State revenues are continuing to collapse, falling short by at least an additional $300 million in April and leading state officials yesterday to predict possible cash shortages, budget cuts, more layoffs of state workers, and perhaps additional tax proposals to bridge the growing gaps…
April revenue figures, which will be officially released next week, are estimated to fall between $365 million and $465 million below expectations, said Senator Steven Panagiotakos, the chairman of the Senate Committee on Ways and Means. He also estimated that May and June revenues would fall by $200 million to $300 million…
“The governor’s budget,” Senate President Therese Murray said yesterday, “is about $1.5 billion out of whack.”
Two weeks ago, I attended the Surburban Coalition breakfast. Mike Widmer, head of Mass Taxpayers Foundation, stated that the state revenues in the budget were overstated by $1 – $1.5B. Mr. Widmer has been the one person in the state to have a correct pulse on state revenues & expenses.
As a school committee member, I’m looking at a $1.8 – $1.9M reduction in the school budget. Presently looking at 37 positions to cut. We get charged back by our town for health insurance, pensions, & unemployment. That puts us over the minimum foundation level. We did not receive any federal stimulus dollars for foundation support. Two days before the Title I stimulus funds were to be announced, we were called by DESE and told that we were not getting any of those funds. That was $97K for two years. The US Commissioner of Education in early April decided at the 11th hour that the Title I funds should go to the highest poverty districts first.
My district has 2200 children. We have had only one level serviced budget in six years. We are struggling.
Governor, what happened to the promise of Prop 2 1/2 reform? As local aid diminishes, that affects all school budgets. The foundation formula does not work and needs to account for equity and adequacy issues. We need to know what it truly costs to educate a child in this state. Is this a realistic number or not? We cannot have true education reform until we have dealt with these issues.
And a child loses another year that can’t be recaptured.
The Boston Herald (about to be Boston’s #1 Newspaper) had a story today…
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p>Shouldn’t the list of high profiles hires (Sen Walsh…) ensure that Deval would go out of his way not to hire anyone whom he’s even had lunch with over the last few years, yet he pushes thru 2 more high income hacks while the state grapples with balancing $2-3 Billion. What planet is he from?
Although the Herald made it sound like these people were just hired, of the three, they only gave one indication as to when she was promoted to the position, and it was in July 2008.
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p>This story is a hack job.
Widmer’s NECN session was telling. The tax would actually raise less than what we’re projected to lose this year. To put that in other words, if we didn’t add anything to our budget — restore a single dollar of funds — we’d still have a structural deficit next year… and probably face another round of midyear cuts in ’10.
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p>That’s why this state can’t simply pass that sales tax and wash their hands of things. We need to pass something in terms of a gas tax – even if it’s just 5 cents – and we need to seriously consider extending the sales tax to liquor, soda and candy — and apply those funds directly to public health costs. Dedicated revenue should be the name of the game for as many costs to this state as possible — especially things that we can’t afford to cut when things get bad. Let’s not make them so dependent on the general fund.
I agree about the needed revenue and the ways you listed to get it in the near term. I’d point out that merely removing the sales tax exemption from gas would be easier to do (the Lege could do it in the same vote to remove it from soda, bottled water, liquor, etc) would generate more revenue than a 5 cent increase.
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p>As for dedicated streams of funding, I’m not as big a fan. I think it can both handcuff the budget (CA is notorious for this), and it can get the lege lazy (ie if the dedicated stream was once 100% funding but now only 70% funding based on need, they don’t get around to making up the difference and you’ve got a structural deficit).
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p>If there were no dedicated revenue stream, maybe that 70% became 50% because the leg just didn’t have the funds in the general fund. I get your point – and we don’t have to go nuts with making sure everything has dedicated revenue – but I just think we should make a point to give our extremely important and vulnerable services some dedicated, sensible revenue — especially transportation and health care.
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p>2 problems with that
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p>1) the leg knows that it would be a bigger tax on gas… so I think that makes it a lot less likely to pass.
2) a sales tax would scale with the price of gas – which has two implications: if gas goes back up to 4 bucks a gallon, we just doubled the tax without voting on it. Additionally, relying on something that fluctuates so much can be dangerous in and of itself: some years there’d be way more money than others. Do you think Government could competently deal with that problem? I have doubts.
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p>Why is the leg able to vote a tax increase on virtually all goods other than gas but not the tax increase on the gas?
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p>That’s true now with all non-gas goods. Other things fluctuate with the price of gas too. But, perhaps more to the point, they could always budget ultra conservatively on the revenue from the gas and use surplus for capital projects, which much of transportation involves anyway.
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p>The EIA has data that shows 1.1 million gallons of gasoline delivered to MA gas stations per day in Feb 2009. Let’s call it a million a day, and use 365 day years, $2/gallon, 6.25% sales tax on gas. Total revenue: $46 million. $2/gallon too optimistic? Use $1.50 and you’ve got $34 million.
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p>So budget the revenue as $34-$46 million (whatever you like), and then if gas spikes to $3 for the whole year you’ve got an extra $22 – $34 million to spend on capital projects (or accelerated debt repayment, pension contribution, whatever).
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p>I think it does make sense to be concerned about the revenue fluctuating, but given that (a) that’s exactly what the MBTA deals with now, (b) higher gas prices encourage more mass transit, so a percentage based gas tax helps provide the MBTA with more revenue exactly when its demand is highest, (c) there is already a per gallon flat tax which provides budget stability, (d) it’s not a tremendous amount of revenue anyway, and (e) there’s never a shortage of capital projects within transportation which an extra $10-$50 million windfall could help accelerate.
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p>For some reason I completely don’t get, politicians tend to be afraid of certain taxes more than others — income tax and gas being the top 2. Does it make sense? Probably not. But we can’t pretend as if this tendency doesn’t exist.
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p>True, but the Wii I bought for myself 2 years ago didn’t one day cost $250 and a few months later cost $500, then a few months later cost $125. While the sales tax probably isn’t as reliable as the income tax, it’s certainly more reliable than the gas tax.
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p>I’m not saying I don’t want the sales tax to apply to gas. I think it’s an interesting idea. I just think it brings up certain problems. IF government decided to build up huge reserves in the good years, so we could continue with necessary projects in the bad, I’d be all for it. I tend to think extra funds from good years would go to other projects, though — and in bad years, we’d be screwed — both in terms of transportation and funding those extra projects that politicians shouldn’t have been spending tax earned from gas on to begin with.
This is reasonable and smart. I would support a .05 gas tax increase, and the tax exemption on candy, soda, alcohol is something that shouldn’t be in place anyway. Thank you for being reasonable about the gas tax. This is clearly a tax that will affect one region more than another. Gasoline is not something we can decide not to use, and it is unreasonable to over tax someone for driving to work everyday.
and if we include indirect uses, nobody can.
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p>But, almost all of us could all reduce our consumption by 10% immediately.
* properly inflate tires
* change filters appropriately
* easy on accelerating and no speeding
* easy on brake too — predict traffic lights and coast through them when possible
* remove golf clubs, bowling balls, books, whatever heavy items are littering the trunk
* don’t let your car idle. When in park, turn the key off
* combine errands whenever possible
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p>We could as a population reduce our consumption by an additional 10%-15% over a 7 year period by making sure our next vehicle got 3 mpg more fuel economy than the one we drive now. Just 3 mpg better, if everybody did it, would result in an additional 30% savings. Of course, going from 40 mpg to 43 mpg isn’t nearly as full-of-savings as going from 17 mpg to 20 mpg.
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p>Bigger picture includes better rail (city-to-city, commuter, and local), better pedestrian and bicycle facilities, and smart growth zoning policies.
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p>Bottom line: we can’t eliminate, but we can reduce quite substantially, both immediately and in longer time frames… and increasing the gas tax will help provide the motivation to actually make those reductions.
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p>P.S. I’d love to see an inside-128 extra gas tax. An extra two cents earmarked for the MBTA. It’s not enough to get people driving out of their way for lower gas prices, but it would provide another $5 million a year. Not a huge help, but even a little help is, well, helpful. It would also help alleviate some Western Mass gripes about big dig/MBTA subsidies. They don’t gripe about Boston Metro’s massive contribution to the tax base, but I digress.
And start taking an axe to many of these nonprofits . Tell our state treasurer to stop making public announcements ( at tax payer expense) that are nothing more than political advertisements. Dismantle the Massachusetts Turnpike. Stop crazy checks to the drunks and dope addicts. Cut the public safety budget by 15%. ( freeze all hiring on the state police for three years and begin layoffs if need be) Think seriously about dismantling the MBTA and start from scratch
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p>I have acquaintances that are predicting economic collapse that will make your heart stop come August or September—we are heading for a depression. Time to make serious and draconian decisions.
killing the MBTA would only exacerbate it. Do you know how many thousands of people would suddenly lose their jobs because they couldn’t get to work… and then people losing more jobs because of that lost economic contribution? I’d bet it would be at least 6 figures.
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p>Also, I tire of people who pick out random numbers without a shred of evidence to suggest why that’s the right number. You picked 15% out of a hat. You have no idea if our state could sustain that number, or what the repercussions would be. It’s intellectually dishonest.
I don’t think cutting back on police when we are in the early stages of a depression would be a good idea. Unless you think that rising unemployment will somehow lead to lower crime rates. My guess would be that as more people get laid off, we will see higher crime rates and we should actually be hiring more police.
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p>We certainly don’t want to close our public transit. However, it might not be a bad idea to let the MBTA go into bankruptcy, have the state purchase all the equipment, and re-form the MBTA from scratch. It certainly looks like doing something like that would be the best option for dealing with the turnpike.
How are public transic and public safety “nice to haves?” These aren’t niceties, they’re necessities. Recessions/depressions statistically lead to a rise in the crime rate, so you need more police, not less police. And if we’re going to wipe out public transportation, we’ll only be making the economic situation worse, leading to the need for even more cops than we’d already be needing.
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p>Cutting public safety budgets and eliminating the T makes absolutely no sense.
It is becoming apparent to me that wage deflation may be about to hit governmental employees.
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p>It has ripped through a lot of people in this state, as people who once worked at manufacturing jobs are now working service jobs. Others even in higher-skilled sectors are facing this because of competition from overseas workers. Not everyone — people at the top are still doing pretty good — but people in the middle and at the bottom are not.
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p>Governmental employees derive their salaries from the public. If the public is having their wages deflated, and there is no appetite to significantly change the amount of money going from those employees to government, yet the governmental services are vital, then wage deflation is the only path.
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p>I live in Springfield. The median household income is somewhere around $33,000. We have maybe 4,000 people employed by the government — most are teachers, and then fire and police make up a good chunk too. Of those three professions, salaries are fairly high — teachers are in the $60-70k range with experience, and police and firefighters are in the $60-90k range.
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p>If a teacher is married to a police officer that means their household takes in $150k+ from the city. Such households are usually set up in a suburban location — most police, teachers, and firefighters will not live in the city.
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p>So basically, $33k are supposed to support households making $60-150k? That’s just not going to be sustainable over the long term.
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p>Same goes for the state, although the situation isn’t as bad as Springfield. When people are having their wages deflated, they don’t want to pay public employees.
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p>I’m not an anti-tax kind of person. I think that we are currently paying a little too few taxes in this state, pre-crisis.
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p>However, the numbers being thrown around are sobering. If a 25% increase in the sales tax only fills 1/5 of the deficit — and that assumes level funding — then it seems like we are in big, big trouble. I think that some money more money can be shifted from the public to government, but I think the gap is too large for it to all come from the public. I also think that our service levels aren’t that fat right now.
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p>I guess I’m agreeing with gary — seems like we need to reduce employee costs. Either that or figure out how to get more money from the people who are doing very, very well without hitting the people who are scraping by.
The $400 million swaptions payment to UBS that may take place, for example, could pay a lot of salaries.
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p>That is why the failure of the legislature to approve the Gov.’s reform agenda and stop playing games is so destructive to Massachusetts.
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p>My argument isn’t that we need to reduce employment costs but that it’s THE only alternative for 2010. There’s simply no other source to cut nor any revenue source that can feasibly make up the shortfall.
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p>Which is why it’s so dismaying to see Patrick lament about some nickel-dime reforms when the 900 pound gorilla in the room is the $1 to $2 billion short fall. Priorities?
Would you be willing to reduce the requirement for these jobs as well? Many public jobs require advanced degrees that are pretty much a pointless gift to the education establishment. If workers are getting less, are you willing to lower the amount they’re forced to spend on public colleges for these degrees?
As I posted elsewhere:
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p>There are only 4 variables, assuming a $1 to $2 billion shortfall:
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p>1: Raise revenues. To meet the shortfall would require a income tax hike from 5.3 to 6.6%. Not politically feasible, particularly in light of recent sales tax hike.
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p>2: Transfer payments. Reduce medicaid, unemployment, welfare, subsidies. The federal bailout money has most transfer payments sheltered them for now. We can’t touch them.
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p>3: Rainy day fund. It has $2 billion. To empty the rainy day fund in one year would be terribly imprudent. Patrick’s budget takes some.
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p>3: Payroll. It’s all that’s left. It would take a 20% headcount cut at the State level $1.5 billion or alternatively some sort of furlough, pay or benefit cut….”
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p>I’m not expressing a policy that it’s desireable or undesireable to cut heads or otherwise upending the education structure. I’m simply saying there appears to be no other alternative.
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p>Absent significant headcount reduction or pay cuts or furloughs or combination of the three, it appears the Legislature is on a path to pass a budget that relies on unrealistic revenue forecasts, while adding some extra sales tax and likely borrowing from rainy day. Then, if the revenues doen’t turn remarkably, the problem is dumped in the Governor’s lap for 9C cuts.
you provided 3 other alternatives, your typo not withstanding. I’d add a fourth: some combination of all of the above, which is actually the most likely.
Already, we’ve raised revenues: sales tax and corporate tax. Already, the Governor’s budget draws on the rainy day fund. It’s hard to envision “let’s do more of that in 2010”.
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p>We can’t significantly touch transfer payments for reasons I’ve already set out. What’s left? Labor.
We didn’t “raise revenue.” The sales tax hasn’t passed yet. The corporate tax was cut. Some of the more egregious loopholes were ended, but that’s hardly what I’d call raising revenue in the fairest sense of the word. It ended unfair practices, but it didn’t result in the kind of revenue we need.
but projected revenues from the corporate tax were increased. You can raise revenues by raising a tax rate (ie sales tax from 5% to 6.25%) or by broadening a tax base (ie eliminating exemptions on candy or soda). The corporate tax reforms passed last year were projected to broaden the base so much that the rate could be cut and revenues would still increase.
by getting rid of loopholes that were destructive to state policy, such as for shipping jobs overseas, we “broadened” the tax base.
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p>We still cut taxes for all but the largest corporations in this state. Small businesses couldn’t compete in the ability to find ways out of paying taxes: this just got it closer to evening the playing field, whilst helping out small businesses.
So it looks like you are acknowledging that corporate tax revenues have been raised (or at least, the law projected a revenue increase). So MA has already taken the approach of raising revenues to close the budget deficit.
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p>As an aside, I think you’ve confused President Obama’s ‘loophole’ closing bill with Governor Patrick’s ‘loophole’ closing bill since combined reporting has nothing to do with shipping jobs overseas. And combined reporting does not just target all large corporations, only ones that have shifted income to related entities that don’t have nexus in MA. Some large corporations actually see tax decreases under combined reporting. But you are correct that the rate decrease will help out profitable small businesses in MA.
raising revenue in one small capacity = game over.
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p>That’s not how the world works.
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p>Sort of, I confused the combined reporting with the loophole-to-the-loophole cutting bill that Bosley tried to throw in there at the last minute, which would have been a tax benefit to shipping jobs overseas. Combined reporting, however, is equally egregious. As are several of the other taxes that we got rid of.
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p>I don’t think we can completely tax our way out of these problems, but we can’t cut ourselves out of it, either. It’s going to take a combination — and we need more on the revenue side right now, even above and beyond DeLeo’s proposed sales tax hike.
Combined Reporting is the new system, it replaced the separate entity system in MA as a result of the 2008 reforms.
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p>Rep. Bosley’s amendment had nothing to do with where jobs are located. It had to do with where a stack of papers (the corporation’s articles of incorporation) are located.
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p>Your larger point is valid. MA cannot get out of this deficit without a multifaceted approach of some cost savings plus some new revenue. But your original claim that MA has not tried the new revenue approach is incorrect.