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Economists Warn Of Worst Fiscal Crisis In Mass. History02:21
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Prepare for three to five years of state spending that's even less than this year. Economists delivered that grim message at an emergency hearing on state revenues Tuesday.

They offered a few suggestions about how Senate budget writers should respond in the bill they plan to release next week.

"Let me begin by wiping egg off my face," Alan Clayton-Matthews said at Tuesday's hearing. "These economic models have fundamentally failed."

Clayton-Matthews, from the UMass McCormack Graduate School of Policy Studies, has plenty of company among economists who have revised their forecasts several times for what the state can expect to bring in, in the next fiscal year. He recommended the Senate shave $1.8 billion from its initial budget number.

"That’s an enormous shock. It’s happened not just in Massachusetts, but throughout New England -- and I dare say throughout other states in the country as well."

Massachusetts is watching April income, sales, corporate and, especially capital gains tax revenue, collapse, said Michael Widmer, president of the Massachusetts Taxpayers Foundation.

"The 35-percent decline is the largest one-month decline in tax revenues, I believe, in the state's history, and April is obviously a big month," Widmer said. "So, I think it's fair to say it's a catastrophe."
It's a catastrophe that Widmer, Clayton-Matthews and other economists said may linger into 2013 or 2014, because the economic decline has not hit bottom yet and because Massachusetts — with flat population growth — traditionally recovers more slowly than the nation as a whole.

So, what to do. In past recessions, the legislature has packaged cuts and tax increases to close budget gaps, and that seems likely again this year. But even the 25-percent sales tax increase the House approved last week still leaves a hole whose depth and breadth seem to grow daily.

David Tuerck, director of the Beacon Hill Institute, said if all state and municipal employees agree to a 5 percent pay cut, the state would save $1 billion next year.

"It doesn't seem to me that that's an outrageous amount of shared sacrifice to ask for before we start looking to new revenue sources," he said.

The wages of most state and municipal employees are set by contract. A few legislators and administration aides are talking to union leaders about voluntary concessions that would avoid some of the "thousands and thousands" of layoffs Senate budget leaders predict.

Some advisors are urging the state to set priorities in the tough budget years to come that will preserve the state's strengths.

"If we end up savaging our public education system and our human services system and don't address our transportation system, then that will have enormous economic consequences for years and years to come," said Michael Widmer.

But State Treasurer Tim Cahill said the state can and should trim areas that lawmakers have traditionally tried to protect.

"I've been saying this for years," he said. "Even though the goal of covering every individual in the state is noble, it may not be doable in this environment. You'll probably have to cut local aid; you may have to cut education. Those are the three big ticket items in the budget and you're not gonna do it with cutting waste, cutting fraud and trimming around the edges."
Cahill, as he said, has consistently questioned whether the state's landmark health coverage law is affordable. While the free and subsidized program is coming in under budget this year, Senate Ways and Means Chairman Steven Panagiotakos, a longtime health reform supporter, is not promising to protect that funding next year.

"There will be cuts in health care, also," Panagiotakos said. "In health services. There's no way of getting around it, it makes up too big a part of our budget not to touch it."

But if the state trims subsidies or benefits, can it still require that all individuals have health insurance?

"I don't know. I mean that's a talk that we will all have, and we'll see where we end up," Panagiotakos said. "I know it's a priority, so."

The Patrick administration is scheduling a series of 36 community forums around the state where residents can talk about what should be cut or preserved, whether they support any tax increases and other priorities for Beacon Hill.

In the next week or so, Gov. Patrick must produce his plan to close an almost $1 billion gap for the rest of the fiscal year. He's expected to tap reserves and federal stimulus funds, which will further limit budget resources until the economy rebounds.

This program aired on May 6, 2009.

Martha Bebinger Twitter Reporter
Martha Bebinger covers health care and other general assignments for WBUR.

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