Save it for a rainy day
Lawmakers at a loss over
budget surplus
By TOM BENNER
Patriot Ledger State House Bureau
When Thomas Finneran became the
House of Representatives’ top budget writer in 1991, he faced the state’s worst
economy since the Great Depression. The “Massachusetts Miracle” had become a joke as the state borrowed hundreds of millions of dollars to pay day-to-day
expenses and saw its credit rating fall to near-junk bond status.
“It was a complete disaster, unlike anything I had ever experienced, frightening to the point literally of tears on my second or third day on the job,” said Finneran, a Mattapan Democrat. “I didn’t cry in front of anybody but my wife, but I cried. I was scared stiff.”
Finneran and other state officials trimmed about $850 million from a $12 billion budget, making painful cuts and layoffs.
As the state slowly climbed out of that recession, Finneran urged his colleagues to set aside money in a rainy day account. The idea wasn’t wildly popular with legislators who wanted to spend whatever money was on hand.
“We’re classic short-term people,” Finneran said. “We think month to month, year to year. Long-term thinking around here is two years.”
But over seven years, largely thanks to Finneran’s prodding, a $2.3 billion nest egg was set aside.
Now, as House speaker, Finneran is facing another battle as he squares off against Republican Gov. Mitt Romney over the rainy day fund.
Both agree on restoring some of the $3 billion in cuts that have hit towns, schools and health services. But Finneran wants to replenish the state’s rainy day account, which has been nearly wiped out during the state’s economic downturn. Meanwhile, Romney favors a less aggressive savings plan, and instead wants a tax cut.
GRAPHIC |
Massachusetts tax burden  |
The debate over whether it’s too early to lower taxes is expected to dominate this fall’s legislative elections, as well as next year’s budget debate.
For now, many others on Beacon Hill are siding with Finneran.
“You can’t go from a crisis to ‘let’s give a tax break,’ ” said state Sen. Therese Murray, a Plymouth Democrat and the Senate’s top budget writer. “Is there the ability down the road to revisit going back to (a 5 percent income tax)? I think so, but not yet.”
Murray adds that another tax break will kick in on Jan. 1, when rising tax revenues trigger an automatic increase in the personal exemption amounts for individuals and married couples. The trigger provision was included in a $1.2 billion tax package passed in 2002 and intended to provide relief to taxpayers once state collections improved.
State Treasurer Timothy Cahill also said he’ll breathe easier after the state replenishes its rainy day account.
“It’s very difficult to build up those reserves, because there is a lot of political pressure to spend it or give it back,” said Cahill, a Quincy Democrat. “The more liberal side says spend more, the more conservative side says if you have a surplus, give it back. Neither one of those is the most responsible way to go.”
Cahill said he’d like the state to keep in reserve roughly 5 percent of its budget, or about $1.2 billion. He also thinks cities and towns deserve a boost in state aid.
“Before we look at cutting taxes at the state level, we should look at fulfilling our obligations,” Cahill said. “Because all the 20 percent cut did was force local governments to raise taxes. Our job is not to strip the cupboard bare here and force local communications to raise taxes, because it’s coming from the same taxpayer.”
But the Romney administration argues that with revenues up, the state must make good on a 2000 referendum in which voters endorsed a cut in the state income tax to 5 percent. Reducing the income tax from 5.3 percent to 5 percent would save the average taxpayer about $100, but cost the state between $400 million and $450 million in yearly revenue.
Massachusetts has collected $495 million more than anticipated so far in the current fiscal year, which ends June 30, and $787 million more than during fiscal 2003, when the state was still in an economic downturn.
Eric Kriss, Romney’s top budget aide, argues that the state can afford to both put money back into the rainy day account and cut the income tax rate.
“One should not take one’s strength to excess so that it becomes a weakness, and build up willy-nilly a stabilization fund for the mere sake of doing so,” Kriss said.
He argues that state revenue increases should be used for a combination of capital spending, replenishing the rainy day fund, and cutting taxes.
Kriss adds that when the state was pulling out of its recession in the early 1990s, it took a few years before the state began putting substantial amounts back into its rainy day fund.
“The logic of not reducing taxes was because of the fiscal emergency in 2002,” Kriss said. “That is over, we can afford to roll it back, and that’s what the voters wanted.”
Tom Benner may be reached via email by clicking here.
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