Fiscal Crisis update

Fiscal Crisis update with Michael Widmer (MA Taxpayers Foundation) JD Chesloff (MA Business Roundtable),and Luc Schuster (MA Budget and Policy Center)
I'll be posting as I go, so hit 'refresh' if you're reading this at 9 am on Friday.

"fiscal crisis and ways to counter the funding cliff" (this from the MASC president)
Chesloff: "making MA a highly competitive place to do business...as the person representing big business in the room, I'm not often very popular...view favorably by only 19%..thank goodness for Congress which had 11%"
"business are still hesitent to hire folks..consumers are still not confident"
29% said our best days are ahead of us
70% said they have a higher quality of life than parents; 44% think their kids' will be worse
MA a difficult place to do business: cost of doing business, very expensive place
complexity of dealing with government: many layers "cumbersome and costly"
Chief Executive magazine ranked MA as 47th state in doing business
higher ed, "continuing to invest in human and intellectual capital"
"how to improve its current and future workforce"
"future signs are a bit troubling...76 million baby boomers will soon retire... leaving a worker gap of 25 million people"
Of 39 million ages 17-24, 75% cannot qualify to join the military (due to obesity, drugs, poor grades...)

1. STEM: "change the equation initiative" : demand is rapidly exceeding supply of workers who can work in these industries. In MA, "the STEM challenge is unique": pursue STEM fields at "alarmingly low rates." Statewise STEM plan from STEM Advisory Council.
2. Educator professional development: make it a priority
3. Early childhood ed: "very, very intentional engagement of the business community" in early childhood ed...return on investment. "Investment in early childhood ed is a workforce..development issue"

Business folks are citizens, too. Not only around workforce, about citizens..."as a father of a 5 year old and a 3 year old, that's what it's about for me"

Schuster: MassBudget does research throughout the budget process. Recommend signing up for their alerts (as would I, incidentally; you can do it from the top of that first page).

What is it that the state budget does?

• 12 million kids K-12
• public transportation: not only buses and subways, but roads
• libraries, parks
• public safety
• courts, prisons
• health care, public health
• human services

State spending and state taxes as a percent of personal income: "a useful way of correcting for the size of the state population and the wealth of the state population"
He's asking for guess of percent: 13, 17, 34
US average is 10.9%; MA is 10.3%
Massachusetts is BELOW THE NATIONAL AVERAGE
$2 billion more per year if we taxed at the national average

Thirty years ago (1977) we were third in the country:: perception LAGS
MA cut taxes more than any other state as a percent change
MA cut by 25.2%; US cut by 4%

spending at state level over 1998-2008: spending has remained roughly constant
state's own spending has declined, if you take out federal reimbursement of Medicaid (by .3%)
Income tax is down by $1.4 billion
sales tax is down $1 billion
coporate tax down $332 billion
other taxes down $500 million (over that same time period...sale tax did go up after that)
tax revenues declined by more than spending over that decade
$3 billion a year more if we'd been taxing ourselves at 1998 levels
THUS a "structural gap" (the ever-unpopular structural gap you'll see in every WPS budget presentation!)

THEN the recession hit
$5 billion budget gap as we entered FY10 (ARRA was $1.6 billion, much of which went to K-12)
NOTE that ARRA is now gone
for FY11 there was a $3 billion gap
(he's got pie charts for each of these on how the gap was closed)
$2 billion in temporary revenue for FY11 (which will not, of course, exist for FY12)

Ch. 70 allocation, corrected for inflation over the last decade
4% DECREASE plus the past two years had federal aid in Ch. 70 aid
during the previous fiscal crisis we cut state ed aid more than most states (3.7% rather that US 0.8%)
chart showing what Ch.70 would be if we hadn't had cuts...what if the reform plan of Ch. 70 had gone forward as planned?
slowed the phase-in of reforms...Ch.70 hasn't been fully funded for the pas three years
full reform phase = 8.6% cut
local aid has been cut by 42% over the last decade (and note that 9c has to do with funding schools, too)

Widmer:
dodged a bullet on Q.3
"how glad I am that it was so resoundingly defeated"
"I don't think that Carla Howell will never go away"

FY11 "looks good..improved above benchmark for October and November...on balance, I think we're in a good position for 2011"
"little chance for 9c cuts" (!)
"very different picture for 2012: "we've needed to depend heavily on one-time monies"
collapse of state revenues: largest absolute decline in state revenues in state history
"The real rub is IT ENDS"
little chance of additional aid to the states
rainy day fund depleted..have to keep a bare minimum, not much left to spend

1. One time money is gone
2. built-in increases in state budget

Even if we go back to a regular growth rate, we have a $2 billion gap heading into FY12
If revenues keep going up, it might go down to $1.5 billion, but "a huge hole."
"going to have to make cuts across all of state government"
circuit breaker "stays at 40%" would be a positive outcome
"most difficult of the four years...follows three prior years of cuts...never had four consective years of budget cuts"

"ups and downs of the economy is natural..in the past, we've had the recession, then the boom.."
"economic recovery is weak and uncertain"
"a new, longer term era..cannot expect the state can do what it did...restoring the cuts that it did and go back to some normal"

1. big uncertainty in national and global economy
2. increasing amount of health care--Medicaid--as percent of state budget ("budget buster")
3. capital gains: half of collapse was people losing jobs; half was collapse of stock market (and thus capital gains). Local aid "based on a vanishing revenue source," the increase in the stock market, and thus capital gains. ('08-'09: a $1.6 billion loss in capital gains taxes...there's now a cap on how much can be brought in from this source and used for actual spending..."a huge improvement in funding")

"I think over the next decade you have to think about not returning to normal and restoring cuts...aid that maybe match inflation, but not much restoration...a long term structural change"

Cost of retiree benefits and health care are not sustainable and not affordable..."will cost police, teachers..we can only spend a dollar once...must be brought under control...brought in line with private sector and (state?)"
"have to bring those under control...not going to go away, and it's going to get worse"
"we can't have the workforce we want and educate the kids...with this benefit structure, and politically it's not sustainable over time"
"the last bastion of the $5 copay"
"the one issue we're pushing this year is to give municipalities control over health plan design...would urge all of you to work on that"
"this is an opportunity to make headway on this issue" (in FY12)