Romney offers $23.2b budget

Governor Mitt Romney yesterday presented a $23.2 billion state budget proposal for the coming year that relies on rising revenues, healthcare savings, and the closing of corporate tax loopholes to increase overall spending by about 2.4 percent while cutting income taxes at the same time.

When off-budget items such as pensions and the state's school building program are factored in, overall state spending would be about $25.5 billion in the next fiscal year under Romney's plan, up from about $24.7 billion this year.

Romney wants to raise state spending on schools and local government services such as police protection and public works by $180 million, a 4.2 percent increase over this year's total and the largest boost since Massachusetts plunged into fiscal crisis four years ago. His blueprint also includes a 22.8 percent increase for child-care services, a 5.4 percent hike for State Police, and a roughly 3.5 percent increase for mental health.

The key to the governor's budget is a predicted slowdown in the growth of Medicaid, the healthcare program for the poor. Between 2001 and the current year, Medicaid spending grew by an average of roughly 10 percent a year. But the administration is estimating that this fiscal year such spending will grow by only 5 percent, and so the administration is projecting a similar rate of growth next year. That would give the state between $300 million and $350 million more to spend.

Rising tax revenues will add $800 million to the state's coffers, according to the administration. Closing the tax loopholes would raise an additional $170 million. And forcing all active state employees and all retired employees without disabilities who are younger than 65 to cover 25 percent of their health insurance premiums, instead of 20 percent, will generate another $59 million.

''I'm beginning to enjoy these press conferences a little more, now that the figures are getting better," the governor said yesterday, as he unveiled his blueprint at the State House.

But Democrats who control the Legislature and the various advocates for programs that Romney would squeeze were skeptical yesterday. They said he was overly optimistic in predicting that Medicaid spending would slow down, for example.

The Legislature will probably reject many of Romney's priorities; over the last two years, lawmakers have added money for social services programs and rejected his repeated calls to cut the state income tax.

Romney's plan also would cut spending on some agencies and programs or give them the same amount they are getting this year, forcing them to find savings to deal with inflation and other rising costs. For example, both the Department of Environmental Protection and the Department of Public Health would receive roughly the same amount next year as they are getting now. Programs within those agencies, such as a river-monitoring program and a prostate cancer screening program, could see cuts.

Furthermore, in many areas of the budget, spending has not returned to the levels of fiscal 2001, before the recession and the resulting loss in revenues forced Beacon Hill to cut about $3 billion from programs and services and raise taxes by about $1.2 billion.

''It takes a nick this time, instead of a full-fledged cut," James R. Gomes of the Environmental League of Massachusetts said of the Department of Environmental Protection. ''But it's been bleeding pretty heavily for the past few years, and this doesn't do anything to help that."

Geoff Wilkinson of the Massachusetts Public Health Association said the Department of Public Health is in a similar situation.

''Leaving public health [at its present level] amounts to a cut, given the inflationary pressures and the fact that public health has already been so badly devastated," Wilkinson said, pointing to immunizations and the State Laboratory Institute as examples. ''It's like a P.T. Barnum budget here. The governor is a good showman, and he's taking us for suckers."

Wilkinson did praise the governor for increasing spending by 19 percent on family health services and for seeking a 137 percent increase in a program for specially trained nurses who examine sexual assault victims.

This year's overall spending increase of 2.4 percent is less than the 5 percent boost that Romney proposed last January for the current fiscal year. Actual spending for fiscal 2005, which ends in June, is expected to be nearly 8 percent more than it was in fiscal 2004. Lawmakers, at times with Romney's approval, increased some spending as the improving economy boosted state revenues later in the year.

Last month, legislative leaders and outside budget analysts were predicting a budget gap of about $600 million for the coming fiscal year. But Romney would close that gap with the Medicaid savings, the elimination of the tax loopholes, and the increase in healthcare contributions from state workers.

Romney's call for an income tax cut is not new. For months, he has been urging the Legislature to reduce the state income tax to 5 percent. In 2000, voters approved a gradual lowering of the income tax rate, which was 5.85 percent at the time, to 5 percent. But in the depths of the state's fiscal crisis in 2002, the Legislature froze the rate at 5.3 percent. Now that the state's economy is rumbling back to life, Romney says, it's time to follow through.

Barbara Anderson of Citizens for Limited Taxation praised the governor for a budget that ''responds to the will of the voters."

Romney's proposed income tax cut would cost $225 million this year. He comes close to covering that total with a revenue prediction for fiscal 2006, $17.3 billion, which is $200 million higher than Democratic leaders predict.

But the tax cut would cost twice that much in fiscal 2007, when it would be in effect for the entire calendar year. In a full year, the cut will be worth about $146 to a married couple earning $60,000 a year and $133 to a single person earning $50,000.

Michael J. Widmer of the Massachusetts Taxpayers Foundation, a business-funded nonprofit that studies taxes and government spending, said the tax cut is a bad idea, especially because Romney is planning on pushing major education and healthcare initiatives that will probably add costs.

''We don't have the resources to afford both the expansion proposals the governor is going to present and the tax cut," Widmer said. ''We're going to have enough trouble affording one of them, let alone both."

Democratic budget-writers on Beacon Hill tend to agree. Senator Therese Murray of Plymouth, chairwoman of the Senate Ways and Means Committee, said Romney's plan is ''a little too ambitious" in its predictions of Medicaid savings and revenue growth.

Her House counterpart, Representative John Rogers of Norwood, said, ''We're concerned, without being critical, that the governor is spending too much."

Both said they need more time to examine the proposal.

Meanwhile, business groups are wary of Romney's proposal to close nearly a dozen tax loopholes. Among other things, he wants to make sure companies pay sales taxes on software they download, and seeks to prevent them from writing off losses on both their federal and state tax returns. Since taking office in 2003, the former venture capitalist has cost the business sector more than $300 million with tax code changes.

''There's really no acknowledgement on the part of public officials that businesses are paying significantly more in taxes than they were a few years ago," said Eileen McAnenny of Associated Industries of Massachusetts. ''There's a lot of talk going on by the governor and the Legislature for an economic stimulus package. In our opinion, a stable and predictable tax code would go a lot toward job creation."

Globe correspondent Janette Neuwahl contributed to this report.