The Boston Globe
Tuesday, May 14, 2002
State tax revenues falling short
Gap in budget of up to $400m
By Rick Klein
Globe Staff
A month after Beacon Hill leaders announced a breakthrough
agreement to address this year's deficit, plunging revenues from capital gains and other taxes have opened a new hole in
the budget of between $200 million and $400 million, the Swift administration announced
yesterday.
With just six weeks left in the fiscal year, state leaders
are fast running out of options for coping with the shortfall. Most, or all, of the new gap may have to be closed by dipping
further into the state's rainy-day fund, which stood at $2.3 billion after a decade of savings
but has already been tapped for $1 billion to pay for government operations this year.
"I don't think people had a handle on how far the capital
gains revenue would drop," said Kevin J. Sullivan, the state secretary of administration and finance. "We're seeing very
little of the payments that we thought would be made. We don't think that number will grow because
most of the filings have been received."
State leaders had already been anticipating a big drop in
capital gains revenue this year because stumbling stock prices resulted in far fewer Massachusetts residents making money
in the market than in the boom years of the late 1990s. In fiscal 2001, the state received
about $1 billion from capital gains. This year, state leaders had been expecting to receive
about $408 million.
But tax returns processed in recent weeks showed that even
that assumption, which had been revised downward three times, was overly optimistic. Sullivan said the Department of
Revenue is now expecting $200 million or less from capital gains this year. When combined
with other flagging tax revenues across the board, the new shortfall could reach $400 million
by the time fiscal 2002 ends June 30, Sullivan said.
Acting Governor Jane Swift told House Speaker Thomas M.
Finneran, Senate President Thomas F. Birmingham, and their budget chiefs about the new shortfall yesterday afternoon
during their weekly meeting.
Finneran called House members into a closed-door caucus to
deliver the news last night. The House is in the midst of debating the $22.9 billion budget for fiscal 2003, and the
speaker said he wanted his colleagues to keep the grim numbers in mind when fighting for their
priorities.
"Our fears have materialized," Finneran said. "People are
going to have to stop pushing aggressively [for some items]. It's a reminder that we are nowhere near out of the woods,
that it becomes increasingly difficult to contemplate anything but a bare-bones budget."
Finneran said it's too early to say how the House will
proceed, but he said it may be wise to recommend appropriating slightly less than the $1.06 billion in new taxes that the
House supported two weeks ago to give the state a bit of a revenue cushion. The House
overwhelmingly voted to freeze the income tax and raise the tax on cigarettes, among other
measures. The tax bill is now pending in the Senate.
Senate Ways and Means Chairman Mark C. Montigny said the
revised outlook is sobering news for budget writers. Just a month ago, state leaders thought they had conquered the
budget shortfall in fiscal 2002 in a heralded agreement to use more rainy-day money, delay
payments to the state pension fund, and use more cash immediately from the $300 million
annual payments the state receives from a settlement with tobacco companies.
"Every time there's an update, it further confounds us,"
said Montigny, a New Bedford Democrat. "It is far, far, far more serious and insidious than even the most pessimistic
expectations."
To address the new deficit, Montigny said he would support
further use of tobacco-settlement money, spending more rainy-day money.
He said that although legislators must proceed with caution
in drafting a spending blueprint for next year, revenue growth expectations for fiscal 2003 were already so low that
lawmakers do not have to significantly scale back their budget proposals.
A fiscal 2003 budget of close to $23 billion - approximately the same as this year - remains realistic, he
said.
Meanwhile, House members reached compromises on funding
child care services, the Department of Public Health, and the Department of Social Services, with the House voting
unanimously to increase funding in those areas by about $70 million. That would mean mild
cuts to most areas of spending in those departments in fiscal 2003.
As expected, the House voted unanimously to add $320 million
for K-12 education. Although basic education aid would be one of the few areas of spending held harmless next
year under the House budget, the Massachusetts Teachers Association said that
the quality of education would fall off in Massachusetts under the spending plan.
The House also voted, 142-11, to undo a Ways and Means
recommendation that would have forced public workers to contribute more to their health insurance plans. The
amendment approved by the House last night would have the state continue
to pick up 85 percent of state workers' insurance costs.
The House yesterday rejected an amendment that sought to
provide an extra $750,000 for the citizenship assistance program, voting 89-62.
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