DiMasi warns localities to brace for 10% aid cut

Leaders hunting revenue sources

"I don't think there's a lot of good news on the horizon." - Governor Deval Patrick, on the likelihood of cuts being made in state aid to cities and towns in 2009

House Speaker Salvatore F. DiMasi said yesterday that Massachusetts cities and towns should brace for cuts of up to 10 percent in state aid next year, an ominous sign that the pain of the nation's economic crisis is still just taking hold and could result in layoffs of police, firefighters, and teachers in local communities.

"Massachusetts will not be spared the pain," said DiMasi, after calling a group of reporters into his State House office. He predicted state aid would be reduced by 5 to 10 percent, saying it is "a matter of how much. It's not a matter of whether they will take a cut or not."

The state is providing about $5.3 billion this year in local aid, meaning a 10 percent cut would slice about $530 million from directed payments for municipal services.

That would, in one year, equal the more than $500 million in state aid that was cut under Governor Mitt Romney between 2002 and 2004. About 14,500 teachers, police officers, firefighters, librarians, and others lost their jobs in those years.

To soften the blow on cities and towns, DiMasi said, he will propose legislation next month that would allow municipalities to join the state's health insurance program without union approval. He also signaled a new willingness to allow local communities to tax telephone poles as well as to levy a local meals tax - two of Governor Deval Patrick's proposals that DiMasi has previously rejected.

Patrick declined yesterday to echo DiMasi's dire local-aid cut prediction, but he did suggest that local officials should gird for cuts.

"I don't think there's a lot of good news on the horizon," Patrick said before heading into an afternoon meeting with DiMasi. "We have done as much as we can to hold local aid and school funding harmless. But I've said all along, if we need to go deeper, we will go deeper."

"Everything's on the table," said Senate President Therese Murray, heading into the same meeting. "Things are bad."

The budget crunch can be seen in a place like Chicopee, where about half of the city's $140 million budget comes from state aid.

"When you know you're about to get rained on, you better get your rain gear out," said Mayor Michael D. Bissonnette, who last week directed city department heads to prepare budgets next year that are 8 to 15 percent less than this year. "So that's what we're doing."

In Boston, where the city is counting on more than $500 million in state aid this year, officials have already started preparing a pared-down budget that anticipates deep cuts in local aid, said Dot Joyce, Mayor Thomas M. Menino's spokeswoman. Menino declined to be interviewed.

Most municipalities still have not recovered from the last round of local aid cuts, which began in 2002, according to Geoff Beckwith, executive director of the Massachusetts Municipal Association.

"Minimizing the impact of budget cuts to local aid will be very important," Beckwith said. "But we recognize that these are very difficult times."

State officials for months have been scrambling to respond to an international crisis that has already taken its toll on the state's economy. The governor announced in October that the current budget is $1.4 billion out of balance, prompting midyear layoffs and budget cuts.

Patrick, Murray, and DiMasi met last night with the governor's team of economic advisers. In addition, the state's top budget officials are scheduled to hold a hearing next week to determine next year's budget revenue estimates. Patrick will unveil his budget proposal in late January, and agencies have been asked to reduce their budgets.

State officials predicted last week that lottery sales would decline by about 4 percent, or $200 million, over last year. In addition, there will be about a $40 million shortfall in the $903 million the lottery was supposed to provide this year to assist cities and towns.

Tax collections are coming in below expectations, which have already been lowered. Budget watchers are concerned that capital gains taxes could take a nosedive, further worsening the budget outlook.

State officials have estimated that those tax revenues will drop by 30 percent, but some are now worried they could fall further. For every additional 10 percent decline in capital gains, the state loses $200 million in revenue.

"Expectations need to be kept at a realistic level," said Senator Steven C. Panagiotakos, chairman of the Senate Committee on Ways and Means. "You can't think that everything going on globally won't affect state revenues and the state's investment in core services. It will."

DiMasi's plan to eliminate the union provision is almost certain to draw heated opposition from entrenched union leaders unwilling to give up their bargaining power.

It also puts DiMasi at odds with many unions that aggressively backed the governor's casino legislation and thrusts him into the forefront of the state's budget problems at a time when he is facing several ethics investigations.

"Unions should have a seat at the table and management shouldn't be able to act unilaterally," said David Holway, president of National Association of Government Employees.

"We're hurting, too," said Bob McCarthy, president of Professional Fire Fighters of Massachusetts. "They want to get all the savings and shift all the costs onto employees,"

Under current law, city and town officials must win the assent of 70 percent of local union members before they can join the state's Group Insurance Commission. DiMasi argues that the provision has discouraged municipalities from joining the state system, which provides more cost savings through bargaining power with insurance companies.

Collectively, cities and towns could save between $436 million and $764 million in fiscal year 2013 by signing up for the GIC program, according to an estimate by the Massachusetts Taxpayers Foundation. But so far, only 17 out of 351 cities and towns have opted into the state's health insurance pool. In addition, 10 out of 129 regional school districts, charter schools, and regional planning agencies have joined.

Local officials frequently clash with unions under the current system, in part because unions use the issue to bargain for other concessions such as increased salaries. They also argue that the state system would shift more costs onto them through higher copays.

DiMasi also signaled yesterday that he would be willing to support Patrick's plan to allow municipalities to collect property taxes from telecommunications companies for poles and wires that run over public ways.

Patrick has also proposed allowing municipalities to impose a meals tax, which DiMasi had vigorously opposed but now might consider.

"It's a possibility," DiMasi said of the plan. "We're in different circumstances this year."

When asked whether he would support licensing casinos, DiMasi pointed out that the industry has suffered along with the economy but added, "I'm not saying no at all."

The comment appeared to reflect a new openness on casinos, although his spokesman later insisted that the speaker had not changed positions. Patrick has not said whether he plans to refile legislation on legalizing casinos.

DiMasi, who has been under fire because of several ongoing ethics investigations, reiterated that he plans to run for speaker again in January.

But when asked if he planned to serve the full two-year term, he said, "I don't know. Do you think you'll have your job two years from now?"

Matt Viser can be reached at maviser@globe.com.