Baker, Patrick administrations play blame game

THE BAKER AND PATRICK ADMINISTRATIONS are pointing the finger at each other in the wake of a bond rating agency’s decision to change its financial outlook for Massachusetts from stable to negative.

Standard & Poor’s said on Monday it was maintaining the state’s bond rating at AA+, but changing its longer-term outlook to negative because of the state’s penchant for using money from the rainy day fund in good economic times to pay for higher levels of spending.

In a statement issued Monday night, Kristin Lepore, Baker’s secretary of administration and finance, said the governor is committed to bringing spending in line with revenue and building up the rainy day, or stabilization, fund. “We have made significant progress in each area, but we have always acknowledged that this requires a multi-year fix to overcome issues we inherited,” Lepore said, a reference to the Patrick administration and the Legislature.

Alec Loftus, a former Patrick administration spokesman, issued a statement late Monday night suggesting the fault lies more with Baker. “Massachusetts bond ratings reached the highest levels in history and our rainy day fund was bigger than nearly every other state’s during the Patrick-Murray Administration, even in the midst of the Great Recession,” Loftus said. “Hopefully the Commonwealth’s credit rating is not downgraded by Wall Street as a result of decisions made after governor Patrick left office.”

The Massachusetts Democratic Party echoed Loftus’s statement Tuesday morning, saying Baker and Lepore “are entitled to their own opinions but they are not entitled to their own facts. And here are the facts: Massachusetts bond ratings reached the highest levels in history and our rainy day fund was bigger than nearly every other state’s during the Patrick-Murray administration, even in the midst of the Great Recession. Like their decisions on the MBTA budget and plans and their decisions on the state’s solar and clean energy future, the Baker administration, having filed its first budget, now owns the bond ratings and the jobs outlook, both of which were in very good shape over the past several years.”

The verbal sparring reflects efforts by surrogates for the two governors to burnish the image of chief executives who pride themselves on fiscal prudence, which is often reflected by a bond rating that is rising and not falling. Baker’s surrogates say he is cleaning up a budget mess left him by his predecessor, while Patrick’s surrogates say their boss left the state in good shape financially.

State financial records indicate the state’s budget rating did rise to its current level under Patrick and the rainy day fund was well managed during and immediately after the Great Recession, but those same records indicate the problems that caused Standard & Poor’s to downgrade its outlook for Massachusetts first surfaced under Patrick.

“Our negative outlook reflects a projected decline in financial reserves in fiscal 2016 from currently adequate levels, despite a prolonged period of economic expansion and generally positive revenue trends, and which follows previous drawdowns that occurred in 2013 and 2014,” Standard & Poor’s said.

According to a report issued earlier this month by the Massachusetts Taxpayers Foundation, the state budget over the last three years was balanced with a total of $2.2 billion in transfers or diversions from the stabilization fund, causing a $403 million, or 25 percent, reduction in the fund’s overall balance. The fund’s decline came at a time when the state economy was adding 265,000 jobs and the unemployment rate was falling from 7.2 percent to 4.6 percent, its lowest level in a decade, the foundation said.

Patrick was governor in fiscal years 2013 and 2014, when he and state lawmakers withdrew or diverted from the state’s rainy day fund nearly $1.4 billion. In 2015, a year split between the Baker and Patrick administrations, another $855 million was withdrawn or diverted from the rainy day fund, much of it by Baker, who said the money was needed to cover a budget shortfall that turned out to be less severe than he originally forecasted.

For fiscal 2016, Baker and state lawmakers approved a budget that calls for the diversion of another $300 million from the rainy day fund to help balance the budget. The Baker administration says the $300 million is part of $629 million in one-time revenue sources being used to balance the fiscal 2016 budget. In fiscal 2015, $1.2 billion in one-time revenue sources was used to balance the budget.

In a report summing up fiscal 2015, the state comptroller estimated Massachusetts would end the year with the eighth largest rainy day fund in the country. As a percentage of general fund expenditures, Massachusetts was well above the median level of other states in 2011, 2012, and 2013, but below in 2014 and 2015. In 2015, the rainy day fund in Massachusetts was 3.5 percent of general fund expenditures, compared to the median for all other states at 4.4 percent.

The Baker administration is currently projecting a budget shortfall for fiscal 2016 of somewhere between $200 million and $300 million. The shortfall is caused by many factors, everything from underfunded accounts for public defenders to lower-than-expected tax revenues from the Plainville casino ($64 million instead of $105 million).

The administration hasn’t taken any action yet on the shortfall, in part because state tax revenues are currently running ahead of forecasts. But if the situation deteriorates and the administration is forced to once again take money out of the rainy day fund to balance the budget, Standard & Poor’s signaled that the state’s bond rating will probably fall.

“Reduction of reserves could contribute to a lower rating over the two-year outlook horizon if we feel that financial flexibility is impaired, especially in light of relatively high fixed costs related to debt and retirement funding,” Standard & Poor’s said.