The FY 2010 budget was released this week and it is a grim document. The global recession has taken its toll on our revenues and this budget is much less than last year’s version. As a result of revenue declines, the Ways and Means Committee had a $3.6 billion deficit to cope with. They produced a budget that didn’t use any of the remaining stabilization funds nor did it increase taxes. The result was a stark budget reflective of the revenues available. Even for those who are well aware of the fiscal situation we face, seeing it in the budget document in black and white was very disheartening.
There are a lot of reactions to this. Some have praised it as an honest budget. Some have criticized it for not looking at raising revenues to fund the deficiencies created by the recession. Others have just slammed it without offering any suggestions. The truth is that there is not one answer to the budget crisis, but we need to work in a lot of different directions at one time. As one of the authors of the tax increase as well as the spending cuts in 1990, I have seen this situation before. That said, this is much worse than I have witnessed in 23 years as a state representative. This crisis is much deeper and is exacerbated by avoidance over the past decade of coming to grips with structural deficits in our state budget. We need to set aside politics as usual and work on a long term solution to this problem. It is important that we not only find a way to balance our budget this year, but we need to create a plan that will look out five or ten years to avoid this situation in the future. That is easier said than done as legislators run for office every two years and budget each year. That means that we tend to think in terms of one or two year tranches. Politics lately seems to lend itself to fixing the issues of the day rather than looking to long term solutions. That is not just found today in politics, but is a societal problem where we tend to look at instant gratification as an American right. We have instant communication on cell phones, can get credit at the cash register, and talk to anyone anywhere instantly over the internet. The world has shrunk to the point where we can go anywhere in a 24 hour period, and politicians tell us that we can painlessly avoid taxes while entertaining ourselves in order to balance our budget (casinos anyone?) .
How do we fix this problem? It is not easy and even a multiple solution approach is full of Hobson’s choices. I have learned that a lot of political decisions are made deliberatively and that means that by the time we make a decision, events narrow our decisions for us. Waiting on our problems today have lead to a lot of problems that have no easy answers. This is going to be difficult and we need to make people aware of that. In 1990, people were angry because we had to raise taxes and still cut the budget. Our constituent’s expectations were that if they had to suffer higher taxes, they would be provided with services. Yet we raised taxes and services were still cut. That led to anger and frustration. The same is true today. Look, we have a $3.6 billion deficit. We have cut health care programs, eliminated 55 line items completely, and cut discretionary local aid by 25%. In a best case scenario, we could raise one of two broad base taxes, sales or income. If we raise the sales tax by a penny, we will raise an additional $750 million. That means we still have to cut over $2.6 billion from a maintenance budget. If we were to raise the income tax by .6% to 5.9%, we would raise $1.6 billion. That means we still have to cut $2 billion! People would see higher taxes and they would still experience cuts in programs they have come to rely on.
One final note on taxes: People seem to be leaning towards a sales tax increase, should there be a tax increase. However, they should add up all the sales tax they pay in a week. I did. If we are talking about an average increase of $2.00 each week, that is $104 per year in increased sales tax in order to achieve a state budget increase in $750 million in revenues. If we were to increase the income tax by .6%, the average family in Massachusetts would see a $120 increase for the year. That’s a little more than the sales tax, but it raises an additional $1.6 billion in revenues for the Commonwealth. That is over two times as much for a very small increase over the sales tax. And the income tax is more progressive in that people in higher income brackets will pay more while a penny on the sales tax is a penny regardless of income. I fail to see the reticence with the income tax if indeed we need to raise taxes.
However, and it is a big however, there are other considerations before we raise taxes. First, we need to understand how people feel about raising taxes in a recession. We have lost over 102,000 jobs in the state over the last twelve months. (Actually, we may have lost more than that, but unemployment claims are up that amount in the last twelve months.) First, if 102,000 people have lost their jobs, then 1.2 million think their jobs are in jeopardy. That means people resist paying more taxes as they don’t think they will be able to afford an increase if they lose their jobs, and people are angry and uncertain about the future. We need to be mindful of this. Additionally, people don’t think we have cut the budget enough and feel we should “economize” before we look for more revenues. I agree, to a certain extent, although I don’t think there are huge savings, or savings enough to avoid some revenue adjustment if we are to maintain core services.
In 1990, the “three amigo” stabilization plan, as our plan came to be known, called for an increase in taxes, but also called for deep cuts in our budget. We suggested that we cut our workforce by 6,600 jobs. At the time, our workforce was approximately 66,000 employees. So we were looking at a downsizing of ten percent. More than that, we needed to find new ways to continue services with less people in a more productive manner. I am not suggesting that we cut “waste, fraud, and abuse”, as that is a catch phrase that simply is not true on any sizable scale in state government regardless of the press highlighting a few cases. I am suggesting that we find new ways to deliver services that save us money and that we examine every mid-level manager in our system. Let’s use some common sense rather than create departments for each new initiative. Again, we need to demonstrate that each dollar we raise goes to delivery of services that people need or expect from state government. Unions need to sit down and be part of the solution and they have to be reasonable over how we deliver services. And government can’t arbitrarily take benefits away such as health payments at a time when we are going to ask them to do more with less people and with no increase in pay. We need to find ways to cut our costs such as utilities and paperwork. Let’s put some common sense in delivery of services. Finally, let’s combine services such as pension and health systems. Let’s let the cities and towns do more to manage their costs with minimal interference.
One last point; there is a third course of action we have to undertake. I know that all of this is not easy. It is clear that we can’t cut our way to a balanced budget without cutting into essential services. We also can’t tax our way to solvency. We need to increase the number of people paying taxes in Massachusetts. That means we need to increase our job base as much as possible. The federal stimulus bill gives us a few years to plan for a long term economic strategy. We need to take that time to do what we can. People have said that we can’t impact the economy much on a state by state basis as we are restricted by the national and international economic trends. However, that doesn’t mean we can’t impact our economic future at all. We have programs that work very well. The technical assistance program run by the community development corporations around the state have been leveraging money at a 25-1 ratio. Recently our Banking Commissioner testified before federal officials that our $10 million investment in the capital access program has resulted in over $241 million in private investment and over $100 million in payroll taxes. I created that program in Chapter 19 of the Acts of 1993. In the same bill we created the EDIP program. That has incentivized over $7.4 billion in private investment in Massachusetts! My point is that with intelligent planning, we can create jobs and revenue in Massachusetts. I would much rather have more people paying taxes than paying more taxes individually.
None of this is easy and none is without pain. However, we have no choice but to try this approach. We are out of options at this point. We cannot be ideologues, nor can we be ostriches. We need to start today to resolve our problems in a manner that is honest, intelligent and keeps faith with our constituent’s expectations.