Limited Taxation
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CLT Update
Monday, January 4, 1999

State Government's "Embarrassment of Riches"

It's time to start paying real close attention when you hear phrases like "embarrassment of riches" and  they're talking about our tax over-payment again!

We are warned in the report below that "Surpluses spur every interest group in the state to seek more  funding for pet projects and programs," but -- like the "tobacco settlement" -- there's little mention of who that money really belongs to.

This is becoming a frightening phenomenon of late: the failure to recognize just whom tax money belongs to, where it originated and who produced it before the politicians and bureaucrats got their hands on it -- like somehow government "earned" it all by itself working a second job nights!

In a recent editorial (The New Bedford Standard-Times, Dec. 4) on the topic of CLT&G's bill to return the "tobacco settlement" to those who were allegedly damaged over the years -- the taxpayers -- the writer states:

"But it is a bit simplistic to claim that only taxpayers paid the costs of smoking, because there are all sorts of government programs, up to and including Medicaid and Medicare, that are directly affected by the health problems associated with smoking."

When even allegedly-educated editorial boards don't recognize that "government programs, up to and including Medicaid and Medicare" are entirely taxpayer-financed ... that government has no money independent of what it takes from the taxpayer ... this state, this nation, we the people are in very serious trouble! (I did respond with a letter to the editor which was published this past weekend.)

Assuming that we have your continued financial support throughout 1999 -- you can bet that few if any but CLT&G is going to bring up that uncomfortable little fact in this policy discussion!

Taxpayers are a very significant "interest group." It's entirely our hard-earned money that pays every state cost and now overflows the public trough that all the other self-serving special interests, with a hand out or in our pockets, greedily feed from!

Chip Ford --

PS. Also, related news from the economic policy transition team on which Barbara served is beginning to come out, further below.

The Boston Globe
Monday, January 4, 1999

Budget surplus may spell trouble
Cellucci's aides brace for demands

By Frank Phillips and Scot Lehigh
Globe Staff

It should be the best of times on Beacon Hill - if you measure good times by the torrent of tax dollars surging into state coffers, that is.

But in the governor's office, Paul Cellucci's aides are busy piling up the sandbags against the bedlam they fear that flood will bring.

So far, the fiscal freshet is Beacon Hill's best-kept secret, unexpected after a year of huge tax cuts and unremarked upon by anxious budget makers intent on damping down budgetary expectations.

But the fact is, the state's tax collections for the first six months of the fiscal year are running far above predictions, conjuring up memories - and fears - of the boom and bust of the Massachusetts Miracle in the 1980s.

In fact, tax income is more than double what it was for the same period last year, when the state ended up with a record $900 million budget surplus.

Already Beacon Hill policymakers are privately confronting the question of what to do with the embarrassment of riches.

In the private council he holds each week with top legislative leaders, Cellucci has seized on the state's strong fiscal performance to argue that, even after last year's tax cuts, Massachusetts can still afford to cut the income tax back from 5.95 percent to 5 percent.

But Senate President Thomas F. Birmingham, who has progressive plans of his own, and House Speaker Thomas M. Finneran, who husbands the state's resources with the caution of a Depression-era banker, have other ideas. "They just laugh at him," said one source familiar with the sessions.

Undaunted, Cellucci is building such a tax cut, in phased-in fashion, into his next budget. Keenly sensitive to how the Dukakis administration was swept from its moorings in the last fiscal flood, Cellucci thinks the best way to avoid a repeat is to reduce the flow.

For now, there's good reason that Cellucci's fiscal aides are hoping to downplay the situation. Having been through the wrangling that last year's budget surplus created, they know the political struggles and bureaucratic pressures that a bulging treasury creates on Beacon Hill.

Surpluses spur every interest group in the state to seek more funding for pet projects and programs. The bigger the surplus, the greater the expectations - and the harder it is for the Beacon Hill budget writers to keep spending under control.

There's also a special political issue at stake for the governor.

A major theme in his campaign against Democrat Scott Harshbarger was that only he could control the state budget and prepare Massachusetts for a downturn.

Still, as the rush of riches becomes known, Cellucci will be hard pressed to explain why the state can't spend more on issues that he supports, such as lowering tuition at state colleges, paying for increased health insurance, funding early-childhood programs, and adding funding to education reform.

And then there will be an inevitable push to provide funds for a slew of local projects, such as harbor dredgings, new ice rinks, libraries, and weed-control programs. Last summer, eyeing the largesse, lawmakers cobbled together $400 million in one-time projects. Cellucci vetoed half of those, convinced that doing so would bolster his campaign image as a fiscal disciplinarian.

But those vetoes created outrage from Cape Cod to the Berkshires. This year, the pressure will be great for the governor to OK more one-time spending. And he may well do so, deeming that spending is preferable to letting the surplus grow.

Secretary of Administration and Finance Fred Laskey, who is writing the administration's budget plan for fiscal year 2000, is the man on the front lines, trying to quash any notion that Massachusetts should let the good times roll.

It's Laskey's job to be a pessimist, and the laconic revenue chief is turning in an Oscar-worthy performance, with dire talk of economic slowdowns, revenue tail-offs, and the like. He contends that the second half of the fiscal year, which ends June 30, could be a bust. Even zero growth, perhaps.

Laskey notes that some of the major tax cuts approved this year won't kick in until this winter and spring. Employers, he points out, are still using the old withholding schedules, which means far larger refunds will be due in April.

"I know you think we are crying wolf, but our single biggest problem is our models are showing slower growth, but no one wants to believe it," he said. "It would be catastrophic to repeat the mistakes made in the mid- and late-'80s, when the base of government spending was allowed to grow unchecked. It was devastating when the revenues dropped."

But others are skeptical. Any downturn will be offset by a big uptick in the capital gains tax revenue, robust corporate tax payments, and a $98 million down payment from the tobacco settlement that is expected in March, they say.

Laskey's warnings are falling on deaf ears even within the administration. Take, for example, the directive that Cellucci budgeteers, as part of their search for savings and efficiencies, sent to the human services bureaucracies: Submit a proposal detailing how they could pare $54 million from what would otherwise be a maintenance budget for next year.

That may seem like a lot, but it comes on a base of $8 billion yearly. What that request really translates to is a budget that would hold this year's growth to $350 million rather than $400 million.

And what happened? Human services came back with a proposal that would be a $50 million increase over and above inflation - and a declaration that this was the absolute tightest they could cinch the belt.

That's a perfect portent for the trouble Cellucci faces. An epidemic of surplus fever will surely follow the fiscal overflow. Pity poor Fred Laskey, the man trying to administer the quinine.

Time is short - and the revenues are rising.

The Boston Globe
Metro | Region
Monday, January 4, 1999

Cellucci agenda: cut taxes, cap spending
By Meg Vaillancourt
Globe Staff

The Massachusetts economy is sunny now, but Governor Paul Cellucci is expected to offer plenty of umbrellas when he unveils his administration's agenda following his inauguration this week.

A draft fiscal blueprint, developed for Cellucci by former national economic specialist and Harvard professor Martin Feldstein, outlines a package of tax reductions intended to encourage job growth and economic stability.

The draft, a copy of which was obtained by the Globe, also seeks to promote fiscal responsibility by dramatically revising the state's budget process.

Cellucci, for example, is expected to press lawmakers to agree to an annual spending cap.

Noting that the governor and legislative leaders already agree on revenue estimates each year, the draft criticizes the customary annual budget brawl between the House, Senate, and governor's office as "often frustratingly shortsighted."

The report was produced by a group of local economists, and business and labor leaders who have advised Cellucci on fiscal policy during his transition.

Feldstein, who headed the group, was nicknamed Dr. Gloom when he warned of the rising federal deficit as President Reagan's chief economist in the 1980s. He also is the longtime head of the Cambridge-based National Bureau of Economic Research.

Many of the recommendations in the group's draft require legislative approval. And some are likely to be a hard sell on Beacon Hill.

Cellucci, for example, is expected to call for tighter controls over how the state can use proceeds from the now overflowing stabilization fund.

But even before he's inaugurated, Cellucci, Senate President Thomas F. Birmingham, and House Speaker Thomas M. Finneran have begun to lock horns over how to use the huge surplus. And language that appears to cast the Legislature as the state's spendthrift is unlikely to help.

"Most agree on the need to think long term, yet there is no multi-year budget process for the state," the draft report argues. "And although there are some budget controls in state finance laws, there is still a lack of controls to prevent irresponsible spending by the Legislature - especially in the law governing the use of the stabilization fund."

The draft also recommends that Cellucci call on the Legislature to certify that sufficient revenue exists to support spending programs before they are enacted.

In a similar vein, Cellucci also is expected to propose a requirement that all new programs offered by either the executive or legislative branch include an estimate of their cost over five years.

Such a broad requirement would require legislative approval, of course. But the draft points out that Cellucci could unilaterally adopt multi-year budgeting in some areas.

For example, he could require that so called "budget-buster" accounts (such as local aid, Medicaid, public assistance, higher education, MBTA, and debt-service payments) have five-year cost projections included in his annual state budget.

Cellucci is also expected to propose:

  • Eliminating the state's "pay to play" law, which requires businesses to pay disputed tax assessments up front even when an appeal is pending.

  • Lowering the unemployment insurance costs on businesses by adjusting the current legally required rates.

  • Reducing the personal income tax rate from 5.95 percent to 5 percent.

  • Instituting a tough zero-based funding scheme, under which the need for various programs are reexamined each year.

  • Establishing performance criteria for all state-funded programs.

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