High debt weakens state fiscal standing, report finds

“Revenues are not supporting the choices being made,” says author

THE MASSACHUSETTS ECONOMY continues to purr, but ongoing fiscal stresses have left the Bay State among the bottom dwellers in a new set of state fiscal health rankings.

Massachusetts placed 48th out of the 50 states for its structural budget deficits, long-term debt, and unfunded pension liabilities in fiscal 2013, according to a new study by the Mercatus Center, a research center based at George Mason University.

States with similar fiscal problems rounded out the bottom five: New York came in 46; Connecticut, 47; New Jersey, 49; and Illinois, 50. The two best-positioned states in the report, Alaska and North Dakota, owed their strong fiscal position to oil revenues, while Florida, which ranked fifth, had high revenue collections from all sources, including its sales tax, the Sunshine State’s main revenue generator.

Fiscal health of states - Mercatus Center reportKoch Industries funds the Mercatus Center, which bills itself as “the world’s premier university source for market-oriented ideas.”

Eileen Norcross, the center’s senior research fellow and author of the report, said pension and health care obligations in Massachusetts, along with debt in the transportation and school building sectors, are major contributors to the state’s fiscal condition. “Massachusetts is taking on debt to pay for debt,” Norcross said. “That’s where states at the bottom break away from the rest.”

Massachusetts got through the recession better than most states and is currently “sound,” said Eileen McAnneny, president of the Massachusetts Taxpayers Foundation. “There’s job growth, there’s investment, and a building boom in downtown Boston,” she said. “But when you look at the debt we are carrying…it’s something that we need to focus on as a Commonwealth.”

Michael Goodman, executive director of the Public Policy Center at the University of Massachusetts Dartmouth, said the report raises “a legitimate issue about the sheer scale of the state’s debt” and longer term issues like pensions and health care obligations. Massachusetts has one of the highest rates of outstanding debt per capita in the US.

But Goodman said that the state’s fiscal health is nowhere near as poor as the report claims. “When they…say we’re 48th, it makes it look like Massachusetts is teetering on some sort of fiscal crisis, which I don’t think is at all consistent with any of the facts on the ground,” he said.

Goodman said that Massachusetts has a diversified economy that relies on many more streams of revenue than a state like Alaska, which is highly dependent on its oil revenues. Plus, the Bay State has an excellent credit rating and high personal income levels, he said. “Massachusetts is extremely well-positioned vis-à-vis other states,” Goodman said. “I would not trade places with Alaska.”

In the middle of the 2013 fiscal year, then-Gov. Deval Patrick used $550 million from the rainy day fund to compensate for a mid-year budget shortfall. The fund has dwindled from $1.6 billion in 2012 to $1.1 billion today.

“If you are in a structural deficit situation for a long time and you don’t have a lot of cash lying around, you have to go back and look at the budget and how lawmakers are making choices,” Norcross said. “The revenues are not supporting the choices being made.”

Meet the Author

Gabrielle Gurley

Senior Associate Editor, CommonWealth

About Gabrielle Gurley

Gabrielle covers several beats, including mass transit, municipal government, child welfare, and energy and the environment. Her recent articles have explored municipal hiring practices in Pittsfield, public defender pay, and medical marijuana, and she has won several national journalism awards for her work. Prior to coming to CommonWealth in 2005, Gabrielle wrote for the State House News Service, The Boston Globe, and other publications. She launched her media career in broadcast journalism with C-SPAN in Washington, DC. The Philadelphia native holds degrees from Boston College and Georgetown University.

About Gabrielle Gurley

Gabrielle covers several beats, including mass transit, municipal government, child welfare, and energy and the environment. Her recent articles have explored municipal hiring practices in Pittsfield, public defender pay, and medical marijuana, and she has won several national journalism awards for her work. Prior to coming to CommonWealth in 2005, Gabrielle wrote for the State House News Service, The Boston Globe, and other publications. She launched her media career in broadcast journalism with C-SPAN in Washington, DC. The Philadelphia native holds degrees from Boston College and Georgetown University.

Gov. Charlie Baker said the 2016 budget he signed last week closes a $1.8 billion structural deficit he inherited. The state could offset debt by raising taxes, but that’s a political decision that Baker and legislative leaders, on the House side at least, seem unwilling to make.

“Gov. Baker is committed to getting the Commonwealth’s fiscal house in order, starting with balancing our budget and reining in the deficits we inherited to invest in critical priorities like public education, transportation and the Department of Children and Families without raising taxes on the people of Massachusetts,” Baker spokesman Billy Pittman said in a statement.