Boston, we have a problem.
Through 10 months, declining tax receipts have left a $462 million revenue gap that needs to be closed in the final two months of the fiscal year.
The March unemployment rate of 3.6 percent is tied for the 13th lowest in the nation. Despite that, the state’s real gross domestic product declined at an estimated annual rate of 0.5 percent in the first quarter of 2017, according to the economic journal Mass Benchmarks. The U.S. economy, on the other hand, grew at a rate of 0.7 percent in the first quarter.
This led state Rep. Paul Donato, D-Medford, to say: “It’s hard for us to really figure out what’s happening because our unemployment rate is low, the economy is very well in Massachusetts [and] the jobs are there. We’re sitting back saying, ‘What is stymieing our benchmark figures?’ ”
A $462 million shortfall is a concern, but it is a strong and worrisome signal for the next fiscal year and thereafter.
State House News Service reported on May 11, “Even if the state hits its May and June tax revenue targets on the nose, tax receipts would need to grow by 5.77 percent in fiscal 2018, significantly greater than any of the projections experts presented to state policymakers at a revenue forecasting hearing last year.”
In the same article, Robert Nakosteen, a professor at the UMass Amherst Isenberg School of Management and executive editor of MassBenchmarks said: “It’s hard to see how the economy can grow fast enough to yield that kind of tax revenue growth. Tax revenue growth has to be generated by growth in the economy absent changes in tax policy, and I just don’t see that kind of growth in our future.”
Declining tax revenue and sluggish growth forecasts compound the problem of a budget straining at the seams.
MassHealth, once the national model for ensuring universal access to health care and which is credited with the commonwealth having the lowest percentage of uninsured residents, has become a viable option for workers and businesses alike. But its popularity comes with a cost: an ever-increasing share of the state budget.
Meanwhile, the state’s funding formula for education has over years become antiquated to the point that it underestimates the cost of education by $1 billion to $2 billion per year, according to the Foundation Budget Review Commission report of 2015.
The nature and the severity of these immediate and future budget problems begs for a concerted effort from Gov. Charlie Baker and the Legislature. So far that effort is lacking.
Baker has proposed a $2,000 per employee tax on businesses with more than 10 employees that don’t insure 80 percent of their full-time staff or don’t offer health coverage. The committees on Ways and Means from both chambers have given the administration the OK to pursue that strategy during initial budget discussions.
Legislative efforts at meaningful education reform have gone nowhere as leaders seem content to wait for the results of a presumed vote in 2018 on a constitutional amendment (the Fair Share Amendment), which calls for a 4 percent surtax on income of more than $1 million.
Sen. Michael Rush’s bill (S 308), “An Act strengthening and investing in our educators, students, and communities,” has 106 cosponsors and requires hundreds of millions of dollars in new state education funding.
However, Senate President Stanley Rosenberg, at a policy luncheon last week, said: “So there are a lot of bills floating around on education and my opinion at this point is that we need to focus on the Fair Share ballot questions that’s coming up in November of ’18 because the $2 billion or so that will be raised will be a major source of funding for the future of education, and anything that distracts from that debate and divides us and doesn’t allow us to move forward successfully on that is, I think, a mistake.”
Half-measures and a wait-and-see approach is not leadership. Asked about taxing incomes of more than $1 million on Monday, Baker said, according to MassLive, “At this point in time, it’s not before the Legislature or the administration.”
That is a problem.
The age-old debate over taxes and spending is not new. Valid arguments exist on both sides. But it’s a battle that should be joined by both sides.
According to an article in the Boston Globe, “State Rep. Jay R. Kaufman, House chairman of Joint Committee on Revenue, said that Beacon Hill policymakers have been so unwilling to talk about taxes for so long that ‘the accumulation of service cuts and disappointments is finally beginning to be manifest.”
The residents of Massachusetts deserve better.