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May 26, 2009

State scrambles to cover its own bills

From Staff and Wire Reports

BOSTON — Staggered from an ongoing tax collections crash that economists said marked the worst in state history, Massachusetts could face a fiscal crisis that prevents spending from returning to previous highs until fiscal 2014, economic analysts have told lawmakers.

With the state scrambling to pay its bills before the June 30 end of this fiscal year, Treasurer Timothy Cahill told lawmakers last week he anticipates state expenses to outpace receipts by $335 million in May and $717 million in June. And those are numbers not even reflected in the fiscal 2009 budget deficit that has been pegged at nearly $1 billion; that calculation is based on tax collections through April.

Cahill said the state could drain the entire $1.3 billion left in the state's stabilization fund to cover that deficit, which includes a $1.1 billion local aid payment due in late June to pay for municipal services.

Cahill urged lawmakers to rely on fiscal 2010 revenues he said could sink below $17 billion, the low-end estimate in a range of revised projections offered last week, the highest of which hit $18.987 billion. Gov. Deval Patrick and the House used a $19.53 billion consensus revenue estimate in writing their spending plans. New Department of Revenue estimates range from $18.042 billion to $18.184 billion.

Patrick and the House have published budgets with varied new revenue sources. Senate President Therese Murray said the Senate hoped to incorporate expanded gambling revenues as soon as possible, but not in time for this year's general appropriations bill.

"We can't do it fast enough," Murray told reporters a Senate budget panel hearing. "We're going to do it as fast as we can, but there has to be an oversight and regulation put in first before we decide where (and) what type of gaming to do."

While lawmakers last week grappled with the state's fiscal 2010 budget proposals — spending plans already out of balance — the state could begin short-term borrowing as early as July, the first month of the fiscal year to pay its bills, Cahill said.

Cahill joined others in casting doubts on the notion that the 25-percent sales tax hike could prove excessive, calling the $900 million revenue estimate attached "pretty optimistic."

Even beyond the sales tax increase — which would hike the tax from 5 percent to 6.25 percent and gained approval in both the House and Senate — he urged lawmakers pondering new revenue options to "discount" historical tax collection numbers to reflect slowed economic activity. State Sen. Bruce Tarr, R-Gloucester, and state Rep. Brad Hill, the Ipswich Republican whose district includes Manchester, voted against the sales tax hike, while state Rep. Ann-Margaret Ferrante, D-Gloucester, voted for it in the House.

Revenue Commissioner Navjeet Bal noted that the House calculation, which called for $275 million to fund off-budget transportation projects and the remainder to bankroll operating expenses, factored 12 months of tax collections. Howard Merkowitz, Bal's top tax policy analyst, said vendors often need two months after new policy becomes law.

The Beacon Hill Institute told lawmakers it believes the sales tax hike of 25 percent approved by the House would generate $674 million in new revenue rather than the projected $900 million.¬ 

Beacon Hill Institute officials suggested state and local governments, in the face of falling revenues, could save almost $1 billion by cutting salaries by 5 percent.

Massachusetts Taxpayers Foundation president Michael Widmer predicted that state tax collections would not rebound to $21 billion, slightly above fiscal 2008 levels, until fiscal 2013 or fiscal 2014.

The Massachusetts Taxpayers Foundation estimated fiscal 2010 tax revenues at $17.82 billion, University of Massachusetts Boston economist Alan Clayton-Matthews said $17.745 billion, and the Beacon Hill Institute projected $18.987 billion.

"I think it's fair to say it's a catastrophe," Widmer said, calling the state's predicament "the worst fiscal crisis in the state's history."

Cahill, who frequently criticizes decisions to draw down the state's reserves because such decisions risk downgrades in the state's bond rating, acknowledged he sounded inconsistent in advising lawmakers to tap the same fund. But, he said, "Probably the worst thing you could do is on the last day of the fiscal year cut local aid."

"The biggest problem is we waited this long," Cahill said. "So all of my comments up until now were predicated on the idea that we would not be in the situation we are in now. My No. 1 priority is to pay our bills."

Material from the State House News Service was used in this report. SFlb

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State scrambles to cover its own bills
by From Staff and Wire Reports , , Tue May 26, 2009, 05:50 AM EDT
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