Mass. Economy Brightening, Except On Beacon Hill

After years of plummeting revenues and soaring jobless numbers, the fiscal dark clouds appear to be lifting in Massachusetts. The state's unemployment rate it at its lowest mark in two years, tax revenues are pouring in faster than anticipated and business confidence is up.

Just don't go listening for the sound of champagne corks popping on Beacon Hill.

Despite the encouraging signs, gloom persists over the State House, where lawmakers say they're grappling with the toughest budget year of the entire recession cycle - forcing them to make deep spending cuts on top of existing cuts.

Lawmakers and experts cite various factors for the persistent glumness, including the end of federal stimulus dollars, the draining of the state's rainy day fund and a reluctance to hike taxes after raising the state sales tax in 2009.

Michael Widmer, president of the business-backed Massachusetts Taxpayers Foundation, said the downturn began in Massachusetts in the 2009 fiscal year and is continuing through the 2012 fiscal year that starts July 1. It's an unprecedented four-year cycle of fiscal hits, Widmer said.

"I don't ever recall four years of budget cuts for most state programs," he said.

Tough as things were for Beacon Hill budget cutters, Widmer said it could have been much worse if not for two factors - the federal stimulus program pumped about $6 billion in one-time funds into Massachusetts, and the state's own rainy day fund provided another $2 billion in one-time funds during the recession years.
"Without that money, it would have been an utter catastrophe," Widmer said.

The state's economic tough times can be traced back to the so-called dot-com bubble of the late 1990s, and the subsequent lowering of the state's income tax rate from 5.95 to 5.3 percent, according to Noah Berger, president of the Massachusetts Budget and Policy Center, a Boston-based research group.

"We've had an ongoing fiscal crisis for more than a decade," he said. "The state cut taxes ... with no plan to pay for them."

Even though Massachusetts is showing signs of a recovery, it's unlikely the economy will grow fast enough to fully restore all the cuts of the past four years, he added.

The loss of federal stimulus dollars has been central to much of the angst in the current budget debate.

During last week's Massachusetts Senate budget debate, Minority Leader Bruce Tarr, R-Gloucester, likened the lure of federal stimulus dollars to a roller coaster ride - a steady, reassuring climb followed by a stomach-churning plunge.

"The federal stimulus money pulled that car up on the roller coaster and we got near the top, but we knew that at some point we'd be facing a downturn as that money was removed and we'd be accelerating at a very rapid level to a new valley," Tarr said.

Not everyone on Beacon Hill is feeling blue about the state's economy.

Gov. Deval Patrick won his re-election campaign last year in part by arguing that his leadership was helping the state pull out of the recession, and he's seized on any bit of good news to bolster his case.

The day they were released, Patrick highlighted numbers showing that Massachusetts' unemployment rate dropped to 7.8 percent in April, down from a high of 8.8 percent in October 2009.

The numbers "serve as hopeful news once again that the Commonwealth is continuing its robust recovery," Patrick said in a statement. "We have added jobs across nearly all sectors, and our unemployment rate has fallen more than a full point below the national average."

There are other signs of an improving economy.

Massachusetts revenue officials reported that a surprisingly large increase in tax collections from investment income helped fuel a 43 percent increase in April tax collections compared to a year ago.

The Department of Revenue said the state collected $2.5 billion in taxes last month, $758 million more than in April 2010. Last month's total was also nearly $600 million above revised monthly benchmarks.

Massachusetts employers also appear to be gaining confidence in the economic recovery, and more than half say they're ready to start hiring, even though a surprising number are also reporting trouble finding qualified candidates.

Associated Industries of Massachusetts reported earlier this month that its Business Confidence Index rose 2.8 points in March to stand at 54.0. The index works on a 100-point scale with any reading above 50 indicating more optimism than pessimism about business conditions.

The economic news hasn't been all good. The Massachusetts housing market continued to struggle in April with sales and median prices both down from the same month last year. The Warren Group, a Boston-based publisher of real estate data, reported a 28 percent drop in sales of single family homes compared to April 2010, with a 4 percent drop in median sales price.