Budget Gaps Lurk Behind Patrick’s Push For New Spending, Higher Taxes
BOSTON — Gov. Deval Patrick on Wednesday will present his annual spending plan, the stage for which was largely set last week when he revealed plans to pursue an ambitious reform of the state’s tax code that would net the state $1.9 billion in new revenue to be spent on transportation and education.
Many questions remain unanswered for cities and towns wondering at what level local aid will be funded. And for all the talk about taxes and new investments, some analysts suggest the state could be facing a more than $1 billion gap next year between revenues and funding needed to maintain existing levels of service across state government.
“It’s a fabulous budget,” Patrick said Tuesday evening, telling reporters eager for a preview they would have to wait. The governor is planning a 12:30 p.m. press conference at the State House to detail his fiscal 2014 budget plan, which will then undergo a long review before the House Ways and Means Committee.
Patrick also suggested he would file another mid-year spending bill for fiscal 2013 on Wednesday that will include additional funding to help district attorneys and other agencies deal with the expense of relitigating cases compromised by state chemist Annie Dookhan. Patrick previously requested $30 million from the Legislature, but said he expected that figure to grow.
The Patrick administration and legislative leaders agreed earlier this month that state tax collections will grow 3.9 percent in fiscal 2014 and hit $22.33 billion. But even with that $838 million increase in revenue, the Massachusetts Budget and Policy Center projects a $1.28 billion budget gap that would need to be closed after accounting for cost growth of existing services and the reliance on one-time revenue and savings in the current budget.
The budget gap identified by the center would seem to contradict Patrick, who said in his State of the State speech last week that “the structural deficit is gone.” House Minority Leader Brad Jones called the statement from the governor “false” after the speech. “He wants to have a debate about facts? That’s factually inaccurate,” Jones said.
Secretary of Administration and Finance Glen Shor said Patrick was referring to past budgets that have been “structurally balanced” even if they relied on one-time resources that were “not excessive” and “appropriate within our long-term financing plan.”
Shor said the administration would address the budget gap Wednesday when it unveils its full budget proposal, and said last week the administration was counting on $1.1 billion in new revenue for fiscal 2014 from its tax reform proposal in the first year.
While the estimated budget gap does not anticipate new revenue from Patrick’s tax proposals, the governor has largely earmarked that revenue for new spending on transportation infrastructure, and expansion of early education and additional state funding for community colleges and universities.
Patrick, in his State of the State address last Wednesday, called for a hike in the state income tax to 6.25 percent, and a simultaneous decrease in the sales tax to 4.5 percent.
Coupled together with other tax code reforms, such as the elimination of some personal and corporate tax deductions and the doubling of the personal tax exemption, the administration says it can give the state a fairer tax code with enough new revenue to support strategic investments.
“As a result, the system would move somewhat closer to a flat-tax structure, where people at all income levels pay the same share of their income in taxes—and away from the current, markedly regressive structure,” a MassBudget analysis of the plan determined.
The analysis, however, also suggested that Patrick’s spending proposals, particularly with regard to education, would serve largely to make up for resources lost during the recession that prompted budget cuts at all levels of government.
Patrick last week said he planned to use some of the new revenue to invest in early education, extended school days, college tuitions grants, and increased funding for community colleges and UMass.
MassBudget said the proposed new investment of $131 million in early education and care in fiscal 2014 – which would grow to $350 million over four years – would take several years to eclipse the high-water mark reached in 2001. According to the center, early education took a cut of $174 million between fiscal 2001 and fiscal 2012
The governor’s budget proposal would still leave early education with less funding than in 2001.
While the governor has described his plans for Chapter 70 funding as a $226 million increase for local school districts next year, MassBudget also estimates that $167 million would be needed to meet existing needs that reflect enrollment growth and the increased cost of providing existing services. That would leave $59 million to fund expanded services.
In addition, the $152 million in additional funding Patrick plans to make available for higher education in fiscal 2014 will still leave overall public higher education funding short of pre-recession levels.
Patrick’s push for new taxes to pay for education and transportation investments means major choices for lawmakers: risk agreeing to new taxes amid a weak recovery and face potential political consequences or reject tax hikes and leave state government without the capacity to make major investments in popular programs and projects.
Michael Widmer, president of the Massachusetts Taxpayers Foundation, said he had not done his own analysis of the fiscal 2014 budget gap, but said he had read the MassBudget and Policy Center report and “generally concurs” with their findings.
“Are we depending on too much one time money in fiscal 2013? Absolutely. So it’s setting us up for a very difficult fiscal 2014,” Widmer said.
The reliance on one-time revenue was compounded in late 2012 when sluggish revenue growth prompted the administration to revise its estimates downward by more than half a billion dollars, and proposal to close a $540 million budget gap with a blend of cuts, savings and a $200 million draw from stabilization.
The original fiscal 2013 budget already depended on $350 million from the “rainy day” fund, and Widmer said it will be important that next year’s budget not deplete the account further after lawmakers worked to build it back up post-recession to over $1.2 billion.
“We can use a little bit of our rainy day fund but we better keep it pretty close to a billion. We’ll see what they use tomorrow,” Widmer said.