State makes plans for revenue falloff

State House News Service

In the face of economic risksand uncertainty three months into the fiscal year, the Patrick administration is capping full-time equivalent employees at current levels and taking other immediate steps to control spending.

The hiring cap, which may be waived by the Executive Office of Administration and Finance, is intended to help state government prepare for a potential shortfall in tax revenues, a possible income tax reduction in January, and the possibility of a recession that could be triggered by federal spending cuts and tax hikes in 2013.

“We’re tightening spending controls right now and embarking on a contingency planning process,” Administration and Finance Secretary Jay Gonzalez, Gov. Deval Patrick’s budget chief, told the News Service in an interview.

In a letter to lawmakers Monday, Gonzalez said he was opting against a downward revision in the estimate of revenue available to support the $32.5 billion fiscal 2013 budget, but was also requiring agencies to come up with budget-cutting options should they be needed.

Tax receipts over the first quarter of the fiscal year are flat compared to the same period in fiscal 2012 and are running about $100 million below budget benchmarks. Gonzalez identified tax collections as representing a potential risk that could eventually require a downward revision of the revenue estimate sometime this year.

In addition to tax receipts, Gonzalez noted that existing growth-related statutory triggers could cause the 5.25 percent income tax rate to be reduced to 5.2 percent on Jan. 1, 2013, a tax cut that the Department of Revenue estimates would cut into collections over the second half of fiscal 2013 by $57 million.

“Lastly, if the federal government fails to address the so-called ‘fiscal cliff’ caused by the expiration of certain federal tax cuts and automatic federal budget cuts, economists believe it would likely result in another economic recession which would adversely impact state revenue collections,” Gonzalez wrote in his letter.

The administration is working on an estimate of the impact to state government of the federal tax hikes and spending cuts scheduled to occur without Congressional intervention, Gonzalez said.

In addition to the hiring cap, Gonzalez said the administration planned to immediately restrict cash allotments “to the greatest extent permitted by law” and to limit “agency flexibility to spend funds for purposes not previously planned and approved.”

Gonzalez contrasted the hiring cap with a strict hiring freeze, a move that he said would mean no new hiring. Under the hiring cap, agencies won’t be able to hire above current full-time equivalent levels but could fill some positions should they become vacant. “The default will be no increase in FTEs above today,” he said.

Gonzalez noted in his letter that his decision to stick with the revenue estimate was based on his assumption that the costs state agencies incur while addressing problems stemming from the state drug lab will be covered by appropriations backed by state rainy day fund revenues or other one-time resources.

State, municipal, and county officials are grappling with the significant legal and public safety fallout associated with botched state drug lab analyses by former chemist Annie Dookhan.

Gonzalez declined to offer a fiscal 2014 revenue estimate. Revenue estimate hearings are scheduled for December. Jan. 15, 2013 is the next date that Gonzalez is required to certify the state’s revenues.