State's fiscal picture dims
Cuts, tax hikes may be on table
As the sputtering economy sends shocks from Wall Street to Main Street, the reverberations are being felt on Beacon Hill, where key officials acknowledged yesterday that the signs are bad and the future may be even worse.
Income tax revenues are expected to shrink as the recession takes hold, worsening an anticipated $1.3 billion budget deficit. Municipal officials, heavily dependent on state aid, say their budget problems have already risen to crisis proportions.
State health program faces crucial fiscal choices. A12.
State Treasurer Timothy P. Cahill said yesterday that, yet again, he must borrow hundreds of millions in short-term notes to pay the state's bills - like a consumer using a credit card to make a mortgage payment.
All of this is set against the fact that the state already has the high est per capita government debt in the country - and now will be forced to borrow even more to keep a deteriorating transit system and its aging college campuses from completely crumbling.
"Every taxpayer and tollpayer in Massachusetts is overburdened at the same time as our infrastructure is about to implode," said Senator Mark C. Montigny, Senate chairman of the Joint Committee on Bonding, Capital Expenditures and State Assets and a New Bedford Democrat. "We are headed for a much more dangerous time than people realize. We've got all these nasty variables converging at the same time."
Governor Deval Patrick is readying a major economic speech in which he will discuss the effect on the budget, although it has not yet been scheduled, his aides said. House budget writers are beginning to craft a detailed budget for fiscal year 2009, and they will have to choose between raising taxes and fees and cutting programs.
"This has been the most difficult budget I've had to deal with," said Representative Robert A. DeLeo, a Winthrop Democrat who is in his fourth year as chairman of the House Committee on Ways and Means. "It's been further exacerbated by looking into the future."
Patrick submitted a $28.2 billion budget proposal in January that avoided large-scale cuts and included several spending initiatives and money-generating proposals - including $124 million from his ill-fated proposal to license three casinos, a plan that the House killed last week.
Moving forward, while few are talking about serious program cuts, a big increase in the cigarette tax, tightening corporate tax loopholes, and digging into the state's rainy day fund are apparently the most viable means of balancing the next budget.
Officials also are looking at gas tax increases, higher and more widespread highway tolls, and the less tangible possibility that an array of economic stimulus plans, including the promise of a $1 billion shot in the arm for the state's biotech industry, will pay off with new jobs and investment.
As House and Senate leaders start focusing on the details, they are working under an even bleaker scenario than when Patrick drew up his plan. Following a stream of negative news caused by the nation's crisis in debt markets, a report last week released by MassINC said the state is at a financial "point of reckoning."
"We're just teetering on the precipice," said Michael Widmer, president of the Massachusetts Taxpayers Foundation, a nonprofit budget study group that is funded by businesses. "I haven't heard any real ideas."
Cahill said he will be forced to borrow $400 million by Monday to fulfill the state's obligations, including local aid and pension payments. The state has occasionally had to borrow before to meet short-term cash shortages - including $600 million in 2006 and $1 billion in 2007 - but never this late in a fiscal year.
"This to me is a wake-up call," Cahill said. "I'm hopeful that it's going to be a message to everyone in the [State House] that we've got to get spending under control. It's not just enough to look for new revenue sources."
The state will be able to repay the loan by the end of April - once income tax receipts start to come in - but the shortfall will cost about $3 million in interest payments, Cahill said. That is the equivalent to the full annual tax bill of about 2,200 taxpayers.
Leslie Kirwan, secretary of administration and finance, did not offer a complete explanation of why the state is coming up short of cash. "I would be very cautious about saying it's a spending problem. We do not believe there is a significant issue on overspending," she said.
Budget cuts are definitely on the table in the Senate and the House.
"It's more than tight," said Senator Steven C. Panagiotakos, chairman of the Ways and Means Committee. "The bottom line is spending is going far ahead of revenue growth. Every area is an area to cut."
House Speaker Salvatore F. DiMasi six weeks ago sketched out a set of budget priorities, ignoring the governor's use of projected casino revenues. Instead, he is proposing raising $152 million by increasing the state's cigarette tax by $1 a pack, which would give Massachusetts the second highest cigarette tax in the country, behind New Jersey. DiMasi also plans to use $427 million from the rainy day fund and, without indicating which areas he would target, wants to cut state spending by $100 million.
Massachusetts carries the highest per capita public debt burden in the country, which places limitations on its ability to borrow more money. To free up more borrowing power, the state has started using longer-term bonds, which allows more money to be borrowed at one time. The Patrick administration also is borrowing more per year for capital expenditures - increasing a self-imposed limit from $1.25 billion last year to $2 billion annually by 2012.
Fiscal watchdogs say those policies will work only if the state economy grows.
Patrick and DiMasi have both backed a plan to tighten the corporate tax codes, but they have significant differences over how deep corresponding reductions in corporate tax rates should be, so the savings remain in doubt.
At the local level, 50 communities so far are considering property tax or debt exclusion overrides - in addition to 109 communities that sought them last year. Communities have also increasingly relied on raising fees and fines to fill their coffers.
"It's a tough year," said Geoffrey Beckwith, executive director of the Massachusetts Municipal Association. "There aren't a lot of revenues. The overall economic downturn certainly could not come at a worse time."
Matt Viser can be reached at maviser@globe.com.
rising
falling 