STATE HOUSE, BOSTON, NOV. 6, 2014…..Gov. Deval Patrick plans to make spending cuts to address a $325 million budget hole before the incoming Baker administration takes the reins of state government.
Two days after the election, Patrick administration officials held a briefing to disclose the shortfall in the $36.5 billion budget and outline their plan to present a package of spending reductions in two weeks to address the projected deficit.
Secretary of Administration and Finance Secretary Glen Shor said the shortfall is forming, in part, due to the likelihood of a legally required reduction in the income tax rate in January from 5.2 percent to 5.15 percent.
A spokesman for Governor-elect Charlie Baker said only that the Republican “looks forward to having more detailed budget discussions with lawmakers and the Patrick administration as the transition process unfolds.”
In mid-October, Patrick’s team stuck by its fiscal 2015 revenue estimate while flagging areas where the state faced revenue exposures. Administration officials said Thursday their plan would also address a projected $175 million shortfall in non-tax revenues, such as fees.
Shor said the administration waited until after the election to disclose their planning so that they could speak more definitively on the size of the anticipated deficit after knowing the outcome of a ballot question on casino gambling. Voters rejected an attempted to repeal the state’s casino law, ensuring that $95 million in assumed revenue from casinos for the fiscal 2015 budget would not be lost.
Patrick has about two months left in office. Voters on Tuesday elected Baker, a former secretary of administration and finance under former Gov. William Weld, to succeed Patrick. Shor said the budget gap should be solved before Baker takes charge in January.
Massachusetts Taxpayers Foundation President Michael Widmer said he wasn’t surprised by the shortfall. “Our calculation is that it’s at least $500 million, so I think this is clearly a positive step to try to achieve a balance budget and it’s important to do it earlier rather than later and leave it to an incoming governor from a calendar standpoint,” he said.
Widmer said the $325 million does not account for an anticipated $240 million in corporate tax settlements, only a small portion of which have materialized, and spending exposures in Medicaid that he said the Patrick administration has yet to prove it can cover within the existing MassHealth budget.
“I do think the incoming governor is going to have to make additional cuts,” Widmer said.
Shor said the administration does not plan to propose a draw from the rainy day fund to fill the budget shortfall, which was attributed to the assumed loss of $70 million in income taxes, the projected $175 million shortfall in non-tax revenues, and $80 million in costs associated with an economic development law approved over the summer after the budget was signed.
In past years that required emergency budget fixes, Patrick has turned to tax hikes and the use of reserves in addition to cuts within the executive branch, which he can implement unilaterally, and reductions in other areas of government that require legislative approval.
Patrick in July requested expanded budget cutting powers from the Legislature that lawmakers rejected, but Shor insisted that request was about flexibility and had nothing to do with forward knowledge of a looming budget crisis.
Tax revenues in October came in $12 million above estimates for the month, and are currently trending $32 million below benchmarks for the fiscal year. Shor said budget analysts believe taxes would have met the benchmarks assumed in the state’s $36.5 billion budget for fiscal 2015 if not for the income tax reduction.
“Revenues are growing at a good clip, consistent with a recovering economy. We believe they would hit the benchmarks if we didn’t decrease the personal income tax rate and the fact of hitting the benchmark would be indicative of a healthy economy,” Shor said.
House Ways and Means Chairman Brian Dempsey and Senate Ways and Means Chairman Stephen Brewer were briefed by the administration Thursday morning on the size of the gap and steps being taken to close it.
“In fairness to a new governor and a new administration, it’s appropriate to give them a good starting point and not have to clean up somebody else’s mess,” Brewer said.
Though said he would wait to see how the Patrick administration proposes to deal with the shortfall, Brewer said he approved of the decision not to rely on reserves, which he called the “easy route.””I’m always up for not spending what we don’t have. When you write a budget, it’s always a leap of faith,” Brewer said.
Dempsey said that bond rating agencies have looked favorably in the past on quick action to respond to possible deficits rather than waiting until later in the fiscal year and hoping that revenues would materialize. “It’s obviously not good news and it makes senses for us to deal with this, so I’m anxious to see what the administration will propose,” Dempsey said.
The Haverhill Democrat said he does not think the Legislature and Patrick overreached with spending in the fiscal 2015 budget, suggesting some of the added expenses this year were related to accelerated pension and debt payments that would save money in the long run. “Clearly the hope is you’re going to meet and exceed benchmark, but it’s very fluid, as you know, year to year,” Dempsey said.
Asked whether budget officials could have anticipated the income tax reductions and planned for it in the budget, Shor said, “We don’t think it should have been factored in.”
The triggers for the tax cut are dependent on year-to-year revenue growth compared to inflation, and Shor said it would have been very difficult to project the low rate of inflation that he said has made the income tax cut more likely.
While Shor said its possible areas of the budget such as Medicaid may require additional spending later in the year, he predicted other areas of the budget requiring less funding could offset that.
“When we think at the end of the day about what the real drivers of the gap our, I don’t really see this as a spending dynamic this year,” Shor said.
Widmer, however, called on the Patrick administration to be more transparent about its MassHealth budget, citing exposures from the 300,000 residents put into temporary Medicaid plans as a result of the botched health exchange website and managed care organizations.
“I can’t imagine we’ll escape fiscal 2015 with additional spending in Medicaid,” Widmer said. “I don’t think we’re out of the woods at all.”
Copyright 2014 State House News Service