," he said.
Finneran would begin funneling some money into the fund from
the state's existing budget surplus of about $450 million to $500 million.
Acting Gov. Jane Swift's budget chief Stephen Crosby said
Finneran's instincts are right, but said this year's surplus should be spent on a series of one time expenses, including a
$150 million tax cut.
"We do believe there are compelling one-time needs including
putting money into the hands of the lowest paid workers in the state," Crosby said.
Others would prefer to use the surplus money to help pay
down the state's debt or put a down payment on future budgets.
Michael Widmer, president of the Massachusetts Taxpayers
Foundation, a business-backed research group, said he supports raising the cap on the state's rainy day fund.
But Widmer said the state should use about $300 million of
this year's surplus to help balance the budget for the next two years to help cushion the blow of a slowing economy
and new $1.2 billion tax cut.
The Boston Globe
Tuesday, July 17, 2001
Mixed views on rainy day fund plan
By Ralph Ranalli
Globe Staff
In a move criticized by some taxpayer groups and praised by
others, House Speaker Thomas M. Finneran yesterday proposed increasing the state's "rainy-day" fund to $2.3
billion to hedge against a major downturn in the economy.
Finneran also proposed making it more difficult for lawmakers to spend money out of the
fund by requiring a two-thirds majority vote.
"It is a time of great economic volatility," Finneran said
at a press conference announcing his plan yesterday. "We need a cushion more appropriate to the size of the budget."
Currently, the state has about $1.7 billion in the fund,
which is designed to close budget gaps in times of economic distress. That amount is nearly at the fund's cap of 7.5
percent of annual state revenue.
A spokesman for Citizens For Limited Taxation, however,
charged yesterday that the real motivation behind Finneran's proposal was to circumvent automatic tax refunds that would
be triggered by the state's larger-than-expected 2001 budget surplus of about $500 million.
"You can't keep moving the goalpost and calling the game
fair," said Chip Ford, the group's director of operations. "We already have one of largest rainy-day funds in the country.
When is it enough?"
Michael Widmer, executive director of the Massachusetts
Taxpayers Foundation, however, said his group supported the proposal as a prudent measure for uncertain times.
"We think it makes sense," Widmer said.
Senate President Thomas F. Birmingham could not be reached
for comment on the proposal yesterday.
The proposal received a mixed review from the Swift administration. State Secretary of
Administration and Finance Steve Crosby, while lauding Finneran's goals and praising the
idea to require a two-thirds majority to spend money out of the fund, called the $2.3 billion
figure excessive.
"We already have one of the highest percentages in our
rainy-day fund of any state in the country," Crosby said. "At some point, the rating agencies are going to say 'What do you
have all that money sitting around for?"'
State House News Service
Monday, July 16, 2001
Speaker's Rainy Day Plan Raises Surplus,
Savings and Tax Cut Questions
By Elisabeth J. Beardsley
STATE HOUSE, BOSTON, JULY 16, 2001 ... House Speaker Thomas
Finneran today proposed a slate of new controls designed to further swell the $1.7 billion Rainy Day Fund,
make it harder for lawmakers to tap that fund, and prevent an imminent, automatic tax cut.
Finneran's proposal, which he wants to bring to the House
floor next week, would increase the Stabilization Fund cap to 10 percent of budgeted revenues, from the current 7.5 percent.
It would also require a two-thirds vote in each branch to tap the fund. The changes would be
effective June 30, 2001.
The 10 percent proposal is contained in the House budget now
before House and Senate conferees, where Finneran said there appears to be "no immediate resolution" for the overall
budget. The speaker said his proposal is driven by his memories of being Ways and Means
chairman in 1991, when the state had to raise taxes and borrow its way out of a massive
deficit, to the tune of $1.25 billion.
The deficit bonds accounted for nearly 10 percent of the
state's then $12 billion budget, and required interest payments totaling $500 million, Finneran said. For seven years, the
principal and interest on that bond sucked up money that could have gone toward education and
health care, he said. "It was a line item that made me cringe," Finneran said. "The experience
of the 90s, at least for me, was a crucible."
Finneran's new proposal uses the size of that 1991 bond --
10 percent of the overall budget -- as a benchmark for an appropriate modern-day reserve. In the context of today's
nearly $23 billion budget, Finneran said his proposal would boost the Stabilization Fund to between
$2.2 billion and $2.3 billion.
The speaker said he wouldn't "abbreviate" the process by
bringing the bill to the floor this week, but he said he wants to nail down House approval and forward the bill to the Senate
next week. "I'd intend to speak on it on the floor, if necessary, to persuade the members this
makes sense," he said.
The rush is on because the fiscal 2001 surplus of $550
million threatens to exceed the statutory $1.8 billion cap on the Stabilization Fund, which would trigger an automatic tax
cut through a one-time increase in the personal exemption, via the Tax Reduction Fund.
The law allows surplus revenues to be spent unfettered
through August of the next fiscal year, but on Sept. 1, excess revenues become a "statutory surplus." Once that happens, 40
percent of the surplus is required to go into the governor's capital account, and 60 percent
goes into the Stabilization Fund.
In this case, if none of the surplus was spent between now
and the end of August, approximately $330 million would go into the Stabilization Fund, which has less than $100
million worth of leeway between the current balance and the $1.8 billion cap.
Tax-cut activists are livid. Citizens for Limited Taxation
Associate Director Chip Faulkner said politicians are still sore about the public's overwhelming approval of a major income
tax cut at the ballot last November. Now, he said, they're using economic "scare tactics" to keep
the taxpayers from getting another cut. CLT has vigorously opposed each prior
increase of the Stabilization Fund cap.
"They've consistently tried to keep money away from the
taxpayers by raising this cap," Faulkner said. "It's a pattern of taxpayer abuse."
Finneran dismissed that argument, and said he's trying to
avoid having the state "repeat the sins and mistakes of the past." Being forced to pay off the deficit bonds deprived
taxpayers of extra money for education, health care, elderly services, roads and subways, he said. "I
don't think, really, a valid argument can be made that this shows an excess of
taxation," Finneran said.
It's unclear where the Senate stands on the 10-percent
proposal. Senate President Thomas Birmingham and Senate Ways and Means Chairman Mark Montigny could not be reached
for comment. But in past budget debates, the Senate has consistently rejected
Republican-sponsored efforts to require a two-thirds vote for appropriations from the fund.
In 1999, House Republicans successfully inserted the two-thirds requirement into the fiscal
2000 budget, but it never emerged from conference. House Minority Leader Francis
Marini (R-Hanson) said he likes the speaker's proposal at first glance, but wants to make sure some
of the surplus is returned to taxpayers.
"It is prudent for us to have a certain amount of money set
aside for an economic downturn," Marini said. "But if it's just a political ploy to keep from sending any of their money back
to them completely, I'd have a problem with that."
Administration and Finance spokesman Dominick Ianno said the
administration is reviewing Finneran's proposal and that "we're reserving judgment right now on that." Important
considerations include the fact that it's "first and foremost" taxpayers'
money and the impact of the fund's size on the state's credit rating, Ianno said. Last month, Acting Gov. Jane Swift
proposed spending the surplus, then estimated at $453 million, on a variety of capital
projects and a $150 million tax credit for low-income workers.
The Massachusetts Taxpayers Foundation greeted the speaker's
proposal as complementary to a recent proposal by MTF, under which the fund could be tapped only if revenue growth
falls below the three-year average rate of inflation, or if revenue collections are more than 2
percent below the estimate used to build the annual state budget.
MTF offered a new proposal today, to put $300 million of the
surplus into a special contingency fund to help balance the 2002 and 2003 budgets. MTF President Michael
Widmer said the House, Senate and governor's budgets all underfund key state
accounts, particularly Medicaid. "This (proposal) is a protection against future tax increases, as well as
fiscal chaos," Widmer said.
State Treasurer Shannon O'Brien issued a letter to legislative leaders today, urging them to
use the surplus to pay down the state's debt, and for "defeasance" -- a process of
paying off high-interest debt and issuing low-interest debt -- to pay for one-time capital projects.
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