On budget planning, be cautious

Be conservative on spending because winter is coming

THE MASSACHUSETTS LEGISLATURE’S House Ways and Means Committee will unveil on Wednesday its budget proposal for state fiscal year 2020, which begins on July 1. Their budget document will describe proposals to allocate more than $46 billion in spending for such things as health care benefits for nearly 2 million Massachusetts residents, the opioid epidemic, snow removal from highways next winter, and a vast array of other programs and projects throughout the state. Before deliberations begin, I offer three reasons to err on the side of caution when it comes to spending.

First and foremost, it is easier to increase spending mid-year than cut it. In two of the past three years, however, decision makers were forced to implement midyear spending cuts and take other actions to end the year in balance. Despite the relatively little attention paid to these steps, everyone can agree they are a lousy way to manage the state’s finances. The House debate, and later the Senate, should be guided by the principle that programmatic spending must be sound, supported by adequate revenues, and sustainable. Doing so can avoid making harmful cuts later in the year.

For example, in 2016, a combination of over-budget spending and a tax revenue shortfall of $481 million required cuts to MassHealth, and other programs. The shortfall also forced budget managers to undertake a series of steps to balance the budget, including more than $100 million in reductions to grants to municipalities and the State Police among other items. Additionally, millions of dollars in revenue earmarked for other purposes, such as $60 million designated for the Boston Convention & Exhibition Center, was diverted to support general spending. The situation repeated in 2017, with similar steps taken to close the gap, such as shifting $15 million away from the Department of Transportation and nearly $12 million from the Department of Developmental Services, which provides support to individuals with intellectual and developmental disabilities.

The impact of these actions does not end with the fiscal year. Forcing state agencies to make abrupt changes such as leaving important positions unfilled or deferring maintenance make it more difficult to reliably provide the services expected by residents in the future.

Budgeting by crisis management also means that the Commonwealth loses the ability to sock away money in the state’s rainy-day fund, as every extra penny goes to closing gaps. As a result, though spending increased by a total of $3 billion over the FY16-FY17 period, the state’s stabilization fund grew by just $48 million. While the stabilization fund balance has grown sizably in recent years, a healthier balance will be necessary to withstand the inevitable economic downturn when it arrives, or else Massachusetts will be less prepared, likely requiring more draconian cuts to be made in the future.

Finally, Gov. Charlie Baker offered his fiscal 2020 budget proposal back in January. As highlighted in MTF’s recent analysis, his plan relies on a several significant assumptions that may not hold true, such as the passage or implementation of more than $100 million in tax revenue initiatives, advancing certain MassHealth payments to health care providers into the current fiscal year from FY20, and, most fundamentally, the continuation of an economic cycle that in July will be longer than any other since the end of World War II. If any of these assumptions do not hold, after a brief respite in fiscal 2018, fiscal managers will again be forced to implement midyear changes to get back in balance.

The seeds of midyear budget cuts are usually sown during the budget development process. Overly-optimistic assumptions about tax revenue or caseload; routinely underfunding costs incurred by sheriffs’ departments, MassHealth, or providing legal aid to the indigent for example; and pursuing policy reforms without clearly articulating the financial costs or identifying the available revenue to support them, as has occurred with criminal justice reform, mean that policymakers set the stage for future fiscal challenges.

Meet the Author

Eileen McAnneny

President, Massachusetts Taxpayers Foundation
As deliberations over the Legislature’s budget proposals begin, it would be wise to proceed using conservative revenue estimates and judicious spending assumptions to avoid having to take unnecessary correctional action later in the fiscal year.  Not only does it make the job of balancing the state’s budget easier, it better positions the Commonwealth for the future.

Eileen McAnneny is the president of the non-partisan Massachusetts Taxpayers Foundation. For more analysis of the FY20 budget, visit MTF’s website.