The budget catastrophe Michael Widmer of Mass Taxpayers has cited (in the post here from Charley) was of course facilitated by our inability to address the structural deficit our state has carried for much of the last decade. Widmer and Noah Berger at Mass Budget have been banging that drum for years.
The tax cuts of the Welducci era – particularly taking the income tax rate from 5.95% to 5.3% – culminating of course in the Cellucci sponsored roll back ballot initiative adopted by the voters – have to be seen as a major culprit for our current problems. Hell, if the legislature hadn’t frozen the rollback at 5.3% over Swift’s veto in 2001 things would would be even worse.
And yet even as we made significant cuts in our revenue base Republican Governors and the Democratic legislature continued to spend on expansions to health care and education, health care of course being a big cost driver for our budget and in my estimation a worthwhile one.
We were always on the cliff’s edge with our budget situation, hoping that the economic winds would stay calm enough not to push us over the side. In recent years, budgets were stitched together with one-time revenues and reserves that left the structural problems unresolved but at least were relatively uncontroversial. But we were always storing up trouble.
Like the banks we have seen collapse of late, our business model was barely sustainable in good economic times, but was always going to fall apart if the winds shifted direction. If the Massachusetts Government had been subjected to a “stress test” in 2007, we most certainly would have been told to raise more capital to ensure we could weather a storm. But we didn’t do much on that score.
Governor Patrick and A and F head Leslie Kirwan recognized the problem from the start, sought some solutions like the corporate tax reforms passed last year, but found the legislature pretty unresponsive to any further structural reforms – such as rationalizing budget items or reducing earmarks, both small bore but in the right direction – or axing perks for special interests like the Quinn Bill. And neither the Governor or legislature wanted to introduce more broad based revenue measures into the debate, figuring public antipathy to taxes too strong.
So here we are. Having never ventured a discussion of the long-term challenges we faced when the skies were partly cloudy we are forced to consider the fundamentals of state policy in the middle of an economic hurricane – with people struggling and in need themselves.
Asking the people to stump up for more cash now seems inevitable and yet in many ways is economically unwise and politically dangerous. But what other choice do we have? Save for cuts that will devastate our public services and quality of life – new revenues are needed now.
Maybe Washington can be cajoled into stumping up some new money for States next year. When you look at the stimulus package profile, the big money this year is for Medicaid and education but will shift in future years to capital spending – which may create jobs but won’t help us balance our books in the short-term. Thing is, our annual operating budget will still be deep in the red next year and for years down the line without help. Time to seek State Bailout #2.
But whatever further aid we can expect from Washington aside, and it will not be easy pulling any more cash out of DC to bailout states again, ultimately our budget problems will be our problems to solve. We need to seek sustainable long-term solutions. We need a more realistic and maintainable revenue base that can help us weather the economic cycles without calamity.
A set of principles for how our revenue base should be structured should be devised so the public knows what to expect and why. Raising income taxes should be on the table. Broadening the sales tax (possibly to services) should be on the table. We should consider de-coupling from federal policy on such areas as mortage interest deductions (which just fuels housing inflation and largely benefits the well-off) and other deductions that distort our tax code. Making the tax code simpler and fairer by terminating deductions will enable us to keep rates down, broaden the base and achieve greater equity. And, we should consider what targetted taxes need to grow – particularly the gas tax, which has lagged inflation for years, is vital to funding are starving transport network and must be part of any agenda to place our state on a greener footing.
But a bigger question is whether our political system can manage such a debate? The public is not very sympathetic to the woes facing Beacon Hill and has cash flow issues of their own to worry about. Legislators fear the public, despite a body politic so anemic most of these folks wouldn’t face a challenger unless they ran over their mother.
Executive leadership is probably all we can look to and it will come with major risks attached given the pending 2010 elections. And yet, for all our elected leaders, this is the time when they must be asking themselves why they entered public office in the first place. Was it to manage the state through a steady yet unyielding decline or to be bold and lead the state to a better place? For avowed progressives certainly it was the later I’d assume.
We live in progressive times and yet the men and women in executive office when the storm hits, regardless of ideology or party, take the blame for our condition. But the people are receptive to Government as a problem-solver so should be more open to appeals to maintain it. If we can’t make the case now, when can we?
We have for too long tinkered as our state fell deeper into the mire. Now we are subsumed. Now is the time for bold leadership to dig us out and keep us above water.
