When Massachusetts legislators failed to produce a budget for the fiscal year that began on Saturday, there was little-to-no uproar.
After all, Gov. Charlie Baker and lawmakers had previously agreed on a $5.5 billion interim budget to carry the commonwealth through July.
As legislators hammer out their differences in a budget likely to exceed $40 billion, they do so against a backdrop of lower-than-expected revenue in an economy that keeps creating jobs.
Lest you think this problem is specific to Massachusetts, news since Saturday shows it is more widespread than you would think. And this is not good.
According to an article by the National Association of State Budget Officers, 10 of the 46 states that begin the fiscal year on July 1 do not have budgets in place. Of those, only Massachusetts and Delaware have passed interim measures.
Legislatures in Massachusetts, Connecticut, Delaware, Illinois, Maine, New Jersey, Oregon, Rhode Island and Wisconsin have not finalized budgets. In Pennsylvania, the budget is awaiting Gov. Tom Wolf’s signature or veto.
A recurring theme in this year’s budget discussions across the country is the lack of growth in tax receipts. The weakness in 2017 tax revenue growth forced 23 states, including Massachusetts, to cut budgets mid-year, NASBO reported. Nationally, these cuts totaled $4.9 billion.
In addition, 33 states reported revenues below what was budgeted. This is the highest number of states reporting that since fiscal 2010 (the first year post-Great Recession).
According to a study by NASBO, “Fiscal 2017 revenue performance has been weaker than forecasted in states’ budget projections. General fund revenues from all sources, including sales, personal income, corporate income and all other taxes and fees, are coming in below original budget forecasts in 33 states, on target in four states and above projections in 13 states.”
In an interview on National Public Radio’s “All Things Considered,” NASBO Executive Director John Hicks offered his thoughts on why so many states are having budget trouble.
“This is a high number, yes. I can’t say it’s unprecedented, but in recent years, yes, this is unusual. And I think it is the combination of we’re in the eighth year of an economic recovery, but state revenues haven’t recovered as well.
“It’s been a slow recovery economically. It’s been a slower recovery for states. Half the states are still not spending at the level before the Great Recession when adjusted for inflation. So tough choices are being made right now. And that has been a primary issue for the number of states that have ended the year without a budget.”
Forecast errors for fiscal 2017 define a new era of slow tax revenue growth that now weighs on lawmakers as they grapple with the reality that tax revenue will not keep pace with the growth of budgetary priorities.
This has led to states across the country proposing or enacting increases in taxes and fees of more than $5 billion, according to NASBO’s “Spring 2017 Fiscal Survey of States.”
And an article in Monday’s New York Times documented how even conservatives are getting into the act, raising taxes in such staunchly Republican states as Kansas, South Carolina and Tennessee.
We welcome the break from the conservative orthodoxy, if for no other reason than we rid ourselves of the stale talking point: We don’t have a revenue problem. We have a spending problem.
This does not mean that any increase in tax burden is welcome or necessary. Certainly any proposed increase should be viewed skeptically and able to withstand scrutiny.
However, states across the country are facing similar economic realities that years of tax cuts have not spurred growth that results in an increased tax base from which comes increased tax revenue.
Moreover, states are increasingly finding that to continue to grow their local economies, investments are required in an educated and healthy population, and those funds need to come from within.
If this is a realization that happens not only in Massachusetts but in other states that wrestle with budget problems, then the delay in passing budgets is a small price to pay.