Thanks to a recent surge in tax revenues, Massachusetts is
suddenly awash in about $200 million in unexpected cash, a development that has caught Beacon Hill budget makers by
surprise and could set up a partisan debate over what to do with the money.
As the books for the fiscal year closed Friday, Governor
Paul Cellucci's fiscal aides calculated that, with strong tax collections in May and June, the state will have a $700 million
budget surplus.
Earlier this year, in an effort to find money to close the
Big Dig deficit, Cellucci and Democratic legislative leaders agreed to devote the entire surplus - then projected to be $500
million -- to reduce debt and allow the state to issue new bonds to pay for the massive
highway project.
The larger surplus will set up a tug of war between the
Republican Cellucci, who is calling for fiscal restraint, and the Democratic Legislature, which is seeking more money for
social programs, education, and capital projects.
"This goes to the heart of the fiscal and philosophical
differences," said Cellucci's administration and finance secretary, Steve Crosby.
But just as important, the figures have landed in the middle
of tense budget negotiations between House and Senate leaders, who are working overtime to complete a legislative
spending plan to present to Cellucci. The lawmakers are ironing out differences over low-cost
housing, a prescription drug plan for seniors, and capital spending.
"It can't go unnoticed," said Michael Widmer, president of
the Massachusetts Taxpayers Foundation, referring to the timing of the new surplus numbers.
"Whenever there is extra money, it builds spending pressures. The fact there is a
larger-than-expected surplus certainly could well have an impact on the ongoing budget
negotiations," he said.
The state has piled up large surpluses in recent years,
including $500 million last year. The higher-than-expected surplus this year, however, surprised some officials, because
it follows a cool-down in the stock market.
Although surpluses create a sense of wealth, they ratchet up
the political pressure on Beacon Hill. The situation this year is already tense, as leaders try to negotiate a budget document
for next year that is likely to total about $21.6 billion.
House Speaker Thomas M. Finneran wants a gradual rollback of
the state income tax to 5 percent, conditioned on a strong economy. Senate President Thomas F. Birmingham opposes
the rollback and would prefer to spend the windfall on programs such as the Senate plan for
senior drug benefits.
Widmer said lawmakers have shown restraint in recent years
by treating surplus cash as a "one-time event" and by not approving vast new programs that would set up "ongoing
spending obligations." They have paid for smaller capital projects, such
as the construction of libraries and municipal buildings, and used surpluses to add to the state's emergency or "rainy
day" fund.
This year, Widmer said, even more caution is advised.
Legislators face not just Cellucci's $1.1 billion tax-cut initiative, which is on the November ballot, but a ballot
question that would give Massachusetts Turnpike toll payers tax rebates that could cost the state $500
million annually.
Another question on the ballot calls for deductions for
charitable giving. If voters approve all three, the state could lose as much as $2 billion in potential annual revenues.
Still, Crosby contended that the surging revenues and the
surplus are strong arguments for the governor's initiative. He said 38 tax cuts have been enacted by former governor William
F. Weld, Cellucci, and the Democratic Legislature since 1991, resulting in robust economic
growth. Those cuts eliminated $2.7 billion in annual revenues from the tax base.
"It makes the case very strongly that the tax cuts have been
strong stimulus for the economic growth we are having," Crosby said.
Crosby argued that Cellucci is "orchestrating a delicate
balancing act of fiscal discipline" to avoid the sort of crises that developed when the state economy slumped in the late
1980s.
"His strategy is to strike the proper balance between
depressing the rate of the growth in core state spending, while meeting the demands of the key programs and avoid any fiscal
crises which threaten our long-term economic health," Crosby said.