DESPITE RISE IN TAX RECEIPTS, STATE’S FIXED COSTS MEAN MORE SPENDING CUTS

By Kyle Cheney
STATE HOUSE NEWS SERVICE

STATE HOUSE, BOSTON, JAN. 12, 2012

Massachusetts residents should brace for another year of program cuts and elimination of services, Gov. Deval Patrick’s top budget adviser warned Thursday, citing the growth of budget-busting accounts that he said will be the target of a new round of reforms.

Even with revenue forecasters expecting a $940 million uptick in tax collections in the upcoming budget year, spending on fixed costs in several major areas – Medicaid services for low-income and disabled residents, debt service, public pensions and collective bargaining agreements – are on track to easily swallow up those revenues and much more, said Jay Gonzalez, secretary of administration and finance.

“It’s heading in the right direction but we still have a ways to go to dig ourselves out of the hole of the recession,” Gonzalez said in a phone interview. “We’ve got some serious budget challenges.”

Gonzalez said the fixed costs, if left unchecked, would grow by $1.6 billion in fiscal 2013, the budget year that begins on July 1, outpacing tax growth by more than $600 million and cutting into revenues for other services. As a result, he said, the Patrick administration plans to unveil a raft of reforms to keep those costs in check. The rest of state government, he said, would see an overall reduction in spending, with limited increases and “many, many” programs level-funded, some slashed, and others eliminated altogether.

“We’re going to try to do more creative cost control things … to try to deliver government services more efficiently and effectively,” he said.

Gonzalez declined to estimate the gap between expected spending and revenues, arguing that he’d prefer to focus on ways the Patrick administration plans to change state government operations.

In a separate interview, Sen. Stephen Brewer (D-Barre) estimated the budget gap would fall between $800 million and $900 million, a lower estimate than in recent years.

“We have certain exposures and an economy that still remains sluggish. Human services needs continue to grow at a rapid rate, health care needs continue to grow at a rapid rate,” Brewer told reporters outside a Senate caucus. “We are making significant progress. But we still have a ways to go.”

Brewer cited the cost of fuel and the potential for snow and ice removal costs as variables in the size of the budget gap.

Gonzalez said the governor’s budget, due for release on Jan. 25, would include “what we believe to be appropriate, responsible onetime resources” and “modest” revenue increases, although he declined to offer specifics. He said he has warded off demands from interest groups seeking funding increases.

“What I tell all of them is, their expectations are out of line with our budget reality and our new fiscal reality,” he said.

Gonzalez’s remarks indicate that discretionary programs – from environmental protection initiatives to human services and local aid for cities and towns – which have absorbed an onslaught of budget cuts in recent years, will face stiff competition to fend off budget reductions and reverse years of cuts.

In part, budget writers’ hands are tied by a fiscal formula that prioritizes safety net spending, as well as automatic funding for “off-budget” transportation, infrastructure and pension programs.

Although state officials are anticipating a 4.5 percent bump in tax collections beginning July 1 – projecting a $21.95 billion take in fiscal 2013 – more than $3 billion is already marked for the MBTA, school building assistance, public employee pensions and a workforce training program.

A tax revenue estimate released Thursday by state budget writers concluded that state law requires $1.55 billion in fiscal 2013 spending on public pensions, a $768.8 million appropriation for the MBTA, a $689.4 million expenditure on school building, and a $20.2 million infusion for a workforce training fund.

Those carve-outs leave $18.8 billion in tax revenues remaining for the rest of the budget.

Spending on Medicaid – health programs for about 1.3 million poor, elderly and disabled residents – typically consumes billions of dollars in tax revenue, and servicing the state’s debt also requires about $2 billion. Another $1 billion expense is likely for Commonwealth Care, a health insurance exchange that connects low-income residents to heavily subsidized plans.

In addition, state officials are bracing for potentially devastating cuts in federal funding over the next decade, increasing pressure to backfill the cost of programs like heating assistance for low-income residents.

[Matt Murphy contributed reporting.]