The Boston Herald
Thursday, January 17, 2002
State may face $2.1B deficit
by Elisabeth J. Beardsley
Acting Gov. Jane M. Swift is preparing $200 million in
immediate state spending cuts, as a fiscal watchdog group warns of a tax revenue "freefall" that could explode into a $2.1
billion deficit next year.
Tax receipts are lagging $189 million behind the projections
used to build the $22.3 billion 2002 budget passed just six weeks ago - and the gap could grow to as much as $450
million, Swift's budget chief warned yesterday.
"We all know it's gotten a little worse," said Administration and Finance Secretary Stephen
Crosby.
Details of the spending cuts have not been finalized, but
Crosby said Swift will use her executive powers to unilaterally force state agencies to squeeze their bottom lines.
It's been barely two months since state lawmakers imposed
$650 million in unpopular spending cuts, mostly on human service programs.
After a public uproar, lawmakers in December restored $107
million for adult basic education and some social services, and a second supplemental budget totaling $244 million
is now pending.
Details of the remaining 2002 cuts will be rolled out in the
next few days, along with revised revenue projections, Crosby said.
The dust from the 2002 budget isn't even settled yet, but
Swift is expected to file her fiscal 2003 budget proposal Wednesday.
The universal consensus is that the 2003 budget isn't going
to be pretty. Crosby said to expect cuts on the order of $500 million.
The Massachusetts Taxpayers Foundation sounded the fiscal
alarm yesterday, warning that if tax revenues keep sliding, lawmakers will be facing a deficit ranging from $1.7 billion to
$2.1 billion.
MTF President Michael Widmer likened the current climate to
the late 1980s, when Democratic leaders - headed by former Gov. Michael S. Dukakis, who was running for
president - failed to make the cuts needed to balance the budget.
This past year, lawmakers went light on the spending cuts,
choosing instead to grab $800 million from the state's "rainy day" reserves, now drained down to about $1.5 billion.
"It's going to take a Herculean effort to bring spending in
line with our revenue base and to avoid the temptation to use the rest of our rainy day reserves," Widmer said.
Widmer expressed doubt about state leaders' ability to
manage the economic crisis in a politically charged election year.
Not only is Swift bidding to keep her job, but Senate
President Thomas F. Birmingham - one of the three key budgetary decision-makers - is running hard to replace her. In addition,
every seat in the 160-member House and 40-member Senate is up for grabs this year.
"The combination of a fiscal crisis in a hotly contested
election year is a lethal mixture," Widmer said.
Crosby was indignant about being lumped in with the leaders
who presided over the state's last economic crash.
Unlike the late '80s, when there was widespread denial on
Beacon Hill, Crosby noted that the House, Senate and administration all agree there's a huge problem.
"It is flat-out wrong to say that the leadership is
responding in a fashion akin to the leadership at the end of the late '80s," he said.
Indeed, House and Senate budget-writers are already bracing
for an even more bruising budget exercise.
"This is even bleaker than I expected only a short two
months ago," said Senate Ways and Means Chairman Mark C. Montigny (D-New Bedford).
House Ways and Means Chairman John H. Rogers (D-Norwood)
added, "I was hoping that my earlier projections would be wrong, but unfortunately they appear to be correct."
For the moment, all three branches are scrounging for a plan
to fill both this year's shortfalls and the huge gap looming next year.
Crosby said Swift's 2003 budget will probably rely on $500
million in cuts, up $150 million by extending the pension funding schedule, and millions from the tobacco settlement
fund.
House Speaker Thomas M. Finneran regards those last two
proposals as irresponsible "gimmickry," and warned after Tuesday's State of the State address that the "gloves come
off" if Swift tries it again.
Rogers said he thinks that more than $500 million in cuts
will be needed, and he said the House is considering saving $450 million by freezing the third and final phase of the
voter-approved income tax cut - a plan heavily promoted by Birmingham and the Senate.
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State House News Service
Wednesday, January 16, 2002
Swift to lower revenue estimate,
order cuts to address new forecasts
By Michael P. Norton
STATE HOUSE, BOSTON, JAN. 16, 2002 ... Just two months after
enacting $650 million in budget cuts that caused a vocal backlash and a high level of political discomfort, Beacon
Hill lawmakers have a pair of new challenges: a $2 billion budget gap for the next fiscal year
and a hole in the brand new budget that could hit $450 million.
Next year's state budget gap is 48 percent larger than the
$1.35 billion problem that the Legislature and Acting Gov. Jane Swift confronted this year by cutting spending and state
services in the areas of higher education, public health and the environment while drawing
more than $800 million from the state's reserves, which are now down to $1.5 billion. Cuts
to human and social services were quickly reversed.
The $2 billion gap estimate, which must be addressed during
the heart of an election year, is forecast in a new report from the Massachusetts Taxpayers Foundation, which also believes
this year's projected state spending level of $23 billion is probably hundreds of millions of
dollars more than taxpayers will send in.
As if next year's problems were not bad enough, MTF is now
predicting that this year's budget could fall between $125 million and $450 million out of balance by June if tax
collections continue to fall short of estimates used to build the budget. The state is boosting
spending 4 percent this year, with almost all of the new spending on health care and
education, and drawing more than $800 million from reserves to continue popular programs.
But actual tax collections are down 4.8 percent compared to the first six months of fiscal
2001, a trend that has already knocked the two-month-old state budget out of whack.
State revenues for the year so far are also $72 million
below the minimum target needed to keep the budget balanced, collection figures show.
The Swift administration said it basically agrees with MTF's
findings. In the next few days, the administration will again lower its revenue estimate for the current fiscal year and
outline nearly $200 million in mid-year state agency cuts that Swift will order. Swift will likely use
executive powers that haven't been exercised in years, and may recommend other
spending cuts by filing legislation.
While there are still more than five months left in the
fiscal year, the administration is convinced the $200 million in cuts are necessary now due to the revenue tailspin. "There's
no sign of bouncing back," said Swift budget chief Stephen Crosby. "Nobody's saying we can
make up this ground."
Crosby said economists continue to advise the administration
that the recession will be "short and steep" and while tax collections continue to freefall, Crosby and Swift are counting
on a turnaround beginning in the second quarter that will boost receipts by more than 5 percent in
the fiscal year that begins July 1. "We're going positive next year," Crosby said.
But the business-backed MTF says that despite angst over
last year's cuts, the budget problems are just beginning and will persist even if the economy begins rebounding this year.
MTF says there is a "serious risk" that state officials will drain their reserves next year, a year
earlier than anticipated by most.
That would mean spending cuts or new revenues - taxes or
fees - would be among the few options available to Beacon Hill leaders in fiscal years 2004 and 2005, when budget
shortfalls are also predicted by MTF. The gaps are forecast in the out
years, MFT says, because state government once again has a "structural deficit." In other words, the spending
base exceeds the revenue base by $1 billion.
Crosby said the administration will likely recommend drawing
more than $500 million from reserves in fiscal 2003 and said he hoped lawmakers would agree, thereby keeping $1 billion
on hand for future years. "The temptation for a politician is to burn through your rainy day
fund money big time," he said.
MTF last year predicted that a "Perfect Storm"-style budget
crisis was developing and concludes in its new report that the forecast was on the mark. Soaring health care costs are
jacking up costs in the state's most expensive program, Medicaid. The income tax cut that
voters approved in 1998 is sucking $1.2 billion out of the state's revenue base. And the
recession has caused tax receipts to fall well shy of benchmarks.
State leaders have been unable to reach timely decisions
about how to address budget problems, which has had the effect of compounding them and making the scene on Beacon
Hill eerily similar to the late 1980s, when the state became engulfed in a
full-blown budget crisis that followed a big economic boom.
Like governors and legislatures nationwide, leaders on
Beacon Hill are hamstrung in addressing a range of priorities by double-digit growth in health care inflation. Between
Medicaid and health care for state employees, the state spends more than $6 billion, or a
quarter of its budget, on essentially mandatory health care costs. Governors are calling
on the federal government to boost Medicaid funding, noting the money will be funneled right back
into the economy, but Crosby says that's "not very likely."
To provide health coverage to children and more low-income
families, Massachusetts has vastly expanded Medicaid eligibility, and the cost of the program, in recent years.
Crosby said benefits here are among the nation's most generous. He said he has recommended an
array of substantial eligibility and benefit cutbacks to Swift but "she has repeatedly said she
will not do that."
Crosby said the growth in Medicaid spending is a "huge, huge
problem" for state government because the program is consuming so much of the suddenly scarce discretionary funding.
Swift will announce a major health care initiative soon, on the heels of the release of a
long-awaited blue-ribbon task force report, Crosby said. The administration is looking at
generic drug alternatives, making sure health care is delivered at the most
reasonable low-cost treatment facility and forcing hospitals to control costs.
The problems are beginning to more closely resemble the
fiscal crisis that former Gov. William Weld encountered when he took office in 1991. At that time, Weld, with less than
half the fiscal year in front of him, faced an $850 million gap in the state's $13.6 billion budget
and a projected $1.8 billion gap in the next full fiscal year. Major budget cuts were
subsequently enacted. But there were also a couple of key differences between the two fiscal
crises - an income tax hike preserved by the voters in 1990 helped balance years of state
budgets, but the state in the early 1990s did not have the reserves it has today.
To enact budget cuts in the $1.2 billion to $1.6 billion
range, the state would need to do something it has done only once in recent memory - cut overall spending. MTF says a cut of
between $200 million and $500 million would be required to balance next year's budget, and
added that due to mandatory spending obligations, those cuts would almost inevitably hit
human services, higher education and local aid. But Crosby said Swift is not contemplating
an overall reduction in state spending, which last occurred in 1992. "There will almost for
sure be spending growth" in fiscal 2003, he said.
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The Boston Globe
Thursday, January 17, 2002
Massachusetts is headed for a fiscal crisis every bit as bad
as the recession of the late 1980s, according to a report released yesterday by a taxpayers' watchdog group.
A study by the independent Massachusetts Taxpayers Foundation predicts the 2003 budget
will see a $1.7 billion to $2.1 billion gap between revenues and expenditures, plunging
the state into financial turmoil and forcing drastic cuts in already-slashed programs.
"This fiscal problem is just about as grave as the late-80s
at this point, and that's the worst it has ever been," said foundation president Michael J.
Widmer.
And instead of dealing with the problem by cutting spending
or delaying tax cuts - both politically dangerous moves in an election year - the acting governor and the Legislature are
likely to exacerbate the fiscal crisis by using up all of the state's cash reserves, Widmer said.
"The size of this problem is so large and the repercussions
are so unpleasant in terms of delaying tax cuts or cutting services or both that in the end they'll step back from making
hard choices and draw too deeply into the rainy day fund," Widmer said.
A top aide to Acting Governor Jane Swift, who next week will
release her budget plan for next year, said the foundation is being "overly alarmist" in its projections. However, the aide,
Administration and Finance Secretary Stephen P. Crosby, said Swift will announce $200
million in cuts to the current budget and put forward a budget recommendation with only
modest growth for the next fiscal year.
Widmer said the fundamental problem is that the state's
remaining reserves cannot provide enough of a cushion.
Already, the state is taking $800 million from the rainy day
fund to make up for budget shortfalls in fiscal 2002. That leaves just $1.5 billion, all of which will be chewed up if
Widmer's projections hold true for 2003, and some of which may be used up before then, to
make up for unforeseen shortfalls this year.
He said the crisis is the product of declining tax revenues
and sharply increased costs for Medicaid and health care spending. Though the current recession is not as bad as that of
the late 1980s, wealth has declined and capital gains have followed, forcing capital gains taxes
down, too. Additionally, Medicaid costs are expected to rise by 10 percent next year,
Widmer said, further widening the gap between revenues and expenditures.
The recession of the 1980s created huge budget deficits and
sent the popularity of Governor Michael S. Dukakis plummeting. Dukakis responded to the crisis by making two successive,
large tax increases, and cutting spending. Some communities laid off schoolteachers as a
result.
The business-backed Taxpayers Foundation often makes
predictions of impending financial turmoil, but these latest projections present the best-case scenario, according to
Widmer: They assume that the recession will ease somewhat in 2003, and that capital gains taxes will
increase slightly.
The revenue projections for 2003 also take into account the
effects of an income tax rollback approved by voters in 2000. That cut will cost about $450 million in 2003, the foundation
said.
"If one, for example, slowed down or delayed the tax cut, or
had a tax increase, then that would help close the gap," Widmer said. "There are only two ways to go other than the rainy
day fund and that is spending or revenues. Using the rainy day fund delays the day of
reckoning. In fact, it makes it worse because the longer one goes without addressing it, the
bigger the problem becomes. It is sobering."
But that is just what the rainy day fund is for, Crosby
said.
He said yesterday he agreed with the foundation's numbers,
but said the administration and the Legislature are acting responsibly to deal with the economic downturn.
"It's flat-out wrong to say that the leadership is responding in a fashion akin to the end of the
'80s," he said.
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