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The House begins its Fiscal 2011 budget debate next week. While we will seek to amend the budget in many ways, the major outlines of the budget are unlikely to change.
The real skinny is that health care costs have continued to rise, crowding out other priorities at both the state and local level. Many state agencies have taken deep absolute cuts and the state workforce is shrinking, as it tends to in recessions. Analysts expect the financial pressure to continue through 2012. As to non-health-care spending, local governments have done better than most state agencies, although local governments are also being squeezed. For an elegant overview of the budget see this Mass Taxpayers Foundation bulletin. For an elegant tool for exploring the budget, see MassBudget’s browser.
Here are some answers to basic questions about the budget.
State budget writers see the state and its cities and towns as one big system and seek to balance painful cuts across all levels. Cities and towns have the advantage (in a recession) of relying primarily on the property tax, which steadily creeps up by 2.5% each year. By contrast, state tax revenues declined precipitously through the recession, and even with the recovery in 2011 will still be 9% below their 2008 levels. Overall, even with the local aid cuts coming in Fiscal 2011, local operating departments (schools, police, fire) will be doing better than most operating state agencies. Municipal operating budgets have been increasing at about 1% per year through the recession, while state operating agency budgets have been dropping at about 2.5% (actual declines not adjusted for inflation). Click here for more perspective on this issue.
Yes. The most up to date employee head count numbers show a loss of over 3000 jobs since June 30, 2008 — the peak time before the recession began to hit state revenues. The House Ways and Means budget is expected to cost another 1500 state jobs.
Yes. State jobs (and local jobs) have fluctuated in a fairly narrow range for the last decade. They go down when the economy falters and rise when it comes back up. Fiscal 2011 will bring the state workforce down to 79,000, roughly its level in 2005 and Fiscal 2012 may bring it down towards its 2004 level of 76,000, the lowest level since 1995 or before. (1996 is the earliest year published in the state’s reporting). The 2008 high of 83,600 was just below the last economic peak of 83,900 in 2001. (Note that the 2011 and 2012 estimates exclude the sheriffs’ departments and turnpike employees that have been transferred into the state workforce.)
Because many economists believe that employment will be slow to recover, which means that income tax revenues may remain depressed. Additionally, it is likely that federal “stimulus” funding will diminish — the proposed FY11 budget depends on stimulus funding of $1.6 billion or about 6% (mostly from an increase in the share of the medicaid program reimbursed by the federal goverment). The state also has the fiscal disadvantage of being responsible for the medicaid program which accounts for roughly 1/3 of state spending. The Medicaid budget goes up inexorably with rising health care costs and also expands when the economy is weak and more people depend on the safety net.
At the state level, there are no practical alternatives. There seems to be a strong political consensus against further tax increases. Additionally, the state’s once healthy reserve fund is substantially depleted. So, the state will have to live within its means and share some of the pain with local governments. Some local governments have the option of passing overrides.
The House Ways and Means Committee has proposed $1.4 billion or roughly 5% in “cuts” from the level service budget — these represent declines from a rising estimated maintenance level as opposed to actual declines. The actual overall change from FY10 to FY11 is a slight increase of approximately 1.2%. Despite cuts in benefits (the proposed loss of adult dental benefits is especially painful) many of the Medicaid accounts are rising more rapidly. Focusing only on operating accounts (as opposed to health care accounts, pension accounts or local aid accounts), the average cut below Fiscal 2010 estimated actual spending is 2.0%. Although only about 30 of the approximately 635 line items in the budget were eliminated, 280 were reduced. Of the reduced accounts, 163 took cuts of more than 5% and 99 took cuts of more than 10%.
Veterans services — case load driven — have increased substantially, up 44%. Most major areas have taken cuts over the last three years when inflation is factored in. As a group, local governments have, on average, done relatively well, not keeping up with inflation, but averaging increases in the six percent range over three years (including their own revenues). Services for the developmentally disabled have risen 1.7%, but services for the mentally ill have been cut 7.4%. Many other major operating agencies have sustained cuts of 4% or more, many with three-year cuts over 10%, including the Departments of Public Health, Elder Affairs, Housing and Community Development, Higher Education, Elementary and Secondary Education (excluding their local aid line items), Environmental Protection and Conservation and Recreation.
Yes, health care reform and transportation reform both involve commitments of taxpayer resources that are handled separately from “the budget”. “The budget” is a particular section of the larger legislative vehicle called “the General Appropriations Act” — health and transportation reforms are funded through transfers to trust funds in a separate section. Additionally, commitments to the main MBTA subsidy, the school building authority and paying down liabilities of the state pension funding system are funded from draws that are made before the “budgeting” process begins. The state has sustained its commitments to these purposes through the recession.