WITH THE STATE facing a budget shortfall of close to $1 billion
this year, and substantially more in succeeding years, it is time for legislative leaders to shake off their torpor and work
with Acting Governor Swift to reach a budget agreement that protects vital public interests.
"This is pretty grim," Secretary of Administration and
Finance Stephen P. Crosby said yesterday, describing budget shortfalls that he pegged at $1.1 billion for this year, $1.7
billion for Fiscal 2003, and $2.2 billion for Fiscal 2004, upending assumptions that seemed
reasonable little more than a month ago.
Under its own rules, the Legislature will end formal
sessions on Nov. 20. With less than a month to go, the lawmakers and governor must look to joint action.
This means all options must be on the table. Past political
pronouncements and future political campaigns must take second place now to the bedrock needs of the public.
In particular, planned contributions to the state's unfunded
pension liability and to a tobacco settlement trust fund, and the phased-in reductions in the personal income tax, must all
be available as possible segments of a solution.
Swift's proposal, outlined by Crosby yesterday, would take
$200 million from the tobacco trust fund in each of the next two years and would tap the rainy day fund for $300 million,
$300 million, and $400 million in the next three years. When the economy improves, the
state should resume its policy of sending money from the tobacco settlement to the trust fund,
which now holds some $415 million. As for the rainy day fund, this is just the time to use it,
as long as care is taken not to deplete it before the downturn ends.
There are two holes in the Swift proposal. Predictably, she
fails to include any consideration of repealing or delaying the phased income tax cuts approved by voters last November. A
delay in implementation, as suggested by House Speaker Thomas Finneran, would add
about $200 million to $225 million to revenues this fiscal year -- a significant contribution.
Crosby argued for leaving the money in taxpayers' pockets as good economic policy, but the
first phase of the cut, in taxpayers' pockets now, is apparently doing little to stimulate the
state's economy.
Also, Swift failed to specify where she would find $500
million in spending cuts still needed this year. Crosby said aid to cities and towns might be on the table. But education
reform -- the key to the state's future -- must be protected, along with the programs for the most
vulnerable citizens.
There will be philosophical differences, of course, and also
political: Senate President Thomas Birmingham is a potential challenger to Swift. But if anything close to $500 million
must be cut, the Legislature and governor must put aside their partisan differences and seek
to make progress quickly. Inaction will only deepen the problem.
The Boston Herald
Friday, October 26, 2001
Worsening outlook requires new fixes
A Boston Herald editorial
Acting Gov. Jane Swift has handed the Legislature a
practicable three-year budget-cutting plan. It's imperative that the lawmakers adopt it, or some other equally good plan,
without delay.
The costs of inaction are mounting daily. The 118-day budget
deadlock between the House and the Senate for a while held down spending; revenues are now falling so quickly that the
state is spending faster than it should to break even.
The administration yesterday cut its estimate of tax
revenues for the current fiscal year by $750 million from $16.4 billion. It believes the gap between this year's total revenue
(including federal aid) and spending at the level originally planned by the House and Senate
($22.9 billion) would be $1.1 billion.
The governor proposed to spend $300 million from $2.3
billion in cash reserves, to use $200 million more of the annual tobacco payments, to reduce the planned contribution
toward reduction of the unfunded pension liability by $100 million and, with the Legislature,
to find $500 million in spending cuts with "everything on the table."
The chief attraction of the plan is that it preserves the
scheduled cut in the income tax rate next year from 5.6 percent to 5.3 percent. Some Senate Democrats are beginning an effort
to delay the cut by a year, which would gain less than $200 million in the current fiscal year.
In context this is minor; the benefit of preserving stable expectations and the state's
competitive position would be great.
Other virtues are the realistic three-year horizon and the
preservation of some ammunition if things get worse -- less than half the cash reserve would be used.
If the Legislature adjourns as planned before Thanksgiving
without action, the governor has emergency power to limit spending to available revenue -- but she cannot touch the
reserve funds. That would mean program cuts twice as large as those in yesterday's plan, and the
Legislature would have no voice. Ladies and gentlemen, the time to act is now.
State House News Service
Thursday, October 25, 2001
Revenue grabs, cuts part of Swift's
three-year budget balancing plan
By Michael P. Norton
STATE HOUSE, BOSTON, OCT. 25, 2001 ... Facing the prospect of
giant budget deficits over the next few years, Acting Gov. Swift announced Thursday that she wants to combine
deep unspecified spending cuts with grabs from pension, tobacco settlement and rainy day
funds to keep the books balanced.
With Swift in Washington meeting with Republican governors,
Secretary of Administration and Finance Stephen Crosby outlined the administration's new response to the deteriorating
economy, which has sent tax revenues plummeting and forced Beacon Hill
leaders to completely rearrange their priorities.
The administration announced today that it no longer expects
$750 million in tax revenues to materialize. Swift's plan to solve the immediate crunch -- exacerbated by the fact that the
fiscal year is almost five months old and lawmakers haven't agreed on a budget -- with $600
million in budget cuts and $500 million in revenues drawn from reserve funds. No specific
spending cuts were proposed today, although Crosby announced: "There will be cuts
probably in pretty much everything."
The administration's plans were announced moments after
economists briefed reporters and lawmakers on the economy's future. Unsurprisingly, they said it's bleak, plainly
announcing that Massachusetts is in a mild recession that may get worse and may not end during the first
half of 2002. Ominously, House Speaker Thomas Finneran warned that the first
quarter of the fiscal year, when tax collections were down almost $300 million from last year, may be
the best quarter of the fiscal year, which ends in July 2001.
Three weeks ago, Crosby had predicted that budget cuts
probably wouldn't be felt too much by citizens. Today, he announced that despite grabbing hundreds of millions of dollars
from various reserve funds, the administration's bailout strategy requires $600 million in budget
cuts this year, $800 million next year and $1.2 billion in fiscal 2004.
"We have to look at this as a multi-year problem," Crosby
said. "Everybody counsels us that we will have a sharp, harsh short recession. It's just a terrible time."
Without quick action and cooperation between Swift and
legislative leaders, taxpayers will soon be faced with deficits of $1.1 billion next spring, $1.7 billion in 2003, and $2.2
billion in 2003, Crosby said. If the state can survive the tough fiscal period, Crosby anticipates
"normal times" returning in 2003 or 2004.
And while reiterating Swift's plan to spare education,
health care and programs that serve the neediest state citizens from cuts, Crosby said that in working with the
Democrat-controlled Legislature on spending reductions, "everything is on the table."
And curbing spending growth alone will not be enough, Crosby
said. The administration plans to clean out about half of the $1.7 billion rainy day fund over the next three years. It
intends to avoid $100 million in costs by postponing by ten years the date by which the state
will erase its longstanding unfunded pension liability.
And Crosby announced that for at least the next two years,
Swift wants to spend the full $300 million a year installments that the state is due to receive as part of a national
settlement of a lawsuit against tobacco manufactures. The state presently spends about $100 million and
invests the remainder. Crosby said Swifts intends for all settlement funds to be spent
on health-related programs.
House Speaker Thomas Finneran said Swift's approach reflects
an acknowledgement of the severity of budget problems, but he'd prefer deeper cuts and fewer raids on reserves.
Finneran said funding for some government accounts has increased 30-50
percent over the past five years and can sustain reductions. He pegged this year's budget gap at $1.5 billion
and said a minimum of $600 million in cuts is necessary.
Finneran said he opposes a retreat on pension funding,
saying Wall Street credit rating agencies are eager to see Massachusetts erase a longstanding black eye on its fiscal
face. And Treasurer Shannon O'Brien, who oversees pension fund investments, said Swift
shouldn't view the pension system as her "personal ATM" to pay for income tax cuts and
expanded government spending. Finneran and O'Brien said the pension grab
would push costs off to future generations and said budget cuts and the use of reserves are preferable.
Crosby said state aid to cities and towns, which pays for
police, fire and education services, is being eyed, as well as the state's new prescription drug insurance program, which has
already enrolled tens of thousands of senior citizens. Crosby said a new prescription drug
discount program offered by Citizens Energy Corp. and former US Rep. Joseph Kennedy is
a threat to the success of the new insurance plan.
Crosby did not announce any layoffs today, but again
indicated that the state workforce will likely be cut.
Despite the magnitude of the cuts and revenue raids, Crosby
cautioned that it could still get worse. If there are more terrorist attacks -- federal officials say that's highly likely
-- then "all bets are off," he said.
Everyone agrees that resolving the problems will require
lots of bipartisan cooperation. In 1991, newly elected Republican Gov. William Weld joined forces with Senate
President William Bulger and House Speaker Charles Flaherty to steer the state through a recession
and big budget deficits. They did it with the help of a big tax hike approved a year
earlier and with Weld having major GOP support in the Senate.
The players are different now. House Speaker Thomas
Finneran, a fiscally conservative Democrat, and Senate President Thomas Birmingham, a more liberal Democrat and likely
gubernatorial candidates, must work things out with Swift, a Republican who just announced
her intention to run for governor in 2002. Political observers are watching to see whether
gubernatorial ambitions come into play in budget talks.
Swift is not proposing any retreat from the voter-approved
income tax rollback, although Sen. Cynthia Creem (D-Newton) is filing legislation, with support from Senate Majority
Leader Linda Melconian (D-Springfield) to delay the approved rate reductions for one year.
Swift's budget balancing plan does not propose any changes to the state's tax code.
Finneran said he's "somewhat nervous" about trying to
overcome budget challenges with Birmingham and Swift both running for governor, but said he expects budget compromises
over the next two weeks. Asked which areas he is willing to compromise on, Finneran said
he'd share those with budget conferees, adding, "I did say that I'm not going into
specifics."
At the economic briefing, professional observers of the
local economy said business confidence has dropped to the same low levels of the early 90s, although consumer
confidence has not yet dropped that far. Economists said the housing market
hasn't yet show a steep dropoff, but warned that the most recent statistics don't reflect the post-attack
mindset of buyers and sellers.
Data released by the Massachusetts Association of Realtors
Thursday indicates home sales were down 11.3 percent and condo sales down 13.4 percent in September. Selling prices
kept rising. On average, homes sold for $310,172 in September, a 7.2 percent increase.
Condo selling prices rose 18.9 percent, to $216,915, in September.
Associated Press
Thursday, October 25, 2001
Democrats eyeing tax cut delay
in face of dropping revenues
BOSTON (AP) Democratic senators are working to delay part of
the $1.2 billion tax cut voters overwhelmingly approved last year so the money can be used to reduce a growing
state budget deficit.
State leaders are trying to figure out how to deal with a
possible $1.1 billion budget gap this year.
State Senator Cynthia Stone Creem, D-Newton, plans to file a
bill Friday to delay the next scheduled reduction of the state income tax rate for one year, The Boston Globe reported.
Creem said she's lined up several co-sponsors in the House
and the Senate, including Senate majority leader Linda Melconian, D-Springfield.
"We have extreme circumstances," Creem said. "We might be
saving $500 million that we can use to do some of the state functions people need. Where is the money going to come
from?"
In a letter to colleagues, Creem said, "I feel strongly that
the voters will understand this new reality and will support us in postponing the next round of income tax cuts."
The tax reduction passed by a 60-40 ratio last year. Acting
Gov. Jane Swift has vowed to veto any delay in the income tax cut, meaning the House and Senate would need two-thirds
majorities to pass the delay.
Business groups attacked the proposal as ill-timed. The
Massachusetts High Technology Council on Wednesday released a plan for an economic stimulus package that would
increase the pace of the tax cut to put more money in consumer's pockets.
Senate President Thomas Birmingham said the Legislature must
first consider budget cuts and using funds from reserve accounts, but refused to rule out reconsidering the tax cut.
"It's probably one of the last options because the voters
did vote for it," he said. "But I think in these fairly dire circumstances, one should never say never."
