Massachusetts’ good times not rollin’ like they used to
The economic sky isn’t falling in Massachusetts — but the state government’s tax revenues are no longer coasting along at a level of growth that for the past several years seemed to know no bounds. And that means some tough choices in the near term and a sober approach to the state budget in the year ahead.
“The economy is growing year over year. It’s just not growing as fast as anticipated,” Secretary of Administration and Finance Matthew J. Gorzkowicz said Monday at a briefing to unveil $375 million in mid-year spending cuts the administration is making to the current $56 billion budget to deal with this year’s revenue shortfall.
The state, he said, will need to cope with a 12- to 18month period “where we will have to do some belttightening.”
Slowing revenues also mean that next year’s budget, which Governor Maura Healey is expected to file at the end of the month, will have to make up for $1 billion less in revenues than anticipated for the fiscal year that begins July 1. The so-called consensus revenue figure also announced Monday — agreed to by the secretary and the chairs of the House and Senate Ways and Means Committees after consultation with economic experts — was $40.202 billion, plus another $1.3 billion from the 4 percent millionaires surtax that must be earmarked for education and transportation needs.
The Healey administration’s approach to dealing with the shortfall is commendable not simply for what it did but what it did not do to close this year’s budget gap. It did not touch the state’s $8 billion rainy day fund, which Gorzkowicz insisted was indeed for “extraordinary circumstances” where revenues are actually declining, not situations where they’re simply increasing less than expected. Nor did it dip into a $700 million escrow account, which Healey has been eyeing to deal with the migrant shelter crisis. It did not cut local aid or school funding.
Instead, it opted to cut $375 million from more than 60 accounts, including what Gorzkowicz noted were about $20 million in local earmarks, many of them for nonprofits. It was the first time mid-year cuts had to be made since 2016.
Now, every one of the thousands of line items in the state budget has a constituency behind it, a group counting on money that won’t be coming their way. So none of this is easy or completely painless. But dealing with small cuts halfway through the budgetary year is far less painful than looking at an insurmountable deficit at year’s end.
The big-ticket item was $294 million (in gross reductions) for MassHealth’s fee-for-service payments.
But administration officials said the state’s redetermination of need effort, in which the state has scrutinized MassHealth recipients to ensure they are still eligible for the program, has indeed lowered overall costs.
The rest of this year’s shortfall will be covered by some $625 million in non-tax revenue, including earnings on investments and untapped departmental revenues.
The good news is that because employment is still high, withholding taxes and sales tax revenues are holding up.
“What we’re experiencing now is a soft landing,” the secretary said. “But we’re here to make sure we have a balanced set of solutions.”
There will, of course, always be those who insist that the state is in this situation because Healey gave away too much to “the wealthy” in a tax reform bill approved last year. That group includes Senator Jamie Eldridge. “At the end of the day, earmarks are not going to cover this budget deficit,” he told the Globe. “I am very troubled that we just passed a tax reform package where over a third of the tax cuts went to the wealthy. I think that’s extremely concerning.”
In fact, that bill was aimed at making the state “more competitive,” Gorzkowicz said Monday. It was also aimed at helping lower income residents stay in their homes or afford day care or services for other dependents, something Healey reiterated in her formal letter to legislators informing them of the budget cuts.
When times are tough — or at least a little tougher — it’s easy to turn on one another or default to a favorite bete noire like “the wealthy.”
But the budgetary year ahead will require a thoughtful approach. The shortfall is real and will need to be dealt with. The sooner that reality sinks in on Beacon Hill, the better.