Friday, February 8, 2002
Memo to Beacon Hill
By Steve Bailey
The state's budget hole is getting deeper, the cuts more
Draconian every day. Tax collections fell a startling 18 percent in January alone, and the Massachusetts Taxpayers
Foundation in projecting a budget gap of as much as $500 million this year and $2.1 billion next year. What
That rainy-day fund will only go so far. Further reductions
in state spending are a sure thing, but what about higher taxes, including delaying the income tax cut championed by
Acting Governor Jane Swift and her mentor, Paul Cellucci? The ground is shifting under the most
important state budget debate in a decade. I spent yesterday with my ear to the ground.
Here's what I heard downtown:
William Van Faasen, chief executive, Blue Cross and Blue
Shield of Massachusetts: "I am in favor of postponing the [tax] rollback," Van Faasen says. "There is too much uncertainty, too
much fragility. I am very worried about the instability of the health-care industry in
Massachusetts and the long-term consequences of that. ... The tax cut is very shallow and
broad. No one's life is dramatically changed by postponing it. Many lives are dramatically
hurt by not properly funding the health-care needs in the short term. My view is not political
or ideological. I would like to think it is practical."
Richard Syron, chief executive, Thermo Electron in Waltham
and former president of the Federal Reserve Bank of Boston: "I would be willing to forgo some of the proposed tax
cuts." Unlike Swift, Syron, an economist, does not think delaying the cuts will hurt the
economy. "Postponing the tax cuts will not be a fiscal retardant. I don't think state taxes act
much on the state economy." What Syron has learned along the way: The longer you delay,
the worse the problem gets. "We have some substantial experience with that here in
Jack Connors, chief executive, Hill Holliday Connors
Cosmopulos: "I have no problem with a freeze on the Cellucci tax cut now. The people who are getting hurt here can least
afford to be hurt. If we marginalize a lot more people it is going to cost us a lot more money than we
can even imagine. We were just getting to where the tide really did raise all boats.
Now we are thinking of tossing them back over? Not a good idea."
David D'Alessandro, chief executive, John Hancock Financial
Services: "I feel really strongly about delaying the tax cut," D'Alessandro says. "If we don't do something, the economy will
lag even longer. ... The governor can get re-elected by raising taxes because all the
Democrats are going to have to agree. Therefore no one should worry about getting elected
or getting re-elected because of the tax freeze." The effect of higher
income rates on business: "It won't cut Hancock's business."
Frederick Breimyer, chief economist, State Street Corp.:
State revenue is being affected by a slide in corporate profits and a fall-off in capital-gains taxes, he says. Sales taxes, on
the other hand, have held up well. What has made the situation "far more difficult" was the
voters' decision in 2000 to lower the income tax rate at just the wrong time, creating a
"structural change" in revenue that we will have to live with. "We have made it worse,"
Breimyer says. "What we should do is suspend it [the tax cut] until we can afford it. That
would be the prudent thing to do."
Chad Gifford, chief executive, FleetBoston Financial Corp.:
"The forces line up in favor of delaying the proposed tax cut. When you are looking at shrinking revenue and uncertain cuts,
it sure indicates to me we should not be decreasing taxes at this time." Like Syron, Gifford
does not agree with Swift that postponing the tax cut will prolong the recession. "I am not an
economist, but I don't believe this is going to have an effect on the economy. It is more
important for the state to retain a strong financial footing and help those most in need."
I think these people are trying to tell you something,
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Salem Evening News
Thursday, February 07, 2002
State budget headed for late '80s repeat
By Kathleen McLaughlin
IPSWICH -- The state budget crisis could continue to deepen
even as Massachusetts and the rest of the country pull themselves out of recession, says
Michael Widmer, president of the
Widmer laid out a scenario of mounting deficit for the North
Shore Chamber of Commerce members gathered yesterday at Ipswich Country Club.
"What I'm worried about is that if we fail to address it, we
will find ourselves in a worse situation a year from now," Widmer said.
Even if the economy recovers, the state might have to make
draconian budget cuts for the fiscal year ending in June 2004, undo tax law changes of the 1990s and float bonds to cover
the deficit, he said. "I'm not saying it will happen," he said. "The numbers suggest that is a
distinct possibility if we don't address it now."
The Taxpayers Foundation, a non-partisan think tank, points
to three factors that could send the state budget crashing:
Finally, health care costs, which make up a quarter of the
state budget, are rising 10 percent to 15 percent.
The foundation predicts a fiscal year 2003 revenue shortfall
of $1.7 billion to more than $2 billion. Widmer said that's assuming tax revenue growth comes back at 3 percent. "We're
assuming in those numbers an economic recovery."
Widmer spoke to an audience that included state representatives Brad Hill of Ipswich and
Michael Cahill of Beverly, who is in the race to succeed gubernatorial candidate
Shannon O'Brien as treasurer.
"There's a huge game of political musical chairs taking
place," Widmer said, and neither Gov. Jane Swift nor the Legislature has done its part to head off the problem.
Swift's 2003 budget makes a series of "risky and unwise
assumptions" about the recovery, he said.
"We think for the short-term, we need more reductions,"
Widmer said. Those are likely to come in aid to cities and towns. The foundation also would delay the income tax rollback
and limit spending from the state's reserve fund.
"If all else fails, we can luxuriate in the Patriots," he
Widmer couldn't offer much comfort for people in the
audience who are already feeling the state budget cuts. North Shore Community College President Wayne Burton said that while
the college has record enrollment for spring, it just received notice that another $150,000
must come out of the budget. How can the college do its part for a competitive economy, he
asked, with that kind of budget?
The foundation has always advocated investment in education,
Widmer said. "It's important to strike a balance."
Cahill, who sat next to Burton, pointed out that cuts like
the one NSCC was ordered to make are coming toward the close of the budget year. "How are we going to avoid using the
reserve?" he asked
Widmer agreed that it is inevitable, but he said it's up to
the Legislature to make sure $800 million doesn't become $1 billion, or more. "We absolutely have to husband our remaining
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