This brief frames the final FY 2016 budget shortfall and takes a closer look at some of the factors that created the gap. It will also preview some of the solutions likely to be used to close the gap and outline possible implications for FY 2017.
"Theoretically, with low interest rates, sure it's a good time to borrow in a vacuum," Andrew Bagley, vice president for policy and research at MTF, told the News Service. "But we're up against the debt limit, we have an operating budget from which we just had to carve out $650 million in FY16, there are concerns about whether revenues will show up and we have debt service costs that go up every year." At $2.64 billion, the fiscal 2017 debt service allocation is up $640 million -- or 30 percent -- over fiscal 2008, according to MTF. "It's a hard time to argue that we really should be borrowing more, even though we sure do have enormous capital needs," Bagley said.
A month into fiscal 2017, some economists are keeping an eye out for signs of a funding crisis like the one that hit Massachusetts this past spring. “We will monitor to see if some sort of trend is developing,” said Andy Bagley, vice president of policy and research for the nonprofit Massachusetts Taxpayers Foundation.
The bill now sits in the Joint Committee on Telecommunications, Utilities and Energy, which continues to hear testimony from scores of witnesses on all sides of the issue, from National Grid to Massachusetts Taxpayers Foundation and dozens of renewable energy proponents
The Massachusetts Taxpayers Foundation has projected a gap between available revenues and maintenance spending in fiscal 2017 of between $795 million and $1.05 billion. The business-backed budget watchdog group had projected more modest 3.8 percent revenue growth at the hearing in December.
The Massachusetts Taxpayers Foundation noted the cuts announced Friday were the first emergency budget cuts since 2001 triggered by downgrade in non-tax revenues as tax revenues were actually being upgraded. "While today's plan addresses $104.9 million of the administration's estimated FY 2016 budget gap, fiscal challenges remain. Outstanding spending obligations in areas such as the Committee for Public Counsel Services, Emergency Assistance and MassHealth coupled with savings shortfalls from Retirement Program are among the exposures that present ongoing budget challenges," the group wrote in its analysis of the spending cuts.
But the Massachusetts Taxpayers Foundation, a business-backed watchdog, warned that even with the total $104.9 million budget-tightening plan, challenges remain, thanks in part to signs that Baker’s early retirement plan hasn’t reaped all the savings he’d hoped for. MTF also called the cuts “unique,” given tax revenues are actually exceeding expectations by $113 million. But roughly $205 million in the budget gap is tied to shortfalls in non-tax revenue, said Secretary of Administration and Finance Kristen Lepore, while another chunk comes from expenses such as private attorney costs, human service caseload “exposures” and settlement money.
Mid-year budget cuts are common, as projections of revenue and spending are tracked and revised throughout the year. According to the Massachusetts Taxpayers Foundation, which tracks government spending, there have been seven instances of mid-year budget cuts since fiscal year 2002.