Previous Page | Print this Document

State budget outlook 2005 - The good, the bad, the ugly news

January 5, 2005...The good news for Massachusetts residents as 2005 begins is that, half way through the fiscal year that ends on June 30, revenues are above expectations by $448 million, or 6.1% over last year! Since Massachusetts was hit harder than most other states by the national recession, and recovery has been excruciatingly slow, it should provoke a smile even if it’s not a reason for dancing in the streets.

The bad news, however, is that for the fifth straight year, we have a structural budget gap of $900 million – smaller than previous years, even manageable, but a deficit nevertheless. That’s because the current budget relied on some one-time revenues that are not expected to be available again this year to help produce a balanced budget.

The “ugly” news, which for the most part has unpredictable impacts on state revenues, will take a little more explaining. There are at least ten major issues to watch as the new legislature convenes:

Medicaid Funding. Something called “intergovernmental transfer” or IGT has been employed by Massachusetts and other states in an effort to maximize federal Medicaid reimbursements. Much of the Bay State’s health care safety net for our poorest residents is heavily dependent on this formula. As the Bush Administration threatens to crack down on this practice, Massachusetts risks losing as much as $600 million. Without these funds it will be all but impossible to expand health care access – something that Governor Romney and the Legislature have targeted as a priority for the new legislative session – without new revenue. Even if these Medicaid funds are not drastically cut, expanding health access is unlikely without shifting or increasing revenue. Apart from the IGT issue, Medicaid costs, mirroring health costs in general, continue to consume a larger share of the state budget.

Health Care Reform. Expanding access to care by insuring some of the nearly 500,000 residents without health insurance, investing in health care technology such as electronic patient records and electronic prescribing, reforming medical malpractice insurance, providing incentives to attract and educate more nurses to address a growing shortage, and a host of other issues such as keeping prescription drugs affordable, have been identified as the top legislative priority for the new term. While some of these reforms have the promise of saving money, or at least slowing the increase in health costs, some additional funding is needed to address the need for health care reform.

Hancock vs. Driscoll. It is likely that sometime in the next few months, the state’s Supreme Judicial Court will issue its opinion relative to the adequacy and equity of state school aid. Even if the court decides that the dramatic increases in school spending of the past decade are sufficient – that seems unlikely – education aid increases are needed to reform the Chapter 70 (school aid) formula. Last year, the Senate went on record as favoring spending $1.3 billion more on public education over the next seven years. There is also a need to reform the school choice law that allows students to obtain their education at other than their local school district. The current funding plan harms students who are unable to “choice out” and suffer from cuts in school aid that limit course options, faculty retention, and co-curricular activities.

Higher Education. One of the areas of the budget that suffered the most during the recession has been funding for the state’s public colleges, community colleges, and the state university system. As costs have increased, middle class parents who have relied on public higher education for good value at modest cost have been hard-pressed. Faculty contracts, though approved by the executive branch and authorized by the Legislature have not been adequately funded by the Romney Administration. Given the vital role that public higher education plays in state economic growth and in keeping an educated workforce from emigrating to other states, there will be considerable pressure to increase spending in these accounts.

Early Childhood Education. Last year, the Legislature and the Governor established the framework of universal pre-school education that also brings a $1billion ten year price tag. Funding such a popular program, given the demand for low cost, safe, high-quality day care is likely to be a major challenge as spending is prioritized.

State and National Politics. Another factor that could well influence the budget and policy debates on Beacon Hill in the coming months is the degree to which a looming 2006 race for governor intrudes on political decisions. Add to the mix the growing speculation that Governor Romney will run for President in 2008, and the stakes are raised even higher. It would be naïve and wishful to think that such politics would not factor into policy and budget decisions on a whole range of issues.

Tax Cuts. Based on the Legislature’s action in 2002 and the improvement in state revenues last year, taxpayers are going to receive a tax cut by the automatic increase in personal exemptions triggered by improved revenues. While the Governor appears to have backed-off his call for an immediate income tax rate roll-back to 5.0%, there are still powerful advocates for such a cut. In either case, there will be less revenue.

Federal Mandates. Massachusetts, and every other state, faces increase cost thrust on them by the federal government in its attempts to please various constituencies without adding to the looming federal deficit. Congress and the Bush Administration have taken several well-meaning actions which, unfortunately, increase the financial burdens on state and local governments. “No Child Left Behind,” education reform, the Medicare Reform Act, and other such measures have resulted in higher program costs passed along to the states. Even some international trade treaties negotiated by the federal government without regard to state concerns are negatively impacting state economies.

Local Aid. After four years of severe cuts, capping of revenue sources, and level funding of school aid, area towns are feeling the pinch. The shift from state aid to local property tax receipts, combined with increasing residential values, have left homeowners – especially the elderly – hard pressed to support funding for critical local services. Local officials and employees can be expected to push the state to increase funding for schools, remove the cap on lottery receipts, and fully fund state mandates and reimbursement programs.

Energy Costs. A few months ago, there was an increased chance that higher energy costs would take a huge bite out of state and local budgets as well as increase the cost of living for Massachusetts residents. While this seems to have eased a bit, the dependency on fossil fuel continues to plague the Northeastern states like Massachusetts.

Of course, these problems pale in comparison to the life or death struggle facing the tsunami victims of Southeast Asia, the genocide victims in parts of Africa and Eastern Europe, or the deadly struggle to create democratic governments in Iraq, Afghanistan, and other regions of the world. We can offer our prayers and humble donations, but their solutions are almost beyond comprehension. However, the issues facing us, in Massachusetts, will not be easy or inexpensive and they will take the cooperation, good will, and best thinking of public officials and citizens, regardless of party, if we are to achieve a good measure of progress toward reasonable solutions.

Previous Page | Print this Document