What is state’s longer term fiscal outlook?

Although specific quantities are hard to predict even one year out, and the uncertainties multiply as one looks further, it seems fair to say that the state cannot meet any of its presently well-identified major unmet needs without making big changes — either in spending priorities or in broad-based tax revenues.

 If the legislature were to adopt all of the Governor’s current revenue proposals, including the corporate tax increase and the resort casino plan, and, if all of the proposals were to yield as projected (although for the casino plan some delay in realizing the hoped-for revenues seems inevitable), then the FY2009 budget might be balanced.  It is plausible that, if everything goes well, then the next few years of budgets might be balanced, but there would be no room for major initiatives.

 A September 2006 analysis of spending trends prepared by the Massachusetts Taxpayers Foundation collates spending and revenue trends and forecasts a modest surplus in 2012.  The analysis was done at the outset of Fiscal 2007. 

 The analysis seems sound and can be rolled forward from today.  The current consensus revenue forecast for FY2009 is $20.9 billion — a round billion below MTF’s scenario for 2009.  Additionally, enrollment in the new health care plan under health care reform has progressed more rapidly than expected, and MTF’s projections for the growth in the cost of health care reform appear to have been low.  But if the resulting scenario gap (very comparable to the Governor’s estimated budget gap of $1.3 billion) for FY2009 is plugged as outlined by the Governor, then the scenario analysis is rebalanced. 

 The mix of spending has not changed dramatically and the cost growth rate assumptions in future years are as reasonable today as they were in September 2006.  Thus MTF’s estimate that, under favorable but plausible assumptions, the state’s budget might be roughly in balance over the next few years appears to still have validity. 

 MTF’s fiscally favorable scenario assumptions required for budgetary balance for the next few years are:

  • the state undertakes no major new initiatives;
  • the economy only stalls briefly in 2008 and then proceeds to expand, allowing revenue growth of 6.2% annually in FY2010 through FY2012;
  • health care costs grow moderately in the 7% range;
  • Chapter 70 and the lottery both grow at 3% (a low assumption for Chapter 70, and an optimistic assumption for lottery revenues);
  • debt service grows to only $2.4 billion in 2012 (this assumption is actually above the projections in the administration’s capital plan although this appears to be due to differences in assumptions about interest rates);
  • state programs other than health care, local aid and fixed costs grow at only 3%.

Broadly supported major initiatives that are not within the scenario and would require new revenue sources are listed below — they total easily $5 billion per year.

  • expansion of local aid beyond the rate of inflation — to reduce class sizes and relieve pressure on municipal budgets – a 15% increase in local aid (above 3% inflation) would cost approximately $1 billion in 2012; slow growth in lottery revenues would push upwards on the amount of additional local aid needed to reduce local budget pressure; 15%
  • restoration of human services, housing, environment and other state programs to their inflation adjusted 2001 levels — roughly $1 billion (MTF analysis of the 2008 budget, total of decreased non-local-aid items in Table 1);
  • implementation of the emerging recommendations of the Governor’s Readiness project on education (early education, full-day kindergarten, extend school day and year, universal access to community college) — recently estimated by the Mass. Budget and Policy Center at $1.0 to $2.3 billion in current pricing;
  • the infrastructure funding gap identified by the Transportation Finance Commission — $0.7 billion or more per year for 20 years (even after identified cost savings) starting currently (this would reduced by possible casino revenues by approximately $0.2 billion annually; when this revenue stream would engage is uncertain); see the MTF analysis of the casino revenue impact on transportation;
  • meaningful property tax relief — say a 10% average reduction in property bills — would cost at least $1.0 billion statewide; currently property tax levies exceed $10 billion; targeted application of casino revenues would apply $0.2 billion towards this goal.

And these are only the areas that have received broad discussion — there are many area of state government — parks, law enforcement, housing, higher education — that could benefit from additional support.

Published by Will Brownsberger

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

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