The Economic/Financial Outlook

Incoming Senate President Stan Rosenberg recently organized a briefing for Senators on the state’s economic and fiscal outlook.  Michael Goodman, a professor at the University of Massachusetts, presented on the economic outlook.  Michael Widmer, President of the Massachusetts Taxpayers Foundation, presented on the fiscal outlook.  The presentations (which are attached below with permission of the authors and Senator Rosenberg) were sobering.

Some excerpts/takeaways from the economics presentation

  • Nationally and in Massachusetts, the recovery is picking up strongly
  • But many people still haven’t been pulled off the jobless rolls . . .
  •  . . . and the recovery is uneven regionally — many communities still have high unemployment rates and low housing values
  • The global economy is filled with risks and Massachusetts faces some long term problems
    • Aging labor force
    • Persistent educational achievement gaps
    • Uncompetitive energy costs
    • Low housing production
    • Aging transportation infrastructure
    • In the very long term, key real estate threatened by sea level rise

Some excerpts/takeaways from the fiscal presentation

  • State revenue growth has been sluggish compared to previous economic expansions
  • Health care spending has grown dramatically — absolutely and as a share of the state budget
  • Many reasons to believe health care spending will continue to expand and pressure the budget
  • Fiscal 2015 budget gap may be greater than the Patrick Administration has acknowledged — for more on this point, see MTF’s estimate of the budget gap.
    • Revenues below projections
    • Expenditures above projections
    • Additional health care budget risks
  • State’s reserves have continued to decline even through the expansion
  • No reason to expect that revenue growth will accelerate enough to alleviate the crunch
  • The state’s transportation infrastructure plan is not fully funded
  • The MBTA will face a continuing financial crunch and its capital plans are not adequate to preserve current state of repair in the transit system
  • Municipalities can also expect financial pressure
    • Limited construction and override contributions to property tax revenue growth
    • State aid growth likely to be limited
  • The growth of benefit costs — especially retiree health care — needs to be addressed, given these constraints

The briefing materials

Published by Will Brownsberger

Will Brownsberger is State Senator from the Second Suffolk and Middlesex District.

14 replies on “The Economic/Financial Outlook”

  1. Given that “Health care spending has grown dramatically — absolutely and as a share of the state budget and Many reasons to believe health care spending will continue to expand and pressure the budget” it seems to make sense to move towards a single-payer system to reign in costs (or at least do an analysis to see how much the state would save if single-payer were enacted). Is this likely to happen in the next session? And if not, what could we do to make this more likely?

    1. Single payer is not in the cards for the next session.

      We need to let the 2012 cost-control reforms play through a little — we created a complex mechanism to hold down costs and the hospitals and bureaucrats are still sorting out what it all means. I don’t think we’ll look at another major restructuring for a few years. We have to let things settle and see how the reforms work.

      1. So is there a mechanism to study how these new rules cause changes in costs and coverage? If so, great (and where will I see it?) and if not, we need to make sure that we have a study mechanism in place. And as long as we’re studying what’s going on, shouldn’t we also be comparing these results with what costs would be if we had implemented a single-payer system?

          1. Thanks. It doesn’t look like they actually compare the current system with what costs would be under a single payer system. But I’m sure the information they have will be quite interesting nonetheless.

  2. Wouldn’t it be more cost effective for the state if we put fewer people in prison by getting rid of mandatory minimums and changing the bail formulas so fewer people wait for their trials in jail? Also wouldn’t the state save money if we provided drug offenders and the mentally ill diversionary programs on an outpatient basis and treated them medically rather than housing them in jail? And if so, are there good bills being formulated to address these issues in the next session? It seems that our new Attorney General campaigned on decreasing our jail population so this appears to be a good time to act on these issues. And as you are the Judicial committee chair I expect you are an expert on thinking about these issues. Thanks, Colleen

    1. Thanks, Colleen!

      Absolutely. This whole area for reform is open in the next session and I’m very much hoping we can make meaningful progress. I think the stars may finally be aligned on this group of issues.

      1. Great! What legislative solutions do you propose? And where might I find good information about ways forward on this issue? I know little about it, but do know we have far too many people who have been in jail and it seems like far too many prisoners who are really in need of mental care or drug treatment or behavioral lessons. I am connecting with a few neighbors who are involved in this issue (Lori Kenschaft and Trish Miller among others) so I’ll be learning a lot soon. Thanks.

  3. State retirees should contribute at least 1/3 of the cost of their healthcare and should pay $10 – $50 co-pays depending on their income.


  4. What a surprise the outgoing governor has been less than forthright in his projections.
    The state needs to live within a budget. Not a fairy tale but real as the people have to. You cannot spend what You don’t have. You cannot find every program gamed to ones political base.
    It is a sad state of affairs when the ruling elites have lost touch with reality.

  5. On health care spending projections:

    I don’t quite understand why health care costs are projected to grow so dramatically. My understanding is that the growth of health care costs, here and nationally, has been reduced significantly over the last couple of years. In addition, there have been initiatives, in this state specifically, to reduce the rise in health care costs. Are those measures not working? are we giving up on that idea? are we just going to accept the idea that we, as a nation, pay twice as much for health care as the rest of the civilized world? (with no appreciable improvement in outcome)

    Mr Widmer’s charts indicate a significant projected increase in Medicaid enrollments. Once again, how can that be? I thought that MA was already close to universal coverage? If so, Medicaid enrollments can’t increase endlessly. Are we moving people from employer-based coverage to Medicaid?

    On tax policy:

    Interesting that when it comes to increasing taxes, such as the recently rejected automatic gas tax increase, the principle is that legislators must vote on each tax change. However, when it comes to decreases in taxes, as with the automatic reduction of the state income tax, a legislative vote is apparently not necessary. My understanding is that the cost of this tax reduction (over time) is about $3 billion/year. That’s a lot of money in a $40 billion (or so) budget.

    At the same time, the state of MA is increasing expenditures via health care. That’s an interesting approach to budgeting — increase expenses, reduce revenue. How can that work? outside of finding a scapegoat.

    The MTF:

    Whatever one thinks of Mr Widmer (and his $400,000 salary), I don’t understand why a policy prescription has made its way into his report. Usually, numbers people try to present a neutral, objective view of whatever situation they are evaluating. Normally, the response to those numbers, via policy, is left to others. But then, Mr Widmer has always had an agenda.

    –Bill Mahoney

    1. Hi Bill,

      Thanks for weighing in.

      Bending the health care cost curve is the state’s single greatest fiscal challenge and in 2012, we put in place lot of new tools to do that. There has been some progress with the new tools, but I think we need to give things another year or two to fully assess the consequences. The problem is still huge. More on this category here.

      One thing to note is that even if we control the per person costs of health care, if lower incomes continue to stagnate, we are likely to see Medicaid rolls remain high. The state budget is very much affected by the larger problem of income inequality.

      On the automatic adjustment — I agree with you: I never had a problem with the gas tax indexing. And I think the income tax cut is part of our financial problem — there are lot of underfunded state agencies! But I think people could draw a distinction between the gas tax increase (voted entirely by the legislature) and the income tax reduction (originally voted by the people).

      Mr. Widmer’s role as always been to advocate as well as to inform. I think I take a different approach to the OPEB problem than the one he recommends, but I wasn’t troubled by his including recommendations with his observations.

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