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FY09 Update
The evolving fiscal situation has been a constant focus for the Administration for the past year, involving close consultation with economic experts and a strong partnership with the Legislature. Given the difficulty in predicting the exact course and magnitude of this unprecedented economic downturn, the Administration has continuously monitored revenue forecasts and collections and has refined its approach as information about the economy has evolved.
The Administration had begun taking a number of steps to address our budget and economic challenges in the early months of 2008. When Governor Patrick signed the fiscal year 2009 budget into law in July, he signed into law changes to the corporate tax code that closed a series of tax loopholes that had allowed some large multi-state corporations to avoid paying their fair share. In addition, he issued a management plan that included $122.5 million in vetoes, shared responsibility health care solutions and a request for expanded budget cutting authority. The Governor also implemented cost-savings measures across agencies through spending and hiring controls and the suspension of merit pay raises. Additionally, he put in place a no-new-net hires policy that requires state agencies to continue to provide the same level of services without adding employees to the overall total.
As the housing crisis continued and the stock market began to collapse, the depth of our economic challenges became more apparent. Economists indicated to the Administration that capital gains taxes were likely to fall by 30 percent, while sales and corporate/business taxes would also begin a substantial slide. Later forecasts would indicate that capital gains taxes were more likely to fall by 48 percent.
The fiscal year 2009 General Appropriation Act was predicated on a tax forecast of $21.402 billion. On October 15, 2008, the Governor revised that forecast downward to $20.302 billion and implemented a fiscal action plan to close a $1.4 billion budget gap. The centerpiece of that package was $1.053 billion in cuts and spending controls. Additionally, the Governor sought additional reforms to improve the state's long-term fiscal health, specifically directing the Secretary of Transportation to prepare legislation to dismantle the Turnpike Authority and merge the remaining transportation agencies. He also called for an administration-wide effort to consolidate departments and agencies and their offices and to develop means of delivering state services with the quasi-public agencies in a more efficient and coordinated fashion. The Administration also began working to develop a legislative proposal to reform the state pension system and the Massachusetts Bay Transportation Authority (MBTA) pension system.
The Administration has continued to make investments in our economy to support immediate and long-term job creation and growth. Work continues on an accelerated bridge program to repair structurally deficient bridges that both addresses a critical public safety issue and creates jobs. The Administration also completed its second five-year capital plan that makes much-needed investments in our schools, environment and other facilities. The Governor has readied the Commonwealth to receive federal economic stimulus funds by identifying projects Commonwealth-wide that can be initiated within 180 days of the President signing a stimulus package.
Since October, however, the Massachusetts economy has further deteriorated and is expected to contract during the last three quarters of fiscal year 2009, as a result of the unfolding national recession. On January 15, 2009 the Secretary of Administration and Finance informed the Governor and the Legislature that the Commonwealth will face a further decline in revenues and anticipated spending exposures, resulting in a new gap of $1.1 billion. The Governor has proposed to close this gap using $533 million in anticipated federal stimulus funds and $191 million in additional budget cuts. While the Governor was able to spare Local Aid during his first round of mid-year cuts, a second round of cuts, including in Local Aid, will be necessary to ensure that the fiscal year 2009 budget is in balance.
| ($1.4 Billion) | ($1.1 Billion) | Total For Fiscal Year 2009 ($2.5 Billion) |
|
|---|---|---|---|
| Spending Cuts and Controls: | $ 1,053 | $ 191 | $ 1,244 |
| Governor's Budget Cuts | $ 755 | $ 191 | $ 946 |
| Governor's Spending Controls | $ 146 | $ 146 | |
| Voluntary Cuts | $ 52 | $ 52 | |
| Pension Savings | $ 100 | $ 100 | |
| Addition Revenue: | $ 168 | $ 50 | $ 218 |
| New Federal Funds | $ 55 | $ 55 | |
| DOR Tax Settlements | $ 100 | $ 25 | $ 125 |
| Eliminate Sales Tax Exemptions | $ 25 | $ 25 | |
| Telecom Loophole Repeal | $ 13 | $ 13 | |
| Stabilization Fund: | $ 200 | $ 327 | $ 527 |
| Federal Recovery Aid: | $ 533 | $ 533 | |
| Total Solutions: | $ 1,421 | $ 1,101 | $ 2,522 |
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