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January 16, 2007
Devalonomics: Patrick's Budget Deficit
Gov. Deval Patrick has found the reality of the job is far different from campaigning for the job.
A week into office, Patrick said the state is facing a $1 billion deficit. Was this a signal of taxes to come? Or was it a diversion to keep all the special interest groups, like the Massachusetts Teachers Association, at arm's length from getting Deval to dip into the public treasury?
Now comes Michael Widmer's explanation in The Globe that, yes, the state does have a budget deficit despite two years of consecutive $1 billion surpluses. How can that be? Widmer, who is president of the Mass. Taxpayers Foundation, said the deficit stems from the Legislature's proclivity to use reserves to balance the budget and its overspending ways.
Remember when Patrick said during the campaign that he could find $750 million in wasteful spending, thereby returning it to cities and towns to reduce property taxes? It was wishful thinking on his part.
As Widmer points out, Patrick faces a major hurdle in meeting current state obligations for health care, pensions, and other state programs. It will be difficult, with tax revenues already declining from 8 percent per year to 4 percent, to expect any extra money coming in.
The deficit is largely the result of using surpluses to supplement budget spending. It is unwise and puts the state in a terrible position if a recession were to hit.
Patrick now has three options. He can call for a tax increase, curb spending, or seek new revenue streams, possibly from expanding gaming.
My guess is that he'll try to maneuver the budget in a way to defray costs. There's already talk of amortizing state pension payments over an extended period of years, which could save $300 million this year. Of course, the money will eventually come due.
He'll also have to take a good, long look at expanded gaming. It just makes no sense for the state to lose up to $800 million annually to Rhode Island and Connecticut, when Massachusetts communities are struggling financially.
Finally, Patrick could raise taxes. If he is going to do this, he has to strike while the iron is hot, This is the tactic Bernie Lynch used in Lowell, to call for the biggest tax increase in two decades. No doubt Lowell has a budget deficit, but it isn't $9 million. Regardless, this year's tax increase will become next year's budget surplus. Trust me.
Patrick will find resistance to a tax increase in the Legislature - more than Lynch did in Lowell - but he could probably get something approved if he wanted it badly enough. It wouldn't be good politically however.
What do you think?
Posted by JimC at January 16, 2007 5:13 PM
Comments
So you are actually complaining that Patrick is resisting special interest pressure to spend more? Who cares what excuse he gives so long as he doesn't cave in to tons of increased spending.
It also seems like you are advocating increasing state taxes. Ummm...Dr. No says: "No."
Posted by: Dr. No at January 19, 2007 2:14 PM
No, No, Dr. No!
Patrick got caught with his promises down.
He is saying there is a big deficit to keep the special interests at bay. Translation: he can't keep his promises. He'd like to raise taxes to do all the things he promised but he knows that the Legislature doesn't have the stomach right now. That doesn't mean they won't try. Afterall, Democrats and taxes go together like bees and honey. Patrick, I predict, will try to raise taxes at some point because controlling the spending is just too damn hard for the Beacon Hill gang. The only other option is exploring expanded gaming. Now that's where Patrick should push. As of today, revenues are starting to decline in the state Lottery which pours more than $1 billion a year into local communities. What's going to happen when the Lottery comes up short? Where will the other money come from?
There are only three options: higher taxes; cut spending; approve expanded gaming.
Patrick's campaign was a mirage. Message of Hope? Try to take that to the bank!
Posted by: jim campanini at January 19, 2007 2:43 PM
Smart money is on expanded gambling finally getting the go-ahead in Massachusetts. Unfortunately it will probably be in the form of slot machines at the race track when what is really needed is casino style gaming. Just imagine what a floating riverboat casino on the Merrimack would fetch in revenues.
Posted by: Chief Betum Wampum at January 19, 2007 9:22 PM
The budget deficit that Patrick has addressed is not a "signal of taxes to come" and the legislatures intended use of stabilization funds to balance the budget has nothing to do with it's "overspending ways". The reserve funds were expected to be matched by higher than expected tax revenues in 2006, and the assmuption that tax revenues allowed for in the FY 2007 budget would also be higher than expected; rendering Mitt Romney's veto of the stabilization fund and subsequent $425 million budget cut unnecessary. Tax revenues for 2006 have, as expected, been higher than was projected in the budget. Perhaps we should wait to see if the same trend follows in 2007 before we set sail riverboat casinos on the Merrimack.
Posted by: John Drinkwater at January 29, 2007 1:12 PM
